Motor fuel taxes are taxes levied on gasoline, diesel, and gasohol (a mixture of ethanol and unleaded gasoline).
Most states levy per unit taxes based on how many gallons of gasoline a consumer purchases. However, 22 states and the District of Columbia tie at least a portion of their motor fuel tax rate to a variable such as the price of gasoline (wholesale or at the pump), inflation, or another metric (e.g., state population growth).
- How much revenue do state and local governments raise from motor fuel taxes?
- How much do motor fuel tax rates differ across states?
- How have state gas taxes changed over the past few years?
- Further reading
State and local governments collected a combined $52 billion in revenue from motor fuel taxes in 2019, or 1.5 percent of general revenue. (This excludes any revenue collected from general sales taxes levied on motor fuel purchases in addition to the motor fuel tax.) Nearly all motor fuel tax revenue (97 percent) came from state motor fuel taxes in 2019.
States earmark most of their motor fuel tax revenue for transportation spending. In 2019, state and local motor fuel tax revenue accounted for 26 percent of highway and road spending. Toll facilities provided another 10 percent and the remaining 64 percent came from other revenue sources.)
In addition to the 18.4 cents per gallon federal tax on motor fuels, all states and the District of Columbia tax motor fuels. Per gallon gas tax rates range from 8.95 cents in Alaska to 57.6 cents in Pennsylvania. In addition to Alaska, six other states have per gallon gas tax rates below 20 cents: Arizona, Hawaii, Mississippi, Missouri, New Mexico, and Oklahoma. After Pennsylvania, the next-highest per gallon tax rates are in California (56.6 cents), Washington (49.9 cents), New Jersey (42.4 cents), and Illinois (40.3 cents). These rates include any state excise taxes on gas plus any related taxes and fees that the consumer pays at the pump, such as applicable environmental or inspection fees.
Ten states also levy a general sales tax or gross receipts tax on purchases of motor fuel. In California, the (prepaid) general sales tax is included in the state’s per gallon excise tax rate. In the other nine states, the general sales tax or gross receipts tax is levied as a separate tax on the purchase.
State tax rates on gasohol are the same as tax rates on gas in every state except Missouri and South Dakota, where the rates on gasohol are slightly lower. State tax rates on diesel fuel are the same as the tax rates on gas in 23 states and the District of Columbia, higher in 21 states, and lower in six states. For each state's tax rates on gas, diesel, and gasohol see our full table of state motor fuel tax rates.
In most states the gas tax is a per unit tax. That is, the consumer pays tax based on the number of gallons purchased rather than a percentage of the final purchase price. As a result, tax revenue increases only if drivers buy more gasoline or lawmakers raise the tax rate.
During the past two decades, Americans drove fewer miles and purchased more fuel-efficient vehicles. Consequently, aggregate gasoline consumption stagnated.
For most of this period, most states did not respond to a flat or declining tax base with tax rate hikes, and as a result inflation-adjusted state and local motor fuel tax revenue was higher in 2007 ($46.7 billion) than it was in 2014 ($46.2 billion). At the same time, construction costs and demands for transportation project spending continued to increase. Thus, many states faced transportation funding gaps.
As a result, in recent years, many states have made changes to their gas tax. Between 2013 to 2021, 33 states and the District of Columbia enacted legislation that increased their gas tax—but often in different ways.
In fact, states have various options when increasing transportation funding, including:
- Raise the gas tax rate. States can compensate for the decline in gasoline consumption by raising the per gallon tax rate. In 2017, for example, Indiana raised its per gallon rate from 18 cents to 28 cents. Although increasing the rate with legislation is simple, it is often politically difficult.
- Tie the gas tax rate to the price of gasoline. Twelve states and the District of Columbia tie a portion of their gas tax rate to the price of gasoline. This option helps raise revenue when the price of gasoline is high, but it is counterproductive when gasoline prices fall. For example, Kentucky and North Carolina previously tied a large share of their tax rates to gas prices. When gas prices peaked in the early 2010s these states had two of the highest gas tax rates in the country, but when prices dropped their legislatures had to scramble to prevent large revenue losses. In 2015, Kentucky created a new tax rate "floor" and in 2017 North Carolina decided to stop using price in their formula and now instead calculates its gas tax rate based on population and inflation growth. As a result, no state currently ties a large portion of their tax rate to the price of gasoline.
- Tie the gas tax rate to inflation or population. In 2013, Maryland raised its gas tax rate to 27 cents and tied future increases to the consumer price index. As a result, the state’s per gallon tax rate has increased roughly 10 cents since then. The rate will continue to slowly increase as long as consumer prices go up. These automatic rate increases help states maintain gas tax revenue as gas consumption slows. California, the District of Columbia, Florida, Georgia, Illinois, Michigan, North Carolina, Utah, and Virginia also use inflation in their gas tax rate calculations. Some states are also now experimenting with other gas tax rate formulas that would have similar effects. For example, North Carolina uses population growth and Georgia uses fuel-efficiency standards in their rate calculations.
- Use toll roads. States are increasingly using toll roads, charging drivers a fee to use specific roads, to generate revenue for infrastructure projects. State and local governments collected $19.5 billion in toll highway charges in 2019, up from $8.2 billion in 2000 (in 2019 inflation-adjusted dollars). Thus, over that time period, revenue from toll highway charges increased 139 percent while gas tax revenues only increased 14 percent.
- Tax miles traveled instead of gasoline. Oregon and Utah are currently running pilot programs that tax certain drivers' vehicle miles traveled (VMT) instead of gasoline purchased. The US Department of Transportation is also providing funding for additional VMT studies in several other states, and the Infrastructure Investment and Jobs Act created a national motor vehicle per-mile user fee pilot program. The hope is that a VMT tax can provide a more stable tax base as drivers increasingly purchase hybrid and electronic vehicles. However, there are administrative challenges with a VMT tax and governments would still need to set tax rates high enough to produce the desired amount of revenue.
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Reforming State Gas Taxes; How States Are (and Are Not) Addressing an Eroding Tax Base
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