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Home Markets Stock Market

Understanding State Gas Taxes: How They Impact Your Wallet – NerdWallet

Taryn Phaneuf by Taryn Phaneuf
September 30, 2024
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Understanding State Gas Taxes: How They Impact Your Wallet – NerdWallet
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How much drivers pay at the gas pump — averaging $3.22 per gallon in September — depends largely on the price of oil and the cost of refining it. But federal, state and local taxes and fees can add significantly to the total.

On top of a federal tax of 18.4 cents per gallon, most states levy multiple taxes and fees on a gallon of gas. Those include some combination of excise taxes (imposed on goods, services and activities), sales taxes, environmental taxes and inspection fees.

Those costs add up to an average of 32.6 cents per gallon in state taxes, according to a NerdWallet analysis of U.S. Energy Information Administration data. Combined with the federal tax, that’s about 51 cents per gallon, on average, factored into the gas prices you see at your local station.

States with the highest gas tax

State tax rates vary widely. California’s rate (69.8 cents per gallon) and Illinois’s rate (67.1 cents) are highest, followed by Pennsylvania (58.7 cents). Alaska has, by far, the lowest state tax (9 cents per gallon), followed by Mississippi (18.4 cents) and Hawaii (18.5 cents).

2024 state gas tax hikes

In many cases, gas taxes are adjusted annually based on the consumer price index, a proxy for inflation calculated by the U.S. Bureau of Labor Statistics. That means taxes may rise (or fall) with the annual rate of inflation. Sometimes states also phase in new or higher fees by increasing them incrementally.

As for what happens with that tax revenue, states often use it to fund infrastructure improvements and environmental initiatives.

Oct. 1 gas tax hike

Washington D.C.’s motor fuel surcharge will tick up slightly from 11.4 cents per gallon to 11.8 cents per gallon on Oct. 1, according to the D.C. Office of Tax and Revenue. That fee is added to the district’s 23.5-cent sales tax on gasoline. Altogether, drivers pay 35.3 cents per gallon in state taxes when they fill up.

July 1 gas tax hikes

California’s excise tax on gas rose from 57.9 cents per gallon to 59.6 cents per gallon, according to the California Department of Tax and Fee Administration. When other state taxes and fees are taken into account, the state tax on a gallon of fuel in California rose from about 68 cents to about 70 cents.

Colorado’s road usage fee increased from 3 cents per gallon to 4 cents per gallon, according to the Colorado Department of Revenue. Additionally, an environmental fee increased from 0.6 cents per gallon to about 1.3 cents per gallon. Those fees are on top of a 22-cent gas tax. Altogether, the state tax on gas increased from about 26 cents per gallon to about 28 cents per gallon.

Conclusion:

As gas prices fluctuate based on oil prices and refining costs, it’s important to be aware of the additional taxes and fees that contribute to the final price at the pump. State taxes can vary significantly, with some states having much higher gas tax rates than others. It’s also interesting to note how these taxes are adjusted annually, impacting consumers directly. While these taxes are meant to fund infrastructure and environmental projects, they can have a significant impact on the cost of driving for consumers.

If you’re interested in staying up to date with more trending news articles like this, be sure to check out DeFi Daily News.



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Tags: GasImpactNerdWalletStateTaxesUnderstandingWallet
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