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EIA Says States Using New Ways to Calculate Fuel Excise Taxes

May 09, 2013

The U.S. Energy Information Administration (EIA) released an analysis of state gasoline taxes in the U.S. The organization said declining gasoline tax revenues, which pay for roads and infrastructure, are leading government entities to create variable rate taxes and other methods of calculating excise taxes for fuel purchases.

EIA stated one reason for declining revenues is due to the larger number of more fuel-efficient vehicles on U.S. roads today than in years past.

Vermont is an example of a state that has enacted a new way of calculating excise taxes. The state adds a variable rate fee, based on the statewide average retail price of gasoline (diesel has a flat rate), to a flat rate excise tax.

In California, the gasoline sales tax is initially levied at the wholesale price level at a prepaid rate (which is based on the average of the selling price of gasoline sold at retail). This number is currently set at 7 cents per gallon for gasoline and 29 cents per gallon for diesel fuel. When the fuel reaches the actual retail fueling station level, the state- and district-level percentage tax rates are applied to the price of fuel sold at retail.

EIA noted Maryland offers another example of variable rates, having enacted them recently. Starting in July 2013, the state will base part of the gasoline tax on the U.S. Consumer Price Index, and it will base a second part of the tax on the average annual retail price for fuel multiplied by a percentage sales tax rate. That sales tax rate’s percentage is set to increase in the years to come, EIA stated.

A state with a different approach to gasoline taxes is Virginia, where legislation recently passed that would eliminate the current motor fuels excise tax, which is currently 17.5 cents per gallon. It would replace the revenue lost from that tax with a 3.5% wholesale tax on gasoline and a 6% tax on diesel fuel, starting July 1, 2013. EIA said that although there is a floor rate, fuel price volatility could create uncertainty for revenue using this method.

In general, according to the EIA, the average amount of tax states add to the price of gasoline is 23.5 cents per gallon, with a high end of 38.2 cents per gallon for California and a low of 8 cents per gallon for Alaska and Georgia.

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