Gas Prices: What You Don’t Know

With tax season upon us, it’s important to remember that there’s more to taxes than just income tax. State motor fuel taxes, for example, can have a significant impact on our daily lives by adding to the price we pay at the pump. These taxes vary widely by state and generate revenue for state governments. In this blog post, we’ll explore state motor fuel taxes and their revenue generation. Join us as we dive into the world of state motor fuel taxes and uncover their role in our daily lives. As we approached April 15, 2023 where we file our taxes for 2022. We felt it would be appropriate to discuss taxes. Let’s talk about the tax that hits our combustible tanks or goods we purchase as suppliers pass on this tax.

State Tax Revenue and Volume Taxes

According to data from the Federal Highway Administration, state motor fuel taxes generated over $50 billion in revenue in 2019 alone. However, the COVID-19 pandemic had a significant impact on fuel consumption and therefore motor fuel tax revenue, with many states seeing a decline in collections in 2020. Additionally, long-term trends such as increasing fuel efficiency of vehicles and the adoption of alternative fuel vehicles are expected to further decrease revenue from motor fuel taxes in the future.

The chart shows an increase in gallons taxed over time, with revenues exceeding 51 billion dollars in 2021. While the blue line indicates a drop in fuel volume consumed in 2020, the orange line shows that the revenue generated from motor fuel taxes remained stable and did not decrease significantly

The COVID-19 pandemic had a significant impact on the motor fuel tax revenue collected by states. As many people stayed home and traveled less, there was a sharp decrease in the number of motor fuel gallons taxed, leading to a drop in revenue for states. Interestingly, despite the decrease in the number of taxed gallons, the average tax rate increased to over 28 cents per gallon, indicating that states were looking to offset the decrease in revenue by increasing the tax rate. While the tax rate has decreased in 2021 and lower consumption, overall tax revenue is higher than pre-COVID levels, demonstrating the recession-proof nature of motor fuel taxes.

The chart displays bars that represent the gallons of motor fuel consumed over time, with a consistent increase in consumption. However, in 2020, there was a notable drop in fuel volume consumed, as seen in the chart. Nevertheless, the orange line representing the national average tax rate for motor fuel increased, resulting in stable revenue generated from motor fuel taxes. Source Link

This shift towards increasing the tax rate rather than the volume of taxed gallons highlights the importance of motor fuel taxes for state governments. Motor fuel taxes are a reliable source of revenue for states, as they are not dependent on fluctuations in the stock market or other economic factors. As such, they have become an increasingly popular revenue source for states, particularly those looking to fund infrastructure projects like road repairs and public transportation initiatives.

It’s also worth noting that the revenue generated by motor fuel taxes varies widely by state. Some states have higher tax rates and generate more revenue, while others have lower rates and generate less. Understanding the nuances of state motor fuel taxes can be helpful for both consumers and policymakers, as it can inform decisions around transportation, infrastructure funding, and even environmental policy.

In the next section, we’ll take a closer look at some of the state-by-state variations in motor fuel taxes and explore the reasons behind these differences

State Tax per Motor Fuel Gallon

While the COVID-19 pandemic had a significant impact on motor fuel tax revenue, it’s worth noting that state motor fuel taxes vary widely and can have a significant impact on the price we pay at the pump. To get a better sense of these variations, we looked at the most recent Highway Statistics report from the Federal Highway Administration and calculated the average net adjusted state motor fuel tax receipts divided by the net motor fuel gallons taxed. The results showed that the average state motor fuel tax revenue collected per gallon of gasoline was around 28 cents, with some states collecting as much as 40 cents per gallon, while others collected less than 15 cents per gallon. These variations in state motor fuel taxes can have a significant impact on the overall price we pay for gasoline and diesel fuel, and it’s worth understanding how they differ from state to state.

Below is the average amount of state motor fuel tax per gallon of fuel, presented in cents. While these numbers may seem small, they add up quickly when we consider that state tax on motor fuel in 2021 exceeded $50 billion.

Difference in tax rates also apply to different motor fuel types like gasoline or diesel

It’s important to note that different motor fuel types, such as gasoline and diesel, often have different tax rates applied to them. These rates can vary by state or country, depending on factors such as the fuel’s environmental impact, supply and demand, and infrastructure costs. Below are two chart showing the different taxes by motor fuel type.

It’s important to note that different types of motor fuel, such as gasoline and diesel, are often subject to varying tax rates. These rates can vary by state or country, depending on factors such as the fuel’s environmental impact, supply and demand, and infrastructure costs.

To demonstrate this variation, two charts have been included below that illustrate the different tax rates applied to each motor fuel type. These charts can help to provide a clearer understanding of how different fuel types are taxed.

As the world becomes more environmentally conscious and the ESG (environmental, social, and governance) movement continues to grow, states are faced with the challenge of how to fill the budget shortfalls caused by the declining motor fuel tax revenues. This challenge is even more pressing given the projected record US oil production in 2023/2024, as discussed in our previous post “Cracking the Code of the US Oil Market.” Some states are considering increasing taxes on petroleum products to offset the lost revenue, but with the growing popularity of electric and hybrid cars, the ability to tax motor fuels is decreasing, leading to even lower tax revenues. It will be interesting to see how states adapt to this changing landscape in the coming years.

One such example of the potential impact of the ESG movement on motor fuel taxes can be seen in California. Governor Newsom recently called for a windfall tax on the record profits made by oil companies in the state, with the intention of putting that money back into the pockets of Californians. This move comes as part of a larger effort to transition California towards renewable energy sources and reduce its dependence on fossil fuels. The potential for such policies to impact motor fuel taxes and state budgets is clear, and it will be interesting to see how this plays out in the coming years.

Governor Newsom Calls for a Windfall Tax to Put Record Oil Profits Back in Californians’ Pockets

Another headline that highlights the potential impact of the ESG movement on motor fuel taxes is the introduction of legislation to end oil and gas tax subsidies by Representative Earl Blumenauer. The legislation aims to eliminate tax breaks and other incentives for the oil and gas industry, which could have a significant impact on the revenue generated by motor fuel taxes. With the continued growth of the ESG movement and increasing focus on reducing carbon emissions, it remains to be seen how states will address the potential budget shortfalls from the decline in motor fuel tax revenue.

Blumenauer Introduces Legislation to End Oil and Gas Tax Subsidies

Another headline illustrating the impact of the ESG movement on motor fuel taxes is the recent announcement by Governor Hochul of New York. She unveiled a new program called “Cap-and-Invest” which aims to reduce greenhouse gas emissions and combat climate change by capping carbon emissions from fuel distributors and requiring them to purchase allowances for each ton of carbon they emit. This program effectively puts a price on carbon emissions and is expected to generate significant revenue for the state while also promoting the transition to cleaner forms of energy.

Governor Hochul Unveils Cap-and-Invest Program to Reduce Greenhouse Gas Emissions and Combat Climate Change

However, not all states are following the trend of reducing dependence on petroleum. Some states that heavily rely on petroleum tax revenue are actually taking steps to promote economic growth in this sector. For instance, North Dakota Governor Doug Burgum has called for tax relief, infrastructure investment, and economic growth in 2023, indicating a commitment to supporting the oil industry. This approach highlights the complex nature of balancing economic interests and environmental concerns in the context of motor fuel taxation

Burgum calls for tax relief, infrastructure investment, economic growth in 2023

Overall, these examples demonstrate the ongoing tension between the push for environmental sustainability and the need for states to maintain revenue streams from motor fuel taxes. However, the COVID-19 pandemic has also brought about unexpected changes in motor fuel tax revenue. While initial fears of a steep decline in revenue were tempered by an increase in the average tax rate, the pandemic has also prompted many people to move away from cities and towards suburban or rural areas, resulting in increased driving and higher motor fuel tax revenue in some states. In the next section, we will explore this trend in more detail and discuss how it could impact future tax policy.

High Covid Migration States

During the COVID-19 pandemic, many states experienced a decline in motor fuel tax revenue due to the decrease in the number of taxed gallons. However, some states saw increases in their motor fuel tax receipts despite the pandemic. This could be due in part to the migration patterns that emerged during the pandemic, particularly to states with lower taxes and more affordable living. For instance, according to United States Postal Service data, states such as Idaho, Montana, and Wyoming saw a surge in people moving in during the pandemic. As a result, these states experienced increases in their motor fuel tax receipts, indicating that migration patterns played a role in their higher tax revenue. While the pandemic caused a dip in motor fuel tax revenue for many states, the influx of people to certain states helped to offset the loss and even contribute to a growth in revenue.

Idaho has seen an increase in both tax receipts from motor fuel and motor fuel volume consumption over time.

Montana’s motor fuel tax revenue has remained relatively stable over time, with some fluctuations due to changes in tax rates and motor fuel consumption. Despite having a lower tax rate on motor fuel compared to Idaho, Montana’s overall tax revenue from motor fuel has increased over time.

Wyoming has a relatively low tax rate on motor fuel compared to neighboring states, which may contribute to its lower tax revenue from motor fuel. However, Wyoming’s motor fuel consumption is relatively high, likely due to factors such as its vast geography and heavy reliance on transportation for its economy.

Conclusion

Based on the charts and statistics provided, it is evident that motor fuel tax revenue has been impacted by a variety of factors, including the COVID-19 pandemic and migration patterns. While some states have seen significant declines in motor fuel tax revenue, others have been able to weather the storm and even experience growth. This highlights the importance of understanding the unique factors at play in each state and their impact on tax revenue.

It is also worth noting the potential for motor fuel tax revenue to serve as an indicator of economic growth, particularly in states that have seen an increase in taxable motor fuel after the initial decline. As migration patterns continue to shift and the world adapts to the ongoing effects of the pandemic, it will be interesting to see how motor fuel tax revenue is impacted in the years to come.

Overall, while the road ahead may be uncertain, the data presented in these charts suggests that motor fuel tax revenue will continue to be an important source of revenue for states across the country. By keeping a close eye on trends and adapting to changing circumstances, states can continue to leverage this revenue stream to support their communities and fund critical infrastructure projects.

As you take a break from completing your 2022 taxes, we hope you found our comprehensive analysis of motor fuel tax revenue and volume taxed across the states informative and insightful. The charts provided in our report showcase the differences in motor fuel tax revenue and volume taxed by state, allowing you to see how your state compares to others. If you’re interested in exploring the data further, we’ve included additional charts below for each state. Take a look and see how your state ranks in terms of motor fuel tax revenue and volume taxed.