Gas Tax: How is gas taxed in the United States?
Have you ever driven through various states and wondered why the price of gas is so different from state to state? The cost of gas is dependent upon many variables, and some of those variables include both state and federal tax. Unlike other goods sold in the United States, the marked price on the pump is inclusive of tax.
How much is the federal gas tax?
In 2022 the current federal gas tax is 18.4 cents per gallon. If you’re buying diesel fuel, the federal tax per gallon is 24.4 cents. It’s worth noting that other types of fuel are also taxed at the federal level, including aviation fuel (at 19.4 cents per gallon) and jet fuel (at 21.9 cents per gallon).
How is the federal gas tax used?
When the federal government collects tax on fuel, that revenue is used to fund transportation projects, such as rebuilding highways and other infrastructure. It may also be used for transit projects and federal transportation programs. The money raised from aviation and fuel federal taxes is used to fund operations by the Federal Aviation Administration.
State tax rates
In addition to the federal gas tax, each state charges its own tax on fuel. This tax varies by state and varies between regular gasoline and diesel fuel. Many states exempt gasoline from sales tax (there are exceptions, such as Connecticut, Illinois, Indiana, Hawaii, and New York), however, some states do collect a partial sales tax in addition to the fuel tax.
As of 2022 the states with the highest gas tax (for gasoline, not diesel) are Pennsylvania at 57.6 cents per gallon, and California with 51.1 cents per gallon. The highest diesel tax is in Pennsylvania at 74.1 cents per gallon. These high state gas taxes are contrasted against the lowest states – Alaska only taxes their gasoline at 8.95 cents per gallon, while Hawaii is 16 cents per gallon and Mississippi is 18 cents per gallon.
National Averages for Gas Tax
The American Petroleum Institute reports each state’s tax on both gasoline and diesel, and they create an average by weighting the population of each area within a state subject to each tax rate. They update their averages twice per year, and they also create the national fuel averages.
When you look at all of the states together, the average state tax on gasoline is 26.16 cents per gallon, while the average for diesel is 26.72 centers per gallon. This number is just the state excise tax, and the average for the other state taxes and fees is added separately. When you add together the averages for the state excise tax, the additional state taxes, and fees, the total state average across the US for gasoline is 38.69 cents per gallon and 40.24 cents per gallon for diesel.
The API reports that the total combined average for state and federal taxes assessed on gasoline in the US is 57.09 centers per gallon and 64.64 cents per gallon for diesel.
Gas Tax Holidays
During periods of high gas prices, the state or federal government may halt the collection of the gas tax for a period of time – this is a gas tax holiday. In June of 2022, the White House called for a federal gas tax holiday to be voted on through Congress, to alleviate some of the high cost of gasoline due to inflation.
States may elect to hold their own gas tax holidays, independent of a federal gas tax holiday, which would remove the state tax due at the pump.
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