Katerina Swanson
Fuel taxes are levied on gasoline, diesel, and gasohol, and they vary across different states. The federal tax on motor fuels is 18.4 cents per gallon, but states and local governments also collect taxes on fuel. These taxes are used to fund highway repair and maintenance, as well as other government infrastructure projects. In 2021, state and local governments collected a combined $53 billion in revenue from motor fuel taxes. California has the highest gas tax rate at 68.1 cents per gallon, while Alaska has the lowest at 8.95 cents per gallon. Fuel taxes are a controversial topic, with critics arguing that the revenue is often diverted to unrelated government programs, while others believe that higher fuel costs would reduce America's dependence on foreign oil.
| Characteristics | Values |
|---|---|
| Federal tax on gasoline | 18.3 cents per gallon |
| Federal tax on diesel fuel | 24.3 cents per gallon |
| Leaking Underground Storage Tank fee | 0.1 cents per gallon |
| State tax on gasoline | 8.95 cents per gallon in Alaska to 62.9 cents in California |
| State tax on diesel fuel | Same rate as gasoline in 24 states and DC, higher in 19 states, and lower in 6 states |
| State tax on gasohol | Same rate as gasoline in every state except South Dakota |
| Aviation gasoline tax | $0.194 per gallon |
| Kerosene tax | $0.244 per gallon unless a reduced rate applies |
| Kerosene tax for non-commercial aviation | $0.219 per gallon |
| Total US volume-weighted average fuel tax (as of April 2019) | 52.64 cents per gallon for gasoline and 60.29 cents per gallon for diesel |
| States with per-gallon gas tax rates below 20 cents | Arizona, Hawaii, Mississippi, New Mexico, and Oklahoma |
| States with the highest gas tax rates | California, Illinois, and Pennsylvania |
| States with the next-highest per-gallon tax rates | Washington, Illinois, Maryland, and Pennsylvania |
| Revenue from motor fuel taxes in 2021 | $53 billion |
| Revenue from federal fuel taxes in Fiscal Year 2016 | $36.4 billion |
| Revenue from gasoline taxes in Fiscal Year 2016 | $26.1 billion |
| Revenue from diesel and special motor fuel taxes in Fiscal Year 2016 | $10.3 billion |
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What You'll Learn
Federal fuel tax rates
Federal fuel taxes in the United States are levied as excise taxes on gasoline, diesel, aviation fuel, and jet fuel. The federal excise tax rate on gasoline is 18.4 cents per gallon, while it is 24.4 cents per gallon for diesel fuel. These rates have remained unchanged since 1993 and are not indexed to inflation, resulting in a significant decline in their purchasing power over time. Federal fuel taxes also include a Leaking Underground Storage Tank fee of 0.1 cents per gallon for both gasoline and diesel fuel.
Revenues from federal fuel taxes are primarily used to support transportation infrastructure and programs. According to former Secretary of Transportation Mary Peters, about 60% of federal gas taxes are allocated for highway and bridge construction, with the remaining 40% going towards earmarked programs, including mass transit projects. In Fiscal Year 2016, federal fuel taxes generated $36.4 billion, with $26.1 billion from gasoline taxes and $10.3 billion from diesel and special motor fuel taxes.
Aviation fuel taxes, such as those on aviation gasoline (Avgas) and kerosene (jet fuel), are generally higher than taxes on gasoline and diesel. Aviation gasoline is taxed at $0.194 per gallon, while kerosene used in non-commercial aviation is taxed at $0.219 to $0.244 per gallon, depending on the specific conditions. These taxes fund airport and Air Traffic Control operations through the Federal Aviation Administration (FAA).
While federal fuel taxes play a crucial role in generating revenue for transportation infrastructure, critics argue that the revenue diversion to unrelated government programs and debt servicing diminishes its impact. Additionally, the fixed-rate nature of federal fuel taxes has led to concerns about their ability to keep pace with inflation and the changing landscape of vehicle fuel efficiency. As a result, some policy advisors advocate for an increased tax to address the funding needs of the country's transportation infrastructure adequately.
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State fuel tax rates
The first US state to tax fuel was Oregon, which introduced a 1 cent/gal tax in 1919. In the following decade, all of the US states (48 at the time), along with the District of Columbia, introduced a gasoline tax. By 1939, many states levied an average fuel tax of 3.8 cents/gal (1 cent/litre).
State fuel taxes have undergone many revisions since their creation. While most fuel taxes were initially levied as a fixed number of cents per gallon, as of 2016, 19 states and the District of Columbia had fuel taxes with rates that vary alongside changes in the price of fuel, the inflation rate, vehicle fuel economy, or other factors.
Some states have explored environmental taxes or carbon taxes, which are designed to shape behaviour by discouraging the consumption of products or services that generate emissions, like gasoline.
As of 2024, California had the highest gas tax rate at 68.1 cents per gallon, followed by Illinois and Pennsylvania. The lowest gas tax rates are levied in Alaska at 8.95 cents per gallon, followed by Mississippi (18.4 cents) and Hawaii (18.5 cents).
In 2025, California still had the highest tax rate on gasoline at $0.596 per gallon, followed by Pennsylvania at $0.576. Alaska had the lowest tax rate on gasoline at $0.0895 per gallon.
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Aviation fuel tax rates
At the federal level, aviation gasoline (avgas) is taxed at $0.194 per gallon, while kerosene-based jet fuel is taxed at $0.244 per gallon. However, a reduced rate of $0.219 per gallon applies to kerosene that is loaded directly into an aircraft from a qualified refueler truck, tanker, or tank wagon on an airport ramp. These taxes fund airport and Air Traffic Control operations by the Federal Aviation Administration (FAA).
At the state level, forty states impose an excise tax on aviation fuels. The rates vary by state, with Massachusetts imposing the highest excise tax on aviation fuel at 38 cents per gallon, and the District of Columbia imposing the highest excise tax on jet fuel at 23.5 cents per gallon. Some states, such as Colorado, have a separate excise tax for aviation gas and jet fuel, with rates of 6 cents and 4 cents per gallon, respectively. Additionally, a 2.9% state sales tax is collected on the retail cost of jet fuel in Colorado.
The National Business Aviation Association (NBAA) has advocated for preserving general aviation fuel taxes as a fair and efficient way to fund the FAA. Fuel taxes allow aircraft users to pay federal taxes directly at the pump, eliminating the need for a large bureaucracy to collect taxes from individual pilots and aircraft owners. Additionally, fuel taxes provide an incentive for aviation users to purchase newer, more fuel-efficient aircraft, helping to reduce noise and congestion.
State and local governments are required to use the revenues from aviation fuel taxes for airport purposes, including capital and operating costs, local airport systems, and other related facilities. These revenues support the maintenance and development of aviation infrastructure and services.
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Environmental taxes
State environmental agencies often estimate the impact of their environmental programs on fuel prices to be lower than what most economic analyses suggest. This is due to the fluctuating prices and impacts of many environmental programs on fuel costs. For example, Oregon's Clean Fuels Program was estimated to increase gas prices by 9.8 cents, while Washington's Climate Commitment Act is expected to raise prices by about 27 cents.
The inclusion of environmental taxes in state fuel taxes is part of a broader effort to reduce pollution and encourage the use of alternative energy sources. These taxes are often implemented as a per-gallon excise tax, which increases the price of gasoline. Additionally, some states collect sales tax on top of the excise tax, further adding to the overall fuel cost.
While the specific impact of environmental taxes on fuel prices can be challenging to determine, it is clear that these taxes play a crucial role in funding environmental initiatives and encouraging the development and adoption of cleaner energy alternatives. By incorporating environmental considerations into taxation policies, governments can promote sustainable practices and address the environmental consequences of fuel consumption.
It's worth noting that federal fuel taxes in the US have not been adjusted for inflation since 1993, which has led to a decline in their purchasing power over time. This has sparked debates about the need for increased fuel taxes to fund transportation infrastructure and encourage a shift towards more sustainable energy sources.
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Sales taxes
The money raised through these taxes is used for highway repair and maintenance, as well as for other government infrastructure projects. In 2021, state and local governments collected a combined $53 billion in revenue from motor fuel taxes, which accounted for 1.3% of their general revenue.
Some critics argue that revenue from gas taxes is often diverted to unrelated government programs and debt servicing. However, researchers have pointed out that this diversion goes both ways, and that gas taxes are not high enough to cover the full cost of road-related spending. Additionally, some believe that higher fuel costs would lead to reduced consumption and less dependence on foreign oil.
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Frequently asked questions
The US federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. State and local taxes and fees add an average of 34.24 cents to gasoline and 35.89 cents to diesel.
State and local governments collected a combined $53 billion in revenue from motor fuel taxes in 2021. Federal fuel taxes raised $36.4 billion in Fiscal Year 2016.
Fuel taxes are intended to serve as user fees and pollution deterrents. About 60% of federal gas taxes are used for highway and bridge construction, while the remaining 40% goes to earmarked programs, including mass transit projects.
