Ameer Randolph
Fuel taxes are levied on gasoline, diesel, and gasohol, and they vary across US states. The federal excise tax on gasoline is 18.4 cents per gallon, while diesel fuel is taxed at 24.4 cents per gallon. States also levy taxes in various ways, including sales taxes, excise taxes, and taxes on wholesalers or retailers. These taxes and fees add to the price consumers pay at the pump. California has the highest gas tax rate at 68.1 cents per gallon, while Alaska has the lowest at 8.95 cents per gallon. Some states have considered replacing gas taxes with vehicle miles traveled (VMT) taxes, while others have implemented environmental or carbon taxes to discourage fuel consumption. The price of oil and refining costs are significant factors in gas prices, and taxes and fees can add substantially to the total cost.
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What You'll Learn
Federal and state fuel tax rates
State fuel taxes, on the other hand, are levied by individual states and can differ significantly. These taxes depend on each state's local legislation, transportation budgets, and infrastructure requirements. For instance, in July 2024, California had one of the highest state fuel tax rates at 69.8 cents per gallon, while Alaska had one of the lowest at 8.95 or 9 cents per gallon. The state fuel taxes in Illinois, Pennsylvania, and California were among the highest for both gasoline and diesel fuel. As of January 1, 2025, state taxes and fees on gasoline and diesel fuel averaged $0.33 per gallon and $0.35 per gallon, respectively.
The purpose of collecting fuel taxes is to fund transportation-related projects, such as highway repairs and maintenance, and other government infrastructure initiatives. Additionally, fuel taxes support the Highway Trust Fund and airport and Air Traffic Control operations by the Federal Aviation Administration (FAA). While some argue that an increase in fuel taxes is necessary to sustain the country's infrastructure, critics claim that the revenue is often diverted to unrelated government programs. Nevertheless, fuel tax rates continue to impact the prices consumers pay for commuting and the operating costs of businesses, especially those in logistics and delivery services.
The federal fuel tax was last raised in 1993 and is not indexed to inflation, resulting in a decline in its purchasing power over time. To address this, the National Surface Transportation Infrastructure Financing Commission recommended an increase in the gasoline and diesel taxes in 2009, along with tying these tax rates to inflation. However, no recent increases in the federal fuel tax rate have been mentioned. Instead, states have been adjusting their fuel tax rates to meet their infrastructure and transit project requirements.
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Aviation fuel tax
In the United States, the general aviation community has contributed to the Airport/Airways Trust Fund through a "fuel tax". This has been in place since 1970 and has proven to be a reliable revenue generator for the government. The tax on aviation gasoline is $0.194 per gallon, and when used in a fractional ownership program aircraft, gasoline is also subject to a surtax of $0.141 per gallon. Jet fuel, or kerosene, is generally taxed at $0.244 per gallon, unless a reduced rate applies. For instance, kerosene that is removed directly from an on-airport terminal (ramp) and transported into the fuel tank of an aircraft for non-commercial aviation is taxed at $0.219 per gallon.
Despite the varying rates and debates surrounding aviation fuel tax, it remains a significant source of revenue for governments and plays a crucial role in funding aviation infrastructure and services.
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Jet fuel tax
In the United States, jet fuel is generally taxed at $0.244 per gallon of kerosene used in aviation. A reduced rate of $0.219 is applied if the jet fuel (kerosene) is loaded directly into the aircraft from a qualified refueler truck, tanker, or tank wagon, or if it is removed directly from an on-airport terminal (ramp) into the aircraft's fuel tank for non-commercial aviation. These taxes are collected by the federal government, which eliminates the need for bureaucracy and administrative costs.
Additionally, gross receipts from jet fuel sales are subject to a combined general sales and use tax rate of 7% in certain states. For example, California has the highest gas tax rate of 68.1 cents per gallon, while Alaska has the lowest at 8.95 cents per gallon.
The jet fuel tax is an important source of revenue for the government and helps fund the Federal Aviation Administration (FAA). It also encourages the use of newer, cleaner, and more fuel-efficient aircraft, reducing noise and congestion.
While the jet fuel tax has been a stable source of income, the increasing use of electric vehicles and improvements in fuel efficiency have reduced its effectiveness over time. Some have suggested that alternative funding methods be explored for aviation services. However, the jet fuel tax remains the most practical and straightforward method for collecting taxes from the aviation industry.
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State tax variations
The United States federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. On average, as of April 2019, state and local taxes and fees added 34.24 cents to gasoline and 35.89 cents to diesel, resulting in a total US volume-weighted average fuel tax of 52.64 cents per gallon for gas and 60.29 cents per gallon for diesel. However, these rates do not include the effects of cap-and-trade carbon policies or low carbon fuel standards, which can further increase prices in certain states.
State taxes include rates of general application, such as excise taxes, environmental taxes, special taxes, and inspection fees, but they exclude state taxes based on gross or net receipts and county and local taxes. 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 have fuel taxes that vary with the price of fuel, inflation, vehicle fuel economy, or other factors.
The state with the highest tax rate on gasoline is California, at 59.6 cents per gallon or 68.1 cents per gallon, depending on the source. California's tax rate is influenced by cap-and-trade carbon policies, which drive prices higher. Other states with relatively high gas tax rates include Illinois (66.5 cents per gallon) and Pennsylvania (57.6 or 58.7 cents per gallon).
In contrast, Alaska has the lowest tax rate on gasoline at 8.95 cents per gallon. Other states with low gas tax rates include Mississippi (18.4 cents per gallon) and Hawaii (18.5 cents per gallon).
In addition to gasoline taxes, there are also taxes on aviation fuel and jet fuel, which are generally taxed at a higher rate. Aviation gasoline (Avgas) is taxed at $0.194 per gallon, with a surtax of $0.141 per gallon when used in a fractional ownership program aircraft. Kerosene for aviation use (jet fuel) is typically taxed at $0.244 per gallon, with a reduced rate of $0.219 per gallon for non-commercial aviation when the fuel is loaded directly into the aircraft from a qualified refueler on an airport ramp.
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User fees
Mileage-based user fees (MBUF) are another alternative to fuel taxes that is being explored. MBUFs are charged based on the distance travelled rather than the amount of fuel consumed. This method has been piloted in Australia, several European countries, and six US states over the past decade. There are several advantages to MBUFs:
- Fairness: Those who pay the fees are the ones who benefit from the service.
- Choice: MBUFs allow users to have more control over what, when, and how often they pay.
- Flexibility: MBUFs allow state departments of transportation to adjust revenues and expenditures as economic conditions, consumer demand, and technology change.
- Better incentives: MBUFs incentivize drivers and departments of transportation to consider the efficiency, quality, and costs of transportation.
- Constraint: MBUFs can help prevent overconsumption and negative externalities, such as traffic congestion and air pollution.
However, some motorists have raised concerns about MBUFs, including the potential for privacy invasion and the high cost of collecting the fees.
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Frequently asked questions
A fuel tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.
Fuel tax is calculated based on the number of gallons of fuel purchased, rather than a percentage of the final purchase price.
As of 2025, the federal excise tax on gasoline in the US is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. State and local taxes and fees further add to this cost, bringing the total US volume-weighted average fuel tax to 52.64 cents per gallon for gasoline and 60.29 cents per gallon for diesel.
No, fuel tax rates vary across different states. For example, 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 tax directly impacts the price consumers pay for fuel at the pump. Additionally, fuel tax revenues are intended to fund the construction and maintenance of roads, as well as other transportation-related programs and infrastructure projects.
