Sylvie Willis
Fuel tax, also known as a petrol, gasoline, or gas tax, is an excise tax imposed on the sale of fuel. In most countries, fuel tax is imposed on fuels intended for transportation. The federal government and all 50 U.S. states impose fuel taxes, with the revenue raised going towards fixing highways and other infrastructure projects. As of July 2024, federal taxes include excise taxes of 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel. State taxes vary, with California having the highest per-gallon tax rate of 62.9 cents, and Alaska the lowest at 8.95 cents.
| Characteristics | Values |
|---|---|
| What is a fuel tax? | An excise tax imposed on the sale of fuel. |
| Who imposes the tax? | The federal government and all 50 U.S. states. |
| Why is it imposed? | To help cover the cost of building and maintaining roads, bridges, and tunnels, and to address traffic congestion and pollution. |
| What fuels are taxed? | Gasoline, diesel, ethanol, aviation fuel, natural gas, biodiesel, and gasohol (a mixture of ethanol and unleaded gasoline). |
| How much is the federal tax? | 18.3 cents per gallon on gasoline, 24.3 cents per gallon on diesel fuel, and 0.1 cents per gallon on both fuels for the Leaking Underground Storage Tank fee. |
| How much is the state tax? | State taxes vary, ranging from 8.95 cents in Alaska to 62.9 cents in California. The average state tax is about 32.26 cents per gallon. |
| How much revenue is generated from fuel taxes? | State and local governments collected a combined $53 billion in revenue from motor fuel taxes in 2021. |
| How is the revenue spent? | The revenue is spent on fixing highways and other infrastructure projects, transportation programs, law enforcement, environmental protection, and education. |
| Are there any alternatives to fuel taxes? | Yes, some states are experimenting with taxing vehicle miles traveled (VMT) instead of gasoline purchased. |
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What You'll Learn
US federal fuel tax
The US federal government imposes excise taxes on gasoline, diesel, and other special fuels. As of July 1, 2024, the federal excise tax on gasoline was 18.3 cents per gallon, and 24.3 cents per gallon for diesel fuel. There is also a Leaking Underground Storage Tank fee of 0.1 cents per gallon for both fuels. These rates have been unchanged since 1993 and are not indexed to inflation.
The federal motor fuel taxes are a significant source of revenue for the Highway Trust Fund (HTF), with about 91% of the taxes deposited into the fund. In Fiscal Year 2016, federal fuel taxes raised $36.4 billion, with $26.1 billion from gasoline taxes and $10.3 billion from diesel and special motor fuel taxes. The tax revenue is used for highway and bridge construction, with about 60% of the funds allocated for this purpose. The remaining 40% goes to earmarked programs, including mass transit projects.
At the federal level, nearly all funding from fuel taxes goes into the HTF, with a small portion dedicated to cleaning up leaks from underground petroleum storage tanks. Out of the 18.3 cents per gallon federal tax, 15.44 cents goes to the highway account, and 2.86 cents to the mass transit account, according to data from 2021.
In addition to motor fuel taxes, the federal government also collects truck and truck trailer excise taxes, a truck tire sales tax, and a heavy vehicle use tax. These taxes represent the remaining 9% of revenue deposited in the HTF.
Other types of fuel taxed at the federal level include aviation fuel, kerosene, ethanol, natural gas, and alternative fuels. Aviation fuel taxes include 19.3 cents per gallon on general aviation gasoline, 21.8 cents per gallon on general aviation jet fuel, and 4.3 cents per gallon on commercial jet fuel (rates as of 2022). Kerosene used in aviation is generally taxed at $0.244 per gallon, with reduced rates for non-commercial aviation and when the fuel is loaded directly into an aircraft from a qualified refueler truck or tanker.
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State fuel tax
In the United States, the federal government and all 50 states impose fuel taxes. As of July 2024, the federal excise tax on gasoline was 18.3 cents per gallon, and 24.3 cents per gallon for diesel fuel. This includes a Leaking Underground Storage Tank fee of 0.1 cents per gallon on both fuels.
The revenue generated from fuel taxes is primarily used to fund transportation-related projects and infrastructure maintenance. About half of the states have laws mandating that fuel tax revenue be allocated for roads and bridges. For example, in 2016, about 60% of federal gas taxes were used for highway and bridge construction. Additionally, some states use the funds for transportation-related purposes like law enforcement, environmental protection, and education. However, critics argue that a portion of the revenue is diverted to non-transportation-related government programs.
To address the challenges posed by the increasing popularity of electric vehicles and improvements in fuel efficiency, some states are considering alternative taxation methods. For instance, Oregon and Utah are piloting programs that tax vehicle miles traveled (VMT) instead of fuel purchased. This approach aims to provide a more stable tax base and ensure that drivers, regardless of their vehicle type, contribute to road funding.
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How fuel tax is spent
Fuel tax is a significant source of revenue for governments, and the money raised is typically spent on road infrastructure projects, including building and maintaining roads, bridges, and tunnels. In the United States, for example, the federal government imposes an excise tax of 18.4 cents per gallon on gasoline and 24.4 cents per gallon for diesel fuel, which has remained unchanged since 1993. Nearly all of this funding goes into the Highway Trust Fund, with a small portion dedicated to cleaning up leaks from underground petroleum storage tanks. State governments also impose their own fuel taxes, which vary by state, with California having one of the highest rates at nearly 78 cents per gallon. These state taxes also contribute to funding road infrastructure projects.
In other countries, such as Germany, fuel taxes are levied on ultra-low sulphur diesel and unleaded petrol, and are included in the pump price along with Value Added Tax (VAT). Similarly, in the United Kingdom, fuel duty is included in the price paid for petrol, diesel, and other vehicle fuels, with a headline rate of 52.95 pence per litre as of 2022. While fuel tax is typically used for transportation projects, in some countries, it may be considered a source of general revenue or used as an ecotax to promote ecological sustainability.
The rationale behind fuel taxes is the "benefits received rule," which suggests that taxes should be based on how much individuals benefit from government spending. Thus, drivers pay fuel taxes to cover the costs associated with road infrastructure and to address issues like traffic congestion and pollution. However, critics argue that revenue from fuel taxes is often diverted to unrelated government programs and debt servicing. Additionally, the purchasing power of fixed-rate fuel taxes has declined over time due to inflation and the increasing fuel efficiency of vehicles.
To address these challenges, some states in the US have implemented toll roads to generate additional revenue for infrastructure projects. Additionally, Oregon and Utah are piloting programs that tax drivers based on vehicle miles traveled (VMT) instead of gasoline purchased. Dynamic fuel tax rates that adjust with changes in fuel prices, inflation, and vehicle fuel economy have also been adopted by several states. These measures aim to ensure that fuel tax revenues keep pace with the rising costs of infrastructure development and maintenance.
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Fuel tax and inflation
Fuel tax, also known as gas tax, is an excise tax levied on gasoline, diesel, and gasohol (a mixture of ethanol and unleaded gasoline). In the United States, the federal government and all 50 states impose fuel taxes, with the revenue raised going towards fixing highways and other infrastructure projects. The federal tax rate on motor fuels was last raised in 1993 to 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel fuel. This rate has not been adjusted for inflation, and as a result, its purchasing power has significantly eroded over the years. For instance, if the tax had been indexed for inflation since 1993, it would have been approximately 15 cents higher in 2019.
The decline in purchasing power has had a significant impact on the federal budget and the nation's infrastructure. To address this issue, some states have implemented fuel taxes that are pegged to inflation. California, the District of Columbia, Florida, Georgia, Illinois, Michigan, North Carolina, Utah, and Virginia are among the states that use inflation in their gas tax rate calculations. Additionally, some states have laws requiring that revenue from fuel taxes be allocated specifically for roads and bridges.
However, critics argue that simply increasing taxes may not be the solution. For example, despite indexing the gas tax to inflation, states like Maine and Nebraska have not seen significant improvements in their road infrastructure. Furthermore, the revenue raised from fuel taxes has failed to keep up with rising infrastructure costs and inflation. The development of electric vehicles and more fuel-efficient automobiles has reduced gas demand, further widening the gap between gas tax funds and road maintenance costs.
To address the funding shortfall, various policy options have been proposed. One option is to increase the federal gas tax and index it to inflation. The Congressional Budget Office (CBO) has presented two alternatives: a 15-cent increase per gallon or a 35-cent increase per gallon, both indexed for inflation. These alternatives are estimated to increase revenues by $237 billion and $515 billion, respectively, from 2019 to 2028. However, it is important to consider the potential impact on taxable business and individual income, as well as the anticipated reduction in fuel consumption due to higher retail prices.
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International fuel tax
The International Fuel Tax Agreement (IFTA) is a pact between the lower 48 states of the US and the Canadian provinces. It aims to simplify fuel use reporting for motor carriers operating in multiple jurisdictions. Before IFTA, each US state had its own fuel tax system, requiring trucks to obtain permits for each state, which was costly and inefficient.
Under IFTA, qualifying commercial motor vehicles travelling in more than one US state or Canadian province must file a consolidated report of motor fuel taxes (e.g. gasoline, diesel fuel, liquefied gas, and compressed natural gas taxes). Carriers need to file only one tax return each quarter with their base jurisdiction for fuel consumed in all member jurisdictions. This report is used to calculate the net tax or refund due and to redistribute taxes from collecting states to states where it is owed.
IFTA works on a "pay now or pay later" system. As commercial motor vehicles buy fuel, any fuel taxes paid are credited to that licensee's account. At the end of the fiscal quarter, the licensee completes a fuel tax report, listing all miles travelled and gallons purchased in all participating jurisdictions. The average fuel mileage is then applied to determine the tax liability for each jurisdiction.
IFTA carriers can apply for an IFTA license electronically through the Comptroller's WebFile system or by mailing a paper application. Tax reports should be filed electronically, although paper reports are accepted in cases of hardship. IFTA returns are due quarterly, on the last day of the month following the end of the calendar quarter.
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Frequently asked questions
A fuel tax is an excise tax imposed on the sale of fuel, usually for transportation.
The federal fuel tax in the US is 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel fuel. State fuel taxes vary, ranging from 8.95 cents per gallon in Alaska to 62.9 cents per gallon in California.
State and local governments collected a combined $53 billion in revenue from fuel taxes in 2021.
Most of the revenue from fuel taxes goes towards fixing highways, roads, and other infrastructure projects. Some states also use the money for transportation-related purposes such as law enforcement, environmental protection, and education.
Yes, fuel taxes vary by state and are influenced by factors such as the price of fuel, inflation rate, vehicle fuel economy, and population growth.
