Rajan Wilcox
Fuel tax is an excise tax imposed on the sale of fuel, commonly used for transportation. The price of fuel includes various taxes, such as federal and state taxes, which vary across different countries and states. For example, in the US, the federal tax on gasoline is 18.4 cents per gallon, while in California, the state tax is 68.1 cents per gallon. In the EU and the US, commercial aviation fuel is tax-free. Taxes on transportation fuels are advocated as a way to reduce pollution and conserve energy, but they can also impact finances, especially with increasing fuel prices. To ease the financial burden, some countries allow deductions for fuel costs on tax returns under certain conditions.
Fuel Characteristics and Values without Tax
| Characteristics | Values |
|---|---|
| Federal tax on gasoline in the US | 18.4 cents per gallon |
| Federal tax on diesel fuel in the US | 24.3-24.4 cents per gallon |
| State and local taxes on gasoline in the US | 34.24 cents on average |
| State and local taxes on diesel fuel in the US | 35.89 cents on average |
| Total US volume-weighted average fuel tax on gasoline | 52.64 cents per gallon |
| Total US volume-weighted average fuel tax on diesel | 60.29 cents per gallon |
| Gas tax rate in California | 68.1 cents per gallon |
| Gas tax rate in Pennsylvania | 57.6 cents per gallon |
| Gas tax rate in Alaska | 8.95 cents per gallon |
| Aviation gasoline tax rate | 19.4 cents per gallon |
| Aviation gasoline surtax rate | 14.1 cents per gallon |
| Kerosene tax rate for aviation | 24.4 cents per gallon |
| Kerosene tax rate for non-commercial aviation | 21.9 cents per gallon |
| Diesel tax rate for farmers and construction vehicles in the UK | £0.1133 per litre |
| Central government taxes on fuel in India | 10-20% of the final cost |
| State government taxes on fuel in India | 17-20% of the final cost |
| Maximum fuel cost claim without receipts in Australia | $4250 |
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What You'll Learn
Gas taxes vary across US states
Gas taxes in the United States were first introduced in Oregon on February 25, 1919, with a tax rate of 1 cent per gallon. In the following decade, all US states, along with the District of Columbia, introduced similar gasoline taxes. By 1939, the average state fuel tax had increased to 3.8 cents per gallon. Since 1993, the federal gasoline tax has been static at 18.4 cents per gallon (although some sources cite a rate of 18.3 cents), excluding the Leaking Underground Storage Tank fee of 0.1 cents per gallon.
Today, gas taxes vary significantly across US states. As of 2024, California had the highest gas tax rate at 68.1 cents per gallon, followed by Illinois (66.5 cents) and Pennsylvania (58.7 cents). In contrast, Alaska had the lowest rate at 8.95 cents per gallon, with Mississippi (18.4 cents) and Hawaii (18.5 cents) being the next lowest.
The differences in gas tax rates across states are due to variations in how states levy taxes on fuel. Some states implement sales taxes, while others impose excise taxes per gallon purchased at the pump or taxes on wholesalers and retailers, which are typically passed on to consumers through higher prices. As of 2016, 19 states and the District of Columbia had fuel taxes that fluctuated with changes in fuel prices, inflation rates, vehicle fuel economy, or other factors.
The revenue generated from gas taxes is intended to fund highway repair and maintenance, as well as other government infrastructure projects. However, the effectiveness of gas taxes as a source of revenue is diminishing due to the increasing popularity of electric vehicles and improvements in fuel efficiency. As a result, some states, such as California, are considering transitioning to a pay-per-mile tax system.
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Federal taxes include excise taxes and storage tank fees
Federal taxes on fuel include excise taxes and storage tank fees. Excise taxes are taxes imposed on specific goods or services, and they are commonly levied on items such as cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, and amusement activities. In the case of fuel, the federal excise tax on gasoline is 18.3 to 18.4 cents per gallon, while for diesel fuel, it ranges from 24.3 to 24.4 cents per gallon. These rates have remained unchanged since 1993 and are not indexed to inflation. Additionally, there is a Leaking Underground Storage Tank fee of 0.1 cents per gallon for both gasoline and diesel fuels.
Excise taxes can be structured as either a flat tax amount, known as a specific excise tax, or a percentage of the cost of the good, called an ad valorem excise tax. For fuel, the excise tax is typically applied on a per-gallon basis. While excise taxes are primarily paid by businesses, they are usually passed on to consumers in the form of higher prices. In the case of fuel, the advertised price at the pump typically includes all taxes, so consumers may not directly see the breakdown of the fuel cost and the tax amount.
The revenue generated from federal fuel excise taxes is allocated to various purposes. For example, about 60% of the tax revenue is used for highway and bridge construction, with the remaining 40% going towards earmarked programs, including a minority allocated for mass transit projects. Additionally, a portion of the tax revenue from gasoline and diesel fuels is directed towards the Leaking Underground Storage Tank Trust Fund, which addresses environmental concerns.
It is worth noting that state and local taxes and fees further impact the overall tax burden on fuel. As of April 2019, the average 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 gasoline and 60.29 cents per gallon for diesel. The specific rates vary widely across states, with California having the highest gas tax rate at 68.1 cents per gallon as of 2024. Additionally, some states have fuel taxes that fluctuate based on factors such as the price of fuel, inflation rates, and vehicle fuel economy.
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State taxes include excise, environmental, special, and inspection fees
The price of fuel includes various taxes, which differ across US states. State taxes include excise, environmental, special, and inspection fees.
Excise taxes are a specific type of tax levied on certain goods or services at the time of purchase. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting. Excise taxes are usually imposed at the federal level but can also be applied by state and local governments. Excise taxes are typically paid by businesses, which pass the cost on to the consumer in the form of higher prices. Excise taxes can be ad valorem (paid by percentage) or specific (cost charged by unit). For example, the excise tax on gasoline is $0.183 per gallon.
Environmental taxes are another type of state tax that increases the price of gasoline. These taxes are implemented through carbon emissions fees, fuel standard mandates, or environmental programs like cap-and-trade. While the impact of these taxes on the per-gallon price of gas is difficult to determine, they often have fluctuating prices and, consequently, a fluctuating impact on gas prices.
Special taxes are another type of state tax. An example of a special tax is the Leaking Underground Storage Tank fee of 0.1 cents per gallon on both gasoline and diesel fuel.
Inspection fees are also included in state taxes. An example of an inspection fee is the Highway Use Tax, which is imposed on the use of any highway motor vehicle with a taxable gross weight of 55,000 pounds or more. The registered owner of the vehicle must pay this tax and file a Heavy Highway Vehicle Use Tax Return (Form 2290).
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Aviation and jet fuel taxes vary by jurisdiction
Aviation and jet fuel taxes vary significantly across different jurisdictions. In the United States, jet fuel is subject to an average tax of $0.28 per US gallon, with most of the tax imposed at the federal level. However, individual state tax policies introduce variations, with some states receiving state sales taxes, while others utilize levies or specifically exclude aviation fuels from taxation. For instance, Colorado imposes an excise tax on aviation gas of 6 cents per gallon and jet fuel of 4 cents per gallon, while also levying a 2.9% state sales tax on the retail sale of jet fuel. North Carolina, on the other hand, has a combined general rate of sales and use tax of 7% on the sale of aviation gasoline and jet fuel.
In Canada, taxation policies for jet fuel vary at the provincial level, often mirroring gasoline tax schemes. Alberta provides tax rebates on jet fuel for flights to international destinations, whereas Ontario taxes aviation fuel for such flights. Additionally, Canada implements indirect taxation on fuel through carbon pricing, similar to the EU's emissions trading scheme. Within the European Union, member states have had the option to tax jet fuel nationally and between member states since 2003. However, only the Netherlands has implemented a tax on commercial jet fuel, limited to domestic flights from 2005 to 2011, before discontinuing it due to implementation challenges and low revenue. Norway, although not an EU member, also taxes aviation fuel.
In the United Kingdom, airlines are not subject to jet fuel taxation, and there is no additional VAT on tickets. This approach aims to discourage "tankering," where carriers fill their aircraft to full capacity outside the UK to avoid taxes, inadvertently leading to increased emissions. Similarly, jet fuel used for international aviation attracts no duty or VAT. However, individual EU member states can levy taxes on domestic flights or through agreements between states, although no such agreements currently exist.
Australia's fuel tax system shares similarities with Canada's, featuring both fixed and variable tax rates, along with exemptions and tax credits. As of October 2018, the fuel tax in Australia is A$0.412 per litre for petrol and ultra-low sulphur diesel, while the excise tax for LPG is $0.282 per litre.
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Fuel tax deductions for work-related journeys
United States
In the US, the Internal Revenue Service (IRS) allows individuals to deduct certain vehicle-related expenses for work-related journeys. There are two main methods for calculating these deductions: the standard mileage rate and actual expenses.
The standard mileage rate for 2024 is 67 cents per mile and will increase to 70 cents per mile in 2025. This rate includes various vehicle expenses, such as gas, depreciation, insurance, and maintenance. If you use the standard mileage rate, you cannot claim separate reimbursements for gas.
Alternatively, you can deduct your actual vehicle expenses, which include gas, oil, repairs, insurance, registration fees, lease payments, depreciation, tolls, and parking. It is important to keep detailed records of your mileage, including information such as the clients visited, the purpose of the trip, and the job being worked on. Maintaining receipts and tracking yearly mileage to determine the percentage of vehicle use for work purposes are also recommended.
If you are self-employed and have a dedicated home office, the trips from your home to clients' offices are typically deductible. However, if you do not have a home office, the first and last trips of the day are generally considered non-deductible commuting.
Australia
In Australia, individuals can claim deductions for the cost of transport for work-related trips. This includes travel between two separate places of employment, as well as travel from a regular place of work to an alternative location to perform work duties, such as meeting a client or attending a conference.
Transport expenses incurred while travelling overnight to perform work duties, including flights, accommodation, meals, and incidentals, are also generally deductible. Additionally, if carrying bulky tools or equipment required for work is necessary, deductions may be claimed for the cost of trips between home and work, provided certain conditions are met.
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Frequently asked questions
The federal 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 add an average of 34.24 cents to gasoline and 35.89 cents to diesel.
Aviation fuel (Avgas) is taxed at $0.194 per gallon. When used in a fractional ownership program aircraft, it is subject to a surtax of $0.141 per gallon.
Yes, fuel taxes vary widely across states in the US. For example, California has the highest gas tax rate at 68.1 cents per gallon, while Alaska has the lowest tax rate on gasoline at $0.0895 per gallon.
Fuel taxes vary across different countries and jurisdictions. For example, in Canada, fuel taxes can vary greatly between locales, with combined excise taxes ranging from 16.2 cents per litre in the Yukon to 30.5 cents per litre in Vancouver. In China, the implementation of a fuel tax has been a contentious issue due to concerns about its impact on farmers.
Yes, you may be able to claim fuel costs on your tax return if you use your vehicle for work-related journeys or have certain types of leases. However, it's important to note that there are specific rules and limitations that apply, and you should consult a tax advisor for specific guidance.
