Mercedes Mullins
Fuel tax is an excise tax imposed on the sale of fuel, which is often dedicated to transportation projects and can be considered a user fee. Fuel tax rates vary across different countries and even across states. For example, in the US, the federal excise tax on gasoline is 18.4 cents per gallon, while in India, the central government's taxes make up about 10-20% of the final cost of fuel. Fuel taxes are a way to reduce pollution and conserve energy, but they can also be a source of revenue for governments. With the increasing popularity of electric vehicles and improvements in fuel efficiency, the effectiveness of fuel tax as a user fee is decreasing.
Fuel Cost Without Tax
| Characteristics | Values |
|---|---|
| Federal excise tax on gasoline | 18.3 cents per gallon (as of July 1, 2024) |
| Federal excise tax on diesel fuel | 24.3 cents per gallon (as of July 1, 2024) |
| Leaking Underground Storage Tank fee | 0.1 cents per gallon on both gasoline and diesel fuel (as of July 1, 2024) |
| State excise tax on gasoline | Varies across states; on average, 34.24 cents as of April 2019 |
| State excise tax on diesel fuel | Varies across states; on average, 35.89 cents as of April 2019 |
| Aviation gasoline tax | $0.194 per gallon |
| Kerosene tax for aviation use | $0.244 per gallon; reduced rate of $0.219 for non-commercial aviation |
| Biodiesel, waste vegetable oil, and straight vegetable oil tax | Same rate as diesel fuel |
| Dyed Diesel tax | Exempt from excise taxes unless used on highways |
| Fuel tax in India | Central and state government taxes make up nearly half of the pump price |
| Fuel tax in Europe | Excise tax on gasoline in France as of 2017 was €0.651 per liter (VAT of 20%); in Germany as of 2017 was €0.6545 per liter (VAT of 19%) |
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What You'll Learn
US federal tax on gasoline
The US federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. This tax was last raised on October 1, 1993, and has not changed since. It is also not indexed to inflation, which increased by 111% from October 1993 to December 2023. This means that the purchasing power of the fixed-rate gas tax has declined over time.
The proceeds from the tax support the Highway Trust Fund, with about 60% of the funds going towards highway and bridge construction. The remaining 40% is used for earmarked programs, including mass transit projects. 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.
In addition to the federal excise tax, there is also a Leaking Underground Storage Tank fee of 0.1 cents per gallon on both gasoline and diesel fuel.
State and local taxes and fees vary across the US. As of April 2019, these added an average of 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. California has the highest gas tax rate at 68.1 cents per gallon, while Alaska has the lowest at 8.95 cents per gallon.
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 used for aviation (Jet fuel) is taxed at $0.244 per gallon, with a reduced rate of $0.219 for non-commercial aviation when the fuel is loaded directly into the aircraft from a qualified refueler truck, tanker, or tank wagon on an airport terminal ramp.
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US state tax on gasoline
The US federal excise tax on gasoline is 18.4 cents per gallon, and 24.4 cents per gallon for diesel fuel. This federal tax was last raised on October 1, 1993, and has not been adjusted for inflation since. On average, as of April 2019, state and local taxes added 34.24 cents to gasoline and 35.89 cents to diesel. This brings the total US volume-weighted average fuel tax to 52.64 cents per gallon for gas and 60.29 cents per gallon for diesel.
State taxes include rates of general application, such as excise taxes, environmental taxes, special taxes, and inspection fees. As of 2016, 19 states and the District of Columbia have fuel taxes with rates that vary with the price of fuel, inflation rate, vehicle fuel economy, and other factors. The American Petroleum Institute uses a weighted average of local taxes by municipality population to create an average tax for the entire state. The national average is also weighted by the fuel volume sold in each state. As a result, many states with lower populations have below-average taxes. Most states exempt gasoline from general sales taxes, but several states collect full or partial sales tax in addition to the excise tax.
The state with the highest tax rate on gasoline is California at $0.596 per gallon, followed by Pennsylvania at $0.576 per gallon. Alaska has the lowest tax rate on gasoline at $0.0895 per gallon.
Some researchers argue that an increased fuel cost would encourage less consumption and reduce America's dependence on foreign oil. Aviation gasoline (Avgas) is taxed at $0.194 per gallon, and jet fuel is taxed at $0.244 per gallon.
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Aviation fuel tax
Currently, the aviation industry is responsible for 2% of annual global energy-related emissions, with only 1% of the world's population contributing to more than half of these emissions. As a result, there is a growing push for aviation fuel taxes to increase, with environmental campaigners arguing that a tax would incentivize the industry to invest in cleaner fuels and zero-emission aircraft.
In the US, aviation fuel is typically subject to excise taxes, with private jet fuel taxed at 21.9 cents per gallon and aviation gasoline at 19.4 cents per gallon, including the Leaking Underground Storage Tank (LUST) tax. However, commercial airlines are exempt from paying these taxes, and international flights departing from the EU are also exempt from fuel tax.
While aviation fuel taxes are not currently widespread, they serve several key purposes. Firstly, they can encourage reduced air travel by making people reconsider the frequency of their flights. Secondly, they can promote cleaner technologies by providing financial incentives for the aviation industry to invest in more sustainable solutions.
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Electric vehicles and tax
Electric vehicles are becoming increasingly popular, with some countries like Nepal reporting that 76% of cars sold are electric. This shift has been encouraged by various tax incentives for consumers and businesses.
In the United States, the federal government offers tax credits for the purchase of new, qualified plug-in electric vehicles or fuel cell electric vehicles. This credit can be up to $7,500 for individuals and their businesses. To claim the credit, buyers must file Form 8936, Clean Vehicle Credits, with their tax return and provide the vehicle's VIN. The credit amount depends on when the vehicle was placed in service and has a minimum of $3,751 for a vehicle with a minimum of 7 kilowatt-hours of battery capacity. These credits are available through 2032, with rules changing under the Inflation Reduction Act of 2022.
Businesses and tax-exempt organizations can also benefit from the Commercial Clean Vehicle Credit under IRC 45W. This credit is available for the purchase of electric vehicles or the installation of electric vehicle charging equipment.
Some states have also taken initiatives to promote the adoption of electric vehicles. For example, Nepal has set import duties on electric vehicles much lower than those for gas-powered cars, with customs and excise taxes at a maximum of 40% for electric vehicles compared to 180% for gas-powered cars. This has made electric vehicles more affordable for consumers, contributing to their high sales percentage.
However, there are concerns about the impact of these incentives on government revenues. In Nepal, the federal government has been increasing tariffs on electric vehicles due to declining revenues from car imports. Additionally, there are challenges with the collection and recycling of batteries, and concerns about the safety and quality of some electric vehicle brands.
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International fuel tax
Fuel taxes are levied by many countries, and they can vary significantly from country to country. In the United States, for example, the federal excise tax on gasoline is 18.3 to 18.4 cents per gallon, while the tax on diesel fuel is 24.3 to 24.4 cents per gallon. State and local taxes and fees can add to these costs, resulting in a total US volume-weighted average fuel tax of around 52.64 cents per gallon for gasoline and 60.29 cents per gallon for diesel as of April 2019.
Aviation fuel is taxed differently and generally higher than fuel for road vehicles. Aviation gasoline (Avgas) is taxed at $0.194 per gallon, while kerosene for aviation use (jet fuel) is taxed at $0.244 per gallon, with a reduced rate of $0.219 for non-commercial aviation fuel loaded directly into an aircraft from a qualified refueler truck or tanker, on an airport ramp.
The diversity of fuel tax rates across different US states and the need to obtain tax permits for each state led to the creation of the International Fuel Tax Agreement (IFTA). The IFTA is an agreement between the contiguous US states and Canadian provinces to streamline fuel use reporting for motor carriers operating in multiple jurisdictions. Alaska, Hawaii, and Canadian territories are exempt from the IFTA but can choose to participate. Under the IFTA, carriers with a license receive decals for each qualifying vehicle and file quarterly fuel tax reports. This report determines the net tax or refund due, and taxes are then redistributed to the appropriate states.
The IFTA has simplified the process for interstate commercial motor vehicles, which previously carried special plates with a permit sticker for each state, by implementing a ""pay now or pay later" system. Fuel taxes paid are credited to the licensee's account, and at the end of the fiscal quarter, a fuel tax report is filed, listing miles traveled and gallons purchased. The average fuel mileage is then applied to determine the tax liability for each jurisdiction.
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Frequently asked questions
As of July 1, 2024, the federal tax on gasoline in the US is 18.3 cents per gallon, and 24.3 cents per gallon for diesel fuel.
State taxes vary, but on average add 34.24 cents to gasoline and 35.89 cents to diesel fuel.
Without tax, fuel in the US would cost around 52.64 cents less per gallon for gas and 60.29 cents less per gallon for diesel.
