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September 30, 2013 Published in Top Stories, Traffic & Transportation

District Joins Virginia In Jettisoning Its Fuel Excise Tax And Replacing It With A Tax On Gas At The Wholesale Level


Starting tomorrow, the District of Columbia joins Virginia in jettisoning its long-time reliance on the state or local fuel excise tax on gasoline and diesel fuel as the topmost funding source for transportation projects. Washington, D.C.  becomes only the second jurisdiction,after Virginia, in the entire nation to do so. Like Virginia, the city is substituting its gasoline and diesel taxes with a tax on those products at the wholesale level.

 The Motor Vehicle Fuel Tax Amendment becomes effective in the District of Columbia Tuesday, October 1, 2013. Crafted by Council Chair Phil Mendelson, it eliminates the traditional 23.5-cents-a-gallon local fuel tax on diesel and gasoline transactions. It replaces it with an 8.3 percent wholesale tax on those products. In a rare alignment of the planets, the neighboring jurisdictions, Virginia, Maryland and Washington, D.C., all enacted signature fuel tax legislation this year, putting them on the point of the spear in indexing the transportation revenue source to inflation annually.

 “Just ahead of the new fuel tax structure going into effect, the District had the dubious distinction of being the fifth most expensive place in the continental United States to purchase gasoline or diesel fuel,” said John B. Townsend II, AAA Mid-Atlantic’s Manager of Public and Government Affairs. “However, it is likely that consumers and motorists in the District of Columbia will continue to pay the most expensive price for regular, midgrade, premium gasoline blends and diesel in the region. It is unlikely customers purchasing gas or diesel in the city will feel any less pain at the pump.”

Why not?  Round up the usual suspects: wholesale gasoline distributors and suppliers with exclusive contracts that harm competition and put pump prices on steroids. “The District of Columbia doesn’t have a fuel tax problem. It has a gas-delivery price problem and a gasoline supply problem that drive up the cost of buying motor fuels in the city,” said Townsend. “Excise taxes only constitute an average of 12 percent of retail gasoline prices. The exorbitant street price on gasoline price is the direct result of near monopolistic conditions in the city’s wholesale and retail gasoline markets.”

To  combat this, District Attorney General Irvin B. Nathan recently filed a lawsuit against ExxonMobil Oil Corporation, Capitol Petroleum Group, Anacostia Realty, and Springfield Petroleum Realty. Its aim: stopping the “ enforcement of exclusive-supply agreements that make one group of affiliated distributors the only suppliers of Exxon-branded gasoline in D.C.”  In the lawsuit, Attorney General Nathan argues that such “exclusive-supply agreements” deprive District residents and consumers of the “benefits of competition in the wholesale supply of Exxon-branded gasoline.”  

Prior to the enactment of its new fuel tax formula this week, Washington, D.C. ­— at 41.9 cents per gallon — ranked 31st in the nation, in terms of the total gasoline motor fuel taxes its consumers paid at the self-serve gas kiosk. Among the states, the District ranked 33rd in the nation in the diesel motor fuel tax rate, coming in at a total of 47.9 cents per gallon. To the surprise of most motorists, the city’s current motor fuel tax rate on gasoline and diesel fuel is below the U.S. average fuel tax rate and  it’s lower than the fuel tax rates in Maryland, as of July 1, 2013, explains AAA Mid-Atlantic.  

That is as expected, given the fact that Maryland increased its motor fuel tax rate on both gasoline and diesel fuel starting July first. Maryland lawmakers also added an annual Consumer Price Index (CPI) increase to the gasoline excise tax, effective the same day. That means unlike the District and Virginia, Maryland enacted the largest gas tax increase its history. What is more surprising, the District’s fuel tax rate on diesel fuel is currently lowered than the tax rate on the product in Virginia.

With the new tax rate becoming the law in the District tomorrow, it is likely gas retailers in the city will shift  the cost to their customers. In terms of its formula, the Mendelson measure contains a provision that inescapably bases the effective tax rate percentage on the average wholesale/resale price (excluding taxes and freight) for a gallon of regular unleaded gasoline set in the city on May 19, 2013.

On that date, the average wholesale or rack price was $2.957 for a gallon of RFG 10%, the gas sold and used in Washington, D.C. That’s according to the Oil Price Information Service (OPIS), which provides daily fuel price data to AAA. That means the basic lock-in percentage rate will never fall below 24.57 cents per gallon although wholesale fuel prices are volatile by nature.

Currently, the U.S. national average tax rate on diesel fuel is a total of 54.8 ¢ per gallon, with the average state excise tax on diesel at 19.5 ¢ per gallon. Nationwide, the average tax on gasoline is 49.5 cents per gallon (cpg), as of July 1, 2013, according to the American Petroleum Institute (API). That’s up five cents per gallon since April 2013. On paper, the average state gasoline excise tax is 20.9 cents per gallon, up three cents a gallon from April 2013.

That’s the box score, but not the complete story, and you have to read the fine print. As the API explains, “Other taxes (such as applicable sales taxes, gross receipts taxes, oil inspection fees, county and local taxes, underground storage tank fees and other miscellaneous environmental fees) were 9.7 cpg, unchanged from January. Adding these taxes and fees to the state excise taxes results in a volume-weighted average state and local tax of 31.1 cpg.” 

Pump prices have plummeted in Virginia since the Commonwealth eliminated its state motor fuel tax back on July 1, with a tax rate of 3.5 percent on the statewide average price wholesale prices of gasoline (the diesel fuel tax rate is six percent of the average wholesale price). Heading into last weekend, Virginia was the fourth cheapest place in the entire country to buy gasoline behind South Carolina, Mississippi, and Missouri. Consumers in the state find themselves in an enviable position.

District motorists can merely wish they were in the same position. They will continue to wonder why pump prices are so much higher in the District than in Maryland and Virginia despite the enactment of  new tax laws in the three jurisdictions. Instead of paying less for a gallon of gasoline, as some consumers in the city had hoped when the new law was drafted,  motorists will end up paying a cent or two more a gallon, explains AAA Mid-Atlantic. That’s a wash for consumers in the city.

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