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June 30, 2014 Published in Top Stories, Traffic & Transportation

Gain Or Pain At The Pump: Calculating The Impact Of Fuel Taxes On Consumers’ Pocketbooks On Anniversary Of New Tax Polity

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Unexpectedly, motorists nationwide are experiencing varying shades of sticker shock on the nearly 40 million fill-ups they purchase per day on average. For local motorists, how much more they’ll be paying depends upon many factors ahead of the busy July Fourth holiday, notes AAA Mid-Atlantic. Gasoline prices routinely fall from their spring highs by June, but they are on the rise this time, up 8 to 10 cents a gallon, depending upon the retail market. It’s due, to some degree, to the unfolding sectarian strife in Iraq, which could drive up the worldwide market price of crude.

In some jurisdictions, like Maryland, which is about to mark the first anniversary on July 1 of the largest fuel tax increase in state history, legislative actions are contributing to some of the increase. Yet in Washington, where the District Council also passed a bill overhauling its fuel excise tax structure, we find a surprise: the tax increase never took effect, notes AAA Mid-Atlantic. In Virginia, which reduced its tax on fuel, taxes are averaging almost a dime less than in Maryland, the auto club says.

“Maryland motorists are spending more of their incomes on state fuel taxes than their counterparts in Virginia and Washington, but in a saving grace, less than the national average,” said Mahlon G. (Lon) Anderson, AAA Mid-Atlantic’s Managing Director of Public and Government Affairs. “The current fuel tax rate in Maryland is now nearly ten cents higher than it is in Virginia, which enacted a new tax formula the same day, and it is 3.5 cents more at Maryland filling stations than it is at the pump in Washington.”

In a bold move a year ago, Maryland increased its motor fuel tax for the first time in 20 years, and the new law went into effect June 1, 2013. In a rare planetary alignment, lawmakers in Virginia and Washington, D.C. also altered their fuel tax rate formula. In a rejection of traditional transportation funding, Virginia became the first state to eliminate the conventional cents-per-gallon fuel tax, and the District of Columbia followed suit. Virginia now has the USA’s fifth lowest state motor fuel tax rate on gasoline.

Maryland’s fuel tax  rate on gasoline purchases increased roughly by 3.5 cents per gallon (cpg) from 23.5 cents per gallon, last July 1. The tax rate on gasoline and diesel fuel at the state level increased 3.1 cpg. Unbeknownst to most fuel customers, the state also tacked on a consumer price index (CPI) tax rate adjustment of 0.4 cents to every gallon of gasoline and diesel fuel purchased in the state. This means Maryland motorists are currently spending 27 cpg in state motor fuel taxes for gasoline (23.9 cpg in state excise tax, plus 3.1 cpg levied in other state taxes and fees), according to the American Petroleum Institute’s (API) State Gasoline Tax report, updated April 24, 2014.

It increases again tomorrow, July 1, by 0.4 cpg, as adjusted for inflation.  The Maryland Comptroller’s office uses two methods to calculate the motor fuel tax increase:  the average percentage growth in the CPI, and a percentage of the average retail price of gasoline, also known as the “Sales and Use Tax Equivalent Rate.” Add to that the federal excise tax of 18.4 cents per gallon, and Maryland motorists are currently paying a total of 45.4 cents per gallon in fuel taxes. Still, if it is any consolation, Maryland motorists are paying 4.46 cents less than the average total fuel tax rate (state, local and federal) in the United States, which is 49.86 cpg. Maryland’s state motor fuel tax rate on gasoline purchases currently ranks 25th highest in the nation.

The tax rate on a gallon of diesel fuel also increased in Maryland last July. It is currently 27.75 cents a gallon (24.65 cpg in state excise tax, plus 3.1 cpg in other taxes and fees). It is 52.15 cents per gallon, once federal excise taxes of 24.4 cents on diesel are factored. An additional CPI increase of 0.4 cpg will take effect July 1, 2014, according to the Maryland Comptroller’s office, which will bring the combined Maryland  motor fuel tax rate on diesel fuel to 28.15 cpg. Currently, consumers in Maryland are spending 3.23 cents less in total diesel fuel taxes than the average motorist across the country. As of today, the state motor fuel tax rate burden on diesel in Maryland ranks 23rd in the nation.

In contrast, Virginia motorists are currently paying 9.72 cents less per gallon in motor fuel taxes on gasoline purchases than their neighbors across the Potomac River in Maryland. Last year, Virginia Governor Robert McDonnell backed legislation eliminating the state motor fuel taxes, switching instead to a percentage tax based on the wholesale price of gasoline (3.5% of the wholesale price) and diesel fuel (6% of the wholesale price). Today, motorists in Virginia are shelling out 17.28 cents per gallon in state excise taxes on gasoline purchases (14.7 cpg in state excise tax and 2.5 cpg in other state taxes and fees).

With the federal tax added, Virginia consumers are paying a total of 35.68 cents per gallon at the self-serve gas kiosk. It is the fifth lowest in the nation. As to diesel fuel, consumers in the Commonwealth are now paying 26.08 cents a gallon in state fuel taxes (23.38 cpg plus 2.7 cpg). It is a total of 50.48 cpg with the national diesel tax rate. It ranks 29th in the nation. Starting January 1, 2014, the effective fuel tax rate in Virginia was 3.5 percent of the “statewide average wholesale price” of gasoline during the base period from June 1, 2013 through December 1, 2013, but no lower than the wholesale price on February 20, 2013, explains the API.  However, there is a tax disparity. Up in Northern Virginia and down in Hampton Roads, motorists must pay an additional 2.1 percent in wholesale fuel sales tax beyond the statewide level.

On the whole, Maryland motorists are paying more in fuel excise taxes on gasoline than drivers in the District of Columbia, where the street price of a gallon of gasoline normally ranks as the highest in the region and among the priciest on the Eastern Seaboard. Even so, the tax rate is 3.5 cents less in the nation's capital than it is in Maryland. Last year, the District of Columbia Council passed legislation adjusting the city’s local fuel tax to the rate of inflation, mooring it to the Consumer Price Index (CPI). Yet a year later, consumers in Washington are still disbursing the same amount in local fuel excise taxes.

As before, pay-at-the-pump consumers in the District are paying 23.5 cents per gallon on gasoline purchases, for a total of 41.9 cents per gallon with the federal tax. On diesel, the District tax formula is 23.5 cents per gallon, for a total of 47.9 cpg with the federal share. Today, the District ranks 31st in the nation in terms of the state motor fuel tax burden on gasoline purchases. It ranks 34th on local excise taxes on diesel purchases. How can that be? Well, it is a little complicated, but analysts at the API explain the conundrum this way. “The October 1, 2013 notice that raised the gasoline tax to 28.8 cpg was rescinded. The gasoline rate remains at 23.5 cpg as of 10/1/2013 per newly-enacted legislation.”

“Don’t tax you, don’t tax me, tax that fellow behind the tree!” the old saying goes. Yet, it is all in the bottom line. Total state gas tax receipts were $35.2 billion in 2013.

Across the USA, state and local taxes add an average of 31.5 cents to the cost of a gallon of gas, and 31 cpg for diesel. It averages 49.9 cents per gallon for gas and 55.4 cents per gallon for diesel. The federal gasoline tax was last raised in 1993, AAA Mid-Atlantic notes. However, it is not indexed to the rate of inflation. “One reason the price of gasoline can vary by state is the fact that the taxes often do,” analysts say. In the cosmic scheme of things, excise fuel taxes comprise about 12 percent of what consumers pay at the pump as compared to 65 percent for crude oil.

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