The price of gasoline is constantly on people's minds. The prices you see on those gas-station signs everywhere you drive are tough enough to swallow, but what you may not know is the extent to which gas taxes contribute to those prices.
The federal tax is $0.184 per gallon, and states add their own taxes to bring the average tax up to $0.306 per gallon. Some states go far above average, so which states hit your wallet the hardest? Let's take a look at who has the highest gasoline taxes.
| 1 | California | $0.501 | $0.685 |
| 2 | Hawaii | $0.487 | $0.671 |
| 3 | Michigan | $0.409 | $0.593 |
| 4 | Indiana | $0.401 | $0.585 |
| 5 | Illinois | $0.391 | $0.575 |
| 6 | North Carolina | $0.378 | $0.562 |
| 7 | Washington | $0.375 | $0.559 |
Source: American Petroleum Institute.
As you'd expect, higher taxes correlate with higher gasoline prices and lower taxes with lower prices.
Source: GasBuddy.com.
Governments use gas taxes to maintain and upgrade roads and transportation infrastructure, but there are a few problems. For one, these taxes generally aren't linked to inflation. The federal gas tax has been the same since 1993, so the revenue pays for less and less. Second, as cars grow more efficient and use less gasoline, tax revenue will decline, further challenging transportation infrastructure funding.
States transportation budgets are underfunded and need to raise revenue, either by raising gasoline taxes (Connecticut, Maryland, Wyoming, New Hampshire) or finding other ways to come up with revenue to maintain roads. The problem that lawmakers are running into is that to fund transportation needs, the gasoline tax would have to rise significantly, which would give consumers massive sticker shock. In Missouri, for example, the state has estimated that it would have to increase the gasoline tax by $0.20-$0.25 to fund its transportation needs. Instead of doing what would be politically unpopular, lawmakers in Missouri and Virginia are increasing sales taxes to fund transportation. This is a less visible tax, but it separates the funding of roads from those who actually use them, and as such I'm not a fan.
As we work through our list of the states with the lowest tax burden at the pump, note that the data is current as of April 24 but that some states have passed laws that will either decrease (Virginia) or increase (California, Connecticut, Maryland, Wyoming, New Hampshire) their taxes going forward. Those changes aren't reflected in the current numbers but will be discussed where relevant.
1. California
California is at the top, with $0.501 per gallon in taxes on gasoline. This figure is based on a $0.36-per-gallon excise tax, a $0.02-per-gallon underground storage fee, a 2.25% state sales tax, and an average of county sales taxes. Combined with the $0.184 federal tax, this all adds up to $0.685 per gallon. As you might expect, California has some of the highest gasoline prices in the country, with an average cost of $3.919 per gallon, according to AAA.
And the rate is going even higher, as California's transportation budget is underfunded. In March, the state Board of Equalization passed a $0.035 increase to the gasoline tax, which goes into effect July 1. Once in place, drivers in California will pay roughly $0.72 per gallon in taxes.
2. Hawaii
Hawaii currently has the second highest gasoline tax at $0.487 per gallon, based on a $0.17 state excise tax, a $0.10-per-gallon environmental response tax, and average county taxes. With high taxes and a hard-to-reach location, Hawaii has the highest current average gasoline price in the country of $4.364, according to AAA.
3. Michigan
Michigan comes in at $0.409 per gallon and a current average gas price of $3.812. This is based on a $0.19 excise tax, a $0.00875 environmental regulation fee, and a 6% sales tax. There was talk earlier in the year over increasing the gasoline tax, but the legislature doesn't appear willing to go through with raising it, as the governor is opposed.
4. Indiana
Indiana's tax is $0.401 per gallon, with an average gasoline price of $3.675. This figure is based on an $0.18-per-gallon excise tax, a $0.01 underground storage tank tax, and a 7% sales tax.
5. Illinois
Illinois is next, with $0.391 per gallon and a current average gas price of $3.898, based on a $0.19-per-gallon excise tax, a $0.011 underground storage tank tax, and a 6.25% sales tax.
6. North Carolina
North Carolina charges $0.378 per gallon and has a current average gasoline price of $3.450. This figure is based on a $0.375 excise tax and a $0.0025 inspection tax.
7. Washington
Finally, we have Washington, at $0.375 per gallon and a current average price of $3.647.
Foolish bottom line
We all feel the pinch at the pump, but don't expect prices to drop anytime soon. Gas taxes will probably head higher all over the country over the next few years as the U.S. struggles to pay to upgrade the country's declining infrastructure. Get ready to crack open that wallet a little wider.
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