Gas prices fluctuate wildly in the United States. Many factors can cause price swings, from seasonal conditions, global market trends, an announcement from a nation’s oil industry, to the development of a new extraction technology. Taxes are perhaps the least volatile aspect of gasoline prices, yet gas taxes vary between U.S. regions and largely account for the price differences between states.
24/7 Wall St. reviewed the combined state and average local gas taxes per gallon in each state from estimates provided by the American Petroleum Institute (API). Pennsylvania leads the nation with a gas tax of 50.4 cents per gallon. In Alaska, the average gallon of gas is taxed at just 12.3 cents, the lowest in the nation.
Michael Green, a spokesman for the American Automobile Association (AAA), explained that beyond the federal fuel tax, which is levied uniformly across the nation, “states have free reign to determine how they will fund transportation projects within their states.” Green added, “It often comes down to local and state politics.” For this reason, taxes vary considerably across the country.
In the states with the highest gas taxes, the price of gasoline tends to be high even when taxes are excluded from the overall cost, while the opposite tends to be true in low gas tax states.
This is largely due to the proximity of oil refineries. In the Southeast, for example, where state governments levy low taxes on gas and drivers pay low gas prices, there is an abundant supply of oil. Texas and Louisiana are home to 27 and 19 petroleum refineries, respectively — the most and second most nationwide. Such states are also subject to fewer supplementary costs associated with the fuel, such as transportation costs or price spikes brought on by local supply shortages.
To fund roads and other transportation infrastructure, states with numerous oil refineries can often extract tax revenue from the production side of petroleum and spare consumers at the pump by charging relatively low retail gas taxes.
For states in the Northeast, by contrast, most fuel arrives by pipeline from the U.S. Gulf Coast. The transportation costs add to the overall price of gasoline. In addition, since many of these states do not have any refineries, there is also no opportunity to tax fuel at the production stage. Northeastern states, therefore, may levy relatively high gas taxes in order to make up for the lack of other sources of revenue.
The federal gas tax is 18.4 cents per gallon and has remained unchanged since 1993. For the most part, revenues from gasoline sales are reinvested in transportation infrastructure. According to Green, however, “States do not receive enough money from the federal government for transportation, and have enacted state fuel taxes as a means to supplement their funding needs.” Almost all state gas tax rates match or exceed the federal tax rate, and in some cases double it.
Gas taxes are also largely determined by local politics, which often parallels the general attitudes towards taxation within a given state. “Often the highest taxes are in the Northeast and West Coast, whereas the lowest taxes are in the Southeast and the Central United States,” Green said. New York, California, and Connecticut — states with traditionally high income and real estate taxes — also have among the highest gas tax rates.
Like the federal gas tax, state gas taxes rarely change — and when they do, the changes are relatively modest. In the 15 years ending in 2014, 21 states made no changes whatsoever to their tax rates. Over the same period, only five states increased the rate by more than 5 cents per gallon.
Gas taxes, and the overall price of gas, can impact driving behavior. In six of the 10 states with the costliest gas, vehicle miles traveled per capita are also among the 10 lowest in the country.
While driving behavior varies with transportation costs across states, Americans as a whole are driving more. Since the 1970s, the amount of miles the average American traveled has increased from an estimated 5,556 a year to 9,659 miles last year — the highest vehicle miles traveled per capita in history.
To identify the states with the highest and lowest gas taxes, 24/7 Wall St. reviewed state and average local gas taxes from the American Petroleum Institute (API). Average gas prices as of January 29, 2016 for each state came from AAA’s Daily Fuel Gauge Report. The number of operating oil refineries in each state came from the U.S. Energy Information Administration (EIA). We also reviewed average annual vehicle miles travelled in each state from the Federal Highway Administration (FHA). The number of licensed drivers in each state also came from the FHA. All data are as of the most recent period available.
These are the states with the highest and lowest gas taxes.