States With The Highest And Lowest Gasoline Tax

Gasoline, petrol, or whatever you choose to call it, is an important part of the budget of millions of Americans. When prices rise, budgets become stretched. As a result, higher gasoline prices tend to hurt those with lower incomes the most. Moreover, when gas prices spike, a great deal of confusion is created over the cause. Some politicize it, blaming the president or a political party. Others blame corporate greed. However, these are fringe elements with minimal effect. Let’s look at the most important factors that dictate the price we pay at the pump.

Retail Gasoline Prices: An Overview

The price of gasoline (derived from crude oil) is primarily decided by four factors. They are extraction, refining, distribution & marketing, and taxes & fees. The following table contains the information.

Factor I: Oil must be extracted from the ground. The extracted oil is either light or heavy and either sweet or sour. Light, sweet crude yields the most gasoline per barrel of oil whereas heavy, sour oil produces the least. The cost of drilling also varies from rigs on land to those over water, and fracking. Note: The price of oil is set by supply and demand on the global market. After it is extracted, the oil is shipped to refiners.

Factor II: Refiners distill the oil, add additives, which includes ethanol, and produce gasoline. Although there are refiners spread across the U.S., many are in the Midwest, Oklahoma, and New Jersey. However, the greatest concentration of refiners is located along the Gulf Coast from Alabama to Texas.

Factor III: The gasoline is shipped to locales in the U.S. where it is stored in large tanks until transported to local filling stations. This is a significant variable in the final cost at the pump. For example, California has a large population, but only a handful of refineries. At times it may be necessary to ship gasoline from Gulf Coast refineries to meet the need. Thus, the cost of distribution is an important factor in the final price.

Factor IV: State and local taxes and other fees are added to the cost. There is a lot of discrepancy here. States with a higher median income may be able to charge a higher gasoline tax compared to a state with a low-income population. In any event, the end result is the price we pay at the pump.

According to the Energy Information Administration. The price of the oil accounted for 56% of the retail price of gasoline in the decade through 2020, making it the most important factor. Refining and distribution & marketing each accounted for 14% of the total and taxes accounted for roughly 16% of the cost at the pump.

The Highest and Lowest State Gas Tax Rates

The federal government, plus every state, levies a tax on the price of gasoline. The federal gasoline tax has been 18.4 cents per gallon since 1993. The average state gasoline tax is about 19.0 cents per gallon as of February 2021. Which states have the highest gasoline tax? Which have the lowest tax?

As of January 2021, California had the highest effective gas tax, followed by Pennsylvania, Illinois, New Jersey, and Nevada. The ten highest state gasoline tax rates can be seen in the following graph.

Which states have the lowest gasoline tax? Alaska, Missouri, Mississippi, New Mexico, and Arizona have the lowest effective gas tax rate. The following chart shows the 10 states with the lowest gas tax.

Some states, such as Virginia, index its gasoline tax to inflation. Another state, Maryland, has suspended its gas tax. Other states are considering suspending the tax as well.

What determines the price of retail gasoline? The most important factors are the cost of oil, the cost of refining, the cost of distributing the gasoline, and the amount of federal and states taxes. Everything else is secondary. While politicians may restrict drilling on federal land and refiners can modify the cost of refining, these are secondary to the four factors listed.