Gas Taxes and What You Need to Know

They are increasingly failing to cover infrastructure costs

Gas taxes are excise taxes that you pay when you fill up your car with gas. The federal government and all 50 U.S. states impose gas taxes, with much of the revenue raised going toward fixing highways and other infrastructure projects.

State gas taxes range from just under 9 cents per gallon in Alaska to nearly 65 cents per gallon in California, though some states charge based on the amount spent rather than the volume of fuel purchased.

Key Takeaways

  • Federal and state governments levy gas taxes to help pay for road infrastructure projects.
  • The average state gas tax is about 31 cents a gallon, though they range from less than 9 cents to nearly 59 cents a gallon.
  • Gas taxes have not kept pace with road maintenance costs, leading some states to legislate increases tied to inflation and many to adopt variable rates.

How Have State Gas Taxes Evolved?

History of Gas Taxes

U.S. states have levied gas taxes since the early days of automobile travel. In 1919, a little over a decade after Henry Ford’s Model T made owning a car affordable for the masses, Oregon became the first state to adopt a gas tax—at 1 cent per gallon. Within 10 years, every state was collecting gas taxes. The federal government followed suit in 1932, establishing a nationwide gas tax of 1 cent per gallon in an attempt to shrink a budget deficit rising as a result of the Great Depression.

The basic concept behind the tax is the benefits received rule: The notion that people should be taxed based on how much they benefit from government spending. Thus, drivers pay a gas tax to help cover the cost of building and maintaining roads, bridges, and tunnels—and to address the problems of traffic congestion and pollution.

Current Problems

Unfortunately, the revenue raised from gas taxes has failed to keep up with rising infrastructure costs and inflation. The development of electric vehicles and increased fuel efficiency of all autos has reduced gas demand relative to vehicle miles traveled, further widening the gap between the gas tax funds raised and road maintenance costs.

While the federal gas tax has been stuck at 18.4 cents a gallon since 1993, the increasing squeeze on transportation budgets has led many states to raise the gas tax in recent years. Thirty-six states have done so since 2010.

More states are also changing how their motor fuel excise taxes work to try to keep up with rising gas prices and inflation. Nearly half of the states now have variable-rate gas taxes, using formulas linked to everything from the price of gas and the Consumer Price Index (CPI) to fuel efficiency and population growth. For example, Indiana links its gas tax rate to the rates of inflation and personal income growth.

Most states assess a variety of taxes and fees on top of the gas tax, including environmental, underground storage, and inspection fees. Other types of fuel are taxed as well, including diesel, ethanol, aviation fuel, and alternatives including natural gas.

2022 Gasoline Tax Holidays

Following the sharp increase in gasoline prices after Russia's invasion of Ukraine, four U.S. states—Connecticut, Georgia, New York, Florida, and Maryland—temporarily suspended their state gas taxes in 2022.

Connecticut suspended its gas tax from April 1 through November 30. Georgia suspended its gas tax on March 18 and has since extended the suspension until September 12. New York suspended its motor fuel taxes from June 1 until Dec. 31. Maryland suspended its gas tax from March 18 to April 16; motorists in that state faced a gas tax increase of 6.6 cents per gallon from July 1 as a result of legislation tying the tax to the national inflation rate.

Other states, including New Jersey, Ohio, and West Virginia have considered a gas tax holiday without adopting one as of June 2022.

In California, the legislature had not acted as of June on Governor Gavin Newsom's proposal to provide $400 debit cards to auto owners to ease the effect of higher gas prices. Meanwhile, the state's gas tax, the nation's highest, was scheduled to increase by 2.8 cents per gallon on July 1 under a schedule of incremental increases adopted in 2017.

In calling on Congress to suspend the federal gas tax for three months through September 2022, U.S. President Joseph Biden urged states and local jurisdictions to provide relief on gas taxes as well. Economists critical of the strategy have argued that lowering gas taxes even temporarily increases the demand for a commodity, raising its market price assuming steady supply.

How Much Are State Gas Taxes?

When you add up all the taxes and fees, the average state gas tax stood at 31.02 cents per gallon on Jan. 1, 2022, according to the U.S. Energy Information Administration. Throw in the 18.4 cent federal tax, and the total gas tax rises to nearly 50 cents per gallon.

Gas taxes thus accounted, on average, for just under 10% of the average retail gasoline price of $4.084 per gallon of regular unleaded as of August 6, 2022.

Here’s a rundown of the gas taxes in each state, including other taxes and fees, as of the start of 2022:

Gas Taxes by State and the District of Columbia
State Gas Tax Other Taxes and Fees* Total Taxes
Alabama 28 cents 1.2 cents 29.2 cents
Alaska 8 cents 0.95 cents 8.95 cents
Arizona 18 cents 1 cent 19 cents
Arkansas 24.5 cents 0.3 cents 24.8 cents
California 53.9 cents 11.2 cents 65.1 cents
Colorado 22 cents 1.25 cents 23.25 cents
Connecticut 25 cents   25 cents
Delaware 23 cents   23 cents
D.C. 23.5 cents  10.3 cents 33.8 cents
Florida 4 cents 31.5 cents 35.5 cents
Georgia 29.1 cents 0.75 cents  29.85 cents
Hawaii 16 cents 2.5 cents 18.5 cents
Idaho  32 cents 1 cent 33 cents
Illinois 39.2 cents 24.1 cents 63.3 cents
Indiana 33 cents 30.1 cents 63.1 cents
Iowa 30 cents   30 cents
Kansas 24 cents 1.03 cents 25.03 cents
Kentucky 24.6 cents 1.4 cents 26 cents
Louisiana 20 cents 0.93 cents 20.93 cents
Maine  30 cents 1.4 cents 31.4 cents
Maryland  28.9 cents 13.9 cents 42.89 cents
Massachusetts 24 cents  2.98 cents 26.98 cents
Michigan 27.2 cents 24.5 cents 51.7 cents
Minnesota  28.5 cents 0.1 cents 28.6 cents
Mississippi 18 cents 0.4 cents 18.4 cents
Missouri 22 cents 0.42 cents 22.42 cents
Montana 33 cents 0.75 cents 33.75 cents
Nebraska 24.8 cents 0.9 cents 25.7 cents
Nevada 23 cents 0.81 cents 23.81 cents
New Hampshire  22.2 cents 1.63 cents 23.83 cents
New Jersey 10.5 cents 31.95 cents 42.45 cents
New Mexico  17 cents 1.88 cents 18.88 cents
New York 8 cents 17.68 cents 17.68 cents
North Carolina  38.5 cents 0.25 cents 38.75 cents
North Dakota  23 cents 0.03 cents 23.03 cents
Ohio  38.5 cents   38.5 cents 
Oklahoma  19 cents 1 cent 20 cents
Oregon 38 cents   38 cents
Pennsylvania  57.6 cents 1.1 cents 58.7 cents
Rhode Island 34 cents 1.12 cents 35.12 cents
South Carolina 28 cents  0.75 cents 28.75 cents
South Dakota  28 cents 2 cents 30 cents
Tennessee  26 cents 1.4 cents 27.4 cents
Texas  20 cents   20 cents
Utah  31.9 cents 0.65 cents 32.55 cents
Vermont  12.1 cents 24.86 cents 36.96 cents
Virginia 28 cents  8.8 cents 36.8 cents
Washington 49.4 cents  2.98 cents 52.38 cents
West Virginia  20.5 cents  15.2 cents 35.7 cents
Wisconsin  30.9 cents  2 cents 32.9 cents
Wyoming  23 cents 1 cent 24 cents
*May include sales or use taxes, inspection fees, environmental fees, or other charges

Source: U.S. Energy Information Administration

What Do Gas Taxes Cover?

The bulk of revenue from gas taxes goes toward fixing wear and tear on the country’s roadways from all that driving. In fact, about half of the states have laws requiring that money raised by fuel taxes pays for roads and bridges. Most of the other states dedicate the revenue toward various modes of transportation, with New York spending more than a third of its gas tax proceeds on mass transit.

Some states do use the money for purposes unrelated to transportation, such as law enforcement, environmental protection, and education. For example, Texas dedicates a quarter of its gas tax revenue to schools.

At the federal level, nearly all funding currently goes into the Highway Trust Fund. One-tenth of a cent in federal taxes from each fuel gallon goes toward cleaning up leaks from underground petroleum storage tanks. For gas tax revenues contributed to the highway fund, 2.86 cents per gallon out of the 18.3 cents per gallon tax funds mass transit.

However, gas taxes raised at the state and federal levels are increasingly falling short of what’s needed to maintain and expand the country’s roads. In 2021, the Congressional Budget Office estimated a cumulative shortfall of $195 billion for the Federal Highway Fund's highway and mass transit spending through 2031.

Frequently Asked Questions

How Much Is Gas Taxed in America?

As of January 2022, the average state gas tax in the U.S. was 31.02 cents, while the federal gas tax rate was 18.4 cents. Taken together, this amounts to 49.42 cents per gallon.

What U.S. State Has the Highest Gas Tax?

As of June 2022, California had the highest gas tax in the nation at 58.8 cents per gallon. Following closely behind is Pennsylvania, with a rate of 58.7 cents per gallon. California's gas tax was scheduled to increase by 2.8 cents per gallon on July 1, 2022.

What U.S. State Has the Lowest Gas Tax?

At 8.95 cents per gallon, Alaska has the lowest state gas tax by a wide margin. The oil-producing state's gas tax has moved very little since 1970, when it was 8 cents per gallon.

Where Does Gas Tax Revenue Go?

The bulk of revenue from gas taxes pays for infrastructure projects such as building, repairing, and modernizing roads and public transit.

Which States Tie Gas Taxes to the CPI?

A handful of states index the state gas tax to changes in the Consumer Price Index (CPI). Some of these include Florida, Maryland, North Carolina, and Rhode Island.

The Bottom Line 

Given the increasing shortfalls, federal and state officials will need to consider how to keep paying for paving the country’s roadways and fixing its potholes. At the federal level alone, the cumulative funding shortfall in the Highway Trust Fund is expected to reach $195 billion by 2031. And that’s assuming that Congress continues to extend the gas tax, with all but 4.3 cents scheduled to expire in September 2022. 

While hiking the gas tax and allowing it to rise with inflation have become popular solutions to the funding shortfall, some states have also started charging electric vehicle owners an annual fee. The funding issue will likely only grow in urgency as the country’s infrastructure, already barely getting a passing grade, continues to age, with the American Society of Civil Engineers’ Report Card scoring its state a C-.

The good news is that the federal government budgeted $1 trillion toward infrastructure spending, including $110 billion for road and bridge repair and $39 billion to modernize transit, under the Infrastructure Investment and Jobs Act passed in 2021.

Article Sources
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