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 states both impose gas taxes, with much of the revenue raised going toward fixing highways and other infrastructure projects. State gas taxes range from just under 10 cents to nearly 60 cents for a gallon of gas, though some states charge based on the price—rather than on the amount—of gas that you’re buying.

Key Takeaways

  • Federal and state governments impose gas taxes to help pay for road infrastructure projects.
  • The average state gas tax is about 30 cents a gallon, though they range from less than 10 cents to nearly 60 cents a gallon.
  • Not enough gas tax revenues are being raised to cover infrastructure costs, as many tax rates don’t rise with inflation, and cars are becoming more fuel-efficient.

How Have State Gas Taxes Evolved?

History of Gas Taxes

States have been levying taxes on gas since the early days of automobile travel in the U.S. In 1919, a little over a decade after Henry Ford’s Model T made owning a car affordable to the masses, Oregon became the first state to create 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 to help pay for Great Depression-related programs.

The basic concept behind the tax is the benefits received rule: Whoever benefits from something that the government provides should help pay for it. Thus, drivers pay a gas tax to help cover the cost of building and maintaining roads, bridges, and tunnels—as well as to help address traffic-related issues such as congestion and pollution.

Current problems

Unfortunately, the revenue raised from gas taxes has failed to keep up with rising infrastructure costs and the overall pace of inflation. At the same time, the development of electric vehicles and cars with greater fuel efficiency has cut down on gas demand and eaten into government coffers.

Though 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. Tax hikes have been imposed in 36 states since 2010, and taxes in Alabama and Washington, D.C., are set to increase in October.

Meanwhile, more states are changing how their taxes work to try to keep up with rising gas prices and overall inflation. Nearly half of all states now set gas taxes that vary in some way, using formulas linked to everything from gas prices and the Consumer Price Index to fuel efficiency and population growth. For example, Indiana links its gas tax rate to both the rate of inflation and the income levels of people who live in the state. 

However, with the recent war in Ukraine causing gas prices to spike, Connecticut, Maryland, and Georgia have introduced temporary suspensions on gas taxes. Other states, including New Jersey, Ohio, New York, and West Virginia are also considering a gas tax holiday as prices hit higher levels.

Most states also have added a range of other 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 alternative sources, such as natural gas.

How Much Are State Gas Taxes?

When you add up all the taxes and fees, the average state gas tax is 30.06 cents per gallon, as of the beginning of 2021, according to the U.S. Energy Information Administration. Throw in the 18.4-cent federal tax, and it starts to add up. In fact, gas taxes accounted for about one-fifth of the $2.50 average price for a gallon of gas in early 2021. However, this has since changed with gas prices skyrocketing to $4.10 dollars per gallon as of March 2022.

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

Gas Taxes by State and the District of Columbia
State Gas Tax Other Taxes and Fees* Total Taxes
Alabama 28 cents 1 cent 29 cents
Alaska 8 cents 0.95 cent 8.95 cents
Arizona 18 cents 1 cent 19 cents
Arkansas 24.5 cents 0.3 cent 24.8 cents
California 51.1 cents 7.7 cents 58.8 cents
Colorado 22 cents 1.56 cents 23.56 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 cent  29.85 cents
Hawaii 16 cents 2.5 cents 18.5 cents
Idaho  32 cents 1 cent 33 cents
Illinois 39.2 cents 19.1 cents 58.3 cents
Indiana 32 cents 18.3 cents 50.3 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 cent 20.93 cents
Maine  30 cents 1.4 cents 31.4 cents
Maryland  27.1 cents 9.19 cents 36.29 cents
Massachusetts 24 cents  2.98 cents 26.98 cents
Michigan 27.2 cents 18.5 cents 45.7 cents
Minnesota  28.5 cents 0.01 cent 28.6 cents
Mississippi 18 cents 0.4 cent 18.4 cents
Missouri 19.5 cents 0.42 cent 19.92 cents
Montana 32.5 cents 0.75 cent 33.25 cents
Nebraska 24.8 cents 0.9 cent 25.7 cents
Nevada 23 cents 0.81 cent 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 25.68 cents 33.68 cents
North Carolina  38.5 cents 0.25 cent 38.75 cents
North Dakota  23 cents 0.03 cent 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 26 cents  0.75 cent 26.75 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 cent 32.55 cents
Vermont  12.1 cents 20.04 cents 32.14 cents
Virginia 26.2 cents  0.79 cent 34.1 cents
Washington 49.4 cents  2.82 cents 52.22 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 and/or use taxes, inspection fees, environmental fees, or other charges

Source: U.S. Energy Information Administration

What Do Gas Taxes Cover?

The vast majority of revenue from gas taxes goes toward fixing the 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 some type of transportation, with New York putting more than a third of its gas tax proceeds into mass transit. Still, some states divert money for other purposes, 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, our research has found that while some of the revenue from the gas tax has been diverted at times to help reduce the national budget deficit, nearly all funding currently goes into the Highway Trust Fund. An additional one-tenth of a cent of each gallon goes toward cleaning up leaks from underground petroleum storage tanks. And not all of the highway fund is dedicated to maintaining roads, with 2.86 cents out of the 18.4-cent gas tax put aside to support mass transit.

However, gas taxes raised at both the state and federal levels are increasingly falling short of what’s needed to maintain and expand the country’s roadways. The Highway Trust Fund has had to take money from the U.S. Treasury Department’s general fund since 2008.

Gas Tax Holidays

Whenever gas prices increase significantly, local and national politicians will propose temporarily suspending gas taxes in what is referred to as a "gas tax holiday." This holiday was proposed extensively when gas prices were last at their peak in 2008 but never came to fruition.

As of April 8, 2022, gas prices are approaching the previous records set in 2008 at a national average of $4.14 per gallon. This sharp climb has led many politicians to propose a gas tax holiday of varying lengths to ease the burden on consumers.

While this move makes those politicians very popular among their constituents, analysts say the move would be devastating for our already struggling infrastructure. The Highway Trust Fund, which builds and maintains our roads, depends on gas taxes for roughly three-fifths of its budget. If a gas tax holiday is passed, we can expect the sad state of our highways to get even worse.

How Much Is Gas Taxed in America?

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

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

California has 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.

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. In fact, the gas tax has moved very little since 1970, when it was 8 cents per gallon.

Where Does Gas Tax Revenue Go?

The majority of revenues from gas taxes pay for infrastructure projects such as building, repairing, and modernizing transit. However, in recent years, gas taxes have fallen short of raising enough money to repair and expand roadways. As a result, the Highway Trust Fund has drawn money from the U.S. Treasury Department to address this shortfall since 2008.

Which States Automatically Tie Gas Taxes to the CPI?

A handful of states automatically link state gas tax to the consumer price index (CPI). 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 collective deficit in the Highway Trust Fund is expected to grow to nearly $200 billion by 2030. And that’s assuming that Congress continues to extend the gas tax, with all but 4.3 cents scheduled to expire in September 2022. 

In addition to options such as hiking the gas tax and allowing it to rise with inflation, some states have started charging electric vehicle owners an annual fee. Given that the country’s infrastructure is already barely getting a passing grade, with the American Society of Civil Engineers’ Report Card rating it a C−, the funding issue will likely only grow in urgency. The good news is that the federal government has slated $1.2 trillion toward infrastructure spending, including $110 billion for road and bridge repair and $39 billion to modernize transit. But how that might affect gas taxes remains to be seen.

Article Sources

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  2. Congressional Research Service, “Funding and Financing Highways and Public Transportation,” Page 10.

  3. Tax Foundation. "When Did Your State Enact Its Gas Tax?"

  4. U.S. Department of Transportation. “When Did the Federal Government Begin Collecting the Gas Tax?

  5. Tax Foundation. “Excise Tax Application and Trends.”

  6. American Association of State Highway and Transportation Officials. “Transportation Governance and Finance: A 50-State Review of State Legislatures and Departments of Transportation,” Pages 57–66.

  7. National Conference of State Legislators. "Variable Rate Gas Taxes."

  8. Federation of Tax Administrators. “State Motor Fuel Tax Rates.” 

  9. Institute on Taxation and Economic Policy. “Most Americans Live in States with Variable-Rate Gas Taxes.” 

  10. Institute on Taxation and Economic Policy. “Most States Have Raised Gas Taxes in Recent Years.” 

  11. Associated Press. "Maryland Governor Signs Gas Tax Suspension Bill Into Effect."

  12. The Office of Ned Lamont. "Governor Lamont Signs Emergency Legislation Suspending Connecticut’s Excise Tax on Gas From April 1 to June 30."

  13. U.S. Energy Information Administration. "Frequently Asked Questions: How Much Tax Do We Pay on a Gallon of Gasoline and on a Gallon of Diesel Fuel?"

  14. Office of the Governor Jim Justice. "Gov. Justice Issue Statement On Calls to Suspend Gas Tax."

  15. U.S. Energy Information Administration. “U.S. Gasoline Prices Have Been Rising with Crude Oil Prices.”

  16. American Association of State Highway and Transportation Officials. “Transportation Governance and Finance: A 50-State Review of State Legislatures and Departments of Transportation,” Pages 67–68.

  17. New York State Department of Taxation and Finance. “Collection of Petroleum Business Tax and Motor Fuel Excise Tax,“ Pages 5–6.

  18. Texas Education Agency, Office of School Finance. “Available School Fund (ASF) Payments.” 

  19. U.S. Department of Transportation. “Funding Federal-Aid Highways.” 

  20. Congressional Research Service. “Federal-Aid Highway Program (FAHP): In Brief,” Page 2.

  21. Congressional Budget Office. "Testimony on Addressing the Long-Term Solvency of the Highway Trust Fund."

  22. New York Times. "States Get In on Calls for a Gas Tax Holiday."

  23. Wired. "McCain's Gas Tax Holiday: Smart Politics, Stupid Policy."

  24. AAA. "Gas Prices."

  25. Committee for a Responsible Federal Budget. "Gas tax Holiday Would Cost $20 Billion."

  26. Institute on Taxation and Economic Policy. "Alaska's Motor Fuel Tax: A National and Historical Outlier."

  27. Congressional Budget Office. “Baseline Projections — Highway Trust Fund Accounts,” Page 3.

  28. American Society of Civil Engineers. “America’s Infrastructure Scores a C−.”

  29. The White House. "President Biden's Bipartisan Infrastructure Law."

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