AASHTO Journal - Report: Fuel Tax ‘Holidays’ Won’t Lower Prices Much

According to new research conducted by the American Road & Transportation Builders Association, state-level fuel tax “holidays” do not necessarily result in significantly lower diesel and gasoline retail pump prices, nor deliver “big savings” to motorists.

[Above photo by the Ohio DOT]

In its nine-page report, the association examined 177 changes in state-level gasoline tax rates in 34 states between 2013 and 2021 and found that, on average, motorists received just 18 percent of an any increase or decrease in the retail price of gasoline in the two weeks after a change took effect.

ARTBA said it used data from the Oil Petroleum Information Service and the U.S. Energy Information Administration as part of its research, noting its conclusions mirror those of other previous academic studies: the price of crude oil is the primary driver of changes in the retail price of gasoline, not gasoline taxes.

The organization released its findings as 24 states are either enacting or are considering temporary fuel tax suspensions – along with suspending other transportation-related user fees – in light of record-high retail pump prices due to inflation and the Russian invasion of Ukraine.

“They are ineffectual in the short-term and they compromise revenues for transportation improvements in the long-term,” noted ARTBA Chief Economist Alison Premo Black in a statement.

ARTBA’s report also noted that the motor fuel tax – while folded into the overall price at the pump – does not collected by retail sales outlets. The federal fuel tax and most state gasoline taxes are collected either after removal of motor fuel from bulk storage terminals or at the distributor level. For perspective, there are 1,300 fuel terminals and 250 refineries – owned by 185 companies – registered with the federal government to distribute fuel.

ARTBA’s report also cited the Association for Convenience and Petroleum Retailing, which explained that factors contributing to varying retail gasoline prices within given geographic areas include distribution costs, regulatory-mandated fuel blend requirements, business costs, market conditions, the brand of fuel, taxes, and individual retail outlet pricing strategies.

Finally, ARTBA’s report stressed that state gasoline and diesel fuel taxes are key funding sources for state transportation programs. They account for an average of 46 percent of all user fee revenues collected at the state level and 19 percent of all state highway program funding.