Gasoline taxes explained

By Debbie Adlof

Does your blood pressure tend to go up with each and every increase in the price of gasoline? The natural inclination is to assume that something’s wrong, that perhaps the gas stations have banded together in some sort of conspiracy against us in an effort to empty our pockets. Indeed, something IS wrong. But the gas station owners are NOT getting rich. In fact, at times, they charge us less than what they paid for it. Incredible? You bet. You want an explanation? Well, put on your thinking caps, because this gets complicated!

For starters, did you know that the state of Illinois holds the unique distinction of having some of the highest gasoline prices in the country? If you’ve ventured out and crossed any state border, you couldn’t help but notice that we pay more. But why? Well, the bottom line is taxes. Federal, state, county, and city taxes are added to each gallon of gasoline we purchase. This source of revenue has apparently become quite a cash cow to all four governmental taxing bodies.

Terry Beachler, of Beachler’s Service Center in Peoria, has made quite an effort to inform and explain the situation. He has posted information on their website (www.beachlers.com) and gets quite animated when people ask him questions about it. According to Beachler, the breakdown of taxes added onto the price of gasoline goes like this:

The consumer pays a federal motor fuel tax. If you buy gasoline without ethanol, you’re currently paying 18.4 cents per gallon. If you buy gasoline with ethanol, you’re paying only 13 cents a gallon. (We can assume then that we’re rewarded for purchasing ethanol and penalized for buying it without ethanol.) According to Beachler, it is the fairest of any tax. Most of it is spent on roads and highways. The more you drive on the roads, the more you pay in this tax.

You also pay a state motor fuel tax of 19 cents. Illinois applies sales tax to gasoline while surrounding states either do NOT apply or it is at a lower rate. Cities with home rule in Illinois can apply sales and motor fuel tax. The City of Peoria adds a motor fuel tax of 2 cents. There is an underground storage tank tax of 1.1 cents. So far, your running total of taxes per gallon is either 35.1 cents or 40.5 cents, depending on whether you buy with or without ethanol.

But we’re not done adding yet! There is a trickier State, County, and City Sales tax that’s more complicated than the straightforward tax of a certain number of cents per gallon. This tax is a percentage sales tax. You either pay 7.5% without ethanol or 5.25% with ethanol on the total sales amount. It’s a windfall for the taxing bodies. This tax is applied to the retail price of gasoline (not including the state motor fuel tax). It is applied to all other taxes included in the selling price of gasoline. Yes, that does mean you’re paying a tax on taxes. In order to make it easier for us to compare this tax with the other taxes, Beachler calculates that the current average cost of this tax is currently 5.8 cents per gallon. So, now the running total of taxes to add on each gallon of gasoline ranges from 40.9 cents to 46.3 cents per gallon (again depending on ethanol or no ethanol).

And, we’re still not done adding! Incredible as it sounds, method of payment affects the final price of our bill. According to Beachler, if the customer uses a charge card, the bank card fee is 2.75%. This works out to approximately a 4-cent fee per gallon for charge customers and an 8-cent fee per gallon for cash customers. Therefore, the cash-paying customer is subsidizing the charge customer. You might remember Amoco’s efforts years ago to discount their cash customer a few cents per gallon. It didn’t “take.” People resented it. But, it was an effort to alleviate this inequity.

Now the running total of add-ons gets a little bit more complicated. If you’re a cash-paying consumer with ethanol, you would pay 48.9 cents per gallon in taxes; if, however, you’re a cash-paying consumer without ethanol, you would pay 54.3 cents per gallon in taxes. If you’re a credit card paying consumer with ethanol, you would pay 44.9 cents per gallon in taxes; and, if you’re a credit card paying consumer without ethanol, you would pay 50.3 cents per gallon in taxes. So, depending on options chosen, the taxes you pay on each gallon of gasoline ranges from 44.9 cents to 54.3 cents. Again, that’s PER gallon.

I haven’t even mentioned the cost incurred by the station owner for the actual gasoline that sits in the pumps. At this writing, the current cost to the station owner is $1.055 per gallon. It doesn’t take a genius to add the taxes onto this price. Even with cheapest tax option, the station owner is paying out $1.504 per gallon of gasoline. The price that nearly ALL station owners were charging at this time was $1.399 per gallon. Considerably less that what is paid out.

Station owners feel compelled to set their prices competitively with stations. In an effort to capture customers, some “cut-rate” station owners are purposely selling for less than cost. Other stations feel pressured into meeting that price in order to keep their customer base. This reporter presumes that currently station owners are attempting to make their profits on auto repairs, other automotive sales, and food sales.

The next time I buy gasoline for my car, I’ll be a better-informed customer and will know to direct my frustration at all those taxing bodies of government rather than the service station.

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