2019 Diesel Tax | Updates and Proposals by State


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Fuel taxes often fly under the radar as key components of a typical fuel price buildup. Yet, state-level fuel taxes can comprise between 10-20 percent of the per-gallon cost of fuel, qualifying as a significant segment of total transportation fuel spend.  State-level diesel taxes are no exception, and an ever-changing economy with a myriad of moving parts often leads to fuel tax variability that can significantly impact fuel costs within transportation supply chains. Monitoring specific state fuel taxes incurred in a shipper’s network remains crucial in order to eliminate inaccurate reimbursement and ensure that shippers pay the exact amount for fuel used to move their goods to market.

The US Fuel Tax Landscape is Ever-Changing

Deteriorating transportation infrastructure in the United States continues to gain national attention. State-level initiatives to repair and maintain key transportation corridors need capital to support, and fuel taxes tend to be one of the most efficient and effective ways for states to incur a prompt capital injection. Relatively lower fuel prices, rising construction costs, and drastically improved fuel efficiency technologies have accelerated the losses in fuel tax purchasing power, leaving states more prone to institute fuel tax reforms to offset these headwinds.

In the first quarter of 2019, seven states publicly announced plans to implement diesel tax increases as a means of generating funds for infrastructure projects, though a definite roll-out for many of the respective participants has yet to be determined by state politicians. Of equal importance, many of the proposed tax hikes will be instituted incrementally over time – if passed – with significant variability and cost implications alike. Details regarding the proposed tax changes in Michigan, Ohio, Minnesota, Alabama, Wisconsin, Arkansas, and Washington are shown in the table below.

grid of proposed diesel fuel tax changes and timeline2019 Diesel Tax Changes and Proposals

Perhaps a more transparent representation of the said tax changes is reflected in the chart below. The incremental increases for each state are included, ultimately building-up to the final proposed fuel tax shown in the table above.

Michigan’s fuel tax-based revenue objectives are clearly the most notable. If its diesel tax proposition is approved in the state’s budget, Michigan will surpass California to earn the rank of the highest-taxed state in the US. Bi-partisan support will likely be required to approve such a drastic tax hike, opening the door for two common funding alternatives – increased vehicle registration fees and borrowing – to act as supplementary revenue generators if the proposed tax hike is viewed as too aggressive. These alternatives remain possibilities for all states with outstanding fuel tax proposals, yet fuel taxes remain a likely target.

Diesel tax propositions in Minnesota, Wisconsin, and Washington all hold significance of their own, with Washington being the outlier due its carbon-based intentions. Ohio, Alabama, and Arkansas remain the only states that have officially passed their respective tax reforms, creating direct cost implications for diesel consumers as early as the third quarter of this year. The chart below indicates the current and proposed cost ramifications on a per-mile basis, with a 6.5 mile-per-gallon fuel efficiency parameter used for calculations.

more state level tax change proposals

The magnitude of these changes can easily be undermined, though shippers moving goods to market in the affected states will most definitely see rising costs that will impact not only their transportation fuel spend, but also their bottom line. To quantify the breadth of the fuel tax amendments, the chart below uses a proxy of 10 million gallons – an average-sized shipper – and the weighted percent of gallons by state, based on Breakthrough’s 2018 full-year data. It is important to note that the gallons consumed by state are not actual consumption figures, but rather an approximation of diesel gallons that could be allocated to each state based on an average shipper’s transportation network.

diesel tax proposal cost effects for shippers by gallons

While the discussed tax changes fall under the category of static rate-per-gallon levies, the US fuel tax environment remains dynamic, ever-changing, and widely diverse. Moreover, some states have begun abandoning fixed-rate fuel taxes altogether, transitioning to variable tax mechanisms – such as weight-per-mile taxes or inflation-adjusted rates – to optimize the sustainability of internal tax revenue. One variable that remains constant, however, is the fact that states have greatly increased the prevalence of fuel tax alterations to better position themselves for imminent change and economic uncertainty.

Breakthrough’s core values are removing distortion, achieving transparency, and establishing fairness – all pillars of which fuel taxes direct attention to. Our market-based fuel reimbursement program accounts for all fuel tax changes in your transportation supply chain as they occur. We will continue monitoring these changes– to ensure carrier counterparts are adequately reimbursed for the energy used to move goods to market.

For more information about the newly imposed tax updates, market updates, or Fuel Recovery, contact us or reach out to the Applied Knowledge team directly.

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