While the core price drivers – supply & demand, geopolitics, and economics – remain status quo for the Breakthrough team when analyzing fuel market behavior, other variables often fly under the radar that can substantially influence station-level diesel prices. The regulatory environment, specifically related to state fuel taxes, can play a vital role in the ebbs and flows of fuel price volatility, as regulatory bodies often propose fuel tax adjustments to obtain revenue for infrastructure-related projects. Mid-term elections brought attention to this subject, emphasizing the value of transparency, which Breakthrough brings to all components of fuel spend in our clients’ transportation supply chains.
California Fuel Tax Repeal Effort
Government infrastructure expenditures, or lack thereof, have placed logistical constraints on some of the nation’s most widely-utilized and economically dependent transportation infrastructure. Consequently, states themselves have taken a proactive stance to turn a static phase of government spending into an opportunity to raise funds for infrastructure across all modes of transportation. California was no exception to this rule. The state’s vast contributions to the transportation industry and US economy alike mean that any changes to fuel costs will create a significant cost impact for freight flows throughout California.
November 2017 marked a time of drastic change throughout California, with the base excise tax on diesel fuel increasing by a fixed 20 cents per gallon, in addition to a 4 percent per gallon sales tax increase. The months following the implementation of the tax spikes brought pushback from California residents. Concerns over whether the additional tax revenue would actually be allocated to its intended purposes, along with general opposition to the heightened fuel costs raised enough controversy for a referendum. This referendum, known as Proposition 6, earned a place on the ballot for November 2018’s mid-term elections.
Despite initial polls indicating the majority favored a tax reversal, election results on November 6 told a different story. After earning 56 percent of the state’s vote, the tax structure instituted in November 2017 will remain for the foreseeable future. As results finalized and the reality of California’s ongoing high-tax environment solidified, wholesale diesel prices – a price point at which well-managed carriers procure fuel – in California continue at a premium to the national retail average (see chart below).
Missouri Fuel Tax Increase Effort in Lowest-Taxed State
Missouri was the second state to have a tax increase on the mid-term election ballot– referred to as Proposition D. A 10 cent per gallon increase phased-out over the next four years (2.5 ¢/gallon each year) was in the hands of voters. The proposal was in line with the growing prevalence of state-level fuel tax amendments as of late.
The tax proposal in Missouri was not passed, with 54 percent of the vote opposing the diesel tax increase, securing Missouri’s position of having the lowest state fuel tax. The chart below highlights the diesel tax differences by state, revealing the drastic variance in fuel taxes year-over-year. Oklahoma has historically earned the accolade of being the lowest-taxed state in the US in terms of diesel fuel, but Oklahoma’s significant tax increase in July surpassed Missouri who fell to the bottom of the state fuel tax list.
The map below provides a different view of the diesel tax structure throughout the US, exemplifying the state-level differences in 2018 to-date. Comparing the highest and lowest-taxed states—which happen to be California and Missouri respectively—reveals an approximate 63.3 cent per gallon difference in diesel taxes alone. Taxes are just one distortion historically unaccounted for in traditional DOE-based reimbursement practices utilized by non-Breakthrough clients. In addition to time, price, and geographical differences, taxes are an essential cost factor that makes fairness and transparency a key element of the Breakthrough Advantage.
Achieving transparency, removing distortion, and establishing fairness are the pillars Breakthrough helps clients achieve on every movement, every day. Taxes fluctuate often, and are a significant contributor to the per-gallon cost of fuel. Shippers who work with Breakthrough achieve a competitive advantage by accounting for taxes based on miles travelled by state
To gain further insight into the different drivers of transportation fuel costs, or to learn how to implement a strategic fuel management strategy, contact us!