Mid-Year Diesel Fuel Tax Updates


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Though not all states implement regular changes, each year July emerges as a prevalent time for state fuel tax updates. Transportation infrastructure projects are often the driving force behind increased fuel taxes, as local economies depend on additional revenue to fund such capital-intensive undertakings. Fuel tax reform helps combat the loss in fuel tax purchasing power caused by growing construction costs and improved vehicle fuel efficiencies. Furthermore, some states are vacating fixed-rate fuel taxes altogether (static, cents-per-gallon taxes) and converting to variable-rate fuel tax mechanisms that will enable more sustainable tax revenue longer-term.

State-Level Diesel Fuel Tax Changes

Seven states including Oklahoma, Tennessee, South Carolina, Connecticut, Maryland, Indiana, and Nebraska announced amendments to their fuel tax programs on July 1.

Most notably, Oklahoma’s 6 cents per gallon diesel tax increase came as a surprise to the fuel market as their fuel taxes consistently rank lowest in the United States with minimal variability. The nearly 43 percent tax spike comes following proposals for the state’s transportation infrastructure and further investments in statewide education. Oklahoma’s tax raise is the largest in the US year-to-date.

The passing of a Tennessee road funding bill in 2017 catalyzed the state’s 3 cents per gallon diesel tax jump. Similarly, South Carolina plans to drive diesel taxes upward 2 cents per gallon each year until 2022 to fund the state’s Infrastructure Maintenance Trust Fund.  Maryland’s increase of 1.5 cents per gallon came following a recent law that bundles fuel tax with inflation and the overall price of fuel, while Connecticut and Indiana also implemented minor tax increases as depicted in the map above. Nebraska was the only state to decrease diesel taxes on the July 1 updates.

The graph below illustrates volatility in state-level diesel taxes between 2010 and current levels in 2018. Key callouts include Oklahoma’s levy of the lowest diesel taxes from 2010-2017, before its 20 cents per gallon increase surpassed tax levels in Missouri. Additionally, the national average state taxes have increased 23.2 percent, and the range between the states with lowest and highest diesel taxes increased 104 percent since 2010.

Uncertainty For California’s 2017 Tax Increase

November 2017 marked the implementation of California’s 20 cents per gallon excise tax increase (plus 4 percent sales tax) on diesel fuel. Like most states in need of infrastructure repair and expansion, California’s tax adjustments were intended to fund nearly $67 million in transportation projects statewide. State residents voiced uncertainty in the utilization of the supplemental tax revenue, ultimately sparking controversy among voters, thus qualifying the newly implemented diesel tax program for repeal on the state’s upcoming November 2018 ballot. Nearly 5,000 transportation projects receiving support from the additional tax revenue are underway, though nearly half are in jeopardy of delay or cancellation if the repeal is successful.

Ontario Abandons Cap-and-Trade

Ontario vows to cancel their involvement with the Western Climate Initiative (WCI) and the affiliated cap-and-trade carbon program. Premier-designate Doug Ford believes the cap-and-trade program, and other federally-mandated carbon-reduction initiatives, lack  satisfactory results since their initial launch. The decision to abandon the cap-and-trade program leaves $2.1 billion of previously-purchased carbon credits in limbo and could hinder Ontario’s collaboration with Quebec and California in the near term. The province still faces the federally mandated carbon tax of $20 CAD/MT of CObeginning January 2019, though cabinet representatives remain confident in their ability to evade the mandated tax program entirely. Their current cap-and-trade program adds approximately 5 CAD ¢/L to all diesel fuel.

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

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