A state-by-state guide to gas tax holidays

With gas prices hovering around a national average of $4.85 a gallon ​​— after spiking just over $5 a gallon in June — some states and even local governments are debating gas tax holidays as a way to ease consumer prices.

So far, at least five states, plus Puerto Rico, have temporarily cut or removed taxes on gasoline.   

These states have declared gas tax holidays

Connecticut

In March, the Connecticut Legislature suspended its 25-cents-per-gallon excise tax on gasoline from April 1 to June 30, 2022; a second bill in May extended that through November 30, 2022. Governor Ned Lamont signed both bills. Each retailer is required to reduce prices by the same 25-cents-per-gallon amount. Fares on public buses statewide are also suspended during the period.

Florida

The Florida Legislature approved a budget bill in May that will suspend the states’ 25.3-cents-per-gallon excise tax for the month of October. It was signed by Governor Ron DeSantis.

Georgia

The Georgia Legislature passed a bill suspending collection of the state’s motor vehicle excise tax from March 18 through May 31, 2022. Governor Brian Kemp later issued an executive order extending the suspension through August 13, 2022. Georgia had been collecting an excise tax of 29.1 cents per gallon.

Maryland

The Maryland Legislature approved a 30-day suspension of the state’s 36.1-cents-per-gallon excise tax on gasoline. Governor Larry Hogan signed the bill creating the tax holiday, which ran from March 18 through April 16, 2022.

New York

In April, Governor Kathy Hochul signed a state budget that suspends collection of the state’s 8-cents-per-gallon excise tax — and capped its sales tax on gas to collect only on the first $2 per gallon of sales. The measures are in effect from June 1 through December 31, 2022. The bill also suspended the 0.75-cents-per-gallon tax the Metropolitan Commuter Transportation District collects in and around New York City, and gave local governments in the state authority to lower the sales taxes they collect on gas. (More on that below.)

Puerto Rico

The commonwealth’s legislature voted to suspend its 16-cents-per-gallon gas tax for 45 days starting June 14, 2022. Governor Pedro Pierluisi signed the bill.

In addition, three states have suspended gas tax increases that were scheduled to take effect July 1. They are:

Colorado, which delayed a planned 2-cents-per-gallon tax increase until April 1, 2023

Illinois, which delayed a 2.4-cents-per-gallon increase until January 1, 2023

Kentucky, which has frozen its gas tax in place, forgoing a planned 2-cents-per-gallon increase, until its legislature meets again in January 2023. Governor Andy Beshear declared a state of emergency over gas price increases, making it illegal to sell gasoline or other motor fuels “at a price grossly in excess of the price prior to the declaration of this state of emergency.”

Legislators in another 19 states have debated or voted on bills to temporarily lift their gas taxes. Some of those legislatures are still in session; in other states, gas tax holiday supporters have asked their governors to call special sessions to vote on tax-relief bills. We could see further action in some of these states.

Some cities and counties have lowered gas taxes

New York counties levy a 4.75% sales tax on gasoline. The state Legislature gave local governments the option of capping the amount of sales tax they collect per gallon. As of June 1, 2022, 25 of New York’s 62 counties had done that.

Counties capping sales tax collection by only collecting the tax on the first $2 of the price of a gallon of gas are: Delaware, Dutchess, Erie, Monroe, Putnam, Rockland, Saratoga, Schenectady, Seneca, Ulster, Wayne, and Yates.

Counties capping sales tax to the first $3 of the price per gallon are: Jefferson, Livingston, Nassau, Niagara, Oneida, Onondaga, Oswego, Suffolk, and Westchester.

Around the country, other counties and even cities are also debating whether to suspend their local portion of gas taxes, at the risk of losing funding for local projects.

Biden proposes federal gas tax holiday

In June, President Biden called on Congress to enact a federal gas tax holiday. His proposal called for removing the 18.4-cents-per-gallon tax on gasoline and the 24.4-cents-per-gallon tax on diesel fuel for three months, from July 1 through September 30, to “give Americans a little extra breathing room as they deal with the effects of Putin’s war in Ukraine.”

It seems unlikely to go anywhere. Republicans immediately pounced on the proposal, with Senate Minority Leader Mitch McConnell calling it a “’very showbiz’ gas tax gimmick.” Democrats seem lukewarm to the idea, with some saying oil companies or retailers would simply pocket the tax cut without lowering prices at the pump, while others said it would reduce federal dollars available for vital infrastructure projects without providing much real relief.

While the idea seems unpopular with politicians, it could be politically popular with the more than 7 in 10 Americans who support the idea.

Nations from Australia to Zimbabwe have already adopted their own tax holidays.

Would a gas tax holiday actually help?

Opponents argue that gas tax holidays don’t help consumers very much.

Back-of-the-envelope math shows us that a person who drives 12,000 miles a year in a car that averages 25 miles per gallon would save about $7.36 a month with a federal gas tax holiday. That’s not enough to offset rising prices for fuel or other staples.

Research into prices in the first three states that implemented a gas tax holiday found that not all of the savings were passed on to consumers.

  • In Connecticut, suspending the 25-cent tax brought prices down by 23 cents within two weeks; however, prices went back up after that, making the savings only 11 cents after six weeks.
  • In Georgia, lifting the 29.1-cent tax started a slow decline in prices, which fell by a total of 30 cents after 60 days.
  • In Maryland, lifting the state’s 36.1-cent tax resulted in prices falling between 29 and 30 cents, but after the tax holiday ended, prices bounced back slightly higher than before it started.

The problem, economists say, is that while a legislature can suspend a tax law, it can’t repeal the laws of supply and demand. Lowering fuel prices encourages drivers to drive more, which pushes up demand, and that pushes up price.

In addition, excise taxes on fuel (which are levied in all 50 states) are paid by oil companies and retailers, and then passed on to consumers as part of the baked-in price at the pump. That means consumers pay gas taxes indirectly, so any tax cut would reduce prices indirectly as well. (Internationally, this was a matter of great concern in Germany when its government cut gasoline excise taxes. Likewise, Peru’s prime minister issued an explicit call for distributors and retailers to pass on the savings when Peru suspended its gasoline excise taxes.) 

The only way to bring gas prices down long term, economists argue, is to destroy demand — keeping prices high enough for long enough that people stop driving. A gas tax holiday would do the opposite, and hypothetically could create even higher inflation.

To illustrate the point, national average gas prices have fallen about 15 cents a gallon since their mid-June peak, not because of tax cuts, but because of fears of a global recession that would cut demand again.

If that trend continues, we’ll see fewer calls for gas tax holidays. But if demand increases during the summer driving season, this will likely continue to be a topic for discussion.

The confusing mix of state and local gas tax holidays will make excise tax compliance more complicated than ever. Check out our guide to Fuel tax compliance best practices for ideas on how to meet the changing requirements. 

Recent posts
More than 30 states have adopted EV fees to replace lost gas taxes
Small Business: Five common sales tax registration mistakes
Uncharted territory: How to tax NFT sales

New: Avalara Tax Changes 2022 Midyear Update

Our latest update to your guide for nexus
laws and industry compliance changes.

Get your free copy

Stay up to date

Sign up for our free newsletter and stay up to date with the latest tax news.