Local option fuel taxes create complexity for companies complying with excise tax
In the world of excise taxes, local tax can drive you plumb loco.
At a macro level, excise taxes on fuel aren’t complex. The federal taxes are the same nationwide. State taxes, of course, vary state to state, but it’s not too difficult to track 50 state excise tax rates.
A few states also charge sales tax on fuel purchases, which complicates things a little. Indiana charges two gasoline taxes, a use tax equal to 7% of the previous month’s statewide average price for gasoline, and a separate 33-cent-per-gallon gasoline tax earmarked for funding infrastructure projects.
Still, all that isn’t too hard to keep track of.
Things get difficult when local jurisdictions — counties, cities, and special taxing jurisdictions — add their own taxes to the mix.
Many states allow for local option fuel taxes
Florida, for example, has three local option fuel taxes:
- A “Ninth-Cent” tax of up to 1 cent per gallon on gas or diesel
- A 1% fuel surtax to benefit local transit systems in 31 counties
- Local option fuel taxes of between 6 cents and 11 cents per gallon
The “Ninth-Cent” tax (the name came from the days when Florida levied an 8-cent state gas tax; the local tax was the “ninth cent”) can be collected by any county to fund local transportation projects; 53 out of 67 counties do so.
The fuel surtax has been enacted by two counties out of the 31 eligible to collect it.
All 67 counties have adopted a local option fuel tax of at least 6 cents per gallon; 26 of them are levying the maximum 11 cents.
So that’s three local option taxes, which apply to varying degrees in different counties.
As of January 1, 2022, Florida’s Department of Revenue requires terminal suppliers to collect and remit a minimum of 14.3 cents per gallon on each gallon of motor fuel sold to licensed wholesalers, to cover the minimum local option taxes. (That’s along with other state taxes and fees they’re also collecting and remitting). Terminal suppliers/wholesalers are responsible for collecting and remitting any additional local option tax above the minimum.
Florida isn’t the only state with local option gas taxes. For example, Hawaii has a 16-cent-per-gallon state tax on gasoline and diesel; but then each county adds between 16.5 cents and 24 cents per gallon. (Of note: Maui County has separate tax rates for diesel and biodiesel blends; it’s the only Hawaii county that does that.)
Elsewhere, according to local media, some 300 municipalities and 28 counties in Alabama have local gasoline taxes, ranging from 1 cent to 9 cents per gallon. Nevada counties have a required 1-cent-per-gallon tax (with money going only to repair existing roads, bridges, and highways) and an optional county tax of 4 cents to 9 cents per gallon to fund highway construction or purchase related equipment.
In Illinois, where both Chicago and Cook County have home-rule status, both the city and county levy their own fuel taxes. (Currently, 8 cents per gallon to the city and 6 cents per gallon to the county.) Five other Illinois counties (out of 102) have local taxes of up to 8.5 cents per gallon.
And New York state has two different kinds of fuel taxes. One is a cents-per-gallon tax levied by the state, 24 of the 62 counties, nine cities, and the Metropolitan Commuter Transportation District (MCTD), which covers 12 counties in and around New York City. The other is a sales tax of 4.75% that counties and cities can extend to fuel sales. (Thirty-two counties and 19 cities have done so.)
These tax rates are subject to change at any time. New York, you may recall, has suspended its taxes on fuel as an inflation-relief measure. The MCTD and 25 counties have either suspended or reduced their fuel taxes as well.
Tax rules also are subject to change, as we saw in the Florida example that changed who was responsible for collecting and remitting which part of the local option fuel taxes. And in Montana, the state Legislature in 2021 repealed a law giving counties the option of levying a 2-cent-per-gallon local gas tax, just one year after voters in Missoula County made it the only county in the state to adopt it.
Special purpose districts create fuel tax complexity
Special purpose districts like New York’s MCTD can add to compliance complexity in the fuel tax arena.
California, for example, lets local transit districts levy a 0.5% sales tax on motor vehicle fuel tax to help fund capital projects. There are more than 100 of them.
Likewise, three counties along the Mississippi Gulf Coast levy a 3-cent-per-gallon sea wall tax to fund the protection of highways along the shoreline. And Virginia lets a transportation district in the north part of the state levy an 8.2-cent-per-gallon tax on gasoline to fund rail transit projects.
Larger companies have bigger fuel tax compliance challenges
If you’re a local jobber, or convenience store owner with only a handful of locations in one county, then these unique local taxes are just part of your everyday business. You know the tax laws and comply with them.
But if you’ve got a growing business spreading out over a larger geographic area, the chances of you encountering more of these local option exceptions to the excise tax rules become greater — and that raises the complexity of meeting your tax obligations exponentially.
So how do you stay on top of all these local tax changes? It isn’t easy.
Some local governments, frankly, have more and better communications resources than others. Sometimes, the first notice you may get about a change is when a local official contacts you to let you know you’re out of compliance.
One solution is to build a strong in-house team of tax experts to monitor changes in rates and rules across all the cities, counties, and states where you do business. Another is to find a third-party vendor with the resources and expertise to do that kind of work for you, and to help you automate many of your basic compliance functions.
Read our report on Fuel tax compliance best practices to learn more.
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