Fluctuating fuel tax policies are complicating tax compliance

Fuel tax rates are changing faster than compliance systems can keep up. The conflict between the U.S. and Iran and the ongoing war in Ukraine have disrupted global fuel supplies. Many governments are responding with tax relief measures that often add a new layer of complexity for businesses.

Key takeaways

• Global conflicts are driving fuel tax volatility. In response to geopolitical unrest and supply chain disruptions, at least 55 countries have lowered fuel taxes, and 32 have expanded fuel subsidies to offset rising energy costs.
• Gas tax holidays have returned to North America. U.S. states like Georgia, Indiana, Kentucky, and Utah established gas tax holidays in 2026, while Canada suspended its federal fuel excise tax to provide consumer relief.
• Automated compliance is essential for sudden rate changes. Midmonth excise tax changes and ad hoc gas tax holidays create audit risks for businesses relying on manual processes. Purpose-built automation is required to track volatile reporting requirements.

Changing fuel taxes and subsidies

In response to geopolitical conflicts and rising fuel prices, at least 55 countries have lowered fuel taxes on oil, and 32 countries have added or expanded fuel subsidies. The International Energy Agency (IEA) is tracking energy crisis emergency measures around the globe.

For example:

• Belgium postponed an excise duty increase.
• Brazil cut the energy tax on diesel.
• Kenya cut value-added tax on fuel.
• Norway cut gasoline and diesel taxes.
• Poland capped fuel retailers’ margins.
• Vietnam cut fuel import tariffs and suspended fuel tax.

The United States is also experiencing fuel tax volatility. In the U.S., Georgia, Indiana, Kentucky, and Utah established gas tax holidays in 2026, several other states considered offering one. Illinois delayed a scheduled gas tax hike for six months. A federal gas tax holiday has been proposed as well but seems to have reached a dead end.

And gas tax holidays have taken hold in Canada. Prime Minister Mark Carney suspended the federal excise tax on gasoline from April 20, 2026, until September 7, 2026, while the province of Newfoundland and Labrador permanently reduced the provincial tax on gasoline and diesel.

Why fuel tax volatility is so hard to manage

Tax rate changes, form changes, and tax content changes all have to be tracked and acted on. Taxpayers may need to update accounting rules and tax engines, revise billing systems, or revise and modify return preparations. These and other modifications can be especially challenging when policy changes are adopted at the last minute or don’t follow a predictable schedule.

“Changes that take effect after the first of the month tend to be the most disruptive because they don’t follow the normal release cycle,” says Steve Shannon, Senior Director of Product Management for Excise at Avalara. “State tax forms cannot easily handle the change, and the states themselves don’t know how to handle it, so they usually release their work-around at the last minute.” When guidance does arrive, affected businesses often need to scramble.

Nevertheless, Georgia, Indiana, and Kentucky are among the jurisdictions that implemented midmonth fuel tax changes — including county and local jurisdiction tax rate reductions in some cases.

The noncompliance risk is real. Relying on manual processes to track midmonth tax changes can expose energy businesses to negative audit findings.

According to Aberdeen research on energy and fuel tax compliance from 2023, when fuel tax policies were also in flux, keeping up with this kind of change is one of the top challenges facing tax teams in the energy and fuel industries. The stakes are significant:

• 68% of energy companies surveyed incurred excise tax rate or rule errors.
• 48% of energy and fuel organizations surveyed incurred audit penalties or interest in the previous year.
• 44% cited maintaining the accuracy of tax liability calculations as a primary challenge.

Furthermore, excise tax rarely exists in isolation. A single fuel transaction can trigger excise tax, sales and use tax, environmental fees, and federal or state reporting requirements. Managing those obligations across disconnected systems can multiply the risk.

How Avalara helps

Avalara AvaTax for Energy and Avalara Returns for Energy help businesses comply with excise tax obligations across Canada and the United States. Our customers range from the largest oil, gas, and chemical companies to the smallest fuel distributors, energy traders, wholesalers, and retailers.

When fuel tax rates are suspended, reduced, or reinstated, Avalara maintains up-to-date tax content and automates rate changes in your tax engine — including changes that take effect midmonth. That means the right tax is applied, or not applied, in each jurisdiction, even when the rules change quickly.

Avalara also streamlines return preparation and recordkeeping for fuel and excise taxes, helping tax teams keep pace with new reporting requirements and reduce audit risk. And because excise tax rarely stands alone, Avalara offers a broad portfolio of compliance solutions that supports sales and use tax, exemption certificate management, business licenses, and more — so your team isn’t managing multiple disconnected tools as compliance needs grow.

Learn about Avalara fuel and energy tax solutions.

FAQ

What is a gas tax holiday?

A gas tax holiday is a temporary suspension or reduction of taxes on motor fuel. States may stop collecting per-gallon excise taxes, sales and use taxes on gasoline, or other fuel-related taxes, so businesses and consumers will in theory pay less at the pump for a limited time.

Why are midmonth fuel tax changes especially difficult to manage?

Midmonth fuel tax changes disrupt standard accounting and compliance workflows, which are usually designed around monthly or quarterly update cycles. When a rate change or tax suspension takes effect unexpectedly, state agencies often release guidance at the last minute. “This guidance can include new schedule codes or move taxable transactions to a nontaxable schedule,” explains Shannon. “States get creative on how the tax holiday changes the tax calculations as they have their own system constraints.”

Last-minute changes and creative interpretations leave energy businesses, distributors, and retailers little time to manually update point-of-sale systems, tax calculation engines, and billing rules to avoid compliance errors.

Which U.S. states changed fuel tax rates or policies in 2026?

Georgia, Indiana, Kentucky, and Utah all enacted gas tax holidays or rate reductions in 2026, and Illinois postponed a scheduled rate increase. Several other states considered gas tax relief but have not yet enacted it. See our 2026 gas tax holidays post for details.

How can businesses prepare for sudden fuel tax changes?

Energy and fuel companies can mitigate fuel tax volatility by adopting automated excise tax compliance software. By moving away from manual spreadsheets and utilizing a connected platform, businesses can automatically apply real-time tax rate updates, manage midcycle exemptions, and streamline complex reporting requirements across multiple tax jurisdictions without disrupting daily operations.

Avalara updates content in a timely manner to enable compliance and accurate tax calculations using the latest jurisdiction rules and forms.

Does Avalara handle fuel tax changes in the United States and Canada?

Yes. Avalara AvaTax for Energy and Avalara Returns for Energy cover excise tax compliance across both the United States and Canada, including federal and provincial fuel taxes.