States’ Nonconformity with Federal Measurements Creates “Barrels” of Compliance Costs

How many gallons are in a barrel? While this seems like a simple mathematical conversion, the answer is that it depends. The number of gallons in a barrel varies based on what is in the barrel (e.g., alcohol or fuel) and on the jurisdiction in which the barrel is located.

Many states levy taxes on liquids on a per-barrel basis. However, some states define a “barrel” differently than the standard measurement. The landscape of unharmonious units creates complexity and compliance costs for businesses that must pay these taxes in multiple states.

Needless complexity from states’ “barrel” nonconformity is economically detrimental and possibly unconstitutional. This has not prevented six states from defining barrels within their jurisdiction to be non-standard volumes.

A Brief History of Barrels

It should be noted that an oil barrel and a beer barrel are two distinct units of measurement that contain different standard volumes of fluid. For both units, volume standardization facilitated more efficient commerce in the commodities.

In the early days of the oil industry, container sizes were inconsistent. This made trade and accounting complicated. The petroleum producers of the prominent oil region of Pennsylvania got together in 1866 and agreed on the standard oil barrel of 42 gallons. This size of barrel was small enough for one person to handle while still being large enough to transport efficiently, among other benefits. The Petroleum Producers’ Association officially adopted the standard in 1872.

The Code of Federal Regulations still defines a barrel of oil as 42 gallons.

The first tax stamps for beer in the US were issued in 1866, though duties on alcohol had existed long before. Those taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. stamps were made for various barrel sizes. It was not until later that efforts were made to standardize the units. This made both beer trade and beer taxes more consistent and thus easier and more reliable.

The standard beer barrel in the US holds 31 gallons, as defined in the Code of Federal Regulations.

These standard volumes of a barrel for oil and beer should facilitate smooth transactions and taxation of the commodities throughout the country. But some states do not conform to the standards and add to compliance costs for interstate businesses.

“Barrel” Nonconformity Creates Compliance Challenges

For each of the units, oil barrels and beer barrels, there are three states that do not conform to the standard measurement.

Indiana, Kansas, and Missouri all define a barrel of oil in their respective statutes to be 50 gallons. Arkansas, Connecticut, and Virginia define barrels of beer in their statutes to be different volumes.

Six States Don't Use Standard Barrels

Source: State statutes.

Arkansas levies taxes per barrel of 32 gallons of beer, just slightly off the standard volume. Elsewhere in the state statutes, however, a barrel of beer is properly defined to be 31 gallons. For instance, beer festivals carry a $7.507808 per barrel tax for each barrel of 31 gallons of beer provided for the festival whose product is not licensed or registered in the state. Yes, that tax rate goes to the millionths decimal place.

Connecticut levies beer taxes per barrel, which the state defines as having at least 28 but not more than 31 gallons. This range of allowable volumes would have some manufacturers bear a slightly higher tax burden per gallon if they use smaller than normal containers, but at least manufacturers that use the standard units do not need to make special accommodations.

Virginia code defines any container with a volume greater than 43 ounces (0.336 gallons) to be a barrel, while any smaller container is defined as a bottle. Since these terms are so ill-defined, the state’s taxes are levied “per gallon per barrel,” per bottle for bottles less than 7 ounces or between 7 and 12 ounces, and “per ounce per bottle” for bottles greater than 12 ounces.

This effectively makes Virginia’s taxes levied per gallon, so the “barrel” definition is not particularly relevant. However, the state’s license fees are levied according to the number of barrels a brewery produces per year.

Indiana defines a barrel of oil as 42 gallons for their petroleum severance tax but defines a barrel as 50 gallons for the per-barrel petroleum products inspection fee. That fee on gasoline inspection taxes gasoline $0.50 per barrel of 50 gallons in the state of Indiana, or 1 cent per gallon.

Similarly, Kansas and Missouri both levy their gasoline inspection fee on a per-barrel basis, which they define to be 50 gallons.

These non-standard definitions of what is typically a standardized unit introduce additional complexity and compliance hurdles that interstate businesses must go through to account for their costs and remit the proper tax amounts.

They also make tracking and comparing tax burdens across states needlessly more difficult. The Energy Information Administration (EIA) is a federal government entity that collects, analyzes, and makes available all manner of energy-related information and data, including state fuel taxes. Last year, the EIA needed to revise previously published tax figures due to non-standard “barrel” provisions. Kansas’s petroleum inspection fee is levied per “Kansas barrel” of 50 gallons instead of the more common 42-gallon barrel.

This sort of needless complexity is exactly what is avoided by having standard units of measure. If even the EIA struggles to keep track, interstate businesses are likely to face significant additional compliance costs.

In addition to needlessly adding complexity, states likely do not have the constitutional authority to legislate different volumes of barrels. The several states, through ratification of the United States Constitution, delegated a limited set of defined powers to the federal Congress. Among those is the power to “fix the Standard of Weights and Measures.”

The federal government is explicitly granted the power to define measurements, and it has done so in the case of both barrels of oil and barrels of beer. There is no need, and likely no authority, for states to try to define either barrel differently.

States defining “barrel” to be non-standard volumes is only slightly less ridiculous than Indiana’s infamous attempt to codify a misguided “proof” of squaring the circle that would have statutorily defined the constant pi to equal 3.2.

States should simply conform to federal barrel measures to minimize unnecessary complexity and compliance costs and make doing business across states as smooth as possible.

There is no reason that the answer to “how many gallons are in a barrel?” should depend on jurisdiction.

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