Significant Changes since January 2024
- Washington increased its gas tax by 6.22 cpg, increasing its rank from 4th to 3rd.
- Missouri increased its gas tax by 5.02 cpg, decreasing its rank nine positions to 28th.
- Kentucky reduced its gas tax by 3.70 cpg, increasing its rank nine positions to 33rd.
- Minnesota increased its gas tax by 3.30 cpg, decreasing its rank eight positions to 22nd.
- Mississippi increased its gas tax by 3.00 cpg, decreasing its rank six positions to 43rd.
- New York reduced its gas tax by 0.81 cpg, decreasing its rank by four positions to 29th.
Many states do not allow localities to levy their own taxes on gasoline, but some states allow local taxes that impose a significant additional cost to drivers. Local taxes in Hawaii, for instance, are higher than the state’s excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections., up to an additional 24 cpg in Maui. Nevada also has significant local-level taxes and automatically increasing levies from the Regional Transportation Commission’s Fuel Revenue Indexing. These total to 36 cpg in Clark County and 62 cpg in Washoe County.
A few states also levy a tax as a percentage of gross receipts on the sale of fuels, which is difficult to convert into a per gallon rate. The highest of these is in Connecticut, where the Petroleum Products Gross Earnings Tax is 8.1 percent on wholesalers. The Connecticut Department of Revenue estimates the rate as applied to diesel fuel to be about 19.9 cpg, but does not estimate the per gallon rate for gasoline.
Several states also impose additional burdens on gas prices via environmental programs and regulations like carbon taxes. Rather than a user fee to fund the roads, these policies are designed to shape behavior by discouraging the consumption of products or services that generate emissions like motor fuel.
Determining the marginal impact of carbon taxes and environmental programs on the per gallon price of gas is difficult. Estimates vary substantially. State environmental agencies tend to estimate the impact of their programs to be much lower than most economic analyses, for instance. Some environmental programs like cap-and-trade systems have fluctuating prices, and thus a fluctuating impact on gas prices.
Including the impact of state environmental programs on total gas tax burden widens the range of gas taxes across the country. Environmental programs have the largest effect in California, where the Legislative Analyst’s Office estimates the cap-and-trade program increases gas prices by about 23 cpg. The state’s Low Carbon Fuel Standard was amended effective July 1, 2025, to be more stringent. The California Air Resources Board had previously expected the fuel standard to increase gas prices by 47 cpg in 2025. More recently, the amendments have been estimated to increase gas prices by 5 to 8 cpg, based on movements after the amendments were announced but before they took effect. The California Energy Commission has estimated that the state’s environmental programs add 29 to 54 cpg to gas prices.
Similarly, Washington’s Climate Commitment Act was originally expected to raise gas prices by 44 cpg at carbon prices slightly less than the prices bid at the most recent auction, but the Department of Ecology now claims the impact on prices was only 4 cpg from the Clean Fuel Standard and 4 to 13 cpg from the cap-and-invest program.
The Oregon Department of Environmental Quality estimates its Clean Fuels Program increased gas prices by about 7.5 cpg in 2024. Oregon’s Climate Protection Program began in 2025, but the state has not estimated its effect on gas prices.
Whether these environmental taxes are implemented as a tax on carbon emissions, fuel standard mandates, a cap-and-trade system, or other program, these policies increase the price of gasoline.
The clearest way to see the impact of state policy on fuel prices may be to examine fuel prices. Taxes and environmental policy are important factors, of course, but Alaska, Hawaii, and the West Coast states have reduced refining capacity and higher transportation costs than the rest of the country. While determining the exact impact on prices is difficult, it seems clear that the states’ environmental programs impose a significant burden on the prices drivers pay at the pump.
The gas tax is meant to serve as a user fee for the roads, but the efficacy of per gallon excise taxes on fuels continues to deteriorate. As electric vehicles, which do not pay into the gas tax, become increasingly prominent, vehicle fuel efficiencies steadily improve, and inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spendin continues to erode the real value of revenues from unindexed rates, the gas tax becomes a worse proxy for the price of roads.
Facing this reality, most states have begun to charge drivers of electric vehicles an additional fee to account for the revenue lost from the gas tax. With most states still unable to fully fund their transportation system with transportation taxes and fees, many are considering replacing their gas taxes entirely with vehicle miles traveled (VMT) taxes instead, charging drivers per mile driven rather than per gallon of gas consumed. If properly calibrated, this would eliminate the non-neutral treatment of vehicles with different fuel efficiencies, align roadway revenues to expenditures, and ensure that drivers are the ones paying for the roads.