State Inflation-Indexing of Gasoline Taxes

September 30, 2014

We've been asked which states adjust their gasoline tax for inflation. Most states (and the federal government) define their gas tax in so many cents per gallon, which can make a difference as time passes and inflation erodes the purchasing power of that tax rate. For example, the federal motor fuels tax today generates one-third fewer dollars in real terms since 1993, when it was last increased. Inflation-adjusting your gasoline tax can prevent this, although it also means you're writing automatic tax increases into law.

  • 3 states adjust their gasoline tax for inflation based on the Consumer Price Index: Florida, Maryland (effective 1/1/13), and New Hampshire (effective 7/1/14). Massachusetts will begin doing so on 1/1/15, assuming it is not repealed by voters in November. Maine formerly adjusted for CPI but repealed that effective 1/1/12.
  • 4 additional states and DC adjust some portion of their gasoline tax for the wholesale price of gasoline: Kentucky, North Carolina, Virginia, West Virginia, and the District of Columbia.
  • 1 additional state adjusts the gasoline tax for state transportation revenue needs: Nebraska.

Additionally, some states collect their sales tax in whole or in part on gasoline purchases: Hawaii, Illinois, Indiana, and Michigan. California applies a partial "sales tax" on gasoline on the wholesale price. New York collects local sales taxes on gasoline.

Check out current gasoline tax rates here.

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A 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.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.