Anyone who has taken a road trip this summer knows just how much construction is going on out there. My state of Pennsylvania is famous for putting up orange barrels that stretch for miles and remain in place for long periods without much work actually being done. Of course, I realize that the aim is better roads, so I’m willing to put up with some inconvenience now in exchange for a smoother ride in the future.
Both the federal and state governments are able to fund many of these repairs thanks to fuel taxes. The Federal Highway Trust Fund was introduced in 1956 to raise money for road projects through taxes on gasoline and diesel. Currently, the federal tax stands at 18.3 cents per gallon for gas and 24.3 cents per gallon for diesel.
Each state adds its own fuel taxes on top of the federal tax, and here’s where the disparity begins. The rates vary widely. For instance, my home state of Pennsylvania has some of the highest fuel taxes in the country—including the nation’s steepest tax on diesel fuel, tacking on an additional 74.1 cents per gallon on top of the 24.3-cent federal fuel tax.
By contrast, Alaska adds only 8.95 cents of tax per gallon of diesel fuel. Oklahoma and Texas charge only 20 cents in state tax. This year’s high fuel prices further emphasize the tax disparity between states. Because of those high fuel prices, several states, including Georgia, Utah, and Indiana, actually suspended their state’s fuel taxes for a time this year, further widening the gap.
While states have the right to impose fuel taxes, it adds more complexity to trucking operations. Fuel is a significant operating expense, so any variations in state fuel taxes directly affect transportation costs.
Fleets in states with lower fuel-tax rates have an operational advantage over those in higher-tax regions. And the disparities force carriers to consider fuel prices when planning interstate routes and determining where to refuel. Of course, that leads to lost sales and lost tax revenue in higher-tax states when trucks refuel in neighboring states with lower fuel prices. On top of that, states with lower fuel taxes may enjoy a slight cost advantage for warehousing, distribution center, and logistics operations.
Yet one has to wonder if higher fuel taxes actually result in better roads. Although Pennsylvania has the highest diesel tax in the nation, the Bureau of Transportation Statistics rates the state’s roads the 10th worst in the country. Maybe putting up with the inconvenience of all those orange barrels isn’t worth it after all.
