The price of gasoline is constantly on people’s minds. The prices you see on those gas-station signs everywhere you drive are tough enough to swallow, but what you may not know is the extent to which gas taxes contribute to those prices.
The federal tax is $0.184 per gallon, and states add their own taxes to bring the average cost up to $0.303 per gallon. So which states give you the biggest break? Let’s take a look at who has the lowest gas taxes.
| Rank | State | State Gasoline Tax Per Gallon | Total Gasoline Tax Per Gallon |
|---|---|---|---|
| 1 | Alaska | $0.080 | $0.264 |
| 2 | Wyoming | $0.140 | $0.324 |
| 3 | New Jersey | $0.145 | $0.329 |
| 4 | South Carolina | $0.168 | $0.352 |
| 5 | Oklahoma | $0.170 | $0.354 |
| 6 | Missouri | $0.173 | $0.357 |
| 7 | New Hampshire | $0.196 | $0.380 |
Source: American Petroleum Institute.
As you’d expect, higher taxes correlate with higher gasoline prices and lower taxes with lower prices.
Source: GasBuddy.com.
Governments use gas taxes to maintain and upgrade roads and transportation infrastructure, but there are a few problems. For one, these taxes generally aren’t linked to inflation. The federal gas tax has been the same since 1993, so the revenue pays for less and less. Second, as cars grow more efficient and use less gasoline, tax revenue will decline, further challenging transportation infrastructure funding. Just ask Ford Motor Company (NYSE:F) and Toyota Motor Corporation (NYSE:TM) how their hybrid vehicle sales are doing. In Ford Motor Company (NYSE:F)’s latest release, the company said it sold a record number of hybrids. Not to be outdone, Toyota Motor Corporation (NYSE:TM) has reportedly sold more than 5 million hybrids over the past six years.
As we work through our list of the states with the lowest tax burden at the pump, note that the data is current as of April 3 but that some states have passed laws that will either decrease (Virginia) or increase (Connecticut, Maryland, Wyoming, New Hampshire) their taxes going forward. Those changes aren’t reflected in the current numbers.
1. Alaska
Alaska has an $0.08-per-gallon excise tax on gasoline, which, combined with the $0.184 federal tax, adds up to $0.264 per gallon. Even so, it has some of the highest gas prices in the country, with an average cost of $3.98 per gallon, according to AAA. That puts its prices on par with California, which has the highest prices and taxes in the country. The high prices make sense, since distribution costs more than for the continental U.S., which benefits from a robust pipeline network.
Alaskans do benefit, however, in other ways from the state’s oil production. If you can put up with the isolation from the rest of the country and the harsh winters, there’s a lot to like about Alaska, including no income tax, low property taxes, pristine wilderness, and even a yearly dividend check. Residents get paid each year from the Alaska Permanent Dividend Fund, which distributes a portion of the royalties collected from mineral production. The dividend payment in 2012 was $878.
