States across the country are welcoming the new year with changes in fuel tax rates.
More than a dozen states applied changes over the past year. Changes ranged from a 3.2-cent increase on Connecticut diesel to a 2.3-cent decrease on Kentucky gas and diesel.
Rate changes
As of the first of the year, modest changes of about one penny or less will be implemented in states that include Florida, Georgia, Michigan, Nebraska, New York, North Carolina and Vermont. The changes are based on automatic adjustments.
Pennsylvania and West Virginia are two more states eligible for rate changes via automatic adjustments, but rates in both states will continue unchanged into the new year.
States with more notable fuel tax rate changes effective Jan. 1, 2025, are below.
Minnesota
The biggest increase will take place in Minnesota. A 2023 state law indexed to inflation allows for annual changes to the gas and diesel excise tax rates. As a result, the 28.5-cent excise rate will increase by 3.3 cents to 31.8 cents.
New Jersey
A new Garden State rule now in effect allows fuel taxes to be increased to keep pace with revenue targets to pay for transportation infrastructure.
Fuel tax rates in New Jersey are comprised of two components: the petroleum products gross receipts tax and the excise tax. The 31.8-cent petroleum tax applied to gas is slated to increase 2.6 cents to 34.4 cents per gallon. The 35.8-cent petroleum tax added to diesel will also be raised by 2.6 cents to 38.4 cents.
Combined with the fixed-rate 10.5-cent motor fuels tax, the total state tax applied to gas purchases will be 44.9 cents per gallon. The total diesel tax will be 51.9 cents.
Utah
The state of Utah is included on the list of states with annual rate changes. The 36.5-cent gas and diesel tax rates will increase 2 cents to 38.5 cents.
Since the start of 2024, the state’s fuel tax rates have been based on a formula that uses the statewide average motor fuel rack price for the previous three fiscal years.
California
In California, amendments to the state’s Low Carbon Fuel Standard are anticipated to significantly raise fuel prices in 2025.
The state’s Air Resources Board adopted amendments to the fuel standard to help achieve carbon and methane emission targets. The agency projected the changes would increase the price of gas by 47 cents per gallon. Diesel prices were anticipated to rise by 59 cents per gallon.
CARB officials have since backed away from the estimates. In October, they wrote their analysis “should not be misconstrued as a prediction of the future credit price nor as a direct impact on prices at the pump.”
Automatic adjustments
Automatic adjustments are set up in multiple ways. One method is to calculate the tax by a percentage of fuel price at the wholesale level. A related method is to use a combination of a percentage of fuel price and a flat excise tax. Another is to link fuel prices to inflation, such as the consumer price index. The National Highway Construction Cost Index is one more method used.
Some states implement the automatic adjustments annually, while others do so more frequently.
According to the National Conference of State Legislatures, there are 24 states with variable-rate state fuel taxes. Rate changes are calculated each month, quarterly, every six months, annually or every two years.
The state of Indiana updates its fuel rates each month. In Vermont, fuel rates are updated quarterly. Tax rates in Alabama and Rhode Island are revised every two years. Nebraska revises its tax rate every six months.
Additionally, annual updates are made in Arkansas, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, New York, North Carolina, Pennsylvania, Utah, Virginia and West Virginia. LL
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