Diesel Fuel Taxes Vs. Gas Taxes

by Diane Wilkoff

Just like the fuels themselves, gasoline and diesel fuel taxes differ across the United States. Not only do the federal tax rates for diesel and gasoline differ from each other, but the state taxes do as well. Local sales taxes add another layer of difference, making fuel in some states much more expensive than others.

History of Federal Gasoline Taxes

The Highway Trust Fund supports the Interstate system.

The federal government first enacted a gasoline excise tax in 1932 to reduce the federal deficit. At that time, the gas tax was one cent per gallon. In 1956, the Highway Revenue Act established the federal Highway Trust Fund to pay for the construction of an Interstate system and help finance primary, secondary and urban routes. Through this Act, the tax on gasoline was increased from two to three cents per gallon. The federal excise tax on gasoline has been extended each time Congress has extended the Act. The federal gasoline tax has been 18.4 cents per gallon since October 1, 1997 (as of July 2010).

Federal Taxes on Undyed Diesel Fuel

Red diesel is for off-road use and is not taxed.

Undyed diesel, also know as clear diesel, is intended for highway use and is therefore subject to a federal excise tax. Because diesel is a product that can be used in many ways--for off-highway equipment, stationary equipment, and home heating--it can be either clear or dyed red. Red diesel is for off-road use only and is not taxed. Because the tax on diesel is intended to help cover the cost of building federal highways, the tax is considered to be a "road" tax. Therefore, clear diesel fuel used for any off-highway equipment cannot be taxed and is subject to refund. The federal diesel tax is 24.4 cents per gallon (as of July 2010).

States Led the Way When it Came to Fuel Taxes

Prior to the federal gasoline tax, Oregon led the way for state taxes by enacting the first tax on motor fuels in 1919. By 1932, all states and the District of Columbia had followed suit with tax rates that ranged between two and seven cents per gallon. State gasoline taxes span a wide range, from 37.5 cents per gallon in Washington to eight cents in Alaska (as of July 2010).

State Diesel Taxes Differ from Gasoline Taxes

State diesel taxes are much wider-ranging than those for gasoline. While Alaska is also the state with the lowest diesel tax at eight cents per gallon, Connecticut extends a much higher diesel tax at 43.4 cents per gallon (as of July 2010).

State Sales Tax

Some states also extend a sales tax to motor fuels. In many states, this tax is only applied to fuels exempt from volume tax laws. However, others don't discriminate. For example, Indiana applies a five percent sales tax to the fuel's base price (excluding the federal and state excise tax). In Georgia, a three percent second motor fuel tax and a one cent sales tax apply to the fuel sales price, including the Federal motor fuel tax (all statistics are current as of July 2010).

About the Author

Diane Wilkoff began writing in 1990 as a reporter covering fossil fuel markets and trading for Petroleum Argus and Bloomberg LP. She has also worked as an industry analyst and copy editor. Her articles have ranged from parenting to gardening, real estate and education. She has a degree in business from Miami University and is working on her M.Ed. at John Carroll University.

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