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State Approaches to Motor Fuel Taxes

By Blair Lozier

In 2019 — the latest year for which national statistics are available — state and local governments collected $52 billion in motor fuel taxes. State laws and regulations often mandate that portions of this revenue will be allocated to support specific programs. From 2015-2019, most of the motor fuel tax revenue was used for state administered highways, local roads and streets and mass transit. The most popular approach, taken by 20 states, is to direct funds to transit and active transportation (pedestrian and bicycle projects). The second most common approach is to allocate funds to law enforcement and safety services. Less frequently, funds are directed to education, tourism and environmental programs.

Fuel taxes are assessed in a variety of ways. As of 2019, 22 states structured their tax systems around a variable-rate method — the tax rate fluctuates based on wholesale gas prices, the price at the pump, the inflation rate or other factors. Ten states — California, Colorado, Florida, Illinois, Maryland, North Carolina, Rhode Island, Utah and Virginia — and Washington, D.C. have motor fuel tax systems that adjust for inflation or the Consumer Price Index (CPI). Ten other states — Connecticut, Kentucky, Maryland, Nebraska, New Jersey, New York, Pennsylvania, Utah, Vermont and West Virginia — use the price of gasoline to determine the tax rate.

Last week, President Biden urged Congress to suspend the federal gas tax in response to sustained high prices. Biden also called for states to consider suspending their taxes.

CSG has conducted a scan of actions states are implementing or considering in order to provide relief from high gas prices, including compensation programs and gas tax suspensions — often referred to as motor fuel tax holidays.

Option 1: Direct Compensation 

Delaware has enacted a compensation program to provide funds directly to consumers.

State Motor Fuel Tax Compensation Programs

StateProgram Summary
DelawareThe enacted 2022 Delaware Relief Rebate Program is a one-time payment of $300 per Delaware resident taxpayer.

Option 2: Motor Fuel Tax Holiday

Many states have proposed or enacted a motor fuel tax holiday. A holiday is a period where taxes are suspended.

Enacted State Motor Fuel Tax Holidays

StateDescription of Fuel Tax Holiday
ColoradoLawmakers enacted a delay of the increase in usage fees and temporarily reduced prices.
ConnecticutThe suspension of motor fuel taxes is in place from April 1 to June 30.
FloridaThe motor fuel tax will be suspended from Oct. 1 to Oct. 31. 
GeorgiaThe governor originally suspended the motor fuel tax from March 18 to May 31. The suspension has been extended until July 14.
MarylandThe state legislature passed a 30-day period beginning March 18, 2022. Legislators are working on a proposal for another 90-day suspension.
New YorkThe state fuel tax has been reduced and counties will cap the amount of tax that can be collected per transaction.

Proposed State Motor Fuel Tax Relief

StateRelief TypeDescription of Proposed Relief
AlaskaMotor Fuel Tax HolidaySuspending the motor fuel tax until June 2023
CaliforniaCompensation ProgramImplementing a $400 rebate per registered car for up to two cars for every household Implementing free public transit for three months
IdahoMotor Fuel Tax HolidayImplementing a six-month tax holiday
IllinoisMotor Fuel Tax ReductionReducing the motor fuel tax beginning July 1
MichiganMotor Fuel Tax HolidaySuspending the motor fuel tax
MinnesotaMotor Fuel Tax HolidayReducing the motor fuel tax cut from Memorial Day to Labor Day
MississippiMotor Fuel Tax HolidaySuspending the motor fuel tax for six months
MissouriMotor Fuel Tax HolidaySuspending the motor fuel tax for six months
New JerseyCompensation ProgramImplementing a $250 tax rebate for individuals filing single and $500 tax rebate for married-filing couples Implementing free public transit for three months
Rhode IslandMotor Fuel Tax HolidaySuspending the motor fuel tax until the end of calendar year 2022
PennsylvaniaMotor Fuel Tax ReductionReducing the motor fuel tax by 33%
VirginiaMotor Fuel Tax Holiday/ReductionImplementing a three-step relief program: Step 1: Eliminate the statewide motor fuel tax from May 1 to July 31 Step 2: Reduce the statewide motor fuel tax by 50% from August 1 to August 31 Step 3: Reduce the statewide motor fuel tax by 25% from Sept. 1 to Sept. 30

More Information:

Institute on Taxation and Economic Policy

Reason Foundation

The Urban Institute

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