The Highs and Lows of Gasoline Tax

Nobody likes high gas prices — or taxes — and in many states you are being hit with both this summer. For example, in July the California state gasoline tax rate was raised 3.5 cents to almost 72 cents a gallon, which is the highest gas tax rate in the country, with New York gas taxes just a few cents behind.

It’s likely that you never think about the gas tax when you fill your tank. That’s because it is included in the cost of each gallon, rather than being added on at the end of the sale like sales tax, or collected at tax time like income taxes.

But even if you never think of gas tax, it is likely that you benefit from its collection: state excise tax on gasoline funds highway and mass transit projects in most states.

Though California gas taxes are the highest in the country, they are significant in other states as well. The average tax on a gallon of gas is 49 cents nationwide. What does that mean to your wallet?

If you drive 15,000 miles a year at 25 mpg and pay 49 cents a gallon for gas taxes, you would pay almost $300 per year extra for gasoline.

You unfortunately can’t take a tax deduction for gas taxes on your federal income tax return, however it is a component of the auto mileage rates that you can deduct on your taxes for use of your vehicle for business, moving, medical, or charitable purposes.  The deductible standard mileage rates are:

  • 56.5 cents per mile for business miles driven
  • 24 cents per mile driven for medical and moving
  • 14 cents per mile for service of a charitable organization

So next time you are filling up, check out the sticker on the pump that lists what makes up the cost of each gallon – you’ll be amazed.

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