Bills in 11 states call for adjustments to fuel tax rates

State lawmakers across the country are pursuing changes to fuel tax collection.

California

In California, the Senate Environmental Quality Committee is scheduled to consider a bill on March 19 that would repeal updates by the Air Resources Board to the state’s Low Carbon Fuel Standard regulations.

A study published by the Kleinman Center for Energy Policy at the University of Pennsylvania reported the updated regulations could increase fuel prices by 65 cents per gallon. Action taken by the Office of Administrative Law last month halted the planned increase for 120 days.

CARB has the option to fix concerns and resubmit updates.

Senate Minority Leader Brian Jones, R-San Diego, is among those at the statehouse calling for the temporary halt to be made permanent.

Jones has said the CARB updates from last fall would increase operating costs for companies producing fuel in the state as well as importers of oil and fuel and all other ancillary businesses in the fuel supply chain.

His bill, SB2, would restore the Low Carbon Fuel Standard regulatory program to its status prior to the Nov. 8, 2024, vote and void entirely the CARB updates.

The Newsom Administration’s 65-cent gas price hike has been PAUSED by CA’s Office of Administrative Law because it didn’t meet legal requirements.

The unfair regulation failed to warn Californians accurately about the true impact it would have on gas prices.

Newsom’s plan has…

— Brian W. Jones (@SenBrianJones) February 19, 2025

A second bill, AB1268, would halt future increases in the state’s fuel tax rate.

California ties taxes on gas and diesel to annual inflation adjustments. A year ago, the state raised the 57.9-cent excise tax collected on gas purchases by 1.7 cents per gallon to 59.6 cents. The 44.1-cent diesel rate increased by 1.3 cents per gallon to 45.4 cents.

Another increase is scheduled for July 1.

One more bill would suspend fuel tax collection for one year. AB1058 would tap the state’s General Fund to pay for transportation work over that time.

Mississippi

A tax overhaul bill halfway through the Mississippi statehouse includes a provision to increase fuel tax collection.

Mississippi has an 18-cent excise tax collected on fuel purchases. The flat tax has remained unchanged since the late 1980s.

House lawmakers approved a bill, HB1, that would add a 5% sales tax to gas and diesel purchases. The fuel sales tax would add $400 million to the state budget.

The sales tax collected on fuel sales would increase the tax rate by an estimated 13 cents. Revenue would be routed to the Mississippi Department of Transportation for road and bridge work.

The bill is in the Senate Transportation Committee.

Michigan

Michigan elected officials are working through multiple plans to improve roads throughout the state.

Gov. Gretchen Whitmer recently released a $3 billion transportation-funding plan.

Michigan House Republicans introduced a $3.1 billion transportation bill package that includes language to eliminate the sales tax collected on fuel purchases.

Truck drivers and motorists fueling in the state pay a 31-cent state excise tax. Tax rates are adjusted each January.

There is also a 6% state sales tax on every gallon of fuel sold. However, 25% of those funds are diverted away from transportation.

HB4180 would replace the sales tax with an equivalent increase in the fuel tax. The distinction would enable the state to apply all fuel tax revenue for transportation purposes.

Another bill in the package, HB4183, would increase the fuel tax rate starting Oct. 1. Each tax rate would be increased to 51 cents.

Additionally, the taxes would be adjusted for inflation on Jan. 1, 2026, but the adjustment increment would be based on the average of the tax rates in effect during 2025.

6 years, $9 billion surplus spent, no progress. Welcome to Whitmer’s Michigan. pic.twitter.com/gnAMi7otEL

— Aric Nesbitt (@aricnesbitt) March 7, 2025

Minnesota

A Minnesota House panel has advanced a bill that would reverse course on recent tax revisions in the state.

A 2023 state law indexed to inflation the gas and diesel excise tax rates. The rule allows for annual rate changes. As a result, the 28.5-cent excise rate increased the first of this year by 3.3 cents to 31.8 cents.

The House Transportation Finance and Policy Committee voted to advance a bill that would halt indexing. As a result, the gas and diesel tax rate would stay the same.

HF5 would also repeal retail delivery fees and reallocate some transportation-related state and regional sales taxes. Specifically, the distribution formula for transportation advancement account funds would be changed to eliminate the portion that is routed to counties in the Twin Cities metropolitan area. Funds would be redistributed to three accounts that benefit counties and cities of all sizes.

Additionally, the annual surcharge on fully electric vehicles would be doubled from $75 to $150.

Texas

A Texas bill would permit regular increases in the state’s fuel excise tax.

Since October 1991, the state’s 20-cent fuel tax rate has remained unchanged. As a result, state lawmakers have been forced to look elsewhere to help bolster transportation funding.

HB326 would index the excise tax to the highway cost index. The change would authorize the tax to be adjusted annually.

The rate would be increased or decreased each Jan. 1 based on the cost of certain highway projects.

Advocates have said that indexing would allow the tax rate to keep pace with the rate of rising costs of highway construction and would add long-term stability.

Illinois

The state of Illinois also has annual adjustments built into fuel tax rates.

A cost-of-living adjustment is made to fuel each July. The regular changes are part of a 2019 state law that established annual increases in fuel taxes.

Dubbed “Rebuild Illinois,” the capital plan raised the then-19-cent gas tax and 21.5-cent diesel tax to 38 cents and 45.4 cents respectively. The tax rates were also tied to inflation.

The gas rate has climbed to 47 cents and the diesel rate is 54.5 cents.

SB2360 would temporarily halt fuel tax rate changes linked to the Consumer Price Index, meaning the CPI adjustment would not occur on July 1.

Bill advocates have said the state’s road and construction fund has significantly increased since the taxes were raised and that the state is holding on to too much money. Instead, supporters have argued, it is time to give some relief to consumers at the fuel pump.

A House bill, HB2613, would return the tax rates to where they were prior to the 2019 rule change. The gas tax would return to 19 cents, and the diesel rate would return to 21.5 cents.

Another bill would permit counties throughout the state to impose a fuel tax.

Illinois law permits DuPage, Kane, Lake, McHenry and Will counties to impose a county motor fuel tax. Revenue must be dedicated for transportation purposes.

HB1601 would require tax money to be used for maintenance and construction for “essential transportation-related infrastructure.”

The House Revenue and Finance Committee is scheduled to consider the bill Thursday, March 13.

Missouri

Multiple Missouri bills cover fuel tax collection. Fuel tax rate increases have been a regular occurrence in the state in recent years.

A 2021 state law authorized an increase to the then-17-cent fuel tax over multiple years. Since then, the excise tax on gas and diesel purchases has been raised four times at 2.5-cent increments to 27 cents.

The four-year-old law includes a fuel rebate program for residents with vehicles weighing less than 26,000 pounds.

The final 2.5-cent increase is scheduled to take effect July 1. At that time, the fuel tax rate will reach 29.5 cents.

SB494 would repeal the fuel tax increases and return the rate for gas and diesel to 17 cents. The upcoming 2.5-cent rate increase would also be eliminated.

Supporters have said the state should relieve some tax burden on Missourians, because roads are in good shape.

The House Corrections and Public Institutions Committee advanced a second bill that could result in regular fuel tax rate changes.

HB572 would require the Missouri Department of Transportation to include in its annual report to the governor and lieutenant governor all of the agency’s internal and external expenditures.

For each fiscal year the department’s internal expenditures exceed 20% of total expenditures, the bill mandates the state’s fuel tax rate be reduced by one-half cent for the following fiscal year.

The rate could be decreased by a maximum of 1.5 cents below the 29.5-cent rate slated to take effect this summer. Therefore, the fuel tax rate could be reduced to 28 cents.

In any fiscal year following a rate reduction, if the department’s internal expenditures are below 20% of total expenditures, the fuel tax rate would be increased by a half-cent the following fiscal year or back to the authorized 29.5-cent rate, whichever is less.

The bill analysis reports internal expenditures at MoDOT were greater than 20% once from fiscal year 2020 through fiscal year 2023.

Advocates have said guardrails are necessary to ensure a proper proportion of funding is going to important scheduled spending.

Another bill, SB701, would remove the 26,000-pound weight limitation for eligible refunds. Instead, Missouri-based truck operations would be allowed to take advantage of the refund offering.

Similarly, SB774 includes a provision to remove the weight limitation for eligible refunds. Additionally, the state would be required to develop a mobile app that allows a tax refund claim to be submitted at the time of purchase.

One more change would sync the refund process with the tax year and not the fiscal year, as is used in the current rule.

A final fuel bill, SB775, would simply repeal the fuel tax increases and return the rate for gas and diesel to 17 cents.

New York

In New York, the state charges about 33 cents per gallon for gas and diesel. There are multiple components that make up the state’s fuel tax collection.

There is an 8-cent excise tax and a 17.3-cent petroleum business tax. Additionally, there is an 8-cent state sales tax.

S2093 would suspend collection of the excise tax and state sales tax when fuel prices reach $2.25 per gallon. The petroleum business tax would also be eliminated once prices reach $3 per gallon.

Additionally, New York City and counties throughout the state would be authorized to adopt local laws limiting tax on gas and diesel.

Oregon

One Oregon bill would raise road revenue via a new method.

State law now requires cities to get voter approval to raise local fuel taxes.

SB687 would permit cities and counties to raise local fuel taxes without needing the permission of voters.

Another bill provision would permit every Oregon county to implement or increase vehicle registration fees without a vote.

Currently, the fee option is available only for counties with more than 350,000 residents. Multnomah, Washington and Clackamas counties collect the fees.

Critics have said new taxes are a non-starter. Instead, they want to see the Oregon DOT be more efficient with what it already receives.

West Virginia

A West Virginia bill would eliminate one component in setting the fuel tax rate.

Fuel excise rates in the state are comprised of two components: a flat rate and a variable rate. The flat rate for gas and diesel is 20.5 cents. The variable rate for both is 15.2 cents.

The variable rate, which is equal to 5% of the average wholesale price of fuel, can be revised each January. The rate has remained unchanged since 2024.

HB2169 would remove the variable rate on state fuel tax collections.

Critics have said the bill would decrease the amount of revenue directed to the state road fund by about 50%.

Another bill, HB2193, would completely do away with the fuel excise tax. Instead, an equivalent increase would be made to the state sales tax.

A fiscal note attached to the bill explains the burden for maintaining state roads would shift from road users to general consumers.

“Major road users such as the interstate trucking industry and tourists passing through on the interstate highways stand to benefit from the change,” the note reads.

The bill memo also points out that HB2193 does not incorporate “critical code sections” such as the International Fuel Tax Agreement.

Rhode Island

Identical Rhode Island bills would make an adjustment for inflation to the state’s fuel excise tax.

Currently, the Rhode Island Division of Taxation makes an adjustment to the fuel tax every two years on July 1. The adjustment is based only on the inflation that occurred in the previous year.

H5468/S47 would revise the rule to make the adjustment every two years based on the inflation that occurred in the previous two years.

The existing 37-cent fuel tax rate is scheduled to increase by a penny to 38 cents on July 1.

Advocates have said the one-year look-back results in the fuel tax not keeping pace with inflation. They’ve also pointed out that making the change provided in the legislation would have resulted in the upcoming adjustment being 42 cents per gallon instead of 38 cents. LL

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