What is a Federal Fuel Tax?

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  • Written By: wiseGEEK Writer
  • Edited By: O. Wallace
  • Last Modified Date: 15 August 2019
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A federal fuel tax is a tax assessed by a country on different types of fuel. The tax can vary depending on the country, type of fuel and fuel use. Often people think of these taxes as paid for on the sale of gasoline or diesel alone, but just about any fuel may be subject to a tax. Amount of money charged is extremely variable and a country’s justification for levying a tax also varies.

A lot of times the fuel tax is essentially a sales tax. A certain amount of money is charged per gallon. In places like the US the federal fuel tax may not be the only tax charged. States and occasionally even cities may create a tax on fuel too. This can significantly increase cost of fuel, since state tax often exceeds the federal tax of about a fifth of a US Dollar (USD). Tax is collected at point of purchase and each agency assessing a tax determines how to use it. At the countrywide level in the US, the federal fuel tax is mostly invested in transportation projects. Each state may determine purpose and normal usage of any state taxes collected.


Collecting money for transportation projects is only one reason why a country might assess a fuel tax. Sometimes countries want to reduce fuel usage. In these cases they may add a much higher federal fuel tax so that people buy less gasoline or diesel fuel. This strategy could be most successful when people in a country can’t get to another country that has a much lower tax. When a country is small and surrounded by larger countries with lower taxes, this scenario can backfire and actually encourage greater fuel use as people cross borders to buy fuel at lower prices.

It should be noted too, that federal fuel tax isn’t always applied across the board and in every circumstance. There may be ways to avoid a tax if a principal job is transporting of goods (trucking). Different types of fuel can be taxed at different rates, and different uses of fuel may be subject to higher or lower taxation. For instance, fuel used to heat homes or any structures may be considered very different than fuel used to power vehicles. The former may not be taxed or could be taxed at a lower rate, and a federal fuel tax on fuel for the home, would more likely be invested in maintaining things like power or gas lines.

There is great variety in the types of federal fuel tax that exist, and sometimes these taxes may be refundable or avoidable. Governments can choose how to spend money collected, but often, money goes to something related to fuel use. Federal fuel tax may not be the only tax assessed, and sometimes states/provinces or cities may be able to raise the tax amount. The best way to find out what fuel taxes are in a current location is to call a tax board and ask; this information can usually be found online too.



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