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What is a Gas Tax?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 27 July 2017
  • Copyright Protected:
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    Conjecture Corporation
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A gas tax is a sales tax which is charged on fuel. Typically gas taxes are levied on fuels used for transportation, with fuels designated for heating and agricultural use being taxed differently, and at a much lower rate. There are a number of reasons for nations to have gas taxes in place, and it is not uncommon for multiple jurisdictions to apply gas taxes. For example, in the United States, people pay a federal fuel tax in addition to a state fuel tax, with the total amount of the tax varying by state; California, New York, and Hawaii have the highest gas taxes.

Gas taxes are levied per gallon or liter, depending on the measuring system used to sell fuels in a nation. Sometimes, the price for a fuel will be listed with the taxes included, and in other cases, the price excludes the additional taxes. This can be a nasty surprise for unwary consumers who may be perplexed about a high bill at the pump; it pays to look at the pricing information carefully before pumping to confirm that one understands how much will actually be paid per unit, including the base price and the gas tax.

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Gas tax funds collected are used for a variety of things. Often, they go directly to infrastructure maintenance and improvement, paying for things like paving the roads, keeping bridges in good condition, and paying for extensions of roads. Gas taxes may also go into clean air enforcement funds and other funds related to fuel use, including funds which promote public transportation, vehicle safety, and so forth.

Some nations specifically use high gas tax levies to discourage fuel consumption. The goal is to push consumers into buying more fuel efficient vehicles, or into pursuing alternative fuel vehicles, by making gas expensive. Consumer demand also drives companies to design vehicles which are fuel efficient or which use alternative fuels. Controlling demand can also secure the fuel supply, by keeping demand static.

When people purchase fuel which is subject to taxes beyond the standard sales tax, there should be a disclosure about the amount of the tax, and how it is levied. Many nations have regulations which require fuel retailers to break down the gas tax for their customers, as well. In other words, instead of saying that the fuel tax is X amount, the retailer needs to say that the fuel taxes include Y amount in local taxes, Z amount in regional taxes, and so forth.

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