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Behind the Taxes
Fri June 7, 2013
The Truth Behind Connecticut's Gas Prices
This is a three-part series.
Ever wonder why gas prices are so high in Connecticut? A lot of it has to do with state gas taxes very few people know about – taxes that are about to undergo a steep increase.
So, last week I paid $3.79 per gallon of gas at a North Haven gas station. This made me angry. And I asked my fellow gas-guzzlers – who’s to blame?
“I can’t determine what’s going on or what’s causing it," said one customer.
“People are making money off it," said another. Other culprits were "oil from the Middle East" and "Saudi Arabia."
Nobody mentioned Connecticut’s gas taxes.
Some people knew about the retail gas tax, which is 25 cents a gallon. But you actually pay around 47 cents a gallon in Connecticut gas taxes for every gallon you buy. So what’s the deal with that?
As Keith Phaneuf, a reporter for the Connecticut Mirror, explains it, “most people aren’t aware that there are even two different state taxes that affect the price of gasoline.”
These two state taxes are the retail tax – 25 cents a gallon – and then there’s this other tax, Phaneuf explains.
It's called: "The petroleum products gross receipts tax. That’s just a very fancy name for a wholesale tax on gasoline and other fuels."
That tax is effectively 7.5 percent of the wholesale price of gas. Today, that amounts to 22 extra cents per gallon. Connecticut’s actually been collecting this wholesale tax for decades. Back in 1980 the state needed a fund for cleaning up oil spills and wanted to tax those profitable oil companies.
Ultimately, that’s not really how it worked out.
The oil companies said – we don’t want to pay this tax. We’re just going to pass it on to the gas stations. Who then pass it on to you at the pump.
And for a while, gas station owners tried to fight back – they had these white stickers explaining the breakdown of gas prices and taxes. But a percent tax makes that pretty confusing. Today a sticker might read: Federal tax: 18.4 cents. State retail tax: 25 cents. Wholesale tax…7.5 percent?
As Mike Fox of the Gasoline and Automotive Service Dealers of America explains it, “Here’s the problem with those stickers. You gotta make a sticker with a sliding number on it, because the number changes every day.
“As the wholesale price of gas changes, that tax changes.”
Fox says gas station owners are threatened with false advertising charges if they don’t display the final correct price of gas. But today the price, and therefore the tax, is so volatile that if you print a sticker in the morning, it could be wrong by nighttime.
Changing the sticker each day, he says, "would be cost-prohibitive.”
So that’s why a lot of my fellow gas-guzzlers didn’t know about this extra wholesale tax. They also don't know the tax is jumping up on July 1.
It’s going from 7.5 percent to 8.8 percent. That means omewhere between 3 and 4 cents overnight will pop up on the price of gasoline.
So this little-known wholesale tax will cost you 26 cents a gallon. Along with the retail tax of 25 cents, that adds 50 cents in state taxes to every gallon of gas you buy.
In Part 2, we dig into the history of this gas tax that was never supposed to cost consumers this much in the first place.
If you’ve ever wondered why gas prices in Connecticut are so high, WNPR’s Neena Satija is finding out this week. Yesterday she explained that a little-known wholesale fuel tax has a lot to do with it. Today she digs into the history of this tax, which will add around 4 cents to the price of a gallon of gas in July.
No one was ever really supposed to notice that we had a wholesale tax on the price of gasoline in Connecticut. First of all, the oil companies were supposed to pay it – although they passed it on to drivers instead.
“It was just to pay for oil spill cleanups, leaking underground fuel tanks," explains Connecticut Mirror reporter, Keith Phaneuf. "That was its primary purpose.”
Back in 1980, the wholesale tax cost something like an extra penny a gallon. Today it costs around 22 cents a gallon. Remember, the wholesale tax is based on a percentage of the wholesale price of gas.
So as the price of gas goes up – and it has, a lot, in the past thirty years, "the tax is higher," Phaneuf says. "And that’s the real problem. It makes gasoline price increases ever so much more worse."
And back in 1980, the tax rate was based on 2 percent of the wholesale price. In 1991, it jumped to 5 percent during a recession.
And in 2004, Jodi Rell became governor. And she wanted to be the transportation governor.
“We were going to replace some aging railcars, we were going to make major investments in long-delayed highway and bridge repair," Phaneuf says.
To pay for all that – well, remember the other state gas tax, a 25 cent sur-charge on every gallon? Rell proposed raising that, which didn’t go over so well.
“That was shot down by the legislature, the argument being that people hate gasoline taxes," says Phaneuf.
So they decided to raise the other less-noticeable gas tax: The wholesale tax.
“Which is very low profile," Phaneuf says. "Most people don’t know it exists. So your gas taxes would be going up, and the big oil companies would get the blame.”
The tax would rise slowly, from 5 percent to an effective rate of 8.8 percent over several years. But pretty soon people started to notice when gas prices went through the roof. And by 2008 this increase had added 18 cents per gallon to the price of gas in Connecticut.
“Some people will remember paying $4.35 for the price of gas in the summer of 2008," says Phaneuf.
And they couldn’t figure it out. Why was gas 30 cents cheaper in Massachusetts? 22 cents cheaper in Rhode Island? How could you go from Greenwich to Manhattan and get cheaper gas?!
Things were so bad, that as Mike Fox of the Gasoline Automative Service Dealers of America remembers, "We even filmed a legislator’s car filling up in Massachusetts.”
So, under intense pressure in 2008, the legislature stalled the increases. The wholesale tax would stay at 7.5 percent – until July of 2013. Then it jumps to close to 9 percent. By the way, this affects truckers, too, since diesel is subject to the wholesale tax along with a few other fuels. And this increase is really big.
We have never added 3 cents to the price of gas in one year. So this is the largest increase in state history.”
So should the commuters who pay this money expect a better commute? Not really. More on that in Part 3.
This week we’ve been exploring why gas prices are so high in Connecticut. One culprit is a little-known state tax on the wholesale price of gas. On July 1 that’ll go up in the largest gas tax increase in state history. But the money won’t go to helping Connecticut’s transportation infrastructure.
Last week I paid $3.79 cents for a gallon of gas. 46 cents of it went straight to the state of Connecticut. And I was frustrated. So was my fellow gas-guzzler Tracy Fusco.
She’s also frustrated because, “Our roads are terrible. And gas taxes are supposed to pay for repairs to the roads.”
And it turns out that according to opinion polls, people don’t necessarily mind paying transportation taxes as long as it improves their commute. As long as the money goes toward fixing roads and bridges and railways.
Tracy Fusco’s question is: "So, where’s that money going?”
That’s a very good question. Here’s how Mike Fox of the Gasoline Automotive Service Dealers of America would answer it.
“$1.2 billion has disappeared. It’s not that we didn’t have the money. It’s that the legislature – and I use this word – stole the money.”
Fox is talking about more than a billion dollars in fuel tax revenue over the past ten years that hasn’t been used for transportation. That money comes from a little-known wholesale tax on gasoline, which costs around 22 cents a gallon today and will jump to 25 cents a gallon in July.
Now, in the past, this money went to fix our roads and bridges.
“Everything really began to change dramatically in 2003," explains Keith Phaneuf, a reporter for the Connecticut Mirror.
We were in a recession, “and a decision was made for one year, to take every penny of the wholesale fuel tax and put in in the general fund. Nothing for oil spills, nothing for transportation – just use it to balance the state budget.”
And lawmakers promised they’d put all the money back the next year – but they never really did. And so a lot of those transportation projects – never happened.
Now, transportation advocates are saying: we really need this money.
There are billions of dollars worth of unfunded maintenance projects and capacity projects that are needed. They’re not just roads, they’re not just bridges, they’re not just buses. They affect everyone in the state," says Karen Burnaska, coordinator of Transit for Connecticut.
The Aetna Viaduct on I-84 in Hartford will cost $1-2 billion to redo. Those movable bridges on Metro-North?
“They’re old," Burnaska says. "And they’re movable. And what would happen if something would happen when they would move, and they would get stuck?”
That's happened before, and commuters have been stuck on the train for hours.
When Governor Dannel Malloy took office in 2010, he did put some money back into the transportation fund. But this year he and legislators are taking $91 million out. That’s more than the gas tax increase would raise. Burnaska isn’t happy with that.
At the same time she says, “I can’t look you in the eye and say, oh, you should take it from somebody else’s budget. I would like to think if there’s something else he could have done, he would have done it.”
Governor Malloy’s administration says the tax increase was passed in 2005 before he was governor. Meanwhile, legislators are discussing a resolution that would protect all the money in the special transportation fund. But it wouldn’t take effect until 2015 – after the next gubernatorial election.