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.