California Gas Tax Increase: Impact on Drivers and Fuel Costs

As of July 1, 2024, California raised its gasoline excise tax from 57.9 cents to 59.6 cents per gallon.  For context, The total tax burden, including federal taxes and fees, amounts to approximately $1.21 per gallon for motor vehicle fuel priced at $5 per gallon.

California Gas Tax Increase

Effective July 1, 2024, California’s excise tax on gasoline raised from 57.9 cents per gallon to 59.6 cents per gallon. This announcement was made by the California Department of Tax and Fee Administration in a notice to retailers. Californians pay more than $1.25 above the national average for gas.

Additionally, the excise tax on diesel fuel will increase from 44.1 cents per gallon to 45.4 cents per gallon. In every state, drivers face an additional federal excise tax of 18.4 cents per gallon, on top of state taxes. Keep in mind that this excise tax is just one component of what Californians pay at the pump. 

Other factors include federal fuel taxes, state and local sales tax, the low-carbon fuel standard, and the underground storage fee. When considering a $5-per-gallon fuel price, the total tax burden for taxpayers amounts to approximately $1.21 per gallon.

What makes California’s gasoline excise tax the highest in the nation?

California imposes higher state taxes on gasoline compared to most other states. The state excise tax on gasoline currently stands at 59.6 cents per gallon, the highest in the nation. California has stringent environmental standards, including requirements for cleaner-burning gasoline. 

Refineries must produce a specialised blend known as CARB (California Air Resources Board) gasoline. This unique formulation can lead to supply constraints and higher production costs. California’s vast size and population density contribute to transportation costs. The state’s reliance on imported oil also affects prices. 

Supply and demand fluctuations impact gas prices. Refinery outages, geopolitical tensions, and global oil market shifts can cause sudden spikes. Senate Bill 1 (SB 1) aims to fund road maintenance and infrastructure projects. While necessary, it adds to the overall cost of gasoline.

How does the California Gas Tax amount determine?

Let’s explore how the California gas tax amount is determined:

Annual Adjustment for Inflation:

  • California’s state excise tax on gasoline undergoes an annual adjustment for inflation. This adjustment is based on the California Consumer Price Index (CA CPI), which reflects changes in the prices Californian households pay for goods and services.
  • Specifically, on July 1 of each year, the state reviews the CA CPI over the preceding 12 months. The resulting percentage change informs the adjustment to the gas tax rate.

Senate Bill 1 (SB 1):

  • SB 1, also known as the Road Repair and Accountability Act, plays a significant role in determining gas tax revenue.
  • SB 1’s 10-year revenue projection is $52.4 billion, with a significant annual allocation of $3.2 billion for road maintenance, bridges, and pedestrian enhancements.

Federal Fuel Tax:

  • In addition to the state excise tax, California motorists pay a federal fuel tax of 18.4 cents per gallon on gasoline.
  • This federal tax applies uniformly across all states and contributes to the overall cost at the pump.

Other Costs and Fees:

  • Beyond excise taxes, Californians face additional costs related to the low-carbon fuel standard, the cap-and-trade program, state and local sales tax, and the underground storage fee.
  • When combined, these factors result in a total tax and fee burden of approximately $1.21 per gallon for motor vehicle fuel priced at $5 per gallon.

Profit Margins and Refinery Costs:

  • Interestingly, the government’s $1.21 per gallon in taxes and fees significantly exceeds the profit earned by gasoline refiners.
  • Refinery costs and profit typically account for around $1.01 per gallon, with variations throughout the year.

California Per Gallon Gas Rate 

Numerous factors contribute to California motorists’ gasoline costs. Following the passage of SB X1-2, the state’s energy commission developed an online dashboard detailing each component. The latest breakdown, as of June 24, is as follows.

  • California imposes a state excise tax on gasoline, which currently stands at 59.6 cents per gallon.
  • In addition to the state tax, there’s a federal excise tax of 18.4 cents per gallon applied uniformly across all states.
  • On average, sales tax is approximately 10 cents per gallon to the price of gasoline.
  • An additional fee of 2 cents per gallon is allocated for underground gas storage.
  • Approximately 22 cents per gallon goes toward low-carbon fuel initiatives.
  • To control greenhouse gas emissions, the state allocates around 15.1 cents per gallon for the cap-and-trade program.

California’s gas tax has more than doubled since June 2017 when it was only 27.8 cents per gallon. It’s essential to stay informed about these changes, especially if you’re a driver in the Golden State. 

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