Fuel for Thought

Fuel Tax Strategies

With an understanding of what fuel taxes are and are not, how do you apply that knowledge to save your tax dollars? How do you apply that knowledge to saving on fuel COSTS? There are several strategies you can use when it comes to fuel taxes and fuel costs.

 

You will pay taxes for the fuel used to travel within each state. Period. Where you buy fuel will NOT change the amount of tax you owe, it will only determine WHEN you pay it.

 

Depending on your goals, there are a couple ways to deal with the fuel taxes and fuel costs.

Obviously, there are those who don’t know and don’t care, or do not want to concern themselves with it. They will just buy fuel when they need it and not give it a second thought. These people will probably not even read this, so we will not discuss them any further.
If you would like to NOT have to pay any taxes later (at the end of the month or quarter), just try to buy as much fuel in the HIGHEST taxed states where you drive. You may or may not pay more for the fuel but you will not get a tax bill later UNLESS you didn’t buy enough to cover any surcharges or mileage taxes, if you drove in any state that charges one. Increasing your MPG (miles per gallon) will also help ensure that those high tax rates you are paying will cover your tax liability.
If you prefer to get the lowest cost on fuel regardless of the taxes, meaning that you are not concerned about WHEN you pay the fuel taxes, then you first need to know how much each state’s tax is and then you subtract it from your pump price to compare different state’s BASE fuel cost. The base fuel cost is the price of the fuel BEFORE taxes. Just like when you buy a cup of coffee, the menu price is before taxes.
A $1.00 cup of coffee in Georgia might be taxed at $0.08 while the same cup of coffee in Tennessee may be taxed at $0.12 for the same $1.00 cup of coffee. In the end, each cup in Tennessee will cost you more. It is the same with fuel, only on a much larger scale. With fuel being one of your largest expenses, if not the largest, why would you want to spend any more than you need to on it? The difference with buying fuel is that the tax is already included which can be deceiving when you only look at the pump price without subtracting the taxes.

 

You will pay taxes for the fuel used to travel within each state. Period. Where you buy fuel will NOT change the amount of tax you owe, it will only determine WHEN you pay it.

 

 

STATE	PUMP PRICE	STATE TAX RATE	FUEL COST
Indiana	$3.139	$0.47	$2.669
Ohio	$3.059	$0.28	$2.779
Pennsylvania	$3.499	$0.747	$2.752

 

Let’s look at some real numbers.

A trip from Erie, Pa to Portage, IN. We have 35 miles in Pennsylvania, 244 miles across Ohio and 134 miles in Indiana.

If we total the miles, we get a total of 413 miles. If we get 8 miles per gallon, in PA we need to buy 4.375 gallons to cover the tax, in Ohio we need to buy 30.5 gallons and in Indiana we need to purchase 16.75 gallons, for a total of 51.675 gallons needed to make the trip (gallons used). But who would stop in each state and only buy those amounts.

Using the chart above, if we buy all of our fuel in Pennsylvania (just so we buy in the high taxed states to not be billed later) and we bought 52 gallons, the fuel cost (pump price with taxes removed) would be $143.04, and in Ohio it would be $144.5, and Indiana would be $138.79 for the same amount of fuel. The taxes owed for all states in the trip are $3.27 for PA ($0.747 X 4.375 gallons), $8.54 for Ohio ($0.28 X 30.5 gallons) and $7.87 for Indiana ($0.47 X 16.75 gallons) for a total of $19.68 owed for fuel taxes for this trip.

Those same 52 gallons would have you paying fuel taxes in the amount of $38.84 in Pennsylvania, $14.56 in Ohio or $24.44 in Indiana. While PA and IN taxes on the 52 gallons would cover your whole trip’s fuel taxes and give you a refund, Ohio would leave you owing $5.18 later.

While you would get a bigger refund if you bought the fuel in PA, it will cost you more at the pump too.

Pennsylvania 52 gallons X $3.499 (pump price,taxes included) = $181.95

Indiana 52 gallons X $3.139 (pump price,taxes included) = $163.23

Buying fuel in the higher taxed state just to get a refund later will cost you $18.72 more at the pump versus the Indiana pump price. If you only buy fuel based on the pump price, Ohio appears to cost less, but it will not only cost you more for the BASE cost of fuel, but you will not even cover the taxes for your trip.

You will pay taxes for the fuel used to travel within each state. Period. Where you buy fuel will NOT change the amount of tax you owe, it will only determine WHEN you pay it.

 

Are you thoroughly confused yet? To break it down simply, WHEN do you want to pay your fuel taxes, at the pump or later? Do you want to get the lowest cost for fuel, or do you just want to avoid getting billed for the taxes later?

Of course you have to know what the taxes are in each state before you can subtract them from your pump prices.

IFTA has a website with current fuel taxes for each state. The website can be found at this link IFTA Fuel Tax .

If you prefer an easy to read map version, rather than a list try Fuel Tax Maps . Save to your phone's home screen for quick access. Maps are also printable.

Only for Android users, there is also Fuel Tax Map app, found in the Play Store.

I hope this helps shed some light on some of the misconceptions about fuel taxes. Knowing how it works can help you improve your bottom line, and who doesn’t want to do that?

If you missed Part 1 on Fuel Taxes, click HERE. Fuel Taxes Explained

See you down the road,

Greg