Taxes are the Reason Connecticut’s Gas Prices are Higher than Other States

September 19, 2008

The effect of Hurricane Ike has been felt around the nation as damage to oil refineries in the Gulf region led to a slowdown in gasoline production. While the damage to the refineries was limited, the speculation that it would take weeks for normal operations to be restored ultimately led to higher wholesale prices for gas here in Connecticut. With Connecticut’s gas prices already amongst the highest in the nation, residents are struggling to pay for basic household items such as food and clothing.

One question that I am often asked is why Connecticut’s gas prices are substantially higher than Massachusetts and Rhode Island. A study by the Independent Connecticut Petroleum Association (ICPA) found that the sole reason the average price of gasoline in Connecticut is higher than that of our surrounding states is taxes.

Revenue generated from the tax on gasoline come from two sources. The most notable is the 25-cent retail tax that is applied to each gallon that is pumped. The other is a more hidden tax known as the Petroleum Gross Receipts Tax. This tax is a more complicated tax in that it is based on the gasoline’s wholesale price, which fluctuates on a daily basis. Currently, Connecticut taxes the wholesale price at 7%, meaning that every time the wholesale price goes up so does the revenue the state collects from this tax. Thus, when the wholesale price reached $3.50 a gallon on July 1st the state collected nearly 25 cents per gallon from the Gross Receipts Tax alone, that’s in addition the 25 cent per gallon retail tax.

While the wholesale price has come down a bit since July, the Gross Receipts Tax as of the beginning of September was still bringing in over 20 cents a gallon. When combining the two state taxes it means that Connecticut is taxing gasoline at over 46 cents per gallon, or nearly 22 cents more a gallon than Massachusetts and 15 cents more than Rhode Island, creating the significant difference in pump price between the states.

One of the biggest misconceptions about the Gross Receipts Tax is that all of the money collected from the tax goes to Transportation purposes. In fact, only 40 percent of the revenue collected from the tax goes to transportation, the rest goes into the General Fund.

In June, the legislature passed a measure that prevented a July 1st scheduled increase to the Gross Receipts Tax from its current rate of 7% to a rate of 7.5%. What it didn’t do however was to stop the windfall the state receives from the tax. When the initial tax increases were put into effect, the wholesale price of a gallon of gasoline was around $1.50 a gallon, adding approximately 9 cents to the price. With the prices nearly double today, the state is raking in more money than it ever anticipated with the additional money going to pay for deficiencies in the state budget. That is wrong.

High gas prices are not only hurting the economy, they are creating a struggle for many families trying to make ends meet. That is why I believe we need to cap the price at which the wholesale tax is applied so should the price of gas go up, the state taxes will not. As a state government, we might not have the power to control the price of gasoline, but we do have the power to control what we tax it.