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The 7 States With the Lowest Gasoline Taxes

By Dan Dzombak - Apr 21, 2013 at 7:33AM

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With low gasoline taxes comes low gas prices.

The price of gasoline is constantly on people's minds. The prices you see on those gas-station signs everywhere you drive are tough enough to swallow, but what you may not know is the extent to which gas taxes contribute to those prices.

The federal tax is $0.184 per gallon, and states add their own taxes to bring the average cost up to $0.303 per gallon. So which states give you the biggest break? Let's take a look at who has the lowest gas taxes.

Rank

State

State Gasoline Tax Per Gallon

Total Gasoline Tax Per Gallon

1

Alaska

$0.080

$0.264

2

Wyoming

$0.140

$0.324

3

New Jersey

$0.145

$0.329

4

South Carolina

$0.168

$0.352

5

Oklahoma

$0.170

$0.354

6

Missouri

$0.173

$0.357

7

New Hampshire

$0.196

$0.380

Source: American Petroleum Institute.

As you'd expect, higher taxes correlate with higher gasoline prices and lower taxes with lower prices.

Source: GasBuddy.com.

Governments use gas taxes to maintain and upgrade roads and transportation infrastructure, but there are a few problems. For one, these taxes generally aren't linked to inflation. The federal gas tax has been the same since 1993, so the revenue pays for less and less. Second, as cars grow more efficient and use less gasoline, tax revenue will decline, further challenging transportation infrastructure funding. Just ask Ford (F -2.72%) and Toyota (TM 1.78%) how their hybrid vehicle sales are doing. In Ford's latest release, the company said it sold a record number of hybrids. Not to be outdone, Toyota has reportedly sold more than 5 million hybrids over the past six years.

As we work through our list of the states with the lowest tax burden at the pump, note that the data is current as of April 3 but that some states have passed laws that will either decrease (Virginia) or increase (Connecticut, Maryland, Wyoming, New Hampshire) their taxes going forward. Those changes aren't reflected in the current numbers.

1. Alaska
Alaska has an $0.08-per-gallon excise tax on gasoline, which, combined with the $0.184 federal tax, adds up to $0.264 per gallon. Even so, it has some of the highest gas prices in the country, with an average cost of $3.98 per gallon, according to AAA. That puts its prices on par with California, which has the highest prices and taxes in the country. The high prices make sense, since distribution costs more than for the continental U.S., which benefits from a robust pipeline network.

Alaskans do benefit, however, in other ways from the state's oil production. If you can put up with the isolation from the rest of the country and the harsh winters, there's a lot to like about Alaska, including no income tax, low property taxes, pristine wilderness, and even a yearly dividend check. Residents get paid each year from the Alaska Permanent Dividend Fund, which distributes a portion of the royalties collected from mineral production. The dividend payment in 2012 was $878. 

2. Wyoming
Wyoming currently has the second lowest gasoline tax at $0.14, per gallon and a current average gas price of $3.34, according to AAA. However, the state won't be on this list for long, as it passed a bill in February to raise the tax by $0.10 a gallon as of July 1. The increased revenue will mainly go to fund state highways, but smaller roads will also see some of the money.

3. New Jersey
New Jersey comes in at $0.145 per gallon and a current average gas price of $3.31. Along with Oregon, this state prohibits drivers from pumping their own gas. The law has been on the books since 1949 and has survived multiple attempts over the years to repeal it.

4. South Carolina
South Carolina's tax is $0.168, and its current average price is $3.277. That probably won't last much longer, though, as the state faces a massive $29 billion shortfall for its transportation infrastructure needs over the next 20 years. State lawmakers have been pushing bills to increase  the gasoline tax, though they've made little progress so far.

5. Oklahoma
Oklahoma's tax is $0.17 and its average gas price is $3.305. It's been 26 years since Oklahoma increased its tax, the second longest of any state, according to the Institute on Taxation and Economic Policy.

6. Missouri
Missouri taxes gas at $0.173 per gallon and has a current average price of $3.332. A proposed $0.01 increase to the state's sales tax is moving through the state legislature to pay for transportation projects, and it it passes, it will still require voter approval. It's expected to raise $8 billion over the next 10 years. Lawmakers estimated that to raise a similar amount of funds, the gas tax would have to increase by $0.20 to $0.25 per gallon.

7. New Hampshire
New Hampshire rounds out our list at $0.196 and an average $3.445, but it will soon fall out of the top seven. In March, the state passed a $0.12-per-gallon tax increase that will be phased in over three years in equal $0.04 increments, starting this July 1.

Foolish bottom line
We all feel the pinch at the pump, but don't expect prices to drop anytime soon. Gas taxes will probably head higher all over the country over the next few years as the U.S. struggles to pay to upgrade the country's declining infrastructure. Get ready to crack open that wallet a little wider.

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