State taxes on motor vehicle fuel are one of the most significant sources of transportation funding, providing the majority of transportation revenue in 25 states. Often referred to simply as gas taxes, state motor vehicle fuel taxes actually can include several types of taxes on several different types of fuel. State motor vehicle fuel taxes include excise taxes that are assessed as a flat rate per gallon of fuel and sales taxes that are assessed as a percentage of the retail price. States have imposed taxes on gasoline, diesel and gasohol. All states levy excise taxes on gasoline and diesel fuel, and all states except Alaska also impose excise taxes on gasohol. As already noted, only nine states-California, Delaware, Georgia, Hawaii, Illinois, Indiana, Michigan, New York and West Virginia-levy sales taxes on gasoline.
States do not collect motor fuel taxes directly from motorists. Although the point of taxation varies from state to state, motor vehicle fuel can be taxed when first imported into the jurisdiction, at the motor vehicle fuel distributor, or at the terminal rack, which is the facility where fuel from bulk storage tanks is loaded into tanker trucks for delivery to retail stations or to bulk users.
Because motorists are major consumes of motor fuel-edging close to 2 trillion gallons each year5-gas taxes are a tempting source of new transportation revenue. Even small changes in fuel tax rates can dramatically affect the amount of fuel tax revenue collected by a state.