Reducing Connecticut's High Gas Tax

As we go into the summer season, with the anticipated increase in the price of gasoline, there is something that can be done this legislative session to bring down the cost of gasoline in Connecticut. There is proposed legislation in this session to limit the amount of taxes the State of Connecticut places on gasoline; I support this legislation to cap the petroleum gross earnings tax.

Connecticut currently has the highest combined state and federal taxes on the sale of gasoline in the Northeast, resulting in Connecticut having the highest gas prices in the region. This is because Connecticut imposes two taxes on gasoline: a State Excise Tax and a Gross Receipts Tax.

The State's Excise Tax holds at a steady rate of $0.25 per gallon. While that price seems high, the tax actually stays relatively even with the surrounding states. What actually hurts Connecticut drivers the most is the state's Gross Receipts Tax - a 7.53% rate on the gross earnings of the first sale of specific petroleum products within Connecticut. Connecticut's Gross Receipts Tax is collected at the wholesale level. The gasoline retailers who purchase the fuel from wholesalers ultimately pass the cost of the Gross Receipts Tax they pay onto consumers.

While the excise tax stays at $0.25 cents per gallon, the amount collected from the gross receipts tax grows linearly as a percentage of the first sale of specific petroleum products. The current wholesale price as of last week was $3.15, making the Gross Receipts Tax nearly $0.24 cents per gallon.

The Gross Receipts Tax has a long, controversial history in the State of Connecticut. Enacted in 1981, the tax originally was a counter-action by the state legislature against the rapid increase of home heating oil and increased profits in the oil industry. The new legislation imposed a 2% gross earnings tax on any petroleum company engaged primarily in refining and distributing petroleum or petroleum derivatives to wholesale and retail dealers in the state. The act also incorporated a provision which prohibited companies from passing the tax on to consumers; however, the provision was later struck down in court on the fact that it was preempted by federal law. It could be argued that, since the original legislative intent of the tax was completely reversed, the tax should have been eliminated in the following session.

The Gross Receipts Tax was increased from 2% to 3% during the 1989 biennium to fund the newly created Underground Storage Tank Fund that offered compensation to gas station owners to clean up their underground petroleum storage tanks in case of a spill. The fund began in 1991 when owners of these tanks were required to bear out requirements from the Environmental Protection Agency (EPA) to insure the cost of spills.

The 1% of the Gross Receipts Tax was initially used to fund this program to make sure gas station owners would be able to take care of this highly expensive cost if an accident should take place. Over the past ten years, the state legislature has been conveying money formerly allotted to the program over to the general fund to help pick up the costs of our states day-to-day expenses. Currently, the underground storage tank fund sees less than 1% percent of the revenue collected from the tax.

The Independent Connecticut Petroleum Association (ICPA) estimates that 400-600, almost half, of Connecticut's gas stations may be forced to shut their doors if the state does not find a way to provide adequate funding of the underground storage tank fund. At an average cost of $150,000 per station to perform the clean up, it is estimated that the program will require $90 million dollars over time. The EPA has given the state until May 9th to adjust the funding to the clean-up program or they will no longer recognize the state's ability to insure the spills. If this happens, an overwhelming amount of Connecticut's gas stations that cannot afford the private insurance that is offered for these spills could be forced to close. 

This impact of not properly funding the Underground Storage Tank Fund would directly endanger small business owners by putting their jobs and their employee's jobs at risk. Furthermore, the rapid closing of half of Connecticut's stations would be extremely dangerous and inconvenient, especially during power outages. The closings would also leave the potential for environmental issues that would be left unresolved.

Over the past twenty years, the Gross Receipts Tax has been increased from the former 3% to the now 7.53%. As of the middle of March, Connecticut tax-payers were paying an average of $4.00 per gallon according to AAA. The price includes the state's 25 cents per gallon gas tax and roughly another 24 cents per gallon with the gross receipts tax. The Gross Receipts Tax rate is currently scheduled to increase from 7.53% to an effective rate of 8.81% on July 1st 2013.

There is no debating that a larger increase on the price of gasoline in will negatively affect every aspect of living and doing business in Connecticut. There is currently legislation to limit the amount of taxes the State of Connecticut places on gasoline; I support this legislation to cap the petroleum gross earnings tax.