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Pain at the Pump: How Illinois Taxes Drive Up the Cost of Gas

Pain at the Pump: How Illinois Taxes Drive Up the Cost of Gas

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Published by: Illinois Policy Institute on Jun 28, 2011
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06/29/2011

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   T  a  x   &    B  u   d  g  e  t
   B  r   i  e   f  
   J  u  n  e   2   8 ,   2   0   1   1
 The Problem
 As families make their Fourth of July travelplans, motorists in Illinois are feeling the pinchespecially hard. National surveys continually nd that Chicago tops the list of highest averagegas prices in the country.
1
Latest numbers show that as of June 27, the average gasoline price inChicago is $3.98, compared to a state average of $3.78 per gallon and a national average of $3.58per gallon.
2
 Most consumers under-stand that the forces of supply and demand arelargely responsible forsetting gas prices. Butcarpooling moms andpizza delivery guys of-ten are shocked to ndthat Illinois has the fth-highest gas taxes in thenation.
3
 Even worse, the statereaps “windfall prots” when gas prices rise.Specically, the state ap-plies a 6.25 percent salestax on gasoline, in addi-tion to a at-rate excisetax. When gas prices goup, so does the state’s“take” from sales taxes.Over time, this can sig-nicantly increase thetax burden on motor-ists. In 2002, the Illinoissales tax accounted for 12percent of all taxes appliedto a gallon of gasoline in Chicago or 7.2 cents.Currently, it is 26.9 percent of taxes on a gallonof gasoline, now equal to 23 cents (graphic 3).Illinois is one of only seven states that fully orpartially apply general sales taxes to gasoline, andthis tax hits the poor and disadvantaged particu-larly hard.
4
 
 Amanda Grifn-Johnson
is the Senior Budget and Tax Policy Analyst for the Illinois Policy Institute.
Pain at the Pump
How Illinois taxes drive up the cost of gas 
Graphic 1. Historical Fourth of July WeekGas Prices, Chicago vs. U.S. Average
Source: Energy Information Administration, GasBuddy.com and U.S. Census Bureau.Note: Due to the low Consumer Price Index less energy changes over this time period, theination adjusted gures are not materially different.
 
Page 2 of 4
Graphic 3. Local, State and Federal Taxes Per Gallon ofGasoline in ChicagoGraphic 2. Applicable Gas Taxes in the Chicago Area
Applicable TaxesCents Per Gallon of Gasoline: 2002Cents Per Gallon of Gasoline: 2011
Federal Motor Fuel Excise Tax18.4¢18.4¢Illinois Environmental Impact Fee 0.8¢ 0.8¢Illinois Leaking UndergroundStorage Tank Tax0.3¢ 0.3¢
Illinois Sales Tax (6.25%)7.2¢23.0¢ 
Cook County, Chicago, and Re-gional Transportation AuthorityLocal Sales Taxes (2.5% in 2002and 3.5% in 2011)2.9¢ 12.9¢Illinois Motor Fuel Tax19.0¢19.0¢Cook County Motor Fuel Tax 6.0¢ 6.0¢City of Chicago Motor Fuel Tax 5.0¢ 5.0¢
Total59.6¢85.4¢
Sources: American Petroleum Institute
5
 , Cook County 
6
 , city of Chicago
and Illinois Department of Revenue
8,9
.The estimate for the per gallon cost of Illinois sales taxes uses the average gasoline price for Chicago fromChicagoGasPrices.com as of June 27, 2011.
10
Nominal taxes and fuel prices are used for 2002.
Illinois Motor Fuel TaxFederal Motor Fuel Excise TaxIllinois Sales TaxCook County Motor Fuel TaxIllinois Environmental Impact FeeCook County, Chicago and RTALocal Sales TaxesCity of Chicago Motor Fuel TaxIllinois Leaking Underground StorageTank Tax
 
Our Solution
Illinois should eliminate the ve percent stateshare of the sales tax on gasoline (the rest goesto localities), thereby taking the tax from 6.25percent to 1.25 percent. Under this scenario, theaverage motorist would save $2.83 each time helled up his tank at the current prices.
11
Over thecourse of a year, the savings could top $180. A permanent reduction of motor fuel sales taxes would be welcome relief to struggling families,as would a temporary moratorium. Using Illinoistaxable gasoline gallonage from 2010, Graphic4 provides estimates of the potential savings toIllinois motorists from a reduction of the gaso-line sales tax to 1.25 percent over the course of three, six and 12 months.
12
 Multiple bills introduced in the spring 2011 ses-sion by Illinois legislators would have offered al-ternative avenues for addressing Illinois’s doubletaxation on gasoline. Two sought to reduce oreliminate the state sales tax and partially replaceit with a higher at excise tax, all while offering a net tax reduction with gas prices above $4 agallon. Another proposed a six month gasolinesales tax holiday, and one bill eliminated the stateportion of the gasoline sales tax completely.
•
HB 2057 (Rep. Mike Fortner) would abol-ish the state share of the sales tax (5 per-cent) on motor fuel. Part of the funds would be recouped by increasing the statemotor fuel by 15 cents per gallon, and re-sulting revenues would be restricted tocapital spending. Because the excise taxamount is xed, as opposed to the vari-able sales tax, tax cost would not go up asprices rise.
•
HB 3485 (Rep. David Harris) would abol-ish the state and local share (5 percent and1.25 percent, respectively) of the sales taxon motor fuel. Part of the revenues wouldbe recouped by increasing the state motorfuel tax by 19 cents per gallon, with 4 centsset aside for localities.
•
HB 3769 (Rep. Wayne Rosenthal) wouldcreate a six month gasoline sales tax holi-day in which the state share of the sales tax(5 percent) on motor fuel would be elimi-nated from July 1, 2011 through Decem-ber 31, 2011.
•
SB 2078 (Sen. Kirk Dillard) would abolishthe state share of the sales tax (5 percent)on motor fuel indenitely starting July 1,2011.
 Why This Works
Fluctuations in motor fuel prices can cause sig-nicant strain on the pocketbooks of businessesand families in Illinois. The sales tax portion of the motor fuel tax adds an unnecessary burdenon the Illinois economy during a time of in-creasing commodity prices and a falling dollar.It’s time for this burden to go, especially as therelated revenues don’t always go to maintain ourstate’s transportation system. While $180 in tax savings may not seem like alarge sum to everyone, it represents a materialamount to those most hurt by rising gasolineand food prices: the working class and poor.High fuel costs have a disproportionate effecton household income, particularly in the lowerbrackets. For the afuent, $180 may be incon-sequential; for those struggling to make endsmeet, it makes a real difference. Even if just half of the savings is passed on to consumers, many families will be happy to redirect those dollars tothe grocery bills or college savings.
Page 3 of 4
 Multiple bills introduced in the spring 2011 session by Illinois legislators would have offered alterative avenues for addressing Illinois’s double taxation on  gasoline.
Graphic 4. Estimates forPotential Savings fromMotor Fuel Tax Moratorium
Length of MoratoriumTotalSavingsforMotoristsSavingsPerHousehold
Three Months$247,420,662$52.10Six Months$494,841,324$104.19One Year$989,682,647$208.38
Sources: Illinois Department of Revenue
14
 , U.S. CensusBureau
15
and Illinois Policy Institute calculations. Thesegures were estimated by multiplying the Department of Revenue’s 2010 taxable gallonage by the suggested decrease in sales tax rate (approximately 20.2 cents using $4.29 as the average price for gasoline in Illinois and estimating the average local gasoline excise tax at 5 centsper gallon
16
 ). Latest Illinois household numbers from theU.S. Census Bureau were used to determine the savings per household.

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