Sales, Gas and Excise Taxes

Sales, excise, and gas taxes are an important source of revenue for states. The sales tax, in fact accounts for half of all state tax revenue. Forty-five states levy broad-based sales taxes, every state levies at least some type of tax on consumption, and all states have a tax on gasoline. But these taxes aren’t without problems.

Sales taxes are inherently regressive—requiring lower- and middle-income taxpayers to spend a larger share of their household budgets in tax than their wealthier neighbors. The gas tax provides funding for infrastructure, but many states have not modernized their gas tax, meaning it no longer raises adequate revenue. ITEP resources on sales, excise and gas taxes provide general and state-specific information about the mechanics of these taxes and options for reform.

• blog   September 25, 2018

  An Unhappy Anniversary: Federal Gas Tax Reaches 25 Years of Stagnation

  The federal gas tax was last raised on Oct. 1, 1993, the same year that the classic movie Groundhog Day was unveiled to the American public. In the film, Phil Connors (played by Bill Murray) gets caught in a time loop and spends decades reliving the same cold, February day in Punxsutawney, Penn. Those of us lamenting the 25-year stagnation of the federal gas tax can’t help but feel some of that same sense of repetition.

  Federal lawmakers occasionally discuss updating the gas tax, but top lawmakers have yet to put in the effort needed to shepherd such a change into law. In fact, after passage of a top-heavy income and estate tax cut last year, the chances of boosting the federal gas tax anytime soon are probably slimmer than ever.

• report   September 17, 2018

  State Tax Codes as Poverty Fighting Tools: 2018 Update on Four Key Policies in All 50 States

  This report presents a comprehensive overview of anti-poverty tax policies, surveys tax policy decisions made in the states in 2018, and offers recommendations that every state should consider to help families rise out of poverty. States can jumpstart their anti-poverty efforts by enacting one or more of four proven and effective tax strategies to reduce the share of taxes paid by low- and moderate-income families: state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits.

• brief   September 17, 2018

  Options for a Less Regressive Sales Tax in 2018

  Sales taxes are one of the most important revenue sources for state and local governments; however, they are also among the most unfair taxes, falling more heavily on low- and middle-income households. Therefore, it is important that policymakers nationwide find ways to make sales taxes more equitable while preserving this important source of funding for public services. This policy brief discusses two approaches to a less regressive sales tax: broad-based exemptions and targeted sales tax credits.

• report   August 23, 2018

  ITEP Testimony “Regarding the Final Report of the Arkansas Tax Reform and Relief Legislative Task Force”

  Read the testimony in PDF WRITTEN TESTIMONY SUBMITTED TO: THE ARKANSAS TAX REFORM AND RELIEF TASK FORCE Lisa Christensen Gree, Senior State Tax Policy Analyst Institute on Taxation and Economic Policy…
• blog   August 7, 2018

  Updating Sales and Excise Taxes to Reflect Today’s Economy

  Consumers’ growing interest in online shopping and “gig economy” services like Uber and Airbnb has forced states and localities to revisit their sales taxes, for instance. Meanwhile new evidence on the dangers and causes of obesity has led to rising interest in soda taxes, but the soda industry is fighting back. Carbon taxes are being discussed as a tool for combatting climate change. And changing attitudes toward cannabis use have spurred some states to move away from outright prohibition in favor of legalization, regulation and taxation.

• report   July 24, 2018

  Rep. Shuster’s Mixed Bag: Doubling the Gas Tax before Repealing It Entirely

  This article examines the good aspects of Rep. Shuster’s infrastructure funding plan (a higher gas tax that is indexed to inflation), the bad (a flawed indexing formula and eventual gas tax repeal), and the downright ugly (tying the hands of a funding commission before their work even begins and refusing to ask more of high-income households).

• blog   July 12, 2018

  18 States Will Take Holidays from Sound Tax Policy This Year

  State sales tax holidays, our newly updated policy brief shows, are the equivalent of the bad kind of holiday vacation: tax policy that sounds nice at first but ultimately cuts corners, wastes money, precludes better options, and leaves states worse off than they would be without them. Unfortunately, while several states have wised up about sales tax holidays in recent years, 18 states will fall for the superficial attraction of these tax policy gimmicks in 2018.

• brief   July 12, 2018

  Sales Tax Holidays: An Ineffective Alternative to Real Sales Tax Reform

  An updated version of this brief for 2019 is available here. Read this report in PDF. Overview Sales taxes are an important revenue source, composing close to half of all…
• blog   June 26, 2018

  Gas Taxes Rise in Seven States, Including an Historic Increase in Oklahoma

  A rare sight is coming to Oklahoma. The last time the Sooner State raised its gas tax rate, the Berlin Wall was still standing, and Congress was debating whether to ban smoking on flights shorter than two hours. Fast forward 31 years, and Oklahoma is finally at it again. On Sunday, the state’s gas tax rate will rise by 3 cents and its diesel tax rate by 6 cents. Both taxes will now stand at 19 cents per gallon—still among the lowest in the country. But Oklahoma isn’t the only state where gas taxes will soon rise.

• brief   June 12, 2018

  Lottery, Casino and other Gambling Revenue: A Fiscal Game of Chance

  Cash-strapped, tax-averse state lawmakers continue to seek unconventional revenue-raising alternatives to the income, sales, and property taxes that form the backbone of most state tax systems. However, gambling revenues are rarely as lucrative, or as long-lasting, as supporters claim.

• blog   May 22, 2018

  Most States Have Raised Gas Taxes in Recent Years

  An updated version of this blog was published in April 2019.

  State tax policy can be a contentious topic, but in recent years there has been a remarkable level of agreement on one tax in particular: the gasoline tax. Increasingly, state lawmakers are deciding that outdated gas taxes need to be raised and reformed to fund infrastructure projects that are vital to their economies.

• brief   May 22, 2018

  How Long Has It Been Since Your State Raised Its Gas Tax?

  Many state governments are struggling to repair and expand their transportation infrastructure because they are attempting to cover the rising cost of asphalt, machinery, and other construction materials with fixed-rate gasoline taxes that are rarely increased.

• blog   May 3, 2018

  Under Pressure, Trump Organization Abandons Risky Sales Tax Avoidance Strategy in New York. Will It Face Penalties for Taxes it Did Not Collect?

  While President Trump was busy publicly shaming Amazon for failing to collect some state and local sales taxes, his own business’s online store was not only failing to collect the same taxes, but was arguably more aggressive than Amazon in refusing to do so. As of last month, TrumpStore.com was not even collecting sales tax in New York State despite having a “flagship retail store” inside Trump Tower, in Manhattan. As ITEP pointed out at that time: “It seems likely that the presence of a New York location should be enough to put TrumpStore.com within reach of New York’s sales tax collection laws.”

• blog   April 20, 2018

  Trends We’re Watching in 2018, Part 5: 21st Century Consumption Taxes

  We’re highlighting the progress of a few newer trends in consumption taxation. This includes using the tax code to discourage consumption of everything from plastic bags to carbon and collecting revenue from emerging industries like ride sharing services and legalized cannabis sales.

• blog   April 11, 2018

  ITEP Resources on Amazon and the Online Sales Tax Debate

  The U.S. Supreme Court is scheduled to consider a case next week (South Dakota v. Wayfair, Inc.) that has the potential to significantly improve states and localities’ ability to enforce their sales tax laws on Internet purchases.

• blog   April 11, 2018

  What to Expect if the Supreme Court Allows for Online Sales Tax Collection

  Online shopping is hardly a new phenomenon. And yet states and localities still lack the authority to require many Internet retailers to collect the sales taxes that their locally based, brick and mortar competitors have been collecting for decades.

• blog   March 30, 2018

  Amazon’s Local, State and Federal Tax Issues Explained

  President Trump’s latest Twitter target, the Amazon Corporation, is now under the microscope for its state and local tax avoidance. In a Thursday tweet, the President claimed that “[u]nlike others, they pay little or no taxes to state & local governments.” Such a statement is a startling reversal for a president who previously said his own ability to avoid paying income taxes “makes me smart.”

• blog   March 26, 2018

  Amazon and Other E-Retailers Get a Free Pass from Some Local-Level Sales Taxes

  A new ITEP analysis reveals that in seven states (Alabama, Alaska, Idaho, Iowa, Mississippi, New Mexico, and Pennsylvania), the nation’s largest e-retailer, Amazon.com, is either not collecting local-level sales taxes or is charging a lower tax rate than local retailers. In other states, such as Colorado and Illinois, Amazon is collecting local tax because it has an in-state presence, but localities cannot collect taxes from other e-retailers based outside the state.

• report   September 14, 2017

  State Tax Codes as Poverty Fighting Tools

  Astonishingly, tax policies in virtually every state make it harder for those living in poverty to make ends meet. When all the taxes imposed by state and local governments are taken into account, every state imposes higher effective tax rates on poor families than on the richest taxpayers.

• brief   September 11, 2017

  Options for a Less Regressive Sales Tax in 2017

  Sales taxes are one of the most important revenue sources for state and local governments; however, they are also among the most unfair taxes, falling more heavily on low- and middle-income households. Therefore, it is important that policymakers nationwide find ways to make sales taxes more equitable while preserving this important source of funding for public services. This policy brief discusses two approaches to a less regressive sales tax: broad-based exemptions and targeted sales tax credits.

• blog   July 21, 2017

  States May Be Finally Learning Their Lesson on Back-To-School Sales Tax Holidays

  State lawmakers face a dilemma when it comes to sales tax holidays, an attractive and popular policy that nonetheless proves to be a poor choice compared to developing thoughtful, targeted tax policies or investing in well-executed public services. Luckily, word seems to be getting out that the costs associated with these holidays far outweigh their purported benefits.

• brief   July 12, 2017

  Sales Tax Holidays: An Ineffective Alternative to Real Sales Tax Reform

  Sales taxes are an important revenue source, composing close to half of all state tax revenues. But sales taxes are also inherently regressive because the lower a family’s income, the more the family must spend on goods and services subject to the tax. Lawmakers in many states have enacted “sales tax holidays” (at least 16 states will hold them in 2017), to provide a temporary break on paying the tax on purchases of clothing, school supplies, and other items. While these holidays may seem to lessen the regressive impacts of the sales tax, their benefits are minimal. This policy brief looks at sales tax holidays as a tax reduction device.

• blog   June 28, 2017

  Gas Taxes Will Rise in 7 States to Fund Transportation Improvements

  Summer gas prices are at their lowest level in twelve years, which makes right now a sensible time to ask drivers to pay a little more toward improving the transportation infrastructure they use every day. Seven states will be doing this on Saturday, July 1 when they raise their gasoline tax rates. At the same time, two states will be implementing small gas tax rate cuts.

• brief   June 28, 2017

  How Long Has It Been Since Your State Raised Its Gas Tax?

  Many state governments are struggling to repair and expand their transportation infrastructure because they are attempting to cover the rising cost of asphalt, machinery, and other construction materials with fixed-rate gasoline taxes that are rarely increased.

• brief   June 28, 2017

  Most Americans Live in States with Variable-Rate Gas Taxes

  The flawed design of federal and state gasoline taxes has made it exceedingly difficult to raise adequate funds to maintain the nation’s transportation infrastructure. Thirty states and the federal government levy fixed-rate gas taxes where the tax rate does not change even when the cost of infrastructure materials rises or when drivers transition toward more fuel-efficient vehicles and pay less in gas tax. The federal government’s 18.4 cent gas tax, for example, has not increased in over twenty-three years. Likewise, nineteen states have waited a decade or more since last raising their own gas tax rates.