Who Pays for a Fuel Tax Increase in Wyoming?

Philip Baron, MBA

At the Joint Revenue Committee meeting in July 2019, Wyoming lawmakers were presented draft legislation to increase the state fuel tax by 3 cents per gallon. According to the Wyoming Department of Transportation (WyDot), this tax would bring in $20 million a year. WyDot would receive 67% of this revenue, about $13.4 million, and the rest would go towards the maintenance of county and city roads. The Wyoming Department of Transportation claims to have a current unfunded need of $135.6 million for road maintenance. The fuel tax increase would go directly to road maintenance to close the unfunded need amount.

The fuel tax is a fee for a service provided (roads). The tax goes directly back to the state, county, and city governments. It is used to pay for maintenance of roads due to wear, and is used to fund the construction of new roads.

A 3-cent fuel tax increase would not mean a 3-cent increase in fuel prices at the pump. The lack of increase in price is because the taxes are collected from the wholesale distributor and not the consumer. The consumer pays taxes as part of the final price, as the costs are passed from producer to retailer to consumer. In this case the tax burden is on the producer, who must remit the tax while remaining competitive in the market. Although costs of the tax included in the final price, this does not lead to a direct markup of 3-cents. There is no direct markup because the wholesale distributor must compete in a regional market spanning several states, who have higher and lower tax rates. The wholesale distributer, in order to keep their prices competitive with other distributers in the region, will pay for the additional fuel tax through reduced mark up.

In Wyoming, the state fuel tax is 24-cents per gallon for both gasoline and diesel fuel. An additional Federal Fuel Tax of 18 cents is charged on gasoline, and 24 cents is charged on diesel fuel. These taxes are paid per gallon and are collected from the wholesale fuel distributer.

A gas station or other distributer buys its fuel from a wholesale fuel distributer who operates in a regional market. Local retailers also compete on price based on demand. The local competition is responsible for gas stations in some areas of Wyoming, charging higher prices than others.

A wholesale distributer may be located outside of Wyoming and sell fuel to multiple states. Some of the surrounding states have a higher fuel tax, and some have a lower fuel tax. The wholesale fuel distributer factors in the costs of the taxes in the region that they serve. They then charge retailers the same price for fuel in that region regardless of the difference in their state taxes. Wholesale distributors charge the same price because they have to compete on price with other distributers operating in their region. By charging the same price for a multi-state region, the wholesale fuel distributer is making more profit for the lower tax states and less profit in the higher tax states.

For the wholesale distributer, it makes sense to price their fuel at a rate that incorporates all of the tax rates in the region. Let's say a wholesale distributer is based out of Colorado and sells fuel to Colorado, Wyoming, and Nebraska. The state tax on gasoline for these three states is $0.22, $0.24, and $0.29 respectively. The distributer will price their fuel with a markup so that the highest taxes in the region (Nebraska at 29 cents per gallon) do not cut into their profit margin. This leaves them with a higher mark up in the other states who have lower taxes.

In order to see an increase of prices at the pump as a direct result of a tax increase, fuel taxes for the entire region where a wholesaler operates would have to increase. It is unlikely that the consumer would see a 3-cent fuel tax increase at the pump in Wyoming.