Jim Dey | Expect a steady rise in Illinois motor fuel taxes

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Winter is scheduled to arrive on Dec. 23.

That means the ice man cometh. With the November election in the rear-view mirror, he’ll be joined by the tax man.

Gov. J.B. Pritzker’s six-month delay in the scheduled July 1 gasoline tax increase expires on Jan. 1, 2023. That means the state’s gas tax will jump from 39.2 cents per gallon to around 42 cents at the start of next year.

On July 1, 2023, that hike will be followed by another inflation-driven gas-tax increase of around 3 to 4 cents per gallon, and that will continue every July 1 thereafter, according to Illinois law.

Taxes on the sale of gasoline and diesel fuel are major revenue contributors to the state, especially so since Illinois is one of a handful of states to apply sales tax on top of per-gallon gasoline taxes.

The higher the price of gasoline and diesel fuel, the more money pours into state coffers.

A recent report by the state’s Commission on Government Forecasting and Accountability presents some revealing, but still incomplete, numbers as to how much.

Here’s one statistic that will get readers’ attention:

Gasoline sold for $1.54 a gallon in April 2020, shortly after the first pandemic lockdowns went into effect. By July 2022, the average price in the Midwest for a gallon of gasoline was $4.88. For diesel, it was $5.75.

Prices have fallen since then — down to $3.59 a gallon by September for gasoline but still around $5 for diesel, according to COFGA chief economist Benjamin Varner.

The 2019 doubling of the state’s gas tax from 19 to 38 cents a gallon, combined with the skyrocketing price of gasoline, bumped state gas-tax revenues up to $2.319 billion in the 2020 fiscal year, a dramatic increase from $1.35 billion the year before.

The FY 2020 total of $2.319 billion jumped to $2.380 billion in FY 2021 and $2.523 billion in FY 2022. That money goes to the state’s motor fuel tax fund, which pays for road construction and improvements.

It’s a different story with sales taxes on motor fuel, one partially hidden from public view.

The state receives 5 percent of sales-tax revenue generated from fuel sales but can only offer estimates of total revenue because sales taxes collected from gas stations include those from “motor fuel as well as ancillary items, such as chips, soda, etc.”

Making estimates from the number of gallons sold of gasoline and diesel fuel, commission analysts suggest those revenues increased dramatically as fuel prices went up.

“The estimate for sales-tax revenue on motor fuel surged to $840 million in FY 2022 due to a 49 percent increase in the average price of gasoline from $2.36 per gallon to $3.51 per gallon,” Varner reported.

That was up from $511 million in FY 2021.

What’s the future for fuel prices and taxes? Taxes are going up, thanks to the annual increases.

“However, this may be offset by the loss of sales-tax revenues as (fuel) prices are expected to fall. Short-term projects from the Energy Information Association indicated that prices for gas in the Midwest are expected to average about $3.67 per gallon in the fourth quarter of 2022 and stay between $3.35 and $3.50 per gallon throughout 2023,” Varner stated, estimating diesel prices will decline to around $4.13 per gallon in the second half of 2023.

As a re-election move, the governor and legislators approved a six-month delay in the July 1 gas tax and small temporary reductions in sales, property and income taxes.

Jim Dey, a member of The News-Gazette staff, can be reached at jdey@news-gazette.com or 217-393-8251.

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November 16, 2022 at 06:50AM

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