Federal Motor Fuel Taxes

Overview

The motor fuel tax is a per-gallon excise tax levied on gasoline, diesel, and other special fuels, and is deposited into the Federal Highway Trust Fund (HTF). Motor fuel taxes provide about 82 percent of the revenue used for Federal surface transportation funding.

The HTF was established by the Federal-aid Highway Act of 1956 for the direct purpose of funding the construction of an Interstate Highway System and aiding in the finance of primary, secondary, and urban routes. Prior to establishment of the HTF, a federal motor fuel tax of 1 cent per gallon was enacted in 1932 and increased, extended, and rescinded multiple times until 1955. Revenue was not collected in a dedicated fund, but instead was pooled with the General Fund of the Treasury. Similarly, cash to pay for obligations incurred for the Federal highway program came from the General Fund.

Initially set at 3 cents per gallon in 1956, the motor fuel tax was increased to 4 cents per gallon in 1959. Then after a 24-year hiatus, motor fuel taxes were increased to 9 cents per gallon in 1983 and a new dedicated Mass Transit Account was established alongside the existing Highway Account and was funded with one-ninth of the revenues coming into the HTF. The next year, the motor fuel tax on diesel fuel was increased separately by 6 cents per gallon, a differential that remains today.

Since 1987, except from January 1996 to October 1997, an additional 0.1 cent per gallon has been levied and deposited in the Leaking Underground Storage Tank Trust Fund.

In 1990, a 5-cent increase was passed as part of the Omnibus Budget Reconciliation Act, raising the Federal motor fuel tax to 14 cents per gallon for gasoline and 20 cents per gallon for diesel fuel. However, this legislation also directed half of the increase to the General Fund of the Treasury for deficit reduction. A final fuel tax increase of 4.3 cents per gallon was enacted in 1993 to further aid in deficit reduction, bringing the motor fuel tax to its current level of 18.3 cents per gallon for gasoline and 24.3 cents per gallon for diesel fuel. This bill ended the redirection of 2.5 cents to the General Fund in 1995, but instead, the 4.3-cent increase was used for deficit reduction until the Taxpayers Relief Act of 1997 ended that provision. The current tax rates on motor fuels are shown in the table.

Type of Excise Tax	Tax rate (cents)	Highway Account	Mass Transit Account
Distribution of Tax
Gasoline¹	18.3 per gallon	84%	16%
Diesel1	24.3 per gallon	84%	12%
Gasohol^1,2	18.3 per gallon	84%	16%
Liquefied petroleum gas	13.6 per gallon	84%	16%
Liquefied natural gas	11.9 per gallon	84%	16%
M85 (from natural gas)¹	9.15 per gallon	84%	16%
Compressed natural gas	48.54 per thousand cubic feet	80%	20%

¹ In addition to these rates, a 0.1-cent per gallon tax is levied and deposited in the Leaking Underground
Storage Tank Trust Fund.
² Other rates apply to gasohol blends containing less than 10 percent ethanol or blends made with methanol.

Collection

Most of the excise taxes credited to the HTF are not collected directly from the consumer. Instead, they are paid to the Internal Revenue Service by the producer or importer of the taxable product. User taxes are deposited in the General Fund of the Treasury, and the amounts equivalent to these taxes are then transferred to the HTF. Monthly transfers are made based on estimates and are later adjusted on the basis of actual tax receipts, as shown in the figure.

Attribution

Federal legislation requires generally that funds paid into the HTF be returned to the states for various highway program areas in accordance with legislatively established formulas. Formulas for distributing Federal-aid highway funds for the Surface Transportation Program, the National Highway System Program, and for the Interstate Maintenance Program use motor fuel and other excise taxes attributed to each state as distribution factors. Furthermore, each state is guaranteed a threshold minimum return on its share of contributions (92 percent as of 2008 under SAFETEA-LU). Since contributions by highway users in each state cannot be directly measured, procedures have been developed to attribute funds to the states. Given the large amounts of funds involved in these programs, the accuracy of the attribution process is critical.

States provide reports to FHWA on the gallons of motor fuel recorded and taxed in each state. States report on the consumption of each type of motor fuel: gasoline, gasohol, special fuels (mostly diesel), and other alternative fuels, and whether the gallons sold are fully taxed sales, exempt sales, partially exempt sales, full refunds, or fuels sold at reduced rates as provided by each states' laws.

FHWA has developed a set of procedures for attributing Highway Account revenues to the highway users in each state. FHWA's primary concern is to have motor fuel data that represents, as accurately as possible, the number of gallons consumed by highway licensed vehicles operating on the highway. Because each state's legislation and administrative procedures are unique, the data collected and submitted to FHWA differ for each state. FHWA instructs states to report the data according to specific published rules that recognize and make accommodation for the variation in state data.

It is incumbent on FHWA, however, to make adjustments to the state motor fuel data to provide uniform definitions for off-highway uses of fuel. FHWA has developed a series of models to account for these factors as equitably as possible among the states. At the end of the adjustment procedures implemented by FHWA, a single data set represents, as accurately and equitably as possible, the on-highway motor fuel use by the states, and when summed, a national total on-highway use.

Resources

Financing Federal-aid Highways
This FHWA publication is prepared following the enactment of new highway or surface transportation acts. The report follows the financial process from inception in an authorization act to payment from the HTF, and includes discussion of the congressional and Federal agency actions that occur throughout. Most recently it was published in 2007 to reflect changes in financing procedures enacted by SAFETEA-LU.

Attribution and Apportionment of Federal Highway Tax Revenues
Further detail on the attribution and apportionment process is found in this report prepared for the FHWA Office of Highway Policy Information in 2002.

Highway Taxes and Fees 2008: How They Are Collected and Distributed
This publication presents tabular information on state and Federal laws that provide for the taxation of motor fuels, motor vehicles, motor carriers, and licensed drivers, and the distribution of revenues from these highway taxes and fees. Also included are tables that show the use of other state taxes for highways and the involvement of Federal agencies and Federal funds in highway activities. The information presented is based on data obtained from state authorities and the laws of the various states.

Highway Statistics (published annually)
These publications are prepared by the FHWA Office of Highway Policy Information presenting and analyzing statistics of general interest on motor fuel, motor vehicles, driver licensing, highway-user taxation, state highway finance, highway mileage, and Federal aid for highways. They also include highway finance data for municipalities, counties, townships, and other units of local government.