Ouch. Most of us are very much aware of the high cost of gasoline in our part of the world. Gas prices have climbed to the highest level in memory. The pain at the pump is not totally because of fluctuations in the market, or political tensions in the Middle East, although these reasons should not be dismissed.
The second reason for high gas prices is the more important one. Connecticut currently has the highest combined state and federal taxes on the sale of gasoline in the country.
There are three taxes charged on the purchase of each gallon of gas in our state. A federal excise tax, a Connecticut state excise tax and a Connecticut gross receipts tax. The federal excise tax is 18.4¢ a gallon. The state excise tax is 25¢ a gallon and is directed exclusively to the Special Transportation Fund, $491 million in fiscal year 2011. The third tax is the gross receipts tax at 7.35% on each gallon. A percentage of this gross receipts tax goes to the Special Transportation Fund, but only a percentage.
Last year about half of the Gross Receipts Tax collected went to the Special Transportation Fund, the rest went into the General Fund for state operating expenses. In 2011 gross receipts tax brought in $335 million of which $165 million was allocated to the Special Transportation Fund.
Connecticut drivers feel the most gas price impact because of this state gross receipts tax, a tax on the wholesale price of gas. The gasoline retailers who purchase the fuel from wholesalers ultimately pass the cost of the Gross Receipts Tax they pay along to consumers. While the Excise Tax stays at 25¢ per gallon, the amount collected from the gross receipts tax grows as the price of gas rises.
The gross receipts tax, formally known as the “state petroleum gross earnings tax,” has a long, controversial history in the State of Connecticut. Enacted in 1981, the tax originally was a counter-action by the state legislature against the rapid rise of home heating oil and increased profits in the oil industry. The new legislation imposed a 2% gross earnings tax on any petroleum company engaged primarily in refining and distributing petroleum or petroleum derivatives to wholesale and retail dealers in the state. The act also incorporated a provision which prohibited companies from passing the tax on to consumers, however that provision was later struck down in court as it was preempted by federal law.
There is no debating that the steep rise of the price of gasoline in Connecticut negatively affects living and doing business in Connecticut. I see from personal experience, too, how the high price of gasoline affects young adults making lower starting salaries. How can we expect to bring in any type of economic recovery when the price of gas will keep hitting our citizens harder and harder?
There has been a push to cap the Gross Receipts Tax and a bill currently before the Finance Committee would do just that. Senate Bill 168 would cap the tax at a $3 wholesale price. I strongly back this effort and encourage anyone interested to register their support for this bill (SB168) by emailing or calling legislators.
In closing, I have two thoughts. All taxes collected on gasoline should go to the Special Transportation Fund. This fund covers road and bridge repairs and other transportation infrastructure needs; it will not only provide for safer transit throughout the state but will also provide high paying, high quality employment to our construction industry. Two, it’s time to cap the dollar value on the Gross Receipts Tax and give citizens a break in these difficult economic times.
Ultimately, we need to develop alternative sources of energy for a whole host of reasons. No matter where you fall on the global warming issue, reliance on a non-renewable resource is folly. It’s also folly to rely on a fuel source from the historically politically unstable Middle-East. In the meantime, let’s do the right thing by requiring that all the state taxes collected on gas go to the Special Transportation Fund and cap the Gross Receipts Tax. This, I feel is a balanced common sense approach that will benefit citizens in our state.
Terrie Wood, a Republican, represents Darien and Rowayton in the State House.