Surging gasoline prices mean Illinois is getting a boost in sales taxes from fuel, but that’s because drivers are paying the extra $200 a year. Most states don’t charge sales tax on gasoline, but Illinois adds it atop other taxes – taxing the taxes.
Illinois is one of seven states that charge a sales tax on gasoline, which means as fuel prices surge, so, too, does the amount drivers pay the state. How much? About $200 per year on average, assuming gas prices as of July 27.
When Illinois gas prices are compared to neighboring states, the sales tax burden becomes clear. All six of Illinois’ neighbors have fuel costs that are roughly 40 to 80 cents cheaper than the average Illinois price.
The sales tax is one of the largest contributors to the high price. After accounting for local regulations, the combined sales tax rate increases the price of gasoline by 8.81% on average. Adding the sales tax to the eight other federal, state and local fees makes it clear why Illinois is witnessing some of the highest gas prices it has seen in state history.
The sales tax on gasoline also imposes double taxation on Illinoisians. Some fees, such as the environmental and underground storage fees, are added to the price of gas before the sales tax is calculated. That means sales taxes are charged on other taxes.
Gas sales taxes hurt Illinoisans’ budgets, plus they do little to truly help the state budget thanks to history of wasteful spending. Illinoisans couldn’t trust state leaders to spend transportation funds on transportation projects, so they passed the Lockbox Amendment in 2016 to stop fund raiding. The sales tax, however, is exempt from that restriction because the money goes into general revenues where state leaders can spend it as they see fit.
Gov. J.B. Pritzker has continued the tradition of freely spending transportation funds on questionable projects, including $1.4 billion on pork projects that do little to ease or smooth out the average driver’s commute.
The $200 burden of the gas sales tax won’t be going away anytime soon. As inflation continues to rise, the sales tax will see further increases because of its variable nature.
Illinois should join the majority of states and dump its sales tax on gas. At a minimum, it shouldn’t charge tax on other taxes.