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Tuesday, December 14, 2004

Motor Fuel Taxes

An article in The Chicago Tribune on Monday, December 13 ("Airlines fly in but don't fill up here/City, state taxes drive up fuel cost: ) started me thinking about the possibility of similar effects with respect to motor vehicle fuel taxes.

Consider a cluster of states, with relatively large population centers closely located across state lines (say, Wisconsin, Illinois, and Indiana). Suppose one of these states has significantly higher motor fuel taxes than either of the other two. Wouldn't we, then, expect to see people "tankering" their fuel in about the same way that airlines have begun doing? Wouldn't we expect to see truckers doing the same?

When I thought about this, I thought I knew that taxes in Illinois were significantly higher than those in Indiana or Wisconsin, so I thought it would be the case that motorists, either private or commercial, would tend to fill up in Wisconsin or in Indiana before driving into or through Illinois. Seems plausible, right?

And for Indiana and Illinois, it not only seems plausible, the tax differentials would support it. Illinois taxes gasoline at $0.198 per gallon, and diesel fuel at $0.223 per gallon, compared with $0.18 and $0.16 in Indiana. But in Cook County (IL), there's an additional $0.05 tax, and in the city of Chicago yet another $0.05. So the tax difference between northwest Indiana and Chicago is $0.138 for gasoline and $0.173 for diesel fuel. (Wisconsin is a different story; taxes there are $0.28 for all types for motor fuel, so the fuel tax advantage for Wisconsin is much smaller.)

Consider someone like me. I live in Chicago and work in northwest Indiana. Every two weeks, I fill up about three times, about 12-13 gallons each time. By buying in Indiana, I save somewhere around $1.70 every time I fill up. With 78 fill-ups per year, that's around $130 per year. For over-the-road truckers, who might have four fill-ups per week, at around 100 gallons per fill-up, that's more than $3500 per year. I have a moderate incentive to buy in Indiana. Truckers have a huge incentive.

And it shows up in the location patterns of gas stations, and even more dramatically, truck stops. Within 10 miles of the Illinois-Indiana state line, on I80/94, there are five or six truck stops in Indiana. Over the border, to the best of my knowledge, none.

What does Indiana gain, and Illinois lose in motor fuel revenue? Beats me. But it's almost certainly significant.


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