PA Gas Tax Increases, Could Lead to Higher LF Distribution in 2024

Due to record high fuel prices in 2022, the Pennsylvania gas tax increased on January 1 from 57.6 cents to 61.1 cents per gallon for gasoline and will increase from 74.1 cents to 78.5 cents per gallon for undyed diesel fuel. This tax, called the oil franchise tax, is levied on the wholesale price of fuel. These revenues must be used to maintain Pennsylvania’s roads and bridges and are the source of township’s liquid fuels funds. The increase could lead to a higher liquid fuels distribution for local governments to maintain roads and bridges in 2024, but this will depend on the number of gallons of fuel sold in 2023. 

When the legislature approved Act 89 of 2013, which modernized Pennsylvania’s gas tax and increased transportation funding to local governments, it acknowledged that higher oil prices directly increase the costs of maintaining Pennsylvania’s transportation infrastructure. At the time, townships were facing significant decreases in liquid fuels funds due to the ceiling on the gas tax levy. Act 89 eliminated the ceiling for the tax and replaced it with a “floor” of $2.99/gallon. This is the first time since the passage of Act 89 of 2013 that the tax base is higher than the “floor.” 

While some will suggest this increase will lead to higher prices at the pump, that has not happened historically in Pennsylvania and will depend on market forces. When gas tax increases from Act 89 were gradually implemented, the average price of fuel decreased due to lower oil prices. In fact, when you compare fuel prices by state and gas taxes by state, it is clear that the differences in gas taxes do not explain the differences in fuel prices. This is true even when comparing Pennsylvania gas prices, and gas taxes, to those of neighboring states. Maryland saw its gas tax automatically increase in July 2022, from 36 to 43 cents per gallon (now the fourth highest gas tax nationwide), but the gas price differential between Pennsylvania and Maryland continues to significantly exceed the now 18 cents difference in fuel taxes. Fuel costs far more in other states with significantly lower gas taxes, including Alaska, which has the lowest gas tax.  

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