Higher gas prices not necessarily adding up to more tax revenue

Thomas V. Bona

Motorists are sending more money than ever to state and local government coffers in motor fuel sales taxes.

But they’re not buying as much other stuff, so government bodies shouldn’t expect a sudden windfall.

In the fiscal year that ended June 30, Illinois raked in $754 million in motor fuel sales taxes, a 26 percent increase from the previous year. But the $7.2 billion in overall sales tax revenues was up just 1.1 percent.

“The bottom line is people simply don’t have as much money to spend in other areas because they’re putting it in their tank,” said Jim Muschinske, revenue manager for the state’s nonpartisan Commission on Government Forecasting and Accountability.

While motor vehicle sales tax data isn’t available for local governments, officials say the trend extends across all levels.

“I’m sure the receipts from the gasoline add up, but that’s offset by some of the other decreases, so it’s flat,” Winnebago County Administrator Steve Chapman said.

Illinois is one of fewer than 10 states that applies a variable-rate sales tax to motor fuel. Most states — and the federal government — charge a flat per-gallon tax. Illinois is also rare in allowing local sales taxes to apply to motor fuel.

Illinois collects its 6.25 percent sales tax on all motor fuel purchases, but keeps only 5 percent. The rest is sent to local governments.

Rockford and Machesney Park charge an additional 1 percent sales tax to pay for road improvements, and Winnebago County charges a 1 percent sales tax to pay for public safety projects. That means motorists in Rockford and Machesney Park pay 8.25 percent, and others in Winnebago County pay at least 7.25 percent.

According to Illinois Department of Revenue figures, the sales tax dollars received by local communities from the automotive sector are flat over the past year. The automotive sector includes fuel sales and vehicle sales and service, so increases in fuel proceeds are offset by declining car sales.

Illinois sales taxes act as an accelerator to gas prices: the higher the price at the pump, the more taxes motorists pay.

Gasoline prices in Rockford have risen from about $2.30 at the start of 2006 to $3.90 today, according to AAA’s Meanwhile, total taxes have risen from 54 cents a gallon to 69 cents.

At the same time, taxes aren’t the prime cause of the fuel price run-up: They only account for 10 percent of the increase.

Still, the sales tax has many opponents.

Dave Sykuta, executive director of the Illinois Petroleum Council, said it’s a deceptive tax because — unlike with most consumer goods — it’s included in the advertised price and doesn’t show up on customer receipts as a separate charge.

“Politicians don’t own up to it,” Sykuta said. “We collect the tax, so we get the blame.”

Also, except for special sales taxes like Rockford’s and Machesney Park’s, sales tax money doesn’t go toward roads and transportation projects. The state sales tax goes straight into the general fund.

Sykuta’s group supports the flat state motor fuel tax of 19 cents a gallon and the federal fuel tax of 18.4 cents because those pay for transportation projects that benefit motorists.

Sens. Dave Syverson, R-Rockford, and Brad Burzynski, R-Clare, are among those who have proposed suspending the state’s motor fuel sales tax. Those measures have died in the General Assembly, as opponents say cutting taxes wouldn’t lower prices, but would give more money to the oil industry.

Rep. Chuck Jefferson, D-Rockford, defended the long-standing sales tax as a valuable revenue source.

“We so desperately depend on the money it generates,” he said. “Without that, we’d probably have quadruple the budget hole we have now.”

Not all government coffers are getting more money from motor fuel.

Transportation funds filled by flat federal and state taxes are getting less money because people are buying less fuel. The U.S. Energy Information Administration estimates gasoline usage is down 2.4 percent from last year nationwide.

Reach staff writer Thomas V. Bona at 815-987-1343 or

By the numbers

Illinois collects a 5 percent sales tax on every gallon of motor fuel sold. Here’s how those proceeds compare with the state’s overall sales tax proceeds (fiscal years run July 1 to June 30):

                     Motor fuel sales tax                         Total sales tax                % from motor fuel

FY 2008     $754,057,287* (26.1 % increase) $7,215,000,000 (1.1% increase)     10.5   

FY 2007     $598,136,947 (3.4 % increase)     $7,136,000,000 (0.6 % increase)      8.4

FY 2006     $577,867,125 (29.5 % increase)   $7,092,000,000 (7.5 % increase)      8.1

FY 2005     $446,176,810 (21.7 % increase)   $6,595,000,000 (4.2 % increase)      6.8

FY 2004     $366,600,000 (20 % increase)       $6,331,000,000 (4.5 % increase)     5.8

FY 2003     $305,660,216 (17.4 % increase)    $6,059,000,000 (0.1 % increase)     5

FY 2002     $260,304,112                                     $6,051,000,000                                    4.3


Source: Illinois Commission on Government Forecasting and Accountability