Georgia Gas Tax Hike: Much Ado About Nothing

Clay G. Collins, E. Frank Stephenson

Monday, August 17th, 2015

One of the most significant bills enacted by the Georgia Legislature in 2015 was the nearly billion-dollar Transportation Funding Act of 2015. A key provision of the bill was a change in Georgia’s gasoline tax, taking effect on July 1.

Before the change, Georgia had a two-part gas tax: a 7.5 cents per gallon excise tax and a 4 percent state sales tax. Gas was also subject to local option sales taxes, which run another 3 percent in most counties. Levying gas taxes as a percentage of the purchase price had drawbacks. One was difficulty in transportation planning because tax revenue fluctuated with gas prices. Another was the perverse feature of having the tax increase when gas prices increased, leading to additional strain on family budgets.

Beginning on July 1, Georgia replaced its existing gas tax system with a pure excise tax of 26 cents. At prices of about $2.50 per gallon, the 26 cents per gallon tax is roughly equivalent to gas taxes levied under the old system. Taking 7 percent (4 percent state sales tax plus 3 percent local option sales tax) of $2.50 and adding 7.5 cents gives a total tax of 25 cents per gallon.

Yet the change was greeted by media reports of Georgia’s “first gas tax increase since 1971″ and warnings that “drivers should expect around a 6-7 cent increase” when filling their tanks. These claims are surprising, considering the tax change should have resulted in little change at current prices.

Using and AAA’s Fuel Gauge Report, we gathered data on gas prices to determine whether media reports of a tax hike are justified.

The accompanying table shows average gas prices in Georgia and its five neighboring states. The table covers both June and July, the months immediately before and after Georgia’s tax change. Consumers’ demand for gas is very inelastic, so gas taxes are almost completely passed along as higher gas prices. If Georgia’s gas tax change amounts to a tax hike, there should be an increase in Georgia’s gas price relative to our neighboring states.

None of the nearby states changed their gas taxes this year, meaning that any change in their gas prices reflect overall market trends.

The table shows that gas prices fell in all these states from June to July, a welcome development for family vacation season. The decreases range from 6.4 cents per gallon in North Carolina to 10.7 cents per gallon in Alabama. Georgia’s decrease of 8 cents per gallon is almost exactly equal to the 7.9 cent average decrease among adjacent states.

Contrary to media reports, Georgia’s gas tax change led to no price increase at the pump.

Digging deeper, we obtained daily price data from June and July for Georgia and its neighboring states. That allowed us to check for price changes in Georgia that may have happened either before or after July 1. Georgia gas retailers could have started raising prices before July 1 in anticipation of higher taxes. Conversely, gas prices might not have increased until a few days into July as retailers started receiving new fuel shipments.

While neither of these possibilities could be detected using the monthly averages shown in the nearby table, statistical analysis of the daily gas price data allows us to also rule out price changes happening before or after July 1.

Contrary to media predictions, there is no evidence that Georgia’s switch to a pure gasoline excise tax increased Peach State pump prices. There may well be some good reasons to criticize the transportation bill, but hiking gas taxes isn’t one of them.  

Gas Prices in Georgia and Neighboring States
STATE    July Price    June Price    Change
Georgia    2.627    2.707    -0.080
Alabama    2.430    2.537    -0.107
Florida    2.635    2.707    -0.072
North Carolina    2.602    2.666    -0.064
South Carolina    2.385    2.468    -0.083
Tennessee    2.485    2.553    -0.068
Neighboring States Avg.    2.507    2.586    -0.079

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