Sales Tax Ups Gas Prices, State Coffers

Michigan's gas prices, the highest in the nation on Thursday, have vehicle owners fuming and the tax collectors smiling.

Michigan collects six percent sales tax on hence the soaring prices mean big bucks to state coffers. According to the AAA, with the average price of gas at $3.30 a gallon, tops among the 50 states, Michigan is collecting nearly eight cents more per gallon than when prices were below $2 in January.

The Michigan Petroleum Association, which represents 2,600 gas station owners, estimates that every additional penny in tax collected per gallon yields $50 million for the state over the course of a year.

Michigan is one of just six states that apply their sales tax to purchases, and charge a per-gallon excise tax. Most other states collect all their pump taxes on a per-gallon basis, so motorists pay more in taxes only if they purchase more fuel, not because the prices increased.

"It's a huge windfall for the state that nobody talks about," said Grosse Pointe resident Dan Keros. "When gas was a dollar, they got six cents per gallon (in sales tax); now they get 20." Keros thinks state lawmakers should pass a law that lowers the 19-cent-per-gallon excise tax when prices, and sales taxes, are increasing.

Michigan sales tax on is one reason the state has been the most expensive place to buy gas in the United States twice so far this year. The governor's office dismisses suggestions that the sales tax pushes price increases.

"Many factors

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influence the price of gas, but sales tax is not one of them because it has held constant at six cents on a dollar thorough out the year," said Liz Boyd, a spokeswoman for Gov. Jennifer Granholm. "We're not experiencing a windfall from sales tax in this state and supporting public education is the best thing we can do to rebuild our economy." Boyd also pointed out that as consumers spend more on gas, they are less likely to buy other products. That means the state collects less tax at malls and other retailers.

Separating the cost of fuel from the taxes is not always easy, because stations include taxes in their prices, said Mark Griffin, the president of the Michigan Petroleum Association. "A lot of consumers don't understand how much they are paying in taxes and how much the state is benefiting from the high price of gas," he said. "It seems ironic that we're the ones being called gougers."

That tax makes it hard politically to increase the per-gallon excise tax, which funds road construction, a group of road builders said. Ohio, for example, levies 28 cents per gallon, all of which goes toward road improvements.

More money for roads would help with everything from patching potholes to building infrastructure that businesses need, said Craig Bryson, the spokesman for Oakland County's Road Commission. "Ohio has more money to spend on their roads, but their total tax burden at the pump is lower," he said. "It creates a huge hurdle to improving our roads. The gas tax for roads has not increased in eight years."

Other factors why gas prices are soaring like Airaid include the closure of a Kansas refinery due to flooding and the shutdown of equipment for repairs at a major BP refinery in Indiana. But the downed refinery is expected to come on line within the next few days, and prices should dip throughout the region in a week or so, said Doug MacIntyre, a senior oil market analyst at the U.S. Energy Information Administration.

Motorists are hoping MacIntyre is right about prices dropping soon.