The Pros-- er, Cons of a Gas Tax Holiday
The question came up in a special joint committee session. Do these things help or not?
In Brief:
County gas tax holidays should, in theory, save you between 1 and 25 cents per gallon (if gas reaches $9/gal and the county only taxes $2/gal).
Gas tax holidays do not appear to be working. The average cost of gas in metropolitan areas with gas tax holidays is higher than the average price in New York State.
The county and municipalities share gas tax revenue. The split is 53.6% - 46.4%, respectively. Therefore, a gas tax holiday could have the unintended consequence of disproportionally hurting small municipalities.
Most Town Supervisors agreed that they want to help residents who are struggling financially, but are fairly certain that this will make no substantial difference (if it makes any at all).
Ontario County might have to impose a tax levy increase to make up for lost revenue.
There are a lot of graphs in the article below, but I think they are pretty easy to understand. Please bear with me on this one. Thank you for reading!
On June 1st, Governor Kathy Hochul announced “the suspension of certain taxes on motor fuel and diesel motor fuel.” At the same time, 25 of New York’s 62 counties announced county-level partial suspensions of motor fuel taxes. The state-level cut promised to reduce gas prices by 16 cents per gallon, while county-level cuts would collect taxes on only the first $2-3 of each gallon sold. Ontario County was not among the 25 that announced such tax breaks, citing a lack of information and concern that the price reduction might not make it to the consumer.
The Governmental Operations and Insurance and Ways and Means committees held a special joint session on July 6th to discuss the potential impact of a motor fuel sales tax holiday. The meeting was informational only — no voting took place. Ontario County Director of Finance Mary Gates presented. She was kind enough to share her presentation with me.
The tables below describe what counties that have implemented a gas tax holiday have chosen to do. The number in parentheses after each county name indicates that county’s gas tax rate. The dollar amount is the tax ceiling/cap: counties will only collect taxes on up to $3.00 per gallon. (So if the price of gas is currently $4.70/gal, then $3.00 would be taxable and $1.70 would be tax-free. If the price of gas was $2.70/gal, the entire price would be taxable.)
Likewise, Figure 2 lists the counties that have enacted a gas tax holiday and will only be imposing their standard tax on $2 for every gallon sold.
Let’s take a closer look at our neighbor, Monroe County. They elected to suspend their 4% tax on all but $2.00 per gallon for six months. How has the price of gas in Monroe County been effected?
The NY Department of Taxation and Finance keeps records of the average price of gas in major metropolitan areas. Here are the numbers for Rochester. (The graphic is from Gates’ presentation. I corroborated the numbers, and you can, too, at the link above.)
The gas tax holiday for Monroe County began on June 1st, so it will initially be reflected in the price of gas on the week of June 6th.
“Monroe County and the state instituted their gas tax holiday on June 1st. You can see that the average price per gallon of gas in Monroe County, or Rochester metro went from $4.89 to $4.81, so down 8 cents, but the very next week, up 14 [cents],” said Gates at the July 6th meeting. “So, that is one of the topics that I know several of you have been thinking about: [. . .] if we do anything with a sales tax holiday on motor fuel, is it really going to hit the consumers?"
How do gas prices in Rochester compare to prices in similar metropolitan areas with holidays? (Note: I used what I would consider similar areas. I excluded New York City and Nassau, as New York City is substantially different than the other cities; and I’m not sure whether the Nassau data is for the Town or the County and don’t want to assume.)
Sadly, the price of gas for each of these cities continued to rise following the first week of their counties’ gas tax holidays. It is possible that the blow was lessened slightly by the break, but that is not clear from this data. (To me, it looks more like it only worked at all for one week.)
Here is the average price of gas in Rochester (Monroe County) compared with the overall state average:
Even though the majority of counties did not implement a tax break, Rochester, located in a county that did, now sells gas at higher prices than the state average. This doesn’t mean a whole lot without historical context, however. So, please note that since at least 2007, the price of gas in Rochester had generally trended lower than the state average (with some exceptions) until February of this year. (While you’re at it, feel free to notice that gas prices are currently above even 2008 levels.)
In fact, the average price of gas in the metropolitan areas with tax holidays now exceeds the state average!
Historically, the average price in these metropolitan areas has been lower than the state average:
Here is the recent average cost of gas in the Albany metropolitan area, which is still paying full county gas taxes (Albany County did not implement a gas tax holiday):
Interestingly, even Albany experienced a price drop in the first week of June. Since then, gas prices have remained below the state average. Again, for historical context, please note that since at least 2007, Albany prices have trended lower than state averages.
Let’s talk about what kind of impact a gas tax holiday would have on your bank account and on on the county.
Ontario County charges a 3.5% tax on motor fuel. This means that the amount of savings for consumers (and lost revenue to the county) is dependent on the price at the pump. The more expensive gas gets, the more consumers would save at the pump and the more revenue would be lost to the county.
There are two other factors that help determine the savings for consumers: the dollar amount that the county would continue taxing (usually up to $2 or $3) and the duration of the tax holiday (in this case, three to nine months). If the county decided to cap the taxable amount per gallon at $3, then they would still collect ($3.00 x 3.5% =) 10.5 cents per gallon on each purchase. That rate would not increase with the price of gas, meaning the higher prices go, the more consumers would save. If the price of gas were to rise to $6/gal, a county gas tax cap at $3/gal would (in theory) save residents 10.5 cents per gallon. If the price were to fall beneath $3/gal, the entire price per gallon would be taxable. The longer the tax holiday lasted, the more residents would save.
A few Town Supervisors also voiced concern about the county-wide tax break benefitting out-of-county and out-of-state drivers.
What about the cost to the county — how much would this cost the county in lost revenue?
Actually, it’s not just the county that will lose revenue. The county and local municipalities share the tax revenue from the county fuel tax: roughly 53.6% goes to the county and 46.4% goes to the municipalities. This means that a gas tax holiday could have the unintended consequence of disproportionally hurting municipalities, too.
There’s no way to know for certain what a gas tax cap would cost the county and municipalities because this depends heavily on the price of gasoline. (If you can predict the price of gasoline, give me a call. ;) ) The degree to which rising prices will curb the purchase of motor fuels is also unknown. Assuming that the price doesn’t exceed $6.00/gallon, Gates estimates that the county could lose between $1.5M and $3.5M this year. Or, to break it down, the county would stand to lose $800,000 to $1.8M and municipalities would stand to lose $700,000 to $1.6M.
[Note: I have serious questions about the way she calculated these numbers. Unfortunately, Gates did not respond to my emails or phone calls. Here is the slide she presented to show these numbers:
Note, continued: On the left, notice that the “Avg $/gal” column multiplied by the “Gallons” column equals the “Total Tax” column. The tax rate seems to be missing from this equation. As a result, “Total Tax” looks more like “total sales.” The sum of all of the numbers in the Total Tax (total sales?) column is $2,807,128.71. The sum of all of the numbers in the table on the right is also $2,807,128.71. Why are these numbers NOT just the total sales from gas? Where is the actual gas tax rate taken into account here? Am I missing something? 3.5% of the county and local municipalities totals shown above would be more like $52,600 and $45,600, respectively, which seems low. I will update this post when I’m able to speak with Gates again.]
Based on the calculations shown above, Gates estimates that the county tax rate implication for 2023 could be between 0.06 and 0.14.
[Note: I’ve been trying to contact Gates to clarify what exactly this means, but haven’t yet heard back, so here is my best understanding: the county tax rate is currently $6.31 “per M.” “M” stands for “mil” and, apparently, means thousand. So, the tax rate is roughly $6.31 per $1,000 of assessed property value. From this understanding, I think that the tax rate implication would be added to the current rate. With a fuel tax holiday, therefore, the new county tax rate could be raised to between $6.37 and $6.45 (or higher, if the price of gas exceeds $6/gallon) per $1,000 of assessed property value in 2023.]
When asked about Ontario’s decision to delay the decision about a tax holiday, County Administrator Chris DeBolt said that the Board of Supervisors didn’t feel they had enough information to act in the affirmative and added, “I think one of the big questions that all county government leaders have at this point is whether the savings from the suspension of the gas tax will be passed on to consumers at the pump. That is a significant concern: that in [the] past, anecdotal evidence from other counties when this has been done, it has not shown significant savings at the pump.” (Source: https://www.whec.com/livingston-county-ny-news/gas-tax-holiday-begins-in-june-for-some-counties/6484384/)
The county is currently discussing the topic again. The Board of Supervisors will have to make a final decision before the New York State deadline of September 1st. If you feel strongly one way or the other about a gas tax holiday, please contact your Town Supervisor and let them know.
With Social Security, you pay a percentage in with every check until you reach the maximum donation that year. Once you reach it, they stop taking it out of your check and it feels like you have a bonus at the end of the year just in time for the holidays.
The county can do EXACTLY the same thing. Have a gasoline tax starting in the beginning of the year. Maintain it until the NET income is equal to the previous years level, then cancel the tax for the remainder of the fiscal year.
The advantages: 1.) The tourist are here in the warmer months so they will be paying 2.) the gas tax income is no longer a projection but a known amount 3.) it prevents spending gas revenues that may never occur due to unrealistic optimism in gas demand 4.) the savings would likely be spent on Christmas or heating bills so it would be beneficial to the local economy and to families.
What they should also look at why should snowmobiles, boats, and lawn mowers pay taxes for road repair taxes?