Suspending the state's gasoline tax: What you need to know

ALBANY — Don’t go thinking that suspending New York’s gasoline taxes is a matter of simply lowering the price at the pump by 50 cents.

"It would be a lot more complicated than that," said Andy Harris, a board member of the Long Island Gas Retailers Association, echoing other experts contacted for this story.

Even if lawmakers vote to suspend the state taxes on gas, it will require detailed legislation and some lead time to allow the supply chain to adjust a taxing structure implemented decades ago. State lawmakers also would have to decide if and how to fund infrastructure projects currently supported by the gasoline tax.

Further, counties would have to agree to forgo local sales taxes, a key source of revenue. Not all may do that. Even some fiscal conservatives aren’t sure it’s a great way to help New Yorkers deal with inflation compared with other options.

If it all falls into place, it might make that 10-gallon fill-up cost about $45 instead of $50. Meanwhile, associated costs might rise, such as fuel delivery, driving up your price at the pump whether state and local taxes are suspended or not.

Here’s a look at some of the key questions:

Q: What is being proposed?

A: An immediate suspension of all state and local taxes — there are five components — applied to the sales of gasoline. When lawmakers proposed this and gasoline was going for $4 per gallon, the discount for motorists would be about 50 cents per gallon. When prices hit $5 per gallon, the taxes inch to about 54 cents. Others have suggested something short of a full suspension, such as capping taxes at 25 cents per gallon.

Q: Who is calling for this and why?

A growing number of state legislators as well as gubernatorial and congressional candidates. With prices showing no sign of slowing, many Republicans and some Democrats say it’s one small thing the New York State Legislature can do to help residents deal with inflation.

Q: Is the idea gaining traction?

A: The campaign got a boost when the Democratic-controlled State Senate included a gas-tax-suspension proposal in its budget resolution, which was adopted recently. Under the Senate provisions, the suspension would run from May 1 through the end of the year.

Q: Just the Senate?

A: The Democratic-led Assembly omitted the proposal from its budget resolution. But Assembly Speaker Carl Heastie (D-Bronx) said he was open to discussions.

Q: What did the governor say?

A: Gov. Kathy Hochul, a Democrat, said she understands support for the concept. But she said it’s not guaranteed that producers and distributors will lower prices accordingly. Distributors could, for example, raise other prices such as delivery charges. Further, she noted the gasoline tax revenue largely is dedicated to projects to improve transportation infrastructure, complicating the state budget which is supposed to be adopted by April 1.

"That was my first reaction: Let’s do this," said Hochul, who is up for reelection along with the entire State Legislature. "But then I want to make sure we have a guarantee that the consumers are actually going to get a benefit from this, as opposed to use just trying to figure out how to plug a hole of $1.2 billion or $500 million … So it’s very much, top of mind for me. But it’s not as simple an answer as one might think."

Q: Why isn’t it simple?

A: A good part of it is the complexity of taxes levied on gasoline. There are six different types of taxes applied to reach that number: State and local sales taxes, an environmental tax, a petroleum business tax and state and federal excise taxes, according to the state Tax Department. Some of the taxes are capped, some aren't.

The tax agency supplied Newsday with a chart showing New Yorkers were paying 67.5 cents in taxes per gallon when gas hit $4 per gallon.

In this example, the state portion amounts to 33.35 cents per gallon; the sales tax portion of that is capped at 8 cents per gallon no matter high the price rises.

Local sales taxes typically are 4% or higher, meaning 16 cents on that $4 gallon. These taxes aren't capped.

Federal excise taxes are 18.4 cents per gallon and wouldn’t be affected by the suspension proposal.

Q: What else complicates this?

A: Decades ago, the state moved the collection point higher up the supply chain — it’s now paid at the wholesale/distributor point and is done so in advance, often in quarterly installments. It was done to limit tax cheats and has been deemed effective. When a load arrives at the station, the prepaid tax is built into the bill it hands the station operator.

By the time you pull in, "a lot of the tax you and I pay at the pump has been pre-paid … by the big tanker you see at the gas station," said Jim Calvin, executive director of the New York State Association of Convenience Stores.

Everyone in the chain has to reconcile actual and projected sales later with the burden largely falling on the retailer, LIGRA’s Harris said. Under the Senate tax-suspension plan, gas retailers would have to apply for tax credits after the fact.

Harris, who ran the Turnpike Services gas station in Jericho for 38 years, said some lead time would be required though starting a suspension on May 1 "could be realistic." But he sees another potential problem.

Q: What’s that?

A: Giving counties the option to suspend sales taxes, often set at 4% or more. If counties don't agree to suspend the charge, "you’re going to be sending people all over the place to get gas" to try to save, say, $2 on a 10-gallon purchase, Harris said.

"For 20 cents a gallon, I wouldn’t stand on line for gas," he said. If lawmakers make the plunge, he said they should suspend the local tax too to make it easier for everyone in the chain and customers.

Q: Yeah, but not for everyone, right?

A: Right. Counties and other jurisdictions would be waiving a chunk of local tax revenue and don’t have as much flexibility as the state government to shift money around or tap other sources. Some may not want to.

Q: You said some fiscal hawks are skeptical, too?

A: Yes. E.J. McMahon, an adjunct fellow at the conservative Manhattan Institute, doesn’t like the idea — and he’s longtime critic of state tax rates.

"A: It’s not that easy. B: It’s not a good idea," McMahon said. He called the regulatory scheme outlined by the Senate a "Rube Goldberg contraption."

"The dealers are left to deal with the complexity, while motorists are expected to take notice and applaud their legislators, who are, not coincidentally, running for reelection this fall," McMahon said. "If by December gas prices are still high, or go down and then up again, they will find it hard not to extend it, having created the precedent. And, as predicted, in the meantime they will replenish the transportation funds out of the (state’s) general fund."

He said lawmakers have better option for helping residents deal with inflation, such as reining in spending that’s driving tax rates, indexing the state’s income tax rates to inflation or just simply reducing the state’s fuel tax rate instead temporarily suspending it.