Explaining High Chicago Gas Prices (Taxes!)

Source: Bianco Research at www.BiancoResearch.com

As of April 16, the 5 metropolitan areas with the highest average gas price (unleaded, self-serve) are:

Honolulu – $4.380
Santa Barbara – $4.363
Chicago – $4.227
Los Angeles – $4.207
San Francisco – $4.206
National Average – $3.799

For comparison purposes, here are the 5 metropolitan areas with the lowest average gas price on April 16:

Tucson – $3.524
Denver – $3.534
Colorado Springs – $3.541
Fort Collins – $3.553
Billings – $3.566

Honolulu, Chicago and the national average are shown in the two charts below. They are the same chart, different time frames.

The sharp-eyed reader may note that national gas prices peaked at $4.12 in July 2008, 34 cents (7.8%) below the current price of $3.80. However, Chicago gas prices at $4.227 are just 14 cents (2.8%) below their July 2008 high of $4.35. So why are Chicago gas prices only 2.8% below their all-time peak whereas national prices are 7.8% below their peak?

Detailing Chicago Taxes

The answer, which is always the answer in Chicago, is taxes … lots of them. In Chicago gasoline taxes include (these are retail taxes only on gasoline, not diesel, which is even higher. The state, county and city impose additional taxes for commercial motor carriers and “use taxes” on other truckers which are not included):

• 18.4 cents per gallon in Federal taxes
• 20.1 cents per gallon in Illinois state taxes
• 1.1 cents in state environmental and underground storage tank taxes
• 6 cents per gallon in Cook County taxes
• 5 cents per gallon in City of Chicago taxes
• The above total 50.6 cents per gallon.

And here is the killer … sales tax on the retail price of gasoline. Illinois is one of only 7 states that charge sales tax on gasoline prices. The table below details Illinois Sales taxes.

Add this up and of the current $4.227/gallon in Chicago contains 50.6 cents is fixed taxes per gallon and variable sales taxes in Chicago account for another 36.3 cents (9.75% of the pump price less the fixed taxes) and a whopping 86.9 cents a gallon, or 20.6%, of the current pump price is taxes.

According to the American Petroleum Institute (API), Illinois 50.6 cents of fixed gallon costs are above average. Then add in the crushing 9.75% sales tax, which equals Los Angeles for the highest sales tax for a large city, and Chicago drivers pay more per tax than anyone not in California or Hawaii.

State And Suburbs Raise Gas Taxes

Above explains why Chicagoans pay more than the rest of the country. However, it does not explain why Chicago gasoline prices are only 2.8% away from their July 2008 peak versus 7.8% away for national prices. In fact, as the next table shows, Chicago sales taxes were higher in 2008 than now (recall the fight to have Cook County reduce it sales tax from 1.75% to 1.25% which lowered the sales tax from 10.25% to 9.75%)

In this case the answer is not the fault of Chicago. It is the fault of the state and the suburbs, which is included in the Chicago gas prices (it is actually a Chicagoland gas price).

When gas prices collapsed in 2009 (see chart), the state of Illinois and many of Chicago’s suburbs took advantage of these lower prices to rush in extra gasoline taxes.

In 2009 the State of Illinois raised the fixed gallon gas tax from 19 cent/gallon to 20.1 cents/gallon.

• The Chicago Tribune – (March 5, 2009) Suburbs pumping up gas taxes Revenue-raising measures come as fuel prices are expected to rise
With the cost of gasoline expected to surpass $3 a gallon this summer, more motorists will be looking to save a few cents at the pump, but that’s getting more difficult with an onslaught of new municipal gas taxes.

Cash-strapped municipalities — from Oak Lawn to Des Plaines to Glenview — have turned to taxing fuel to make up for plummeting revenue. Elmhurst is considering a 1.5-cent-per-gallon tax and Naperville is weighing whether to add 2 or 3 cents to its 2-cent-per-gallon tax.

To make the tax more palatable, some communities are designating the money for road and infrastructure improvements. And while officials defend the need for revenue, gas station owners say the tax puts them and maybe the towns at a competitive disadvantage. In Des Plaines, owners with convenience stores want the right to sell packaged liquor to make up for what they say they’re losing.

• WGNTV – (March 16, 2010) – Naperville doubles gas tax to plug budget hole

Naperville was staring at a $14.1 million deficit when it began its budget process for the upcoming fiscal year. After taking several steps to shave that figure, officials still were left in a $4.5 million hole. Monday night, the City Council closed that gap, in large part by raising the city’s gasoline tax to 4 cents a gallon from 2 cents and by imposing a $2 monthly fee for garbage collection.

Other examples of gas taxes in Chicago’s suburbs
• Alsip: 3 cents per gallon
• Dolton: 1 cent per gallon
• Evergreen Park: 6 cents per gallon
• Oak Forest: 3 cents per gallon.

Finally, another way to look at it …
On April 15, the national average wholesale price of gasoline was $3.29/gallon. Add the 86.9 cents/gallon in taxes plus 3 to 5 cents for state and suburban gas tax hikes since 2008 and that works out to about $4.227/gallon.

H.L. Mencken explained Illinois Government and taxes best
• Democracy is the theory that the common people know what they want, and deserve to get it good and hard.
A Little Book in C major (1916)

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