Suppliers say Pa. fuel tax hike to hit pump prices
HARRISBURG Pennsylvania's new transportation law will raise fuel taxes Jan. 1, and companies that supply gas and diesel in Pennsylvania say razor-thin profit margins leave them little choice but to pass on the entire cost increase at the pump.
That point has at times gotten lost amid mixed messages from Gov. Corbett and some lawmakers. In various ways, they have suggested that the cost might not entirely be passed down to consumers, or that the tax burden would shift to "oil companies," despite the fact that integrated multinational oil companies are barely involved anymore in distributing gasoline in the United States.
That work is largely left to petroleum trucking companies or companies that own gasoline stations, convenience stores, or truck stops, which collect the tax that will rise, Pennsylvania's oil company franchise tax.
John J. Reilly, president of Reilly & Sons in Exton, said fuel distributors like his - he distributes to six gas stations - cannot just absorb the cost of doing business.
"Unfortunately, if it's going to go up 10 cents, it's going to go up 10 cents to people we supply," Reilly said. "Nobody can eat a penny today, much less 10 cents."
Sheetz Inc., which supplies fuel to the 236 gas stations and convenience stores it owns in Pennsylvania, said it would pass along the higher wholesale tax.
"Our margins are extremely minimal with gasoline, and any increase in cost, like any other product, ultimately gets passed on in the retail price," spokeswoman Monica Jones said.
Jeff Lenard, a vice president of the National Association of Convenience Stores in Alexandria, Va., said gas stations typically make a profit of about 3 cents per gallon before paying corporate profits taxes. Distributors say they make less than that.
The good news this winter for tax-averse consumers is that the federal Energy Information Administration expects the average East Coast gas price to drop by perhaps 20 cents per gallon, thanks to rising U.S. crude oil production and low seasonal demand. Prices were hovering around $3.40 a gallon in much of Pennsylvania on Thursday, according to AAA's data.
Under the law, signed Monday by Corbett, higher taxes and fees will unfold over the next five years to collect an additional $2.3 billion to $2.4 billion a year.
The effect on Jan. 1 will be a 9.5-cent-per-gallon tax increase on unleaded and a 13-cent-per-gallon tax increase on diesel, according to PennDot. If the law were fully in effect today, gas taxes would go up by 28.5 cents per gallon, based on the average wholesale price set by the Department of Revenue for 2013.
The law does repeal a 12-cent-per-gallon tax that gas station owners pay to the state. To offset that loss, the law increases the rate of the oil company franchise tax, which is imposed on the sale of fuel to gas stations.
Then it expands the franchise tax over three years to apply to the full cost of the gas, rather than the $1.25 per gallon to which it is currently limited.