CT’s diesel fuel tax dropped this month: What to know

Connecticut’s tax on diesel fuel is unlike most other charges the state levies.

Legislators consistently tweak the state’s largest revenue engines — the income, sales and corporation taxes — revising credits, closing or adding exemptions, or revising rates every few years.

The retail gasoline tax, one of the chief drivers of Connecticut’s transportation program, isn’t the product of any special calculations, but rather a flat, 25 cents per gallon.

The diesel tax, though, has largely been on autopilot for almost two decades, following a formula and updating itself automatically every July 1. This year, that formula ended up producing a drop in the tax of 3.5 cents per gallon, which went into effect last week.

And given that the overwhelming bulk of goods delivered to Connecticut come by trucks, which chiefly rely on diesel fuel, changes in that tax can impact the prices of groceries, clothing, medications and a wide variety of other items.

Here’s what to know about the state’s diesel tax and the impact of this year’s decrease.

How is the diesel tax calculated?

Asked by the trucking industry and others to keep diesel taxes close to those state levies related to regular gasoline, the 2007 General Assembly enacted a three-step formula.

First, state officials would look back over the prior year and determine the average wholesale price of diesel fuel in Connecticut.

Second, they would multiply that average price by 8.81%, which is the effective wholesale rate that’s applied to gasoline when it is delivered to local filling stations and convenience stores.

Third, they would add a flat amount, which is 29 cents per gallon.

The formula would be applied each summer with an updated diesel tax rate taking effect on July 1.

This is not identical, but like Connecticut’s system for taxing regular gasoline. Besides the wholesale levy that’s added to the price when fuel is delivered to the station, the state adds a retail tax — a flat, 25-cents-per-gallon — when motorists purchase the gas.

How has the diesel tax changed over the last few years?

Despite those steps, the diesel tax doesn’t always work out the way state legislators or the governor likes — although this year it did.

The Department of Revenue Services announced recently that, effective July 1, the formula had reduced the levy by 3.5 cents per gallon, from 52.4 cents to 48.9 cents.

“This tax cut comes at a critical time when the economy is facing much uncertainty between conflict in the Middle East that could affect oil prices and the [federal] administration’s on-again-off-again trade wars,” said Sen. Christine Cohen, D-Guilford, co-chairwoman of the legislature’s Transportation Committee. “This decrease will provide some relief on operating costs for businesses, the trucking industry in particular, and I am hopeful that relief will be shared with consumers.”

About 90% of the freight — both in terms of tonnage and dollar value — moved across Connecticut in 2019 traveled via truck, according to the 2022 update to the Department of Transportation’s Statewide Freight Plan. The remainder was carried chiefly by rail.

But three Republican state senators recently urged consumers to remember their history.

Since July 2021, when the formula produced a tax of 40.1 cents per gallon, the levy, overall, has grown by 8.8 cents.

Minority Republicans proposed suspending the entire diesel tax in the summer of 2022, when surging fuel prices produced a 9-cents-per-gallon increase in the levy — even as inflation took a historic bite out of consumers’ wallets.

The Consumer Price Index increased 9.1% in June 2022, according to U.S. Bureau of Labor Statistics, the single-largest increase in 40 years.

And the diesel tax would have jumped another 12 cents per gallon in July 2023, but Gov. Ned Lamont and the legislature ordered a one-time suspension of the formula.

Is the formula accepted or have there been calls to change it?

The GOP has argued for a reduction of the diesel levy and to eliminate a highway mileage tax on large, non-dairy, commercial trucks.

“That would support local businesses, create jobs, and provide real relief for everyone in Connecticut,” Senate Minority Leader Stephen Harding of Brookfield and Republican Sens. Jeff Gordon of Woodstock and Henri Martin of Bristol wrote in a joint statement in late June.

The diesel tax supports roughly 6% of the state budget’s Special Transportation Fund, or STF, which gets most of its resources from Connecticut’s sales tax and from levies on regular gasoline.

It generated $134 million in the 2023-24 fiscal year — the last full year of data available from state tax officials. 

Connecticut has generated large STF surpluses in recent years, some exceeding 10%, though legislators and Lamont have committed to use much of those windfalls to accelerating paying down bonded debt on highway, bridge and rail construction projects.

The Connecticut Energy Marketers Association, which represents fuel distributors across the state, has pushed in recent years for the state to replace the formula-based diesel tax with a flat, per-gallon charge.

“Stability in the tax makes the most sense,” said Chris Herb, CEMA’s president and CEO. “If the taxes aren’t bouncing around, it becomes a little easier to sell the fuel.”