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Illinois Leads The Way With The Biggest Diesel Tax Increase On July 1


July 1 marked a significant day for increased diesel taxes, as two of the country's biggest states implemented higher levies while inflation or previously approved staged increases affect prices in several other states.

The biggest jump by far came in Illinois. The diesel tax more than doubled, up 24 cents to 45.5 cents per gallon from 21.5 cents per gallon. The gasoline tax on July 1 doubled to 38 cents/gallon. This is the first time the fuel taxes have been raised in Illinois since 1990.

The new fuel taxes were part of a package of new levies that the Southern Illinoisan newspaper reported is part of a broad transportation improvement plan that would spend $33.2 billion for transportation, which includes $11 billion for an existing state Department of Transportation multi-year plan and $14 billion for other road projects. 

Illinois is part of the International Fuel Tax Agreement, which pools money from the member states and distributes it based on mileage driven in that state by trucks traveling via interstate. However, that doesn't compensate for intrastate driving, including the ever-growing importance of last-mile deliveries. 

Ohio increased its diesel tax by 19 cents/g. The levy in the Buckeye State now stands at 47 cents/g. It's the first increase since 2005. 

Ohio is also a member of the International Fuel Tax Agreement. 

Illinois, according to the Institute on Taxation and Economic Policy (ITEP), also voted to index future rates of the taxes to inflation. However, a move to index it to inflation in Ohio failed. 

Decisions on indexing made by other states in the past are the reason that a number of them also saw small increases in their diesel taxes on July 1 (though some of those states also tie their increase to what has happened with actual fuel prices).

For example, ITEP said Maryland increased diesel and gasoline taxes by 1.4 cents/gallon on July 1. ITEP also noted that Maryland will begin indexing its levy to inflation in 2022. Rhode Island's gasoline and diesel prices rose by 1 cent/gallon under its inflation-adjusted formula, the first increase since 2015. The adjustment in that state can come every two years, but there was no increase in 2017 because inflation rates were so low, according to ITEP.

There are several states that set their levy based on the price of the fuel, separate from the broader rate of inflation. States that fall under that definition with higher diesel increases include Nebraska, up 0.1 cent/gallon, and Connecticut, with a 2.6 cents/gallon increase. Connecticut's diesel tax is tied close enough to the price of the fuel that its new July 1 levy at 46.5 cents/gallon is less than its 2013 peak of 54.9 cents, according to ITEP.

Michigan also has a formula tied to the price of fuel; its gasoline and diesel taxes are subject to monthly changes and the diesel levy went up by 0.2 cents/gallon on July 1, according to ITEP. 

Vermont has a similar formula but its diesel tax held steady on July 1 even as the gasoline tax rose, according to ITEP.

Several other states had July 1 increases in diesel taxes as a result of multi-step programs passed several years ago: South Carolina, up 2 cents, the third installment of a six-step increase; Tennessee, up 3 cents per gallon, the final step in a 10-cent increase that began in 2017; and Montana, an increase of 0.2 cent as part of a 2-cent diesel increase that will be fully implemented by July 2022, according to ITEP. 

As far as California, while it increased its gasoline tax on July 1, its last increase in the diesel sales tax and the base excise tax, as part of a broad legislative package passed several years ago that included this year's gasoline tax hike, came in November 2017. The state did have an opportunity at the ballot box last November to overturn the increases that were passed by the legislature, but that effort failed.

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