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· Planning activities related to system development and 2. Examine several factors that could be responsible for driving
expansion; and administrative cost differences between states (e.g., point of
· Buildings, utilities, and insurance for administrative staff. taxation, proximity to low tax state, presence of interna-
tional border) and determine the administrative cost differ-
Collection costs included the following components: ential between states based on these characteristics.
3. Gather more detailed cost data from eight representative
· Operation and maintenance of tollbooths and other facil- sample states in order to separate the collection costs
ities related to each transportation revenue system; reported to FHWA into administrative, collection, and
· Customer account management, payment processing, and enforcement cost categories, and examine cost data in
banking charges; greater detail. This final step explores the items that are
· Inventory, distribution, and sale of transponders; and attributable to the cost estimates, including the costs asso-
· Cash counting, payment processing, transportation, and ciated with building and maintaining motor-fuel tracking
vault services. systems, the number of auditors employed by revenue
agencies, the annual salary and fringe benefits paid to audi-
Enforcement costs encompassed: tors, and the transaction costs associated with processing
electronic payments.
· Catching violators and auditing taxpayers,
· Assessing administrative fees and fines,
4.2.1 Administrative Costs Reported
· Settling accounts before violations reach court,
in Highway Statistics
· Inspecting motor fuel, and
· Prosecuting violators (court costs). States report annual motor fuel tax administrative costs on
Form 556, which is used to support a series of tables, including
Enforcement costs also included police services, which Tables MF-1, MF-3, and SDF, published annually in Highway
could also include incident management and communica- Statistics. Since the cost data reported to FHWA cover admin-
tion expenses. istrative, collection, and enforcement costs, the term "operating
cost" will be used hereafter. Annual operating cost data for all
states were collected from Highway Statistics for 2003 through
4.2 Cost Estimates for
2007. The cost data are used for a comparative analysis to show
Motor Fuel Taxes
how the characteristics of certain programs, such as states with
State motor fuel tax administration and compliance pro- electronic motor-fuel tracking systems, may affect administra-
grams are regulated by state legislatures and state agencies, tive costs.
including state DOTs and departments of revenue (DORs). For the eight states identified for further examination,
Thus, state motor fuel tax programs vary significantly across completed Form 556s were obtained for 2006 and 2007. In
the nation. To analyze the costs of administrating motor fuel the instructions accompanying Form 556, respondents are
taxes, a two-tiered approach was taken to collecting cost data directed to input data covering distributor allowances, deduc-
from both federal and state government agencies. To carry tions by state collection agencies, expenses for collecting and
out the approach, the following three-step data collection administering motor fuel taxes, expenses for inspecting motor
process was performed: fuel, and other costs or deductions by the collecting agencies.
The Form 556s obtained and reviewed for this analysis typi-
1. Collect data for 2003 through 2007 reported to FHWA on cally only included data regarding expenses of collecting and
Form 556. Form 556 is used by states to report state motor administering motor fuel taxes.
fuel tax receipts and initial distribution by tax collection Distributor allowances are deductions provided to taxpay-
agencies, and includes adjustments to total receipts such as ers for collection expense. In 2007, 25 states authorized dis-
collection, administration, and enforcement costs. Data tributor allowances totaling $184.8 million, or 0.5% of gross
collected through Form 556 are reported in a series of tax collections.
tables in Highway Statistics, including Tables MF-1 (deduc-
tions by distributors for expenses), MF-3, and SDF (deduc-
4.2.2 Determination of Sample States
tions for collecting motor fuel taxes and fees). Although the
cost data presented in Tables MF-3 and SDF are called The purpose of selecting sample states is to obtain detailed
"collection" costs, the data actually represent the total costs cost data used to separate the total operating costs reported to
of administering motor fuel taxes, including the costs asso- FHWA by states into administrative, collection, and enforce-
ciated with administration, collection, and enforcement. ment cost categories. Eight states' motor fuel tax programs
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were identified for the more detailed analysis. The criteria for enforcement measures and higher administrative costs. The
selecting sample states are designed in a manner to ensure that weighted average gasoline tax rate in the United States is
a range of characteristics that typically drive collection, admin- 20.2 cents per gallon (FHWA, 2008). The weighted average
istration, and enforcement costs will be examined. In so doing, state tax rates reported in Highway Statistics includes only taxes
the results of the sample states are designed to be representa- that are levied as a dollar amount per volume of motor fuel.
tive and could be used to examine how these characteristics Taxes that apply to all petroleum products are omitted, but local
(e.g., proximity to international borders, state population, and option taxes are included provided they have been adopted uni-
point of taxation) correlate with higher or lower administra- formly statewide. The weighted average tax rate does include
tive costs. The criteria for the detailed analysis included the impact of several unique state-level fees, including a 2-cent-
per-gallon inspection fee in Alabama, 0.4-cent-per-gallon
· Motor fuel tax rate, environmental assurance fee in Arizona, a 1.4-cent-per-gallon
· Border low tax state (yes or no), petroleum environmental assurance fee in Kentucky, and a
· International border (yes or no), 0.7-cent-per-gallon oil discharge and disposal cleanup fee in
· DOT reported administrative costs, New Hampshire. Presently, there are four states (Alaska, Geor-
· Geographic dispersion, gia, New Jersey, and Wyoming) in the United States with gas
· Points of taxation, tax rates that fall below 15 cents per gallon. One of these low-
· Motor-fuel tracking system (yes or no), and tax states (New Jersey) was targeted for further analysis. There
· State population. are 21 states with gas tax rates between 15 and 20 cents per gal-
lon, and four of these states (Florida, California, Tennessee,
Using these criteria, the states highlighted in Table 19 were and Texas) were targeted for analysis. There are 25 states with
selected for further analysis. Table 19 presents information gas tax rates in excess of 20 cents per gallon, and three such
for each of the criteria outlined above when applied to each states (Colorado, Idaho, and Iowa) were targeted for analysis.
state. The selection process captures states that embody a
range of attributes defined within each criterion. That is, both
Border Low-Tax State
relatively low and high tax rate states were identified, as were
those with and without international borders. The remainder Large disparities in tax rates between bordering states
of this section describes the process used to select the states within the United States create the potential for cross-border
on a criterion-by-criterion basis. evasion, thus requiring enhanced enforcement in the higher
tax state. To satisfy this criterion, the state must border one
of the four low-tax states noted in the preceding paragraph,
Motor Fuel Tax Rate
and the tax rate in the subject state must be at least 7 cents per
High-, mid-level-, and low-tax states were identified for gallon higher than the rate in the bordering low-tax state. Four
analysis. As motor fuel tax rates increase, profits associated of the selected states (Colorado, Florida, Idaho, and Tennessee)
with motor fuel tax evasion grow, thus requiring enhanced satisfy this criterion.
Table 19. Summary information for states identified for further cost analysis.
Criteria CA CO FL ID IA NJ TN TX
Motor fuel tax Gas 18¢, Gas 22¢, Gas 15.3¢, Gas 25¢, Gas 21¢, Gas 10.5¢, Gas 20¢, Gas 20¢,
rates Diesel 18¢ Diesel 20.5¢ Diesel 15.3¢ Diesel 25¢ Diesel 22.5¢ Diesel 13.5¢ Diesel 17¢ Diesel 20¢
Borders low- No Yes Yes Yes No No Yes No
tax state
International Yes No No Yes No No No Yes
border
Reported 0.7% 0.4% 1.1% 1.7% 0.3% 1.0% 1.4% 1.0%
admin. costs
Points of Gas Gas Gas Gas Gas Gas Gas first Gas
taxation terminal, distributor, terminal, terminal, terminal, distributor, receipt/sale, distributor,
diesel diesel diesel diesel diesel diesel retail diesel diesel
terminal distributor terminal terminal terminal terminal distributor
Tracking Yes Yes No No No No Yes No
system
State 36,756,666 4,939,456 18,328,340 1,523,816 3,002,555 8,682,661 6,214,888 24,326,974
population
Sources: HDR (2009) and FHWA (2008).
