Illinois Studying Gas Price Competition with Neighboring States

Tom Warne Report, 10 February 2012 – February 8, 2012

SPRINGFIELD, Ill. – Lawmakers in Illinois want to stop residents from crossing the state border to fill up with cheaper gas, with a proposal to allow communities near the border to determine the sales tax on fuel by the cost of fuel in neighboring states. State Rep. Richard Morthland, R-Cordova, and state Rep. Jerry Costello, D-Smithton, are drafting the legislation which calls on the Department of Revenue to monitor fuel and gas taxes in the bordering states of Missouri, Kentucky and Iowa.

Illinois is one of a handful of states that charges a sales tax on motor fuel. Morthland and Costello’s legislation would require the department to reduce the state sales tax to 1.25% within 30 miles of a bordering state if that state had a sales tax on fuel less than 6.25%. If a bordering state had a sales tax of 6.25% or higher, the department would raise Illinois’ sales tax to 6.25 percent.

Missouri does not have a sales tax on fuel and charges 17 cents per gallon in gas tax, compared with Illinois’ gas tax of 19 cents per gallon, in addition to 6.25 percent sales tax. “Missouri’s taxation policy regarding gasoline results in lower prices, and we should do everything in our power to keep tax dollars in Illinois and deliver cheaper gas for local residents,” Costello said.

This proposal would be good if the incremental increase or decrease in the price of fuel truly was associated with Illinois-imposed taxes versus the normal fuel price fluctuation. Since tax rates on motor fuels in most states has remained static for many years all changes are a measure of market conditions. Monitoring station owners who adjust their prices to “match” the taxes across adjacent borders will be difficult: How will the state know if the 3-cent increase is a market adjustment or something related to the fuel tax on the other side of the border? If “self-reporting” was such a good idea we wouldn’t need W-2s to file our federal taxes. TW

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