Indiana Gas Taxes on Brink of State Record

Indiana is one of 16 states, including Illinois and Michigan, where gasoline purchases are subject to sales tax. The sales tax rate in Indiana is 7%. (benkrut/GettyImages)

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Indiana motorists will be paying a total of 74.5 cents in taxes for each gallon of gasoline they purchase in May — the highest amount in Indiana history.

The Indiana Department of Revenue announced April 20 the state’s gasoline sales tax rate next month will be 24.1 cents per gallon, a 10% increase compared to April’s gasoline sales tax rate and 60% higher than May 2021.

Indiana is one of 16 states, including Illinois and Michigan, where gasoline purchases are subject to sales tax. The sales tax rate in Indiana is 7%.

Indiana gasoline taxes in May will reach highest level in state history https://t.co/lSpAiaC88q via @nwi — Dan Carden (@nwi_DanCarden) April 21, 2022

But Indiana does not require gas station operators to recalculate the sales tax they collect from motorists each time the price of gas goes up or down.

Instead, the state revenue agency sets a statewide gasoline sales tax rate — based on the average price of gasoline in the preceding month — that all Indiana filling stations must apply to gasoline purchases for the entire next month.

During the most recent evaluation period, March 16-April 15, the wholesale price of gasoline soared, primarily due to the oil market impact of Russia’s invasion of Ukraine.

As a result, the average pre-tax price of gasoline in Indiana during that period was $3.44 per gallon, leading to a May gasoline sales tax rate of 24.1 cents per gallon.

There’s no cap on Indiana’s gasoline sales tax rate, so if wholesale gas prices continue increasing, the state sales tax rate will go up in tandem.

May is just the second month it’s been over 20 cents per gallon after April’s rate was set at 21.9 cents per gallon.

Indiana also imposes a separate 32 cents-per-gallon gasoline tax. As recently as June 30, 2017, the state’s gasoline tax rate was just 18 cents per gallon, according to the Department of Revenue.

That year, the Republican-controlled General Assembly hiked the gasoline tax by 10 cents per gallon, and authorized annual 1-cent inflation adjustments through 2024, to fund a massive road construction program.

All gasoline purchases in the United States also are subject to an 18.4 cents-per-gallon federal gas tax, a rate that has not changed since 1993.

The high state taxes almost certainly ensure gasoline prices in Northwest Indiana will remain at or above $4 per gallon through May unless the pre-tax price of gasoline drops well below $3 per gallon, or at least 10% less than its current level.

Statehouse Democrats attempted earlier this year to temporarily suspend the state’s gasoline tax through June to immediately cut the price of gasoline for motorists in the state by 32 cents per gallon.

The General Assembly instead approved House Enrolled Act 1002 that on July 1 eliminates the utility receipts tax, a 1.46% charge paid by businesses and consumers on a portion of their electricity, natural gas, water, steam, sewage and telephone bills, and next year cuts the state income tax rate to 3.15% from 3.23% — with the possibility of future reductions to 2.9%.