Washington’s gasoline tax goes up 7 cents Saturday but your price at the pump won’t automatically jump by that amount at 12:01 a.m.
It could go up that much or more. Or less. Or it could stay the same. Or go down.
One thing to remember is that motorists don’t directly pay the tax on an individual purchase at the pump; it’s not like a sales tax on a pair of shoes. It’s collected from distributors and passed on to retailers, who ostensibly factor it into their prices. For a gas station, the 7-cent tax increase -- which will drive the total federal and state tax on a gallon of regular or premium to 62.9 cents in Washington -- is just part of the equation that goes into setting the price at the pump.
“The price doesn’t change with the tax, the tax is built into the price,” said Tim Hamilton, executive director of the Automotive United Trades Organization.
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The biggest cost of gasoline is the wholesale price, which fluctuates, Hamilton said. The wholesale price often goes down in August, which could mask the tax increase, but it could go up, and the price at the pump could jump more than 7 cents. For competitive reasons, a station owner may not raise the price the full amount of the tax right away.
“It’s hard for the public to figure this out,” Hamilton said. “It’s a constant, confusing mess.”
The 7-cent increase passed the Legislature and was signed into law by Gov. Jay Inslee earlier this month. It’s expected to raise an average of nearly $19 million a month for the next 11 months for new transportation projects. Next July 1, the tax will go up again, by 4.5 cents.
When that happens, don’t expect to see prices at the pump or on signs above the station listed with a four-tenths of a cent figure rather than the current nine-tenths of a cent per gallon.
That point-9 pricing has nothing to do with taxes -- or anything else except marketing, John Felmy of the American Petroleum Institute said.
Gas stations started setting prices with tenths of cents in the 1920s when that differential meant a lot more to consumers, Felmy said. A federal excise tax of 1.5 cents was imposed in 1933, but that was later dropped to a penny, so it didn’t create the point-9 system. The current federal gas tax is 18.4 cents, and some states set their taxes in the tenths, or even hundredths of cents. But pumps almost universally show prices with 0.9 cents.
It’s no different than stores offering sale items with prices ending in 99 cents, rather than rounding up to that next dollar, Felmy said.