A July 1 increase in the state’s gross receipts tax will cause unleaded gasoline and diesel prices to rise 4 cents per gallon, further distancing Connecticut’s gas taxes from its border states and putting some fuel station owners at a major competitive disadvantage.
The increase will give Connecticut a 49-cent per gallon tax on gasoline — 26 cents higher than Massachusetts and 16 cents higher than Rhode Island. This accounts for all direct gasoline taxes plus ancillary taxes like gross receipts.
Since Connecticut shares its largest border with Massachusetts, the significant price disparity will lead to fewer gasoline stations in the northern part of the state, said Chris Herb, president of the Connecticut Energy Marketers Association, or CEMA, which represents 1,000 of the state’s 1,400 gasoline stations.
“Our members have stopped investing in the border, and they certainly aren’t buying anywhere near there,” Herb said. “They are just going to get pounded.”
CEMA members as far south as Cromwell have heard from major gasoline and diesel users — like landscapers — that they now are driving to Massachusetts to fill up because it is more economical than buying in-state, Herb said.
“When those guys are up there, they are buying cigarettes and sodas, and I don’t even know how much ancillary in-store sales we are losing,” Herb said. “Those dollars are taken out of our pocket.”
The new rate pushes Connecticut past Hawaii for the third highest gasoline taxes in the nation, behind only California and New York, according to the American Petroleum Institute.
The move also gives Connecticut the highest tax on diesel in the nation at 55 cents per gallon, surpassing California for the top spot, according to API. That’s 32 cents higher than Massachusetts, 23 cents higher than Rhode Island, and 5 cents higher than New York.
“Unfortunately, it is an example of how we set ourselves apart in a less than favorable way in terms of business costs and competitiveness compared to other states,” said Eric Brown, director of energy and environmental policy for the Connecticut Business & Industry Association.
The 4-cent increase comes from a jump in the gross receipts tax from 7.53 percent to 8.81 percent, which was approved back in 2005 and now is going into effect.
During this year’s legislative session, Republican lawmakers circulated a petition to stop the increase from happening, but the Democrat-controlled Finance Committee defeated a bill preventing the jump.
Making matters worse for gasoline stations is the gross receipts tax is no longer dedicated to cleaning up spills.
When the tax was introduced in 1991, the money raised went solely to the Underground Storage Tank Fund, fulfilling a federal requirement to help gasoline stations clean up environmental contamination. As the tax raised more money than was needed, however, the state started to siphon off cash for its other programs.
Eventually, all of the gross receipts tax went to the general fund, and when the state discontinued the UST Fund last year, it had a backlog of $103 million in unpaid approved or unprocessed claims.
“The state is absolutely not spending the money where it was supposed to go, which was an environmental cleanup fund,” Herb said.
The tax comes on top of what was already a bad legislative session for CEMA’s 576 members, which also includes heating oil dealers.
Gov. Dannel P. Malloy got his comprehensive energy strategy passed through the legislature this year, including a $7 billion plan to switch 300,000 businesses and residents to natural gas heating, mostly away from heating oil.
“It is insulting to most of our family-owned businesses that are in their second or third generation that the state is picking winners like this,” Herb said.
Malloy said his natural gas plan converts customers to a fuel that will be up to 50 percent cheaper and emit about 30 percent fewer greenhouse gases. As most other states already have switched away from fuel oil, Connecticut is simply following suit.
“What I am supposed to do? Leave the people of Connecticut to pay higher and higher prices?” Malloy said.
While Connecticut businesses and residents may pay less for heating if they convert to natural gas, they will end up paying more for transportation because of the higher gasoline tax.
The tax already is leading state businesses to not invest in better or new gasoline stations near the Massachusetts border, and eventually could lead to existing ones shutting down, Herb said.
“There is a breaking point,” Herb said. “If we haven’t arrived by now, we are going to find it this time.”
