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Impact of uncapping the OCFT explained

February 18, 2013

Gasoline Pricing ComponentsIn the wake of Gov. Tom Corbett unveiling his transportation funding plan, there has been considerable discussion over the impact on gasoline prices of uncapping the Oil Company Franchise Tax.

The OCFT is a state tax levied at the wholesale level. To be sure, a wholesale tax will affect the retail price, but state taxes account for only about 11 percent of the price that motorists pay at the pump. A recent op-ed article by John Kulik, of the Pennsylvania Petroleum Association, sheds some light on the various components of retail fuel prices.

Nearly two-thirds of the retail fuel price is driven by the cost of crude oil, Kulik explains, and that cost is determined by world commodity markets. He also notes that federal environmental regulations requiring three grades of gasoline in the summer months in Pennsylvania add significantly to the cost. Some market experts suggest that settling on fewer summertime grades – there are currently about 20 nationwide – could reduce the cost per gallon considerably.

The situation in Pennsylvania regarding fuel prices corroborates Kulik’s explanation. While the tax components of the state’s fuel pricing have not changed in years, it is not unusual to see price differences of 30 cents per gallon between various regions of the state. Moreover, local gas prices have increased by about 40 cents per gallon in recent weeks, again with no change in the tax component.

So while it is safe to assume that some or most of the impact of uncapping the state’s wholesale tax will be passed along at the pump, market forces and other factors will also figure into the equation. In any case, regardless of the cost for uncapping the OCFT, there’s a well-documented cost for doing nothing, and the sooner we turn the discussion away from the cost and toward the benefits of investing in the transportation system, the greater the chances for achieving a solution for the funding problem.

To read Kulik’s op-ed article, click here. For more information about summertime gasoline grades, click here.

 

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