The Michigan Gasoline Cost Breakdown

The Michigan Attorney General’s office has some good informational background for those of you who wish to understand what parts of our gasoline prices go where.  Given the desire of the governor to increase our cost per gallon, as well as increase registration costs, its imperative we do not get bogged down with false or misleading facts.

From the AG Site:

Retail Gasoline Price Components
The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and finally the retail station costs and taxes. The prices paid by consumers at the pump reflect these costs, as well as the profits, of refiners, marketers, distributors, and retail station owners.  The Michigan Attorney General monitors retail and wholesale prices across the state every weekday.

Wholesale (Rack) Price.
This is the price the retail gas station owner must pay for the gas.  Another term for wholesale price is rack price. 

State Road Tax.
Michigan’s road tax is 19 cents per gallon.

Federal Taxes.
The federal motor gasoline tax is 18.4 cents per gallon. However, the most commonly used gasoline contains a 10% ethanol blend which is eligible for a 4.5 cents tax credit. Therefore, the federal motor gasoline tax for most gas is effectively 13.9 cents per gallon (18.4 – 4.5 = 13.9).

Michigan Sales Tax.
Michigan’s sales tax is 6%.  Retail gas stations do not pay sales tax on the 19 cents per gallon state road tax included in the price of a gallon of gasoline but do pay on the federal tax of 18.4 cents.  The calculation of the state sales tax portion of the cost of a gallon of gasoline is complicated because the sales tax for gasoline, unlike the sales tax for other products, is already included in the posted retail price.  The ultimate total sales tax paid by the station is calculated by taking the retail price per gallon minus 19 cents (state road tax) divided by 17.67 (the denominator that accounts for the fact that sales tax is already included in the posted retail price).

Credit Card Fees. 
The credit card fee estimation is obtained from National Association of Convenience Stores reports that two-thirds of all gasoline transactions in 2005 and 2006 were paid by credit card and fees average 2.6% of the sale.

Delivery and Distribution Charges. 
Distributors charge delivery cost (2.5 cents per gallon) for delivering the gas from the wholesaler to the retail gas station and a distribution charge (2 cents per gallon) for their profit on each gallon of gasoline.

Evaporation Credit ($.005) and MUSTFA fee ($.00875).
Because gasoline evaporates, wholesalers receive an evaporation credit.  Wholesalers either pass part, all, or none of that evaporation credit on to retail gas stations.  The MUSTFA fee is a Michigan-specific environmental regulation fee for the refined petroleum fund.

Operating Expenses.
These expenses vary greatly among retail gas stations.

Of course this is only a start.  WHERE the taxes go, or are allocated, will be the next installment.

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