INDIANAPOLIS — An economist and a gas station industry representative on Monday both said suspending Indiana’s gas tax helped lower prices a little but the relief will be short-lived.
As of Monday afternoon, GasBuddy reported one gallon of regular gasoline cost $3.92 on average, down about 13 cents from this time last week. Five days have passed since Gov. Mike Braun, a Republican, suspended the state’s use tax on gasoline, also called the sales tax.
For the month of April, the use tax for gasoline is 17.2 cents per gallon.
Ball State University economist Prof. Michael Hicks said the combination of the gas tax suspension and a slight reduction in oil prices last week contributed to the decline.
Oil prices dropped after word broke of a tentative ceasefire with Iran, which has blocked ships from going through the Strait of Hormuz. About 20% of the world’s oil passes through the strait, which connects the Persian Gulf with the Indian Ocean and is about 20 nautical miles wide at its narrowest point. The strait is narrow enough that any ship going through it is vulnerable to ballistic missiles and attack drones launched from land, in addition to the numerous small speedboats known to be in the arsenal of Iran’s Islamic Revolutionary Guard Corps.
That ceasefire is now in jeopardy after peace talks in Pakistan failed and President Donald Trump announced a blockade of Iranian ports.
Hicks said oil prices play the largest role in the price you pay at the pump, but taxes contribute and are the main driver of price differences between states. He said Indiana has already gotten as much relief as it can from the gas tax suspension and it likely won’t last long.
“You would expect there would be a pretty immediate downward shot to prices,” he said. “When it’s $4.25, $4.15, now you can see gas at $4, high 3s, that’s certainly a bit of a benefit to taxpayers, but it’s not cumulative. We’re not going to keep seeing cuts down the road. We’re going to go back to the increases that are being driven by global events.”
Brent crude, the international standard for oil, is currently at $98.15 per barrel, down from this weekend’s high of $110 per barrel but still well above the $72.87 logged on the day before the war with Iran began. Hicks said oil prices are a global standard and take numerous costs into account, including transportation costs such as shipping from the Middle East to Europe.
Matt Norris, public policy counsel for the Indiana Food and Fuel Association, said numerous other factors influence gas prices at the pump as well, such as refining costs and even simple market competition. Norris said the suspension of the gas use tax has probably had some impact but it’s hard to quantify it.
Norris said not all gas stations have lowered prices because of the way fuel taxes work.
In Indiana, fuel taxes are paid by the distributor, not the retailer or the customer. Gas prices reflect the final cost per gallon distributors have had to pay, including taxes. As a result, some gas stations still have fuel in their tanks they have already paid taxes on.
Norris said the Indiana Department of Revenue has authorized retailers to continue charging prices that include the use tax for fuel they received before Braun issued the order.
“Once they run through that shipment they received, and they receive that shipment of untaxed fuel, you’ll see that full savings passed on to consumers,” he said. “When a station receives a shipment of fuel, under normal circumstances, they have already paid that sales tax and they’re going to pass it on to the consumer.”
Two gas stations in the downtown area that were selling gas for more than $4 per gallon on Wednesday had lowered their prices to $3.85 per gallon when WRTV checked on them on Monday. One small business owner said he has already had to pass fuel costs on to customers. Steve Chadwick, who owns an exterminator business, said he spent about $20 per day on gas before the war. Now, he said he spends about $40.
“I try and pass the cost off onto somebody else, the customer. Not that much, but I try and compensate for the gas. I normally didn’t before,” he said.
Hicks said gas prices in Indiana usually take a few days or weeks to reflect changes in oil prices because Midwestern states get a larger share of their oil from domestic producers than states on the coasts.
However, he said Indiana drivers have the longest average commute in the country and thus are more vulnerable to the impact of price shocks. He said the blockade of Iranian ports likely will push oil prices higher because Iran was still exporting oil to customers such as China, thus increasing the global supply. He said under current circumstances, the only thing that would drive oil prices down would be a major economic recession, which would mean fewer people traveling and, therefore, less demand for gas.
The governor’s order runs through May 8. Braun has said he’ll decide whether to extend it based on conditions at the time. His order does not apply to diesel fuel. It also does not affect the state’s excise tax on gasoline, which can only be changed by the General Assembly.
In addition to state taxes, the federal government charges a tax of 18.4 cents per gallon. Democrats in Congress have introduced legislation to suspend that tax until Oct. 1. Congressman Marlin Stutzman, a Republican, said on Friday he does not support suspending the federal gas tax because the federal government does not have a budget surplus, unlike Indiana.
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