States Waive Fuel Taxes Amid Rising Costs

Several U.S. states are waiving fuel taxes and extending current moratoriums to cope with the economic impact of increased costs linked to the Iran war. The American Automobile Association (AAA) reports a nationwide average price of $4.41 per gallon for regular unleaded and $6.39 for diesel as of Thursday. In comparison, prices a year ago stood at $3.16 for unleaded and $3.71 for diesel. The Watson Institute of International and Public Affairs estimates that American households have incurred an additional $122 billion in fuel costs since the conflict began in February.

Under this financial strain, with potential ramifications for the 2026 midterms, several states have implemented reductions or suspensions of their gas taxes. Indiana Governor Mike Braun, a Republican, recently signed an order to extend the waiver on the state’s gas sales and excise taxes for another month. The original ‘energy emergency’ declaration was initiated in April and has been periodically extended. This new extension will run through November 4. Braun also relaxed regulations on dyed diesel usage to support the agricultural and timber sectors.

Indiana’s average gas price currently stands at $3.81, up from $3.07 a year ago, but below its record high of $5.24. Braun’s suspension of the state’s 7 percent gas sales tax and 36-cent-per-gallon excise tax from April and May, respectively, provides drivers with a 61-cent savings per gallon at the pump.

By October 1, about one-third of U.S. states had pursued some tax-related relief due to the Iran war’s impact on fuel costs. Relief measures have varied from targeted sector exemptions to more comprehensive sales and excise tax breaks. Georgia Governor Brian Kemp, Republican, was the first to implement a suspension following the war initiation on February 28, extending it through October 29. Kemp noted that global market instability leads to unpredictable price shocks affecting basic goods and services, including gasoline and diesel.

Ohio lawmakers recently approved a 90-day pause on gas and diesel sales taxes, gaining bipartisan support. Republican Governor Mike DeWine plans to sign the bill but has expressed concern that such actions might affect funding for the state’s transportation department.

In Alabama, Louisiana, and Texas, governors have signed or proposed targeted fuel tax relief for farmers dealing with higher diesel costs during peak harvesting season.

Despite these measures, budget concerns linger. New York Governor Kathy Hochul, a Democrat, noted that the 2022 gas tax suspension had limited impact on drivers because prices continued to rise. Hochul has advocated for federal suspension of the 18.4-cent-per-gallon excise tax, attributing the blame largely to the Trump administration. President Joe Biden proposed suspending the federal gas tax ‘until it’s appropriate,’ but the initiative has not advanced, and efforts in Congress have stalled.

South Carolina Governor Henry McMaster, Republican, opposed suspending the state’s 28-cent-per-gallon gas tax, highlighting potential adverse effects on state road funding. Indiana’s Governor Braun acknowledged the revenue impact of pausing fuel duties but noted ‘over a billion dollars’ worth of savings’ for drivers made possible by the state’s healthy reserves.