Local motor fuel taxes are surcharges that counties, cities, and special districts add to the price of gasoline and diesel on top of federal and state fuel taxes. They exist in roughly a dozen states, and depending on where you fill up they can add anywhere from a penny or two per gallon to more than 30 cents when multiple overlapping jurisdictions each impose their own charge. The federal excise tax of 18.4 cents per gallon on gasoline and 24.4 cents on diesel is the first layer, the state tax is the second, and any local surcharge sits on top of both.1Internal Revenue Service. Publication 510 – Excise Taxes That third layer often explains why gas prices shift noticeably when you cross a county line.
How Local Fuel Taxing Authority Works
Counties and cities cannot create fuel taxes on their own. A state legislature must first pass enabling legislation, commonly called a “local option” fuel tax law, that identifies which local governments may levy the tax, sets the maximum rate, and restricts what the money can be spent on. Without that authorization, no city council or county board has the legal power to add a cent to the pump price.
Adoption then usually follows one of two paths. In some states, a simple majority vote of the county commission or city council is enough. In others, the tax must go before voters in a referendum. A few states offer both routes, letting the governing body choose between a supermajority of its own members or a public ballot measure.
Special-purpose entities levy fuel surcharges in certain areas as well. Regional transportation authorities and transit districts may receive their own legislative permission to tax fuel sales, typically to fund a specific rail or bus network. These districts operate alongside county and city taxes, which is how a single gallon in a metro area can end up carrying surcharges from several overlapping jurisdictions.
How the Surcharge Is Calculated
Local fuel taxes generally follow one of two models: a flat per-gallon rate or a percentage tied to the fuel’s price. A growing number of jurisdictions also adjust their rates automatically each year.
Flat Per-Gallon Rates
The most common approach is a fixed cents-per-gallon excise. The local government sets a specific amount, and every gallon sold within its borders carries that charge regardless of what fuel costs that week. Rates vary widely, from a penny or two per gallon in some jurisdictions to more than 30 cents in metro areas where multiple authorities stack their own levies. Flat rates give local governments a predictable revenue stream because collections depend on volume rather than price. The trade-off is that the tax loses purchasing power over time as construction and maintenance costs rise.
Percentage-Based Surcharges
A smaller number of jurisdictions calculate the tax as a share of the wholesale or retail price. A 2.5% surcharge on a $4.00 gallon adds ten cents; the same surcharge on a $3.00 gallon drops to seven and a half cents. Revenue rises with fuel prices and falls when they drop, which makes budgeting less predictable but keeps the tax roughly proportional to inflation.
Automatic Indexing
Some jurisdictions have adopted automatic adjustment mechanisms that raise fuel tax rates without a new legislative vote each time. The most common approach ties the per-gallon rate to the Consumer Price Index, so the tax rises slightly each year to keep pace with general inflation. Others link the rate to highway construction cost indices, which more directly reflect the expenses the tax is meant to cover. A few states allow individual counties to decide whether to index, so neighboring areas can end up on different schedules.
Who Actually Pays and When
Despite appearing at the pump, fuel taxes rarely change hands at the gas station itself. In most states, the tax is collected much earlier in the supply chain, at the terminal loading rack where fuel is transferred from a refinery or storage facility to a wholesale distributor. The distributor pays the tax to the state or local authority and passes the cost forward in the wholesale price charged to the retail station.
Upstream collection is simpler to administer because there are far fewer distributors than retail stations. By the time gas reaches the pump, federal, state, and local taxes are already baked into the wholesale price the station paid. The posted price per gallon reflects all of those layers, even though the customer sees a single number.
Where the Revenue Goes
Local fuel tax revenue is almost always earmarked for transportation. State enabling laws typically require the money to flow into dedicated accounts restricted to road construction, resurfacing, bridge repair, and related infrastructure. General fund spending on parks, law enforcement salaries, or administrative overhead is usually prohibited.
Public transit systems also receive a share in many metro areas, funding bus fleet purchases, rail operations, or station maintenance. Some local ordinances carve out a specific percentage for pedestrian and bicycle infrastructure. The earmarking rules matter because they create a direct link between what drivers pay and the roads they use.
Common Exemptions
Not every gallon sold within a jurisdiction carries the full local tax. The federal government exempts diesel and special motor fuels sold for use on a farm for farming purposes, and most states extend similar treatment to their own fuel taxes.2eCFR. 26 CFR 48.4041-9 – Exemption for Farm Use Off-road fuel used in construction equipment, generators, and similar machinery is also commonly exempt at both the state and local level, since the tax is meant to fund roads those machines never drive on.
Government vehicles, school buses, and in some areas nonprofit transit providers may qualify for exemptions or refunds as well. The specific rules depend on the enabling legislation in each state, so a use that qualifies for a tax break in one area may not in another. If you buy fuel in bulk for an exempt purpose, claiming the exemption usually means filing paperwork with the state revenue department rather than receiving an automatic discount at the pump.
Finding the Rate in Your Area
The most reliable source for current rates is your state’s Department of Revenue or equivalent tax agency. Most publish downloadable tables listing every county and city fuel tax in effect, updated at least annually and sometimes quarterly when percentage-based rates are recalculated. A web search for your state’s name plus “motor fuel tax rates” will usually surface the right page.
The American Petroleum Institute publishes a regularly updated chart showing combined federal, state, and local fuel taxes for every state, useful for quick comparisons but less granular than a state agency site. The Federation of Tax Administrators maintains a state-by-state motor fuel tax rate table that includes notes on local levies. Neither replaces the official state source if you need the exact rate in your specific county or city.
Some states require gas pumps to display tax breakdowns on inspection stickers or labels, but no uniform federal rule requires line-by-line disclosure at the pump. Where no label exists, the state rate table is the best way to see exactly what you are paying and who is collecting it.