Suppliers say Pa. fuel tax hike to hit pump prices

HARRISBURG, Pa. (AP) — Pennsylvania's new transportation law will raise fuel taxes Jan. 1, and companies that supply gas and diesel in Pennsylvania say razor-thin profit margins leave them little choice but to pass on the entire cost increase to the pump.

That point has at times gotten lost amid mixed messages from Gov. Tom Corbett and some lawmakers. In various ways they have suggested that the cost may not entirely be passed down to consumers, or that it shifts the tax burden to "oil companies," never mind the fact that integrated multinational oil companies are barely involved in distributing gas in the United States.

That work is largely left to petroleum trucking companies or companies that own gasoline stations, convenience stores or truck stops that collect the tax that will rise, Pennsylvania's Oil Company Franchise Tax.

Sheetz, which supplies fuel to the 236 gas stations and convenience stores it owns in Pennsylvania, said bluntly it will pass along the higher wholesale tax.

"Our margins are extremely minimal with gasoline and any increase in cost, like any other product, ultimately gets passed on in the retail price," spokeswoman Monica Jones said.

John J. Reilly, president of Reilly & Sons in the Philadelphia suburb of Exton, said fuel distributors like his cannot just absorb the cost of doing business.

"Unfortunately, if it's going to go up 10 cents, it's going to go up 10 cents to people we supply," Reilly said. "Nobody can eat a penny today, much less 10 cents."

Jeff Lenard, vice president of the National Association of Convenience Stores in Alexandria, Va., said gas stations typically make a profit of about 3 cents per gallon and that's before paying corporate profits taxes. Distributors say they make less than that.

The good news this winter for tax-averse consumers is that the Federal Energy Information Administration expects the average East Coast gas price to drop by perhaps 20 cents per gallon, thanks to rising U.S. crude oil production and low seasonal demand. Prices were hovering around $3.40 a gallon in much of the state Thursday, according to AAA's data.

Under the law signed Monday by Corbett, higher taxes and fees will unfold over the next five years to collect an additional $2.3 billion to $2.4 billion a year. That's roughly 40 percent of the $5.7 billion the Pennsylvania Department of Transportation is planning to spend this year on state and local roads, and bridges and mass transit systems.

PennDOT says as of Jan. 1 there will be a 9.5 cent per gallon tax increase on unleaded fuel and a 13 cent per gallon tax increase on diesel. If the law were fully in effect today, gas taxes would go up by 28.5 cents per gallon, based on the average wholesale price set by the Department of Revenue for 2013.

Revenue officials did not mince words in an April 2012 briefing paper they issued for the oil and gas exploration industry. In it they said that, "liquid fuels and fuel taxes are borne by the consumer."

The law does repeal a 12 cent per gallon tax that gas station owners pay to the state. To offset that loss the law increases the rate of the Oil Company Franchise Tax, which is imposed on the sale of fuel to gas stations.

Then it expands the Oil Company Franchise Tax over the next three years to apply to the full cost of the gas, rather than the $1.25 per gallon it is currently limited to. That change will generate nearly $2 billion a year, according to legislative budget analysts.

WPXI