Motorists won’t feel gas hike initially, industry insiders say

With gas prices at a five-year low, motorists in Virginia can expect to pay an extra 5 cents at the pump this year due to a hike in the commonwealth’s wholesale gas tax.

The gas tax hike is a result of former Gov. Bob McDonnell’s 2013 Transportation Bill, which depended on the passage of the Market Place Fairness Act by Congress in order to be funded. If Congress failed to pass the bill by the end of 2014, it would result in a 5-cent increase on the wholesale tax on gas, raising the tax from its current level at 11.1 cents per gallon to 16.1 cents per gallon.

Congress did not pass the bill, so gas will go up. However, industry insiders said motorists would not be feeling the hike in their wallets right away.

Jeanette Tejeda de Gomez, a public relations specialist with AAA Mid-Atlantic, said due to the drop of gas prices over the last three months, with statewide averages at $2.18 a gallon, motorists will not notice the hike.

“Virginia has one of the lowest gas prices in the region, so consumers won’t feel the increase right away,” Gomez said. “Given that gas prices have dropped so low, it just won’t be felt.”

Areas of the state with transportation districts, such as Northern Virginia and Hampton Roads, already have higher gas prices than the Shenandoah Valley due a 2.12 percent wholesale tax on gas, Gomez said.

“For comparison, if you look at Roanoke, the price of gas is $2.09 a gallon, while Norfolk is $2.22,” Gomez said. “There’s a wide variance in the state.”

Gomez said it is too far down the road to tell if the tax will affect consumers during the summer months, when gas prices rise due to the introduction of more costly summer blends.

“Because crude oil has dropped so much since the summer, with highs of $3.68 in June 2014, it just really depends if the price of crude turns around and how quickly,” Gomez said. “Just enjoy the gas prices while it lasts.”

Kevin Rice, executive president of H.N Funkhouser & Co., a Winchester-based petroleum distributor and parent company of Handy Mart convenience stores, said while his company will pass on the tax hike to the consumer, all taxes are passed on to the consumer.

“When we pick it [up] from our suppliers, we are charged the tax automatically, by law,” Rice said. “Then there’s a lag of time from when we put the fuel into the ground at a gas station and when we have to pay our federal and state gas taxes. It’s always around a certain period during each month.”

Rice continued, “We have a lot of taxes tied up in gasoline, so the tax is embedded into the price of gasoline for the consumer. By charging the tax at the distributor level, it prevents people from selling the product as sold on the retail level, which can lead to tax evasion.”

With the 2013 Transportation Bill, the wholesale tax rate was changed from a flat tax of 17.5 cents a gallon to a percentage based on the average wholesale price over a six-month period. When the bill was initially passed in the state’s General Assembly, the percentage was set at 3.5 percent. Now the hike has set the rate at 5.1 percent.

Rice said the increase would not be felt because the price is so low.

“If the price of gas goes higher at the wholesale level, then that percentage means more money at the pump,” Rice said.

Rice said the margins are tight in the gasoline business.

“The reason we sell hot dogs and sodas is because we have such a thin margin with the tax and the charges from credit card sales,” Rice said.

Contact staff writer Henry Culvyhouse at 540-465-5137 ext. 184, or hculvyhouse@nvdaily.com