ALBANY, N.Y. -- New York convenience store operators are alerting consumers that their actual savings from the June 1 "cap" on the state portion of gasoline sales tax is likely to be less than the 4 cents per gallon advertised by state politicians.
"The publicity surrounding this legislation may have created a false expectation that pump prices will drop 4 cents [June 1]," James Calvin, president of the New York Association of Convenience Stores (NYACS), said yesterday. "Right now it looks like it will be more in the 2 1/2 to 3-cent range."
He said some supporters of the cap erroneously theorized that under the current 4% rate, consumers were paying 12 cents in state sales tax on a $3 gallon of gasoline, and if the tax was capped at 8 cents, it would save them 4 cents, a figure that was widely reported by news media. In reality, at $3 a gallon, consumers pay about 10.8 cents in state sales tax, not 12, because the retailer is required to apply the 4% tax rate not to the entire $3 selling price, but to the selling price excluding various state and local taxes that were prepaid by the wholesale distributor, or about $2.70. Thus, in this example, the switch to a flat 8 cents per gallon translates to a savings of 2.8 cents a gallon, not 4, he said.
To illustrate how sales tax on motor fuel is calculated by the retailer in accordance with state Tax Department instructions, NYACS provided the following chart for a hypothetical store that is charging $2.959 May 31 in an upstate county with a 4% local sales tax rate, showing that the cap would reduce the pump price by only 2.6 cents:
Current Calculation (prior to 6/1/06); Per gal
Pump price including all taxes; 2.9590 Price excluding NYS motor fuels tax (A minus .0805); 2.8785 Price excluding 8% state/local sales tax (B divided by 1.08); 2.6653 Total state and local sales tax amount (C times .08); 0.2132New Calculation (as of 6/1/06)
Starting pump price including all taxes; 2.9590 Price excluding NYS motor fuels tax (A minus .0805); 2.8785 Price excluding 8 cents NYS sales tax (B minus .08); 2.7985 Price excluding 4% county sales tax (C divided by 1.04); 2.6822 County sales tax amount (D multiplied by .04); 0.1073 Capped NYS sales tax amount (8 cents/gal); 0.0800 Total state and local sales tax (E plus F); 0.1873 Difference in sales tax between old and new formula; 0.0259 Final pump price (A minus H); 2.9331 Savings from state sales tax "cap" (A minus I); 0.0259The tax cap law requires retailers to pass the savings along the entire tax savings to consumers under penalty of law, and Calvin said motorists can count on NYACS member retailers to do so.
He cautioned, however, that other factors impact retail prices, especially the product price retailers pay their wholesale supplier, which has been fluctuating in recent weeks. "Conceivably, another spike in wholesale prices could wipe out the savings from the tax cap," he said.
NYACS commended the state legislature and Governor George Pataki for capping the state sales tax on motor fuel. "Any small step that helps restore gas price stability is good for consumers, and for retailers as well," said Calvin. "However, perhaps due to erroneous assumptions, predictions about how much it would lower pump prices were slightly exaggerated."
The state gave counties the option to cap their local share of sale tax on motor fuel as well, but if they do so it won't take effect until July 1 at the earliest.
Click here to view the New York Tax Department instructions for implementing the sales tax cap in the form of TSB-M-06(7)S.
http://www.tax.state.ny.us/pdf/memos/sales/m06_7s.pdf
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