Blago Mulling Gas Tax Break

Fuel costs could lead to tax suspension in Illinois

SPRINGFIELD, Ill. -- As gasoline prices in Illinois rise $2.50 per gallon, Governor Rod Blagojevich's administration is considering suspending the state's sales tax on gasoline, a move that could cut prices at the pumps by 10 or 12 cents a gallon, reported the St. Louis Post-Dispatch.

But it would also mean giving up a bonanza from Illinois' cash-strapped budget, said the report. Unlike Missouri, Illinois charges a price-based sales tax on gasoline and has seen an estimated $65 million in new revenue as a result gasoline price hikes in the past year.[image-nocss]

In recent days Blagojevich has said the administration is looking into what the state can do to ease sticker-shock at the pumps. On Monday, administration officials confirmed that among the ideas under discussion is a temporary suspension of the state sales tax on gasoline.

"We're all watching the prices at the pumps go up. There's a lot of discussion right now about what we can do in Illinois," Rebecca Rausch, a spokesperson for Blagojevich, told the newspaper. A temporary suspension of some or all of the state sales tax, she said, "is part of the discussion."

The state charges a 6.25% sales tax on nonfood goodsincluding gasolinewith 5% going to the state and 1.25% to local government.

During a spike in gasoline prices in 2000, then-Gov. George Ryan suspended the state's 5% portion of the state sales tax for six months to help bring down the price at the pumps. Illinois government was flush with cash when Ryan suspended the tax. Blagojevich, though, has been wrestling with a massive budget deficit since taking office almost three years ago.

In the first nine months of the fiscal year that ended June 30up to MarchIllinois collected an estimated $345 million in sales tax on gasoline, a roughly $65 million increase over the same nine-month period the previous year, according to spokesperson Geraldine Conrad of the Illinois Department of Revenue. Those figures cover the first part of this year, when gasoline prices were gradually climbing, but do not include the current skyrocketing prices, which would be expected to mean even more money for the state.

Conrad told the paper that it should not be viewed entirely as a windfall for the state. She noted it is likely that as people spend more on gasoline, they spend less on other things, thus depriving the state of sales tax revenue in other areas. "Some people might have bought a lawn mower if they didn't have to spend so much on gas," Conrad said. "There's no way to measure what isn't being spent."

Critics of Illinois' tax system say that the sales tax on gasoline puts the state at a disadvantage over neighboring states like Missouri, where there is no sales tax on gasoline. Partly as a result, Missouri pump prices have been holding about 15 cents a gallon below those in Illinois, said the Post-Dispatch.

Both Illinois and Missouri charge a flat motor fuel tax on gasoline, of 19 and 17 cents per gallon, respectively. Unlike Illinois' sales tax, those motor fuel taxes are based on gallons pumped, not price, and so are not directly affected by price hikes. One possible indirect effect could be a reduction in gasoline usage, which would hurt motor fuel tax income, said the report; however, that apparently has not happened in Missouri, where motor fuel tax receipts this year are essentially flat compared to last year. The amount of tax collected in July, the most recent figures available, was $46,796,888. During the same month of 2004, the tax collected was $46,940,509. During the 12-month period ending in July, the tax receipts had increased slightly to $311,609,150 compared with $311,080,950 during the same period one year ago.

Jessica Robinson, a spokesperson for Gov. Matt Blunt, told the paper that the governor had no plans to ask the Legislature to reduce Missouri's gasoline tax rate. She said Blunt opposed gasoline tax rate increases in the past and would continue to do so.

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