In Indiana, the state will be switching from a prepaid sales tax on gasoline, which was collected from retailers, to a gasoline-use tax based on a rolling monthly statewide average that is collected from distributors. The tax rate could change from month to month depending on the average price for gasoline. For the month of July 2014, the tax will be 22.9 CPG.
The tax change was voted into law last year, after the Indiana Petroleum Marketers and Convenience Store Association (IPCA) lobbied for legislation that closed a loophole in how taxes were collected in the state, according to a report from last year in the Northwest Indiana Times.
In the original collection scenario, gas retailers would pay around 80% of the gasoline sales tax due to the distributor when it was delivering fuel, IPCA executive director Scot Imus explained to the newspaper. The retailers would then self-report and pay the rest at the end of the month. These “true ups” were vulnerable to competitors gaming the system and underreporting that remaining 20%, the IPCA believed.
“Up until now, it has basically been an honor system,” Imus told the newspaper. “It’s as if you and I were paying our income taxes without a W-2.”
Some of these cheaters could potentially pocket the extra money or use it to undercut the prices of their competitors, the IPCA alleged. The association estimated that Indiana may have lost $50 billion in taxes in the past eight years because of this practice.
The new gasoline-use tax will be collected when a qualified distributor sells gasoline to a nonqualified distributor, according to the Indiana Department of Revenue (DOR), but not when a qualified distributor sells gasoline to another qualified distributor or exports it to another state. The qualified distributor would collect and remit the tax from the nonqualified distributor to DOR.
Retail stations should include the gasoline-use tax in the price at the pump and will be reimbursed in the same way as for other gasoline or special fuel taxes.