Fuel Tax Explained: How to Purchase the Least Expensive Diesel Fuel

AS I WAS GATHERING my quarterly IFTA filing information, I decided to get off my derrière and write this article about how to best purchase fuel. As the single-largest owner-operator expense, diesel fuel often costs us between $33,000 and $45,000 per year, depending on the price. Yet, given this item’s large impact on our bottom-line, I am surprised at just how few know how to buy fuel at the cheapest price. If you’re in this category, then this article is for you!

Benjamin Franklin said that “A Penny Saved is A Penny Earned.” My corollary is that he was only half right when he famously coined the phrase. Buying fuel is a spin on Ben Franklin’s take, albeit Mr. Franklin was not buying diesel fuel for his vehicle. Saving money on fuel purchases not only saves money at the precise time of purchase, but puts you twice that savings ahead of where you’d be had you foregone the savings. So indeed, savings adds up! Frugality is twice as valuable as being a spender.

The key to shopping for fuel purchasing is to compare prices on an “ex-tax” basis. The term “ex-tax” means to look at the price, excluding fuel tax.

Diesel fuel at the pump, let’s say at $2.50/gallon, has some fuel taxes built into the price. Each state is free to set its own fuel tax rate; depending on the state, those tax rates range from Oklahoma’s $0.13/gallon to Pennsylvania’s $0.747/gallon.

As an aside, the fuel tax liability is determined by the number of gallons of fuel consumed while driving in each state. The credit is determined by how many gallons of fuel purchased in each state. At the end of each quarter, there will be a state-by-state reconciliation, and that is done through the International Fuel Tax Agreement (IFTA) filing.

When shopping for fuel, take the pump price (or your discounted fuel price if you receive a discount through your carrier or trade organization) minus the applicable state fuel tax. Let’s look at some examples:

Location       Pump Price                  Fuel Tax                      Ex-Tax Cost     
Colorado A:   $2.50 / gallon price – $0.205 / gallon tax = $2.295 / gallon
Colorado B:   $2.52 / gallon price – $0.205 / gallon tax = $2.315 / gallon
Wyoming Z:   $2.52 / gallon price – $0.240 / gallon tax = $2.280 / gallon

Comparing the two Colorado truck stops, it’s clear that Colorado A has a lower cost than B.

Wyoming Z has a higher pump price in this example, but Wyoming has a higher fuel tax, yielding a lower ex-tax cost. Thus, in this example, it would more prudent to make the purchase at the Wyoming Z stop.

Okay, now that we’ve covered the basics, let’s discuss some exceptions. First, there are three states: Kentucky, Virginia, and Indiana, that do not extend the full amount of fuel tax paid as a credit. In these cases, the amount of fuel tax to subtract from the pump price is the actual amount of tax credited.

I created a table showing each state’s or province’s fuel tax rate that you can print. Use this chart to calculate your ex-tax cost and compare your favorite fuel stop to another. For ease of calculating the ex-tax price, you can use the green highlighted middle column, Diesel Tax Credit Rate, that will account for the above three exceptions.   Fuel Tax Rates

Another exception is Oregon, where no fuel tax is collected at the pump when you purchase fuel. Instead, Oregon charges a mileage-based road use tax. In all the other 47 Continental states, the fuel tax is based on x-number of cents per gallon. That – say $0.21 per gallon, divided by your truck’s fuel economy, like 7.0 miles per gallon, yields a $0.03 per mile effective tax rate. Oregon, on the other hand, charges a $0.1638 per mile tax. That is equivalent to more than $1.14 per gallon fuel tax, which is 50% higher than the highest state’s fuel tax. Nonetheless, this does not alter your fuel purchase strategy; just beware that you’ll be getting that mileage tax bill. Conversely, if you routinely run in Oregon, you better ensure that your revenue rate sufficiently compensates you for that tax.

There’s a reason that the major truck stops offer points, Shower Power perks, and the like. Consider this: how much did that free shower cost if you overpaid $20, $30, or $60 in fuel? How many times do you fuel in the month? Need I go on? Make Mr. Franklin proud, buy smart and save the money!

Over-the-road, long-haul truckers have, quite literally, hundreds of fueling locations from which to choose along their trip. Sometimes, you must make more than one fuel stop to complete the journey. It’s not uncommon that you’ll need to make your fuel purchase decisions by analyzing dozens of different truck stops’ discounted fuel price and state tax rates, to optimize your fuel purchases. That will be an upcoming topic. Until then, remember, ex-tax and drive safely.


Based in Colorado, Alec Costerus is President of Aerodyne Transportation, LLC, an over-the-road, long-haul carrier leased to Landstar Inway. You can follow Aerodyne on Facebook at: http://www.facebook.com/aerodynetransportation.

Alec is also a member of the Trucking Solutions Group, a group of transportation professionals striving to improve our business through education, both for ourselves and others in our industry, while also projecting a positive image. Go to http://www.facebook.com/TheTruckingSolutionsGroup to learn more.

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