Gas prices drive up sales tax revenue in state

California unexpectedly could close its budget deficits - with high gas taxes.

This could not happen in most states. In Texas, for example, we have an excise tax of 20 cents per gallon on gasoline whether the motorist pays two bucks a gallon or four. Since consumption tends to go down somewhat when retail prices increase, the Texas tax revenues actually decrease when retail prices increase.

California, however, has its own way of doing things. In addition to its gas excise tax, it also has several other taxes on gasoline, including a sales tax which is expressed as a percent of sales rather than an amount per gallon. (6% state sales tax). Therefore, the higher the gas prices, the more revenue California rakes in!

Californians now pay an average of 63 cents per gallon in taxes (45 state and local, 18 federal). That is 25 cents a gallon more than Texas, and 37 cents a gallon more than Alaska, where fuel taxes are lowest.

What is even more important, California's gas taxes are far higher than Nevada, Arizona and Oregon. As the prices rise, crossing the border becomes a more attractive way to buy gas for those Californians anywhere near the line.