Indexing Gas Taxes: Kentucky Shows How

While some state struggle to raise the gas tax by even a few cents a gallon, indexing the excise tax to inflation avoids these costly battles. Kentucky approved such legislation over 10 years ago. On July 1, the gas tax will increase by 2.4 cents.

2 minute read

June 5, 2013, 10:00 AM PDT

By Irvin Dawid


Kentucky's current gas tax, 29.9-cents per gallon, is the 19th highest in the country according to the Tax Foundation chart. Tom Loftus provides the background for July's 2.4-cent increase.

The increase is automatic, the result of a state law that partly ties the gas tax rate to the average wholesale price of gas. That law has triggered small increases in Kentucky’s gas tax rate in nine of the last 10 years.

Modest annual increases add up over time. Loftus notes that the new July tax rate, 32.3-cents, will be double that of a decade ago.

The "additional revenue is anticipated within the current state budget" according to a spokesman for the Kentucky Transportation Cabinet.

The indexing, performed by the Kentucky Department of Revenue based on a survey of gas prices performed the first month of each quarter, is one of three components of the state gas tax:

  • A fixed tax of 5 cents per gallon, 
  • A 1.4 cent-per-gallon fee for cleaning up underground fuel storage tanks,
  • Plus a variable component set at 9 percent of the average wholesale price. State law places a 10 percent cap on the amount that the wholesale price can increase in a year.

Without that cap, price swings could cause a much larger price increase that presumably could carry political consequences. 

State Rep. Jim Wayne, (D-District 35, Louisville) said most people won't notice that much (increase) at the pump.  "I think the biggest problem we have to look at in the state is how do you properly fund transportation?" said Wayne. "I'm not just talking about highways, but also, bike lanes, public transportation and some of the infrastructure problems." (Wave3)

According to Kentucky's Department of Revenue, "unlike most taxes (it) collects", gas tax revenue can only be used for the "construction and maintenance of Kentucky's roads".

California's gas tax will also increase on July 1 without being based on a vote of the legislature - but by of its Board of Equalization that is required to make up for the switch from sales tax to excise tax in 2010. The increase will be 3.5-cents.

Gas tax legislation summary to date this year

Wyoming and Maryland will see gas tax increases on July 1 due to legislative action while Virginia's will decrease. Vermont's legislature increased its gas tax by 5.9-cents effective May 1. The District of Columbia Council may swap their excise tax for a wholesale sales tax pending a vote this month. Gas tax legislation was defeated in New Hampshire after passing the House, and draft gas tax language was never acted on in Iowa.

Monday, June 3, 2013 in The Courier-Journal

portrait of professional woman

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching. Mary G., Urban Planner

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching.

Mary G., Urban Planner

Cover CM Credits, Earn Certificates, Push Your Career Forward

Logo for Planetizen Federal Action Tracker with black and white image of U.S. Capitol with water ripple overlay.

Planetizen Federal Action Tracker

A weekly monitor of how Trump’s orders and actions are impacting planners and planning in America.

July 9, 2025 - Diana Ionescu

Green vintage Chicago streetcar from the 1940s parked at the Illinois Railroad Museum in 1988.

Chicago’s Ghost Rails

Just beneath the surface of the modern city lie the remnants of its expansive early 20th-century streetcar system.

July 13, 2025 - WTTV

Aerial view of downtown San Antonio, Texas at night with rotating Tower of the Americas in foreground.

San Antonio and Austin are Fusing Into one Massive Megaregion

The region spanning the two central Texas cities is growing fast, posing challenges for local infrastructure and water supplies.

July 3, 2025 - Governing

White park shuttles with large Zion logo on side and red rock cliffs in background in Zion National Park.

Since Zion's Shuttles Went Electric “The Smog is Gone”

Visitors to Zion National Park can enjoy the canyon via the nation’s first fully electric park shuttle system.

4 hours ago - Reasons to Be Cheerful

Chart of federal transportation funding comparing Biden and Trump administration spending.

Trump Distributing DOT Safety Funds at 1/10 Rate of Biden

Funds for Safe Streets and other transportation safety and equity programs are being held up by administrative reviews and conflicts with the Trump administration’s priorities.

5 hours ago - Transportation for America

Close-up on yellow and black TAXI sign on top of beige car in central Munich, Germany.

German Cities Subsidize Taxis for Women Amid Wave of Violence

Free or low-cost taxi rides can help women navigate cities more safely, but critics say the programs don't address the root causes of violence against women.

6 hours ago - Bloomberg