This story is part of CT Mirror Explains, an ongoing effort to distill our wide-ranging reporting into a "what you need to know" format and provide practical information to our readers.
Connecticut’s diesel fuel tax will climb by 1 penny per gallon starting July 1 – hardly a massive jump.
But diesel prices already are up about 40% since the U.S. war with Iran began on Feb. 28. Analysts project the state budget’s Special Transportation Fund — which is paid for chiefly with various fuel and sales tax receipts — will run up a $214 million or 9% surplus next fiscal year, leaving some to ask why the diesel tax is increasing at all.
The answer lies with a process legislators crafted almost two decades ago.
How is the diesel tax calculated?
Asked by the trucking industry and others to keep diesel taxes closer to those the state levies on regular gasoline, the 2007 General Assembly enacted a three-step formula.
First, officials look back over the prior year and determine the average wholesale price of diesel fuel in Connecticut.
Second, they multiply that average price by 8.81%, which is the effective wholesale rate that’s applied to gasoline when it is delivered to local filling stations and convenience stores.
Third, they add a flat amount, which is 29 cents per gallon.
The formula is applied and the diesel tax reset each July 1.
The Department of Revenue Services recently announced, based on that formula, that the diesel rate will climb, beginning next month, from 48.9 cents per gallon to 49.9 cents.
In comparison, regular gasoline users effectively are paying 51.4 cents right now to the state for every gallon they buy. That includes a 25-cent retail levy and a rate-based wholesale tax that currently — based on prices at distribution sites in New Haven and Hartford — adds another 26.4 cents per gallon.
But because of existing caps, 51.4 cents per gallon is the maximum amount of state taxes allowed on regular gasoline. There is no ceiling on the diesel levy.
And while the new 1-cent increase to the diesel tax is modest, it comes on the heels of a massive upswing in the market rate.
The average national retail price of diesel was about $3.70 per gallon in February, according to the U.S. Energy Information Administration. And AAA reported a national average last Friday of almost $5.26 per gallon, an increase of more than 40%.
Connecticut tends to track higher than the national average, and the state price of diesel last Friday stood at $5.55 per gallon, according to AAA.
Are CT’s fuel taxes too volatile?
Connecticut’s diesel tax formula also has produced some sharp increases in recent years.
The diesel tax jumped slightly more than 9 cents per gallon in July 2022 after retail prices over the prior year had nearly doubled.
And it would have jumped another 12 cents per gallon in July 2023, but Gov. Ned Lamont and the legislature ordered a one-time suspension of the formula.
Changes were smaller in each of the past two years, with the diesel levy rising 3 cents per gallon in July 2024 and dropping 3.5 cents in 2025.
Still, some industry experts fear another tax increase could be coming one year from now, if the Persian Gulf conflict continues to hold oil prices elevated.
They also note what while state officials acted quickly enough in 2023 to avert a second consecutive major diesel tax increase, the timing is problematic.
The state legislature wraps its regular session in early June in odd-numbered years and in early May in even-numbered ones. In other words, lawmakers don’t always anticipate an impending diesel tax increase until after they’ve adjourned.
Would a fixed diesel tax work better?
The Connecticut Energy Marketers Association, which represents fuel distributors across the state, has pushed in recent years for the state to replace the formula-based diesel tax with a flat, per-gallon charge.
And the head of Connecticut’s largest trucking coalition, said it’s not just businesses that benefit when taxes remain relatively stable.
Groceries and most department store goods are delivered by diesel-powered trucks, and increased fuel costs usually find their way to customers, John Blair, president of the Motor Transport Association of Connecticut.
“If you’re going to create a cost for our industry, that cost has to get passed along,” said Blair, whose association represents more than 500 trucking and trucking-related businesses.
