Illinois gas tax is set to increase on July 1. Here's what to know

With the start of a new fiscal year coming next week, Illinois drivers may have to face a slight increase in gas prices, due to a slight increase in the motor fuel tax.

According to the Illinois Department of Revenue, the tax on motor fuel in the state of Illinois will increase to 47 cents a gallon, an increase of 3.5% from the 2023-24 fiscal year. The increase may lead to customers seeing higher prices at the pump, unfortunate timing coming days before the busy Fourth of July travel weekend.

Here's a look at what you need to know about the gas tax and its impact on you:

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What is the Illinois motor fuel tax?

The motor fuel tax, according to IDOR, is a tax that is placed on the ability of a person to operate a motor vehicle or recreational watercraft in the state of Illinois.

First instituted in 1977, the tax is paid by those who distribute or supply fuel to customers – think those that provide the fuel to your gas station for you to pump into your tank.

Why raise the Illinois gas tax now?

Shortly after being elected into office in 2019, Gov. JB Pritzker signed legislation that would increase the motor fuel tax by 19 cents a gallon, then increasing it further through indexing it with the federal Consumer Price Index, the lead indicator of inflation in the U.S.

The legislation was part of the governor's Rebuild Illinois capital plan, which put forth $45 billion to help rebuild the state's roads and bridges. Pritzker said at the time that the plan would help support hundreds of thousands of new jobs across the state through investing in the state's infrastructure.

"The Rebuild Illinois plan transforms our state's approach to transportation infrastructure, finally treating our roads, bridges, and railways like 21st century investments and not relics of the past," Pritzker said. "This is more than an infrastructure plan. This is a job creation plan the likes of which our state has never seen."

After a pause in 2022, put in place to combat skyrocketing gas prices, the gas tax went up on January 1, 2023, to 42 cents a gallon from the 39 cents it had been set at the previous year, an increase of nearly 8%, similar to the increase seen in the CPI over the course of 2022.

That July, the tax increased to the now-current 45 cents a gallon, up around 7% from the previous number. The 3.5% increase largely matches the same figure that CPI increased by last year.

More: Why are Peoria's gas prices higher than in surrounding towns? Here's an explainer

Where do the revenues raised by the motor fuel tax go?

The state and many local municipalities use the motor fuel tax to help with funding infrastructure projects. Much of the Rebuild Illinois plan has been funded through increases in not just the motor fuel tax on gasoline, but special fuels (diesel, natural gas and propane). In addition, the state created the Transportation Renewal Fund in order to provide a mechanism to receive those taxes and distribute them where it's needed.

According to the Illinois Municipal League, tax revenue is split between those intended for the TRF and those not intended for it. For non-TRF revenues, 45% is allocated to the state, with the other half sent to the Illinois Department of Transportation to distribute to municipalities.

As for funds sent to the TRF, about 80% of the total increase in taxes each year is split between both the state and local governments for road construction projects, with a 60-40 split between the state and local sides. For local governments, 49% goes toward the municipalities themselves, with counties and other road districts receiving the other 51%.

More: Illinois ranks as the worst for local and state taxes, financial website says

How does the increase in the motor fuel tax affect gas prices?

Gas prices don't immediately increase as a result of changes to the motor fuel tax, but the effects are usually felt after a few days.

According to data by GasBuddy, a national website that provides a list of prices for gas stations all across the U.S., gas prices in Illinois went up in January 2023 during the period where the gas tax was increased the first time. On Christmas Eve 2022, prices sat at $3.14 a gallon across Illinois. By the end of the next month, prices had gone up over 50 cents to $3.65 a gallon.

In addition, prices were around 15 cents higher than they were nationally, with the cost of a gallon of unleaded gas across the nation sitting around $3.50 a gallon.

Over the summer, gas prices didn't increase, but there was a delta in gas prices between where they were in Illinois and nationally. Prices at the end of July sat at $3.97 a gallon, 25 cents higher than the national average.

Why are gas prices different in Peoria than in other areas of the state?

Gas prices in the city of Peoria as of June 25 sat at $3.69 a gallon, lower than the statewide average of $3.84 a gallon, but higher than other areas in the state, such as Bloomington-Normal ($3.61 a gallon) and Springfield ($3.63 a gallon).

The difference in gas prices largely comes from how municipalities choose to put their own motor fuel taxes to use. For instance, the city of Peoria has a 63-cent tax on motor fuel, 17 cents higher than the state's own tax on gas and a 9% rate per dollar.

This can lead to prices in Peoria being slightly higher than those in other areas of the county.

More: 4 major state road projects for the Peoria-area identified by IDOT

This article originally appeared on Journal Star: Illinois gas tax will increase to 47 cents a gallon on July 1, 2024