Taxes Complicate Upper Valley Gas ‘Wars’
Heading home from a business trip, Brian Koziar of Graniteville, Vt., fills up his truck while at a West Lebanon station on Friday. Koziar noted how gas became more expensive the farther north he drove. “In New Jersey, gas was 3.35 and full-serve. Then, when I filled up in Allentown, Pa., it was about 10 cents cheaper than here. We were just about to run out of gas and this station was close to the highway.” (Valley News - Sarah Priestap)
Lawmakers in both Vermont and New Hampshire are considering raising their state’s gasoline taxes, the outcome of which could complicate the “border wars” at Upper Valley gas pumps.
Both proposals — from the governor’s desk in Montpelier and from the Legislature in Concord — are being pushed as way to help pay for the upkeep of roads and bridges. Predictably lobbyists, gasoline retailers and consumers are recoiling at the prospect of paying more at the pump.
“It’s another reason to move away,” said Walter Langille, of Wilder, who was filling up at a White River Junction gas station last week. “Income tax, sales tax, now they want to raise more taxes.”
Despite his opposition to higher taxes, Langille won’t drive across the Connecticut River to New Hampshire — where state gasoline taxes are 7 cents less — in order to save “a couple of pennies.”
“You spend more driving than you do for a cheaper price, so it’s not worth it,” he said.
In fact, a quick survey of several Upper Valley stations found that gas sold in New Hampshire is not always cheaper than the gas sold in Vermont.
On Thursday, for example, regular unleaded gasoline was being sold in White River Junction for between $3.60 and $3.66 a gallon. In Lebanon, the price ranged from $3.56 to $3.70.
Those price differences reflect the dynamics of gas prices — and the nuances of gas taxes — said New Hampshire state Sen. David Pierce, D-Etna.
“Apparently, a rise, or a fall, in the gas tax is not entirely correlated with the price you pay at the pump,” he said. “It’s part of it, but it doesn’t drive it.”
Pierce has signed onto the bill that would raise the gas tax in New Hampshire by 4 cents a gallon each year over three years, which he said would cost the typical driver an additional $85 annually. Additionally, there would be a $5 surcharge on registration fees each of the three years, culminating in $15 for each year after that. The tax increase and added registration fees would raise $1 billion over the next decade. The gasoline tax has not been raised in New Hampshire since 1991.
In a proposal from Vermont Gov. Peter Shumlin’s administration, the sales tax on gasoline would climb by 4 percent in order to raise $36.5 million and close a budget gap, avoiding as much as $123 million in transportation budget cuts. The tax increase could ultimately lead to an 8 cent or more increase in the price per gallon. The new sales tax would also increase automatically in line with the U.S. Consumer Price Index. Vermont’s gasoline tax has not been raised since 1997.
Although gasoline retailers say the tax differential between the Twin States puts Vermont stations at a disadvantage, Pierce said there are other factors to consider. Competition among retailers, he said, along with a “very sophisticated and complex pricing model set by distributors,” serve to “undercut the argument that a raise in the gas tax is going to make our gas more expensive.”
The Price Paradox
On Thursday, a very informal survey of gas stations in White River Junction and Lebanon, along with a review of New Hampshire and Vermont prices on the GasBuddy.com website, showed little difference between the price of gas in New Hampshire and Vermont. The most expensive regular unleaded in West Lebanon was actually 4 cents higher than the most expensive regular unleaded in White River Junction.
So why is gasoline sometimes cheaper in Vermont than it is in New Hampshire?
“I have no idea. I can’t explain that,” said Ed Kerrigan, who owns eight gas stations in the Upper Valley — three in Vermont and five in New Hampshire. He said the changing cost of fuel, market conditions and competition all play a role in setting gas prices.
But, Kerrigan said, the different tax rates definitely have an impact.
Gas retailers on the Vermont side of the border have to cut their prices in order to compete with those in the Granite State, said Joe Choquette III, a Vermont-based petroleum lobbyist.
“It really causes them to squeeze their margins,” he said. “People are not making money on gasoline on the Vermont side of the border. I can say that without reservation.”
Choquette took it a step further: “If the governor’s proposal were to be adopted, you might as well sell all your gas stations on the border.”
But even with state gasoline taxes out of the picture, he said, gas retailers are already feeling pinched by higher global fuel prices, declining sales volumes, more fuel-efficient vehicles and fewer miles traveled.
Choquette voiced reservations about the gas tax differential between Vermont and New Hampshire potentially climbing from 7 cents per gallon to 16 cents per gallon under the Shumlin administration proposal. But that assumes New Hampshire’s tax remained unchanged.
If proposals passed in both states, after three consecutive years of 4-cent tax increases in the Granite State, the differential would shrink to about 3 cents.
Meanwhile, those opposed to the New Hampshire proposal are worried about hurting the state’s ability to compete with its neighbors.
“The border wars are very substantial for us to be concerned about,” said John Dumais, president of the New Hampshire Grocers Association.
‘Border Wars’ and
The border wars concern more than gasoline, but higher gas prices could affect the entire state economy, according to Dumais. About 40 percent of the customers in a New Hampshire grocery store located near the state border come from another state, he said, and those customers buy more than just gas.
“You can’t look at one commodity in itself,” he said. “You have to look at the entire shopping basket.”
Dumais also said gasoline can be substantially cheaper in the southern part of the state. Higher Upper Valley prices are a function of the added cost of transporting the gasoline from terminals in Boston and Portsmouth.
But Pierce said that, market competition aside, investing in infrastructure is vital for economic development in New Hampshire. He added that 17 percent of the state’s roads have been rated good, while 83 percent have been rated fair or poor.
Beyond that, Pierce said, large employers have expressed an interest in moving to the state, but have told the commissioner of the Department of Transportation that they won’t consider coming to New Hampshire “until we get our act together.”
Pierce said that the extra $85 a typical driver would pay annually, if the bill is fully implemented, still compares favorably with the extra $259 a year New Hampshire drivers pay, on average, to maintain their vehicles, thanks to the poor condition of the roads.
The trade-off, he said, was a “no brainer.”
But Pierce’s colleague, state Sen. Bob Odell, R-Lempster, said that while there is agreement on a need for more revenue to maintain the state’s roads, bridges and highways, “Whether or not the gas tax is the way to go, I’m not prepared to say that.”
“I think the benchmarker for this discussion will be whatever (Gov. Maggie Hassan) will put into her budget,” he said. “In putting the budget together, there are a lot of moving parts. This is an important piece of that.”
One alternative that Senate Republicans have discussed, Odell said, would be to use revenue from a proposed casino in southern New Hampshire to help pay for highway projects. But Odell said Hassan might have other plans for that money.
Pierce prefers the gasoline tax because it is a usage-based fee that charges residents and non-residents the same amount. That way, state residents aren’t paying for non-state residents to use the roads, he said.
Their Own Worst Enemy
In such a competitive industry, gas station owners are their own worst enemies, said Tom Frawley, president of Lebanon-based Summit Distributing, which owns several gas stations in Vermont, New Hampshire and Maine.
Frawley said price-cutting battles between gas station owners in the Upper Valley were jeopardizing the bottom line for retailers without offering much of a benefit to consumers.
“Who else posts their retail prices down to one-tenth of a cent on the gallon, and the public thinks there’s a big price difference in what they’re getting for a penny?” He asked.
According to Frawley, the typical driver in New England uses 500 to 600 gallons of gasoline a year, “So what’s the difference if you’re driving 10 miles for that extra 2 cents a gallon?”
While tax differentials are certainly at play, Frawley said, price differences in the Twin States are the result of different business models for each gas station owner.
He added that while gas station owners in Vermont’s Northeast Kingdom caught “an awful lot of wind” from U.S. Sen. Bernie Sanders, I-Vt., last year when he complained of inflated gas prices in the region, especially compared with prices here, the “straight answer” is that dealers in the Upper Valley are actually losing money on every gallon they sell.
Frawley cited credit card fees and other costs associated with per-gallon sales, saying it’s not uncommon for gas stations to lose money on gasoline, relying on sales of other products in order to maintain profit margins.
He echoed something that Kerrigan, the other Lebanon-based gas station owner, also expressed a desire for — equal taxes in both New Hampshire and Vermont.
And while Frawley said that would be the best-case scenario from a retailer’s perspective, he wasn’t sure how to accomplish such a feat.
“We’ve got to get the governors together to go skiing, I guess,” he said.
Ben Conarck can be reached at email@example.com or 603-727-3213.