State fuel taxes keep going up

The price of oil keeps going up, but another factor also contributes to higher pump prices: fuel taxes.

Over the past six months, the average amount of tax on a gallon of gasoline has gone up 2.4 cents, according to the American Petroleum Institute, or API. The nationwide average as of July 1, just in time for your fill-up as you hit the road to Fourth of July festivities, was 49.4 cents per gallon.

That amount is the federal gas tax (which has been at 18.4 cents per gallon since 1997) plus state and local taxes assessed on motor vehicle fuels.

API, the national trade association for the U.S. oil and natural gas industry, regularly tracks gasoline and diesel fuel tax rates. Its latest data analysis found six states with fuel tax changes since January: Connecticut (diesel only), Iowa, Kentucky, Maine, Minnesota, Nebraska and Washington.

API also has a couple of nifty color-coded maps that offer state-by-state snapshots of gasoline and diesel fuel taxes.

California has the highest tax levy at 74.9 cents per gallon. The Los Angeles Times' Bottleneck Blog says that the biggest contributor to the price of fuel in the Golden State is not the fuel taxes proper, but the added state, county and local sales taxes assessed on each gallon of gas.

Connecticut is a close second in the API rankings, with a 70.8 cents per gallon of gas levy.

Alaskan drivers pay the lowest fuel taxes; the average in The Last Frontier is 26.4 cents per gallon. Wyoming is the next cheapest, with combined gas taxes of 32.4 cents per gallon.

You can find more fuel tax details in API's table of July 1 fuel tax rates.

Honda hybrid credit down, IRS mileage rates up

The tax credit amounts on all that Japanese automaker's fuel-efficient gas-electric vehicles will shrink on July 1.

Under the Energy Policy Act of 2005, which established the hybrid tax break, popularity has its price. Once a manufacturer sells a total of 60,000 hybrids, the tax credit starts phasing out.

That happened to Toyota last year. Thanks primarily to the popularity of the Prius, the tax credit for any Toyota or Lexus hybrids disappeared Oct. 1, 2007.

Now it's Honda's turn. Its credits were cut in half this Jan. 1. On July 1, the tax break amounts will drop to just a quarter of the original credit amount. And on Jan. 1, 2009, Honda will join Toyota in the no-hybrid-credit camp.

So if the high price of gas has you considering a hybrid and a Honda is on your short list, you need to buy one in the next few days to make sure you get the largest possible tax credit on your 2008 return.

You can read more about the hybrid credit and find out which vehicles are eligible and at what amounts in the Bankrate feature, "Hybrid credit gone for Toyota, fading fast for Honda."

Mileage amounts hiked: Rising fuel prices have affected another tax break.

If you use your auto for business purposes, you can either deduct the actual costs of operating the car or simply claim business-related mileage on your tax return.

Each year, usually in the fall, the IRS establishes the amount that each mile of business travel is worth. But in the face of extraordinary circumstances, the IRS sometimes makes changes earlier in the year.

And $4-a-gallon gas qualifies as a special situation.

Thanks in large part to the rapid rise of pump prices, the IRS has decided to increase the mileage deduction rates, effective July 1.

On that date, any driving for business, either for your own company or as an employee ( for which you aren't reimbursed by your employer) is worth 58.5 cents a mile. That's an 8 cent bump.

The IRS also increased the mileage rate a similar amount for miles related to moving or medical treatments. On and after July 1, that type of travel is worth 27 cents per mile, up from 19 cents per mile for the first half of the year.

Any tax-deductible driving you do for your favorite charity, however, will remain at 14 cents per mile. The reason: That amount is set by law, not at the discretion of the IRS, so only legislators on Capitol Hill can change it.