Relief . . . but for how long?

Guv suspends gas use tax with open timeframe; what will it cost?

Governor Mike Braun (R) suspended Indiana’s gasoline sales (use) tax on April 8, touting immediate relief for drivers for 30 days – but he left the timeframe somewhat open-ended, indicating he could extend the break should gas prices continue to soar after May 8.

With that in mind, this situation could quickly turn into a larger test of how long the state can afford to trade infrastructure funding for short-term savings . . . and how long the politics of that tradeoff hold.

Governor Braun’s executive order pauses the 7.0% gasoline use tax – which is 17.2¢ per gallon for April – with the possibility of extension. He cast the move in simple terms: “I am declaring a gas tax holiday to give Hoosiers relief from the pain at the pump from high gas prices,” adding that “affordability is my top priority.”

The relief is real on paper. The Governor estimates the move will save Hoosiers about $50 million over the course of the moratorium month. Individually, drivers will likely see a couple bucks worth of savings at each fill-up, depending on the car.

However, the impact may not show up cleanly at the pump. Petroleum Traders Vice President Peter Eshelman explains to WANE-TV in Fort Wayne that the situation is more complicated. He outlines, “Less taxes are always less money to pay for the consumer,” but “with the market volatility, you may or may not see it one for one.” That’s because gas stations are selling fuel purchased days earlier, and wholesale prices are shifting rapidly in response to global oil markets.

Those global forces are not easing. Analysts say ongoing instability tied to conflict affecting oil shipments through the Strait of Hormuz could push prices even higher, with some projections nearing $5 per gallon in the coming weeks. That reality makes Gov. Braun’s move politically attractive now . . . and potentially a trickier situation later.

What could become a deeper issue is what the state is giving up.

Indiana’s fuel taxes are a primary funding source for road construction and maintenance. By suspending the sales tax portion, Gov. Braun is cutting into a revenue stream that typically grows when prices rise – exactly when infrastructure costs are also under pressure.

The Governor assured reporters last week that he is not concerned this 30-day pause on the use tax will affect any road projects.

But what happens if the global forces due to the U.S. conflict with Iran continue to cause prices at the pump to rise well past the 30-day tax holiday? Does Indiana continue to suspend this gas tax over a situation it has no control over?

With the U.S. now implementing its own blockade on the Strait of Hormuz this week, and peace negotiations up in the air but continuing, there is no clear off-ramp as of right now.

Oil prices did edge up on Wednesday after a sharp drop the previous day, as markets showed growing optimism that the Middle East conflict could move toward a diplomatic resolution. U.S. crude rose about 1.0% to $92.24 per barrel, while Brent crude increased 0.9% to $95.64.

Even with the use tax suspension, most fuel taxes remain in place, including Indiana’s 36¢ per gallon excise tax and the federal gas tax. Those remaining levies still make up a substantial portion of what drivers pay, and fluctuations in crude oil prices – not taxes –  remain the dominant force shaping retail prices.

Indiana’s potential tradeoff dilemma is not lost on some Democratic lawmakers.

Senate Democratic Leader Shelli Yoder (D) of Bloomington warns that the policy comes with consequences beyond the pump. “This gas tax funds roads and infrastructure across Indiana,” Sen. Yoder asserts, adding that “Hoosiers deserve transparency and a clear understanding of what this means for our roads and the potholes they deal with every day. If is a tradeoff between the two, Hoosiers deserve to know about that because they will be the ones making the sacrifice at the pump and on the roads.”

She goes further, arguing the state is offering “17 cents in temporary relief” while families face broader cost pressures, calling it part of “a pattern Hoosiers are seeing: working people asked to carry more.”

Lawmakers raised the gas tax in 2017 and indexed it to inflation,  precisely because they argued Indiana needed more stable money to maintain highways, bridges, and local roads. So when Gov. Braun suspends one piece (albeit the “smaller” portion that changes depending on retail gas prices) of the tax stack now, even temporarily, he is offering relief by tapping one of the same revenue streams state leaders had defended as essential to keeping the transportation system functioning.

But bear in mind as well that the Braun Administration has recognized the gas tax is a depleting revenue source for funding the state’s roads, hence why we’re seeing the administration look more to tolling as a future source.

That particular 2017 gas tax vote has been a thorn in the side for certain senators facing tough primaries this election season by Trump-backed challengers over their votes against mid-decade redistricting. Those senators who were around in 2017 are the subjects of television spots and mailers blasting them for voting to increase the gas tax (and one of them, Sen. Greg Walker (R) of Columbus, is even pilloried for both raising the gas tax and failing to fix road and traffic problems in the same TV spot!).

Our Hannah News Service sister newsletter INDIANA LEGISLATIVE INSIGHT last week dove into the political timing and implications of the Governor’s tax suspension. Politically, Go v. Braun’s move lands in a specific Republican context. Several GOP senators, led by Senate Committee on Tax and Fiscal Policy Chair Travis Holdman (R) of Markle, a few scant hours prior to the Governor’s formal announcement, called for a tax moratorium, and many of those applauding the move are facing primary challenges, and that pressure over earlier votes that increased gas taxes.

That does make the relief effort look both responsive and defensive. Republicans want to be seen as helping drivers now, but they also have a recent history of defending transportation tax increases as necessary for the state’s long-term needs.

Democrats are trying to win both sides of the issue. They support relief at the pump because voters obviously want that. But they also want to press the argument that Republicans helped build the current tax structure, resisted earlier calls for relief, and are now embracing a short-term fix without explaining the consequences for infrastructure funding or offering a broader affordability strategy.

Our sister newsletter reminds us House Democrats repeatedly sought a suspension of the gas tax in March 2022 when the tax hit 18.2¢ per gallon, and then peaked at 29.4¢ in August. House Democratic Leader Phil GiaQuinta (D) of Fort Wayne comments, “It’s clear that Hoosiers are in desperate need of economic relief, and I’m in favor of anything that can provide that, including suspending the gas tax. However, it’s been clear for a long time that Hoosiers are struggling, and it’s frustrating that it had to get this bad before Indiana Republicans took action.”

Leader GiaQuinta reviews the continued Democratic requests for the action, and adds that the “Republican supermajority … instead allowed Hoosiers to continue draining their wallets at the gas pump. I want to be clear: House Democrats support this suspension, but Gov. Braun and Statehouse Republicans are only cleaning up a mess that they helped create. Hoosiers are tired of unstrategic and unfocused foreign wars that cost American lives, drive up gas prices and raise the cost of living.”

Senate President Pro Tem Rodric Bray (R) of Martinsville also lends his personal support for the gubernatorial action. “Senate Republicans have led on issues of affordability for years, resulting in one of the lowest costs of living in the country for Hoosiers, but the recent spike in gas prices is still leaving many Hoosiers feeling undue pressure on their budgets. With affordability top of mind right now, I’m supportive of temporarily suspending the state’s sales tax on gas.”

House Speaker Todd Huston (R) of Fishers adds that “House Republicans support Governor Braun’s actions today to temporarily suspend the sales tax on gas due to the recent increase in gas prices. We’ll always work to lower costs, protect the stability of working families and ensure Hoosiers keep more of their hard-earned money.”

All of that rhetoric mirrors the last time Indiana tried this, as our sister newsletter reports, drawing on its extensive contemporaneous coverage of the narrative more than a generation ago. In 2000, Gov. Frank O’Bannon (D) suspended the gas sales tax during a price spike, warning companies to pass savings on or face investigation. This worked politically, and the state leaned heavily on enforcement to make the policy visible to consumers.

Meanwhile, Attorney General Todd Rokita (R) is pulled directly into enforcement by the Governor, but he full embraces the role – pledging oversight to ensure retailers pass the savings along. “Hoosiers deserve the full relief intended by this emergency measure, and we will use every tool at our disposal to ensure that the removal of the tax translates into lower prices at the pump,” Rokita affirms.

General Rokita (R) joined Kayla Blakeslee on WOWO 1190-AM’s Fort Wayne’s Morning News show Tuesday to unwrap the mystery behind the sales tax process and explain what his office is and will be doing to protect Hoosier consumers.

The system by which gasoline is purchased by retailers and how it is taxed means that the expected price decreases (absent any potential increase in the wholesale cost of gas) can delay when consumers see prices slip at the pumps. While a traditional retail transaction sees sales tax charged and collected at the point of purchase, gas stations typically pay the use tax upfront when buying their supplies from distributors.

“What happens there is the gas stations pay the distributor at the time they buy the big truckload of fuel,” the attorney general tells Blakeslee, and later reiterates in a video for Hoosier consumers. “They pay the seven percent into the distributor, then the distributor pays the state.” He cautions that some stations may still be selling fuel purchased before the tax holiday became effective. “Some of our smaller gas stations may have purchased 30 days or so worth of fuel at a time, and they’ve already paid the seven percent tax,” he adds.

However, AG Rokita finds that statewide data indicates that gas prices are trending downward. OAG’s tracking of some 3,200 gas stations finds that “the average has gone down since last week by 20 cents, so it’s on track.” Nevertheless, a small number of stations appear to be bucking the anticipated trend, raising questions. “We have identified … 19 outlying gas stations that have not gone down about 20 cents,” Rokita said. “We’ll see if they have reasons.” Still, he emphasizes “that price differences alone do not indicate wrongdoing, noting that fuel pricing is influenced by multiple factors. ‘Just because the gas is higher … doesn’t necessarily mean someone’s gouging,’ he said. The Attorney General’s Office is accepting consumer complaints through its website and is also using internal technology to monitor pricing patterns …. He added that the office has developed an internal application to track pricing data across the state and identify anomalies. ‘That’s how I know we have 3,200 gas stations,’ Rokita said. ‘That’s how I know the average price has gone down … and that’s how I can pinpoint these 19 outlying gas stations.’ ”

The AG anticipates that enforcement would likely be handled as a” civil matter … restitution and fines and things like that” under Indiana’s consumer protection laws. “It’s going to be a deceptive consumer sales act violation,” he says. “Rokita also noted that his office does not typically pursue criminal charges in these cases, which would fall under the jurisdiction of local prosecutors.”

In 2000, gas was under $2 per gallon, and Indiana did not yet rely as heavily on layered fuel taxes to fund its roads. Today, the system is more complex and more dependent on those revenues. Gov. Braun is not just offering relief; he is temporarily pulling back a piece of the funding structure that supports infrastructure planning.

There are also the legal questions. The Braun Administration is relying on emergency powers to suspend the tax, arguing the gasoline use tax qualifies as a transportation-related statute. Specifically, I.C. § 10-14- 3-13, which allows the governor to suspend and modify transportation-related requirements to cope with an energy emergency. He finds that “the Indiana Gasoline Use Tax functions as a sales tax on gasoline for consumers,” and that “the Indiana Gasoline Use Tax Established by Ind. Code § 6-2.5-3.5-15 is a state statute regulating transportation.”

But a 2007 opinion from the Office of the Attorney General, when Gov. Mitch Daniels (R) pondered if he had the power to suspend the gas use tax, concluded that governors likely do not have clear authority to suspend such taxes without legislative approval. That AG Opinion was authored by chief deputy AG Greg Zoeller (R), who became Indiana’s next attorney general, serving two terms.

Gov. Braun acknowledged the legal ambiguity but informed reporters, “We feel this is within the latitude of what I’m able to do.”

All of that would be easier to manage if the policy had a clear endpoint. But it doesn’t, really. Gov. Braun explicitly left the door open to extend the suspension, saying he will review conditions after 30 days.

If gas prices fall, the Governor can claim the policy helped and let it expire quietly. If prices stay high or rise further, ending the suspension means drivers will see an immediate jump at the pump . . . and likely blame the state. Extending it, however, means continuing to chip away at a funding source for roads and bridges.

Also, keep in mind that Indiana’s May 5 primary election does fall before the 30-day expiration date on May 8.

The first month is a straightforward win: visible action, bipartisan support, and a clear message. What comes after is the question. If the global market keeps pushing prices upward, Gov. Braun will have to decide whether to double down on a short-term fix or reintroduce a tax that funds the infrastructure Hoosiers rely on.