Gasoline profits

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The usual crowd of political hacks, including CT’s State Attorney Tong, are screaming about “price gouging” oil companies and retailers and promising to “do something about it”. If they’re really concerned about drivers paying too much at the pump, they might look to their own tax policies first: The average gas station makes a net of between 3¢-7¢ per gallon sold: in Connecticut, the state makes 50¢, and the feds take an additional 18¢.

Just saying.

Why Gasoline Costs More in Connecticut

The average price of a gallon of gas in Connecticut hit $4.62 this past Tuesday, according to AAA—roughly 12 cents higher than the national average. Why the premium? It comes down to a trifecta of taxes:

  • The Federal Tier: An 18.4 cent-per-gallon tax that hasn't changed since 1993. Senator Richard Blumenthal (D-CT) has proposed a bill to temporarily suspend this federal tax through October 1st to provide some summer relief.

  • The State Flat Tax: Connecticut tacks on a fixed 25-cent-per-gallon motor fuel tax.

  • The "Hidden" Percentage: Unlike most states, CT also has a 8.1% petroleum products gross earnings tax. While you don't see it as a separate line item on your receipt, wholesalers pass this cost directly to the station, and ultimately, to your wallet.

Gas stations operate on razor-thin margins for fuel. On average, a gas station earns a gross profit of about $0.30 to $0.40 per gallon. After covering overhead expenses like labor, utilities, credit card transaction fees, and taxes, the net profit shrinks to just $0.03 to $0.07\) per gallon. [1, 2, 3]

The breakdown of how the pump price translates to actual profit:

  • Gross Margin: The markup before expenses, typically around $0.30 to $0.40. For context, major operators average around $0.47 in gross margins.

  • Overhead Costs: Expenses such as rent, maintenance, freight, and insurance total about $0.22 to $0.30 per gallon. Credit card fees alone can eat up over $0.10 per gallon depending on local pricing.

  • Net Profit: The final take-home amount is just $0.02 to $0.07 per gallon. This makes fuel primarily a driver of customer traffic rather than the main profit center. [1, 2, 3, 4, 5, 6, 7]

The Real Money Maker
Because the net profit on a gallon of gas is so low, most gas station owners rely on their attached convenience stores to stay profitable. While store sales account for only about 30% of total revenue, they often contribute to 70% of a station's total profits, bringing in gross margins of 30% to 45% on items like snacks, tobacco, and drinks

But wait, Connecticut, there’s more! 25¢ more!

You’ll recall that decades ago our Hartford Yahoos passed a “temporary” so-called “Windfall Profits Tax” with a provision, they claimed, that would prohibit the oil companies paying it from passing it on to consumers. Everyone knew that pass-through prohibition would be declared unlawful — our state Democrats just put it in as window dressing to fool their voters while they got the tax enacted — and it was, immediately. So the Democrats, despite a promise that they’d repeal the tax if consumers were required to pay it, merely changed the name of the levy to “Petroleum Products Gross Earnings Tax”, and drivers have been paying an extra 25¢ ever since.

Connecticut’s 8.1% Petroleum Products Gross Earnings Tax (PGET) typically adds about 20 to 26 cents to the price of a gallon of gas. Because it is calculated as a percentage of the wholesale price, the exact per-gallon cost varies, but state law caps the taxable wholesale base for gasoline and gasohol at $3.00 per gallon. [1, 2, 3]

Because of this statutory cap, the PGET cannot exceed roughly 26.4 cents per gallon on gasoline, even when wholesale prices surge