Suddenly, Indiana’s taxes on fuel are gaining a lot of attention. And it’s deserved.
They rank fifth-highest in the nation, according to the Tax Foundation, and are a drag on Hoosiers. And what are we getting for that?
Indiana roads aren’t appreciably better than other states. Some even argue they are worse, including truckers who voted our state highways the worst.
The tax structure is also becoming a political liability for state officials.
Let’s break down where we are in Indiana.
We have a 36-cent state gas tax that goes to roads and highways. Lawmakers in 2017 approved a one-time 10-cent jump, and every year since then it has also increased automatically by one penny.
Yes, that means it will rise to 37 cents on July 1.
That automatic escalator was set to expire in 2024, but Republican supermajorities in the House and Senate agreed to an extension, pushing the expiration date out to 2027. The three-year add will cost drivers about $90 million.
At the time, Indiana Capital Chronicle broke the story that the change was buried in a road bill and wasn’t being discussed. But no one seemed to care.
7% sales tax on top
On top of the state gas tax, Indiana is also one of only five states that applies a sales tax on your fuel purchases.
It brought in about $570 million in 2025. Previously, all of the money stayed in the state’s general fund, but legislators back in 2017 began shifting gas tax revenue to roads instead of general government expenses.
Each month, the Indiana Department Revenue averages the prior month’s gas prices (excluding taxes) and comes up with a sales tax rate to be added to every transaction that month.
For April that amount is 17.2 cents. But fuel prices have been rising due to the war in Iran, so expect that to go up again on May 1.
It’s this part of the fuel taxes that Gov. Mike Braun suspended for 30 days this week — saving Hoosiers about $1.70 on a 10-gallon fill-up.
It will save drivers about $50 million collectively. And Braun said it wouldn’t hurt state revenue because Indiana has been taking in more than expected due to the higher prices. To date, about $364 million has been collected.
If Indiana didn’t apply the sales tax to fuel purchases, Indiana’s ranking on highest gas taxes would drop about 10 slots nationally.
That isn’t likely to happen because the revenue hit would be too large.
But maybe lawmakers are finally getting the message that these taxes are a problem.
Political fallout?
The 2017 gas tax vote has been used by numerous GOP primary challengers against incumbents seeking reelection. And many of those incumbents immediately embraced the suspension.
“Many throughout the state, especially Hoosier families, senior citizens and those in farming communities entering planting season, are feeling the pressure of rising costs, and suspending the tax on gas is one way we can help ease this burden,” said Sen. Rick Niemeyer, R-Lowell. “I am extremely supportive of this effort and will continue to find other ways to help make the cost of living more affordable for all those in Indiana.”
That alone is interesting because previously when this issue has arisen Republicans have balked. Democrat Gov. Frank O’Bannon first used the maneuver in 2000, but GOP governors have declined it since then.
Gov. Mitch Daniels refused to suspend the tax in 2007, saying he didn’t have the authority.
In April 2022 the national average for regular gasoline spiked to around $4.10 to $4.15 per gallon due to inflation and the war in Ukraine. But Gov. Eric Holcomb said Indiana hadn’t hit the threshold of an “existing or projected shortfall of at least 8% of motor fuel or of other energy sources.”
Braun provided no specific evidence Indiana has hit that now. He did say that up to 25% of the world’s crude oil moves through the Strait of Hormuz, which is currently impacted by the war in Iran, so he moved forward with the change within 30 days of the state’s Republican and Democratic primaries.
I also forgot to mention the federal gas tax of 18.4 cents you are paying as well. And, oh yeah, Braun is considering adding tolls to Interstate 70 to pay for upgrades and expansion.
Hoosiers simply can’t continue to pay these prices. At least, not without an audit of how the money is being spent.
Is Indiana doing everything it can to use that money wisely? If so, why are we paying more for roads than residents in other states? Lawmakers have kicked the can on road funding for a few years, but it’s time to make some changes.