By Mike Garcia

California drivers are currently facing an average gasoline price of $4.66 per gallon, according to AAA. This figure stands more than $1.50 above the national average, largely due to state policies. A significant portion of this cost discrepancy is attributed to California’s gasoline excise tax, which considerably inflates fuel prices compared to neighboring states.

As of July 1, 2025, the state imposes an excise tax of 61.2 cents per gallon. This tax is automatically adjusted for inflation and has seen an increase this summer. The trend is set to continue with annual hikes every July unless legislative changes are made. Essentially, before gas stations earn any profit, more than sixty cents are already claimed by the state.

This situation is quite unique. In neighboring Arizona, for instance, the state excise tax is a mere 18 cents per gallon. The 43-cent difference is a compelling reason for many families to refuel in cities like Lake Havasu or Yuma before venturing into California. While all U.S. drivers pay a federal tax of 18.4 cents per gallon, California’s significant surcharge is distinctly its own.

This is not normal. 

Next door in Arizona, the state excise tax is 18 cents per gallon. This 43-cent gap explains why families often top off in Lake Havasu or Yuma before crossing into California. All drivers pay the federal tax of 18.4 cents per gallon, but California’s steep premium is homegrown.

The real issue isn’t just how high the tax is – it’s how it’s designed to keep rising automatically. Under current law, the excise rate adjusts each July based on inflation. That’s why it rose from 59.6 cents to 61.2 cents this year. The term “Indexation” may sound technical, but the result is simple: Without a deliberate vote from the legislature, Californians pay more every year. For a nurse or delivery worker commuting from the Antelope Valley to downtown Los Angeles, those pennies add up fast.

Economists have long warned that per-gallon taxes on essentials are regressive, hitting working families hardest. Recent academic work confirms that gasoline taxes burden lower-income drivers most — long commutes, with high housing costs forcing people to drive further to work just to afford a home. The further you drive, the harder the taxes bite.

Supporters of the current system claim that high taxes are the price of good roads. But even Sacramento’s own budget analysts have noted the imbalance: According to the Legislative Analyst’s Office, every one-cent cut in the gasoline excise tax reduces state revenue by just 0.05% of total state spending — a tiny fraction of the budget. 

And what do Californians get for that money? Not much. The Reason Foundation’s latest report ranks states on 13 measurable categories — from pavement and bridges to congestion and efficiency. The results are telling: North Carolina charges about 40.3 cents per gallon and ranks first in overall highway performance; Tennessee charges about 27.4 cents and ranks fifth — both far ahead of California, which charges 61.2 cents and ranks 49th. 

Clearly, how funds are spent matters more than how much is collected.