Point of Collection and the Pass-Through of Excise Taxes
[D]iesel taxes are passed through to retail prices to a greater extent in states where the point of collection is at the distributor... rather than at the retail level.
One issue in the debate over carbon-emission taxes is whether such taxes should be levied on energy producers or on energy users. The likelihood of tax evasion is a key consideration in this choice. In Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-through of State Diesel Taxes (NBER Working Paper No. 19410), Wojciech Kopczuk, Justin Marion, Erich Muehlegger, and Joel Slemrod study differences across states in the point of collection for diesel fuel taxes. They conclude that moving the point of tax collection from the retail gas station to the distributor or prime supplier substantially raises the pass-through of diesel taxes to the retail price. Such a move also raises revenues, suggesting that evasion is the likely explanation for this result.
States differ in the stage of the supply chain responsible for remitting the excise tax on diesel fuel, and in recent decades many states have moved away from collecting this tax from retail stations and toward collecting it from prime suppliers. In part this was because it was relatively costly to monitor the remittance of the tax when many remitters were each responsible for a small fraction of total revenue. Also, variation in tax rates across jurisdictions and across the uses of diesel fuel created opportunities for misstating the applicable tax rate or the intended use of each gallon of diesel fuel.
For each state and year, the authors collected data on the point of collection for diesel and gasoline taxes from the publications of the Federal Highway Administration and other sources. They use these data to estimate the response of retail prices and total tax collections to the point of collection. Retail diesel prices are higher and diesel taxes are passed through to retail prices to a greater extent in states where the point of collection is at the distributor or prime supplier level rather than at the retail level. States also receive less tax revenue, conditional on their tax rates, when taxes are collected at the retail level. The authors find that an increase in the excise tax raises the wholesale price in supplier-remitting states, although not in retailer-remitting states.