On 23 Apr 2001, at 16:35, Ken Hirsch wrote:

> I think that all the gasoline taxes are excise taxes, not ad valorem,
> so they get less revenue when the prices goes up.

Excise "taxes" (actually 'duties') are simply those taxes levied
nationally on domestically produced goods.  They differ from sales
taxes in that they become due at the time of manufacture or
production.  Other than applying to domestic goods, they are in all
respects similar to import duties.  Federal legislation may permit
deferment of remittance of excise taxes until the goods have been
disposed of; but the tax liability to the Federal Government remains
the producer's unless transferred to a purchaser by licence.

Ad Valorem (x% of value) is only one way of calculating a tax,
whether Customs Duties, Excise Taxes, Sales tax, or any other tax.
World-wide, gasoline is also taxed at specific rates (i.e. $0.xx per
litre) or on multiple rates (i.e. 15% plus $0.xx per litre) or on
composite rates (i.e. $x.yy per litre to a maximum of 25% by value or
15% with a minimum of $0.20 per litre).  Tobacco, consumable alcohol,
and gaming supplies also are often taxed using multiple schemes
applied to the same item.

The simplicity of ad valorem calculations makes their application
attractive where the real 'value' can be set with a large measure of
confidence, as in a retail sale between unrelated parties.  It
becomes less attractive when 'value' can be adjusted by 'generally
accepted accounting principles' to meet the desires of the tax-payer
at the expense of the interests of the taxation authority.  Anybody
with experience with current-value-assessment property taxes can
readily see the problems arising from evaluating assets that do not
trade with great frequency and whose realizable transaction value may
frequently vary considerably over time.

In North America we have the added complexity of state/provincial and
federal tax regimes both being applied to the same product; sometimes
complementary and sometimes additive.  Taking gasoline as the
example; in Ontario, Canada, the feds levy a ~$0.23 per litre excise
tax and then tack on an additional 7% federal sales tax (GST)
[(X+0.23/l)* 0.07] (P1) while the province levies a separate retail
sales tax, but again on the excise paid value. [(X+0.23/l) * 0.08]
(P2).  Four provinces use a 'harmonized' sales tax rate of 15% which
the feds collect on their behalf and split 7/8 with them, others levy
their sales tax on the GST included price, and one (Alberta) levies
no provincial tax at all.

The consumer therefore pays $X/L which is made up of $A/L (the well-
head price) + $B/L ( the refinery costs ) + $C/L (refiner's mark-up)
+ $0.23/L + $D/L ( retailer's mark-up ) + P1% + P2%.  The taxes
levied through P1 and P2 are sensitive to pump prices, the rest of
the tax is not.

In Canada, and possibly in the USA, one must also consider the matter
of crown (state) royalties paid by the producers to the various
governments for each litre of oil extracted at the well-head.  These
licence fees are separate from the above taxes but obviously form a
component of the well-head price per barrel of domestic crude; upon
whose value other costs and taxes are calculated.

Like any essential commodity, gasoline is attractive to governments
looking for things to tax because consuming it cannot be easily
avoided and is used in large amounts.  This means that the tax rate
can remain fairly low with respect to the total value.  Since the
1970's however, the use of taxation as a vehicle for social change
has predominated fuel taxes in general.  This has allowed governments
to sustain much higher rates of taxation on fuels than would
otherwise be possible.

In the end, a citizenry must agree to be taxed and approve of the
rate at which they will be taxed.  Without the social benefit
argument (sin tax syndrome) supporting the current level of consumer
fuel taxes then the price at the pump would be substantially less;
and you would be paying more tax somewhere else.

Regards,
Jim




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James B. Byrne                Harte & Lyne Limited
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fax: +1 905 561 0757          Hamilton, Ontario
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