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Fuel tax holiday could stick CT gas stations with a big bill

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When the coronavirus struck Connecticut in March 2020, Eddie Jamal had opened his second gas station in Bridgeport only a few weeks earlier. He tried to hold on as closures and curfews slowed his business to a crawl.

Looking forward to a reinvigorated economy this spring, Jamal watched skyrocketing crude oil prices toss another wrench in the works.

Now as motorists prepare for a state gas tax holiday, he and hundreds of other station owners could lose hundreds or even thousands of dollars — or be forced to shut down their pumps for a day or two — because of an oversight by state officials.

The glitch is expected to hit this week, as gas stations fill their own tanks with fuel at a price that includes the 25-cents-per-gallon retail tax. But when that tax is suspended on Friday, many stations will be selling the same fuel at 25 cents less per gallon than they paid for it.

Many station owners and fuel distributors also fear vague statutes defining price-gouging could open them to many complaints in the coming weeks.

“It’s a rollercoaster. I’ve never seen it like this,” said Jamal.

And while the pandemic dealt the heaviest blow to gas stations and convenience stores, how the state is operating the holiday — and not the tax break itself — “is going to be the No. 1 thing that weeds out the little guys,” Jamal added.

Gov. Ned Lamont and the General Assembly agreed last week to waive Connecticut’s retail gasoline tax, 25 cents per gallon, from April 1 to June 30, hoping to save motorists $90 million over those three months.

Gas station owners say they have no problem with that.

But these stations pay taxes as soon as they purchase the fuel, meaning they aren’t made whole until they re-sell the gas to customers and collect 25 cents per gallon from them.

Further complicating matters, stations replenish their tanks every three to five days, depending on customer demand.

If a station gets its tanks refilled on March 30 or 31, it would pay the 25-cent tax on 8,000 to 8,500 gallons of gas. But whatever it hasn’t sold by April 1 — once the holiday starts — must be sold tax-free.

State officials have said gas stations have plenty of time to manage their inventory. Couldn’t they arrange to run out at the close of business March 31, and then buy a new shipment — tax-free — at sunrise on April 1?

“Brilliant decision,” quipped Michael Fox, executive director of the Connecticut-based Gasoline & Automotive Service Dealers of America, commonly known as GASDA. “One thousand gas stations are going to order gas deliveries for April 1? Do you really think they’re all going to get it?”

Fox said he believes as many as half of all stations would be unable to secure timely fuel under that scenario.

Most of Connecticut’s roughly 1,000 gas stations get their fuel from wholesale trading sites in New Haven, Hartford and Rocky Hill. The gas is delivered by fuel distributors, who agree with Fox: The chances of everybody getting accommodated on April 1 are zilch, said Chris Herb, president of the Connecticut Energy Marketers Association.

Jamal said he must give his fuel distributor a minimum of one-and-a-half days’ notice, and it still normally takes 2-3 days to get a new shipment.

Stations that try to manage their supply and run out one or two days before or after April 1 face the dangerous proposition of closing their pumps for a while.

Jamal said supply problems during the worst of the pandemic forced that on his two stations. Both stations also feature convenience stores and are located in Bridgeport, where there’s plenty of competition.

If customers can’t get fuel, they likely aren’t stopping into the store to buy soda or cigarettes either. “They just drive across the street to the next location,” Jamal said.

A more likely scenario, Fox said, is that most station owners will stay on their regular schedules of buying fuel every three days or so. That means almost everyone will pay taxes on fuel bought wholesale between March 29-31 and then absorb the loss.

State officials responded sympathetically late last week to the gas station owners’ fears but made no promises.

“We’re talking to them and trying to learn more,” said Rep. Sean Scanlon, D-Guilford, co-chairman of the legislature’s tax-writing Finance Committee.

“Most service station owners are small business people. They live in our communities and they’re facing serious headwinds,” said Attorney General William Tong, whose office could have to act if any stations, fuel distributors or oil companies face complaints of price-gouging during the holiday.

But Tong noted many businesses, such as restaurants, had to close and make other sacrifices to protect public health during the worst days of the pandemic. Lawmakers and the governor chose to act quickly because surging fuel prices also represent a crisis.

Gas station owners “may feel like they’re in a no-win situation, between a rock and a hard place,” Tong added. “It’s not a burden that isn’t shared by many other businesses and consumers. It’s shared by everybody.”

The AAA Northeast reported Friday an average price of $4.32 per gallon for regular gasoline in Connecticut, down from a peak of $4.49 on March 11, but still well above the $3.71 reported one month ago.

Fox noted that a station with roughly two-thirds of a late March shipment still in the tanks on April 1 would have paid about $1,500 in state taxes that it couldn’t recoup — a hefty burden for an industry dominated by small businesses.

But won’t gas stations get some benefit this summer, buying tax-free gasoline on June 29 or 30 and then selling it with tax added on July 1, when the holiday ends?

Fox said there’s no guarantee that stations that lost out in the spring will be made whole in the summer. Stations typically pay $50,000 to $60,000 for each load of gasoline. Most don’t have the financial flexibility to stock up with a double-load in late June, to be sure they break even.

But there’s another option Fox said.

The state could simply require stations to report how much fuel they bought — both with and without the tax added — in late March and late June, respectively.

Those gas stations that lost funds could be reimbursed by the state, and those that gained money could be asked to remit the difference to Connecticut.

If this safeguard were in place, he added, no station would have to absorb a tax loss, or consider shutting down its pumps for a few days, which also adds up to lost business revenue.

Fox noted that even if the state had to reimburse 1,000 gasoline stations $1,500 each in tax payments, that would cost the government $1.5 million.

That adds less than 2% to the cost of the fuel tax holiday.

More importantly, Fox noted, the $1.5 million amounts to a rounding error, considering the budget surpluses that made the fuel tax holiday easy for the state to accommodate.

The General and Special Transportation funds combined are on pace to close this fiscal year with more than $3.1 billion in black ink. Set against that, $1.5 million is 1/20th of 1% of the state’s bounty.

Fox added that the uncertainty over financial loss that stations face is compounded by a growing fear that many could be subjected to price-gouging complaints during the holiday.

State law empowers the attorney general to investigate complaints received during an “abnormal market disruption” such as the price spikes in recent weeks leading up to and following the Russian invasion of the Ukraine.

Whenever the wholesale price of fuel exceeds $3 per gallon and the daily price change exceeds 15% when compared with any of the prior 90 days, the Department of Energy and Environmental Protection can declare a disruption, as it did on March 7.

Tong said the advantage of this statute is that it permits his office to respond to any complaint of price gouging against any seller of gasoline, whether that’s at the retail or wholesale level.

But while the statute also says no one shall sell fuel at an “unconscionably excessive price,” it does not define that term.

“It’s a huge problem,” Herb said. “The law should at least provide some guidance. You are now exposing local, family businesses to being prosecuted when they don’t even know if they’ve done something wrong.”

The industry has long argued for specific parameters, but Herb said the tremendous discretion that the government has is particularly dangerous during a fuel-tax-holiday offered amidst an election year.

“It provides law enforcement with a blank check to go after whoever they want whenever they want,” he said.

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