D.C. charged wrong gas tax, counting on gas station owners to make refunds to motorists

October 7, 2013

The D.C. Office of Tax and Revenue acknowledged Monday that it erred last month in ordering gasoline wholesalers to begin implementing a new wholesale price of gasoline to replace the current per-gallon tax on Oct. 1, overcharging them as much as $95,000 during the first week of the month because of a calculation mistake.

In instructions issued to the wholesalers, the tax office said that they should refund the amount overcharged to service stations and ask the service stations to refund it to motorists. Typically, wholesalers pass on the cost of taxes to retailers, who in turn pass it on to consumers.

But Lon Anderson, a spokesman for AAA Mid-Atlantic, said he would be surprised if motorists ended up getting back any of the money they were overcharged in taxes. “I don’t see that happening,” Anderson said. “This sounds like a $95,000 windfall for the service stations. I don’t expect that motorists are ever going to see that money back.”

The mistake occurred as the District transitioned from a 23.5-cents-per-gallon gasoline tax to an 8 percent tax on the wholesale price of gasoline. The change was pushed by D.C. Council Chairman Phil Mendelson (D), who argued that the new formula — also recently adopted by Maryland and Virginia — would slow the loss of gas-tax revenue as cars become more fuel-efficient.

The change was supposed to be “revenue neutral,” meaning it wouldn’t immediately increase the 23.5-cent-per-gallon tax.

But instead of calculating the new 8 percent tax on the wholesale price of gasoline, the Office of Tax and Revenue mistakenly calculated it on the retail price of gas, which included the existing District tax as well as federal taxes. Because of that error, wholesalers were charged a tax of 28.8 cents per gallon, a 23 percent increase over the intended rate.

“It was a mistake,” said Stephen M. Cordi, deputy chief financial officer for the Office of Tax and Revenue. “Somebody moved too quickly . . . what should have happened, had we used the right index, it would have been no change.”

Asked if anyone on his staff had been disciplined for the error, Cordi said the mistake was under review.

Cordi was reluctant to say that motorists had ended up paying too much.

“It’s possible that that happened, or it’s possible that it didn’t happen,” he said. “It’s a very competitive business out there, so [gas stations] may not have been able to pass along that to customers.”

But gas station owners and wholesalers disagreed.

“The motoring public got passed along an extra 5.3 [cents] a gallon,” said Kirk McCauley, government affairs director for the Washington, Maryland, Delaware Service Station and Automotive Repair Association.

McCauley was one of the first to notice the higher rate. He alerted District officials Monday.

“I figured it had to be a mistake,” McCauley said.

Peter Horrigan, president of the Mid-Atlantic Petroleum Distributors Association, said he can’t figure out how the District recalculated the rate.

Wholesale rates are not uniformly reported on federal reports and are often considered proprietary.

“We’ve asked them repeatedly, what’s the rate, where’s the chart, so we can track it,” Horrigan said.

The District collects about $21.6­ million annually from gasoline taxes, an amount that is set aside for road repairs. A 23 percent jump for seven days would amount to roughly $95,000.

The error adds more unwanted attention for Cordi’s office, which has been under fire for an aggressive system for collection of past-due property taxes that led to homeowners, including some who were mentally ill or poor and elderly, losing their homes at foreclosure for what were essentially nominal delinquencies.

“This is just, oh my God,” said Anderson of the AAA. “I don’t see gas stations saying, ‘Come in and get a free gallon.’ ”

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