Illinois Motor Fuel Tax to Increase July 1, Raising Costs for Businesses and Consumers

Illinois businesses and consumers will face higher costs at the pump starting July 1, as the state's motor fuel tax is set to increase in its annual inflation-adjusted hike. The Illinois Department of Revenue has announced the new rates, which will push the tax on gasoline to 49.6 cents per gallon and on diesel to 57.1 cents per gallon. The increase is mandated by a 2019 law that ties the motor fuel tax rate to the annual change in the Consumer Price Index for All Urban Consumers (CPI-U). According to the Department of Revenue, the rate adjustment for the fiscal year beginning July 1 is based on a 2.68% increase in the CPI for the 12 months ending in March. This specific increase will raise the gasoline tax by 1.3 cents from its current 48.3 cents per gallon. The diesel tax will also rise by 1.3 cents from 55.8 cents per gallon. Other fuels will see similar adjustments, with the tax on liquefied petroleum gas (LPG) and liquefied natural gas (LNG) rising to 57.1 cents per diesel gallon equivalent (DGE), and compressed natural gas (CNG) increasing to 49.6 cents per gasoline gallon equivalent (GGE). For many Illinois businesses, especially those in transportation, logistics, construction, and agriculture, this annual tax hike represents a direct and escalating operational cost. While a 1.3-cent increase may seem minor on its own, these incremental changes compound over time, significantly impacting budgets and cash flow. In our experience, many small and mid-sized companies underestimate the cumulative effect of these state-level tax adjustments. What appears as a small percentage increase becomes a substantial line item when applied across an entire fleet of vehicles over a full year. This is precisely the kind of creeping cost that erodes profitability if not actively managed. Companies must regularly re-evaluate their routing, fuel purchasing strategies, and overall supply chain efficiency to absorb these mandated cost increases. The July 1 increase continues a steep upward trend that began in 2019, when the state legislature doubled the motor fuel tax from 19 cents to 38 cents per gallon to fund a multi-billion-dollar infrastructure program. The National Federation of Independent Business (NFIB) has previously noted that since January 2019, the tax on gasoline has risen by over 150%, with the tax on diesel increasing by a similar margin. The motor fuel tax is only one component of the total cost drivers pay. Illinois also levies its state sales tax on gasoline purchases, a practice that applies the sales tax percentage to both the base price of the fuel and the motor fuel tax itself. This creates a tax-on-tax scenario that amplifies the final price at the pump. Additionally, consumers pay an environmental impact fee and an underground storage tank tax. This multi-layered tax structure has consistently placed Illinois among the states with the highest fuel tax burdens in the nation. A 2024 analysis by the Tax Foundation, for instance, ranked Illinois as having the second-highest total tax on gasoline in the United States. Calls from some lawmakers to provide relief by suspending the tax have so far been unsuccessful. While Illinois did pause a scheduled increase for six months back in 2022 amid soaring inflation, Governor JB Pritzker has not indicated support for a similar measure this year. The debate reflects an ongoing tension between the state's need for infrastructure funding and the financial pressure on businesses and residents. Businesses cannot rely on the prospect of legislative relief to manage their finances. The reality is that these tax rates are now legislatively designed to climb every year. The key is to build this certainty into financial forecasts and operational budgets. This is where strategic outsourced CFO services become invaluable, helping companies model the long-term impact of escalating costs and identify offsetting efficiencies elsewhere in the business. Waiting for a tax holiday is not a strategy; adapting the business model is. For companies looking to get ahead of these challenges, C&S Finance Group LLC at csfinancegroup.com provides the expertise to build resilient financial plans. The Illinois Department of Revenue directs businesses to use its MyTax Illinois online portal to file and pay their motor fuel tax returns. The new rates will be in effect from July 1, 2026, through June 30, 2027, according to the department's official bulletin. Looking ahead, Illinois businesses should anticipate another motor fuel tax increase on July 1 of next year, as the 2019 law remains in effect. The exact amount will depend on the CPI data for the 12 months ending in March 2027. The ongoing debate over the balance between infrastructure investment and tax relief is expected to continue in the state legislature, particularly if fuel prices or broader inflation remain elevated.