CITGO AGREES TO SETTLE ALLEGATIONS OF SELLING UNBRANDED FUEL
LIEUTENANT GOVERNOR KIM GUADANGO TO RUN FOR GOVERNOR OF NJ
UPDATE ON HOW GAS TAX AMOUNT CAN FLUCTUATE IN THE FUTURE
REMINDER: UST COMPLIANCE AND ENFORCEMENT TRAINING ON THURS. 1/26

In April of 2016, I wrote about an investigation into CITGO comingling unbranded product which began in our office in February 2013. I had not shared the investigation for over three years while it ran its course, but after seeing an OPIS Alert that CITGO was conducting fuel audits and warning their branded retailers not to comingle branded and unbranded fuel, I (incorrectly) assumed that the investigation was closed and I was free to discuss various details and information surrounding the investigation. Through conversations with members who were caught up in the investigation, I learned that many CITGO locations were to be de-branded and that CITGO would be assessed a significant monetary penalty.  When I shared this, I apparently shared more information than had been published in the OPIS report, and also apparently, the investigation had not come to a close. However, I am confident right now that the investigation has come to a close, and that I am free to discuss it once again, because there is a published settlement and press release by the Attorney General.  You can read the press release HERE and the settlement HERE. 
 
As you know, this organization takes cheating, including comingling of any kind, very seriously. That means selling unbranded product in branded locations and also means passing off regular as higher octane premium. Both types of comingling happen all too often, and is totally unfair to honest retailers that do not engage in these practices. I still believe that other comingling is taking place around the state and I will continue to pursue this until I am satisfied that there is no longer a problem. 
 
This CITGO news coincidentally broke right when I thought I'd be able to share another specific case involving comingling with you in today’s Road Warrior.  I have been waiting for this particular case to be adjudicated for over a year, and unfortunately, although I spent an entire day this week in a courtroom, the case was not decided and there is nothing I can report to you. Right now it doesn’t appear the trial will be complete until February but I am anxious to share this case with you because there is a lot of helpful advice which I would like to give to all of you that will help you avoid being in a similar circumstance. The advice will help of course only if you are innocent, like I firmly believe this member is.  If you are guilty, not only will my advice not help you, but frankly neither will I.
 
Also, this week you should have seen in the news that Lieutenant Governor Kim Guadagno officially filed her candidacy and announced that she will be running for Governor!!  She called me at home last Friday and we spent a half hour discussing the upcoming campaign. She has been a friend to NJGCA and pledges to continue to do so. She adamantly opposes $15/hr minimum wage and has been quoted as recently as yesterday in the newspaper that if a $15/hour minimum wage is passed, everyone should expect that self-serve will follow shortly thereafter, because gasoline retailers will not be able to afford to pay gas pumpers. She has also been critical in helping us work toward the elimination of Stage II Vapor Recovery, and she was a staunch opponent of increasing the gas tax. I promised her that I would do my best to persuade NJGCA members to be as supportive as possible in her campaign.
 
Finally, now that the chaos of the gas tax increase is mostly behind us, I wanted to talk a little bit about how the new tax will work going forward, since it will be more complicated than it has been (at least on the wholesale side). Thankfully, for retailers, these complications will not affect how you manage your business; it will just affect what retailers pay for wholesale fuel. I will tell you that the formula process is much more complicated than we thought. Through the entire process we have received different explanations regarding how increases or decreases would be determined, and when they would be determined.  I don't believe anyone intentionally misled us or the public, I simply believe that a complicated formula has been viewed differently by multiple officials involved in its construction. That includes legislators, the NJ State Treasurer, and the staff experts who authored the bill for the Legislature and Governor. I have received differing explanations as recently as a few weeks ago. I asked Eric to compile a simple way for me to explain the process to my members and he spent two days working the legislation from different angles. I'm confident that we now have it straight, and I plan to inform legislators and officials that they better perform another analysis themselves. I think Eric has it right.  Please read carefully what he has written below.
 
When the original petroleum products gross receipts tax was created in 1990, it was designed to float up and down based on the cost of fuel. However, in 2000 the Legislature decided to change this and fix it at a flat 4¢ per gallon, which is where it had been up until November 1, 2016 when the tax hike went into effect.
 
Under the new tax, the Treasury will recalculate how much the gas tax is every quarter (January 1, April 1, July 1 and October 1). They will calculate the average retail price of gas (minus taxes) and then determine what 12.85% of that number is. Currently, the rate is 22.6¢ per gallon. The first scheduled adjustment will be on April 1^st. The 22.6¢ number is based on what the price of gas was on July 1, 2016. Since then, the price has increased. If the average price of gas stays roughly the same for the next two months, then on April 1^st we can expect an increase in the gas tax of between 1-2¢ a gallon.
 
While our tax rate is uncomfortably close to New York’s, these rate changes shouldn’t hurt. They will only increase as a result of increases in the wholesale cost of gas. Because New York charges sales tax on fuel, as our tax rate increases, theirs will also increase.
 
The 22.6¢ rate has also been set as the floor, meaning even if there is a collapse in the price of gas, the per-gallon tax rate will not go below that number.
 
Thankfully, these quarterly adjustments do not require you to pay any floor stocks tax, the increase will just be passed on to you by your distributor the next time you order fuel. The tax rate on diesel will be adjusted in the same way, based on the average price of diesel over the same period of time.
 
However, it gets even more complicated than this! You wouldn’t expect anything less from our leaders in Trenton would you? When the new Transportation Trust Fund (TTF) program was being planned out, its designers were worried that as vehicle mileage continued to increase, revenues from fuel would drop simply because fewer gallons were being sold. To account for this, they devised a complicated mechanism to adjust the % rate at which fuel is taxed so that they bring in the same amount of money every year.
 
The plan is to bring in an additional $2 billion every year.  On August 15^th of each year, the Treasury will re-calculate how much revenue was collected from fuel taxes in the previous fiscal year. They will then adjust the 12.85% rate up or down for the upcoming year, in order to balance out the amount they collected in the previous year.
 
So, for example, if next year the price of gas increases and the State collects $2.2 billion from fuel, then on October 1^st they would lower the 12.85% tax rate to whatever number it would take to bring in $1.8 billion in the coming year. That way it would even out to $2 billion a year. If the State only collected $1.9 billion in one year, then in the next year it would try to collect $2.1 billion.
 
Like I said, the process is way too complicated and I don't envy the folks in the Treasury Department who will have to sort it all out (especially since they didn’t dream up this system, the politicians did!). We will certainly be keeping a close eye on all this and will let you know whenever a tax adjustment is announced.
 
Here’s how the whole structure works for one gallon of gasoline:
 
New Jersey Excise Tax:                                                         10.5¢    
NJ Petroleum Products Gross Receipts Tax:                         22.6¢
NJ PPGRT Surcharge (the original PPGRT since 1990):      4.0¢
 
That’s a total of 37.1¢ per gallon for NJ taxes, which increases to 55.5¢ when you add in the federal excise tax. There are also state and federal spill fund fees, which total .2258¢ per gallon. Some distributors pass these fees on to retailers, other just work them into their margin.
 
I know that this explanation may still be confusing, and that is understandable since as I said, legislators themselves are not really clear about how the formula works. It reminds me of when the ObamaCare law was being passed a few years ago and Members of Congress said. “we have to pass the law to find out what’s in it”.  I’ll keep you updated if we learn anything different than what I just explained.

My final announcement is a reminder that NJGCA is hosting an exclusive training class with NJ DEP to discuss UST Compliance and Enforcement issues on Thursday, January 26th. It will run from 9:00am - 2:00pm and will include coffee and donuts in the morning and pizza and soda for lunch. All for just $25 for members, thanks to the generous sponsorship of Peak Environmental! This is a great opportunity to speak to officials from DEP one-on-one and also take advantage of the representatives and LSRPs from Peak Environmental who can shed additional light on any questions or concerns you may have.  For the registration form and more information about the class, click HERE.