Are gas tax whiners forgetting about Wisconsin's HUGE minimum markup law?

It's true that Wisconsin has a high gasoline tax for this part of the world; around 33 cents a gallon, when you add it all up. (On the bright side, that's only around 10 percent of the cost of a gallon now.) Gasoline was $3.45 per gallon in Wausau over Memorial Day weekend this year. But in Superior, Wisconsin, you could fill up for $3.25 per gallon -- 20 cents per gallon less than in Wausau. Drive across the bridge into Duluth, Minnesota where the fuel tax is around 20 cents per gallon and you could fill up at $3.15. It is well under $3 per gallon in the Twin Cities right now, while our prices grudgingly fell to $3.19. Think it's because it costs so much more to get gasoline to Wausau? Think again.

If the tax difference is only 13 cents per gallon, how come gasoline was costing perhaps 40 to 45 cents more per gallon in our area than in the Twin Cities? Well, let's go back to the Superior-Duluth area and take a look. The Duluth price at the pump is what controls the price in Superior, with the station owners apparently eating about three cents per gallon in the tax difference on the Wisconsin side and then suffering whatever negative consequence arises from the 10 cent premium that remains.

For the majority of the state that doesn't have to deal with interstate competitive pressure as much, there is the matter of the minimum markup law in Wisconsin. This device increases dollar margins with increases in the wholesale cost of fuel, which may have little or no relationship to the actual cost of service.

In round terms, the minimum markup is around nine percent; three percent at the wholesale level plus six percent at the retail level. Do the math. If you sell gas for $1.50 per gallon and the total minimum markup is around 13.5 cents per gallon. Sell it for $3.45 and it balloons to approximately 31 cents. Your operating costs didn't really change, but you have to charge it because it's the law and if you don't, your competitors will file a complaint with the state. Didn't we see something about that in Merrill recently?

The minimum markup law is a throwback to the 1930s designed to protect smaller businesses from being brought under in price wars with larger competitors who could then capture the market. (Wal-Mart and the Big Boxes might be doing it to every other small business now, but by golly, we're not going to let them do it to our mom & pop service stations.) You're going back to an era where people washed your windshield, pumped your gas, checked your tires and maybe threw in a free hand towel when you filled up sometimes. The minimum markup came to between two and three cents per gallon until the early 1970s. Today, you drive up to the pump, insert your card or wave a speed pass, pump it yourself and leave. That's pretty efficient and it saves a lot of labor. You might think it would save some money, too. It does -- just not for you.

With all of that efficiency and the greater volumes involved today, why would the per gallon margin be 10 times higher in dollar terms today? Only because that's the law. The biggest beneficiaries of the minimum markup law aren't mom & pop. They're the biggest operators, who have long since bought or driven out many of the mom & pop gas stations in many areas anyway. That's why the minimum markup law ought to be repealed. That's also why you could well see big operators holding hands with whatever moms & pops are left to make sure that it isn't.

If we really want to help small businesses in Wisconsin and everyone else, we need to stop thinking about a splinter group of small service station operators and start thinking about about the big picture. Tens of millions of dollars are being sucked out of the discretionary income of individuals and families across the Badger State to pay the minimum markup instead of allowing competition to take its natural course. Businesses of every size across Wisconsin are paying higher operating costs to support eye-popping dollar margin increases on a per gallon basis. Take a look at what the Federal Trade Commission said about it in 2003:

The benefit ostensibly being achieved by maintaining a friendly environment for mom & pop service stations is coming at a huge cost to our economy. You don't need Alan Greenspan to tell you that it's time for a coherent, dispassionate cost-benefit analysis of what the minimum markup law really accomplishes and at what cost to the people and businesses of Wisconsin.

I'm all for dampening demand and high gasoline prices help do that. The problem is that Wisconsin's minimum markup law doesn't produce a drop of new oil or provide a dime for public transportation infrastructure development. It just enriches a few at the expense of many. What could be more appropriate than to call this law the "Unfair Sales Act", since it institutionalizes higher than necessary markups?
From what I know about it, I'm with you Jim. Thanks for the primer. JE