Reality Check: What is the minimum markup law?

Reality Check: What is the minimum markup law?

A key part of Gov. Tony Evers plan to raise the gas tax to pay for roads in Wisconsin is a rollback of the state’s minimum markup law on fuel.

You may be wondering what that is, or how it impacts gas prices.

The measure is technically called the Wisconsin Unfair Sales Act, but it has become known over the years as the minimum markup law.

Passed in 1939, its aim was to stop businesses from artificially selling items below cost, which is known as a “loss leader.” Businesses might do this to get customers in the door in order to sell other products and drive a competitor out of business. The law specifically prohibits selling anything below the cost the seller paid, calling it “a form of deceptive advertising.”

When it comes to motor vehicle fuel, there’s an additional part of the law that defines the “cost” of gas or diesel to also include the cost of doing business for the seller. That includes things like inspection fees and transporting the fuel.

When you look at the cost that might add to the cost of fuel, here’s the breakdown.

The current terminal or wholesale price for gas is $1.79 per gallon. Added to that price is 18.4 cents for federal taxes and 30.9 cents for the state gas tax, which is what Evers would like to raise by 8 cents. Those cost of doing business fees are 2 cents for inspection fees and 2.5 cents for transportation. That means a minimum price of $2.32 per gallon to get gas. The average retail price in Madison for gas Friday was $2.34.

There can also be an additional 9 percent markup added to that total, but retailers are allowed to “meet competition,” which means that if a retailer marks gas down across a state border, everyone could match that price and also mark their gas down. That also means that gas could cost less than the “street price” created by the minimum markup.

The key question that will be discussed in the coming months as Evers’ proposal moves through the Legislature is whether repealing this measure could hurt retailers.

The state’s Petroleum Marketing Association says rolling back the minimum markup will eliminate local competition with big box stores, while the state’s free market advocates have been arguing this markup solely inflates the cost of goods for consumers.

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