Authors: George Mentz and Professor William Byrnes
The Internal Revenue Service announced late in June an increase in the optional standard mileage rates for the final six months of 2011. Generally, taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for trade or business and other purposes. The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011. 
The IRS states that “In recognition of recent gasoline price increases, it has made this special adjustment for the final months of 2011.” But the prices of gas hit a high in the first six months of 2011, as shown below.
The IRS normally updates the mileage rates once a year in the fall for the next calendar year. “This year’s increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices,” said IRS Commissioner Doug Shulman. “We are taking this step so the reimbursement rate will be fair to taxpayers.”
While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.
The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage. The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
Taxpayers under most circumstances will also still retain the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. The Market prices show however that the increased mileage rate may have come too late. As of June 24th, August 2011 reformulated gasoline blendstock for oxygenate blending (RBOB) contracts on the Chicago Mercantile Exchange have reached the lowest point since February of this year at 2.7394 a gallon. Prices hit a high in May reaching 3.30 a gallon.
Gasoline prices increased since the beginning of the year but rose sharply from March through the end of April into May but have now come back to pre-march levels. Increases in the crack spread (crude spot price minus conventional gasoline spot price) were seen over this time period. Commentators have attributed this result to downstream supply disruptions including unplanned refinery outages and concerns over flooding.
Does Washington know something the market doesn’t? Why have prices seemingly decreased but the Treasury is now increasing the mileage deduction? Or could this just be the Treasury’s way of compensating those who were negatively affected by high prices earlier in the year? Either way most taxpayers are not complaining.
Overall, the authors wonders how much more the public can handle in the form of energy taxation. Right now, energy is taxed at the state, federal and city levels. If you don’t believe me, check out your electric bill, your natural gas bill, your gasoline bills, and even your heating oil bill.  In January 2011, Federal Government taxation on motor gasoline averaged 48.1 cents per gallon and diesel fuel taxes averaged 53.1 cents per gallon. 
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 See IR-2011-69.
 See Revenue Procedure 2010-51.