Why Don’t We Pay MORE for Gas in Grand Rapids?


I have been promising to address this topic for over a week, and the time has now come for me to start. Yesterday I received the numbers which I need to begin my assessment of why prices are different in Grand Rapids than in some of the surrounding areas.

Before I get into the numbers, I would like to express my disappointment in some of our elected officials who gascan1have been asked about this same subject, but have failed to provide an answer, other than the standard,”I’ll look in to it.” They have almost instant access to the same information which I have in front of me now, and which took us much more time and effort to acquire than it would have for our elected officials had they requested it.

Now for the numbers. I’ll be comparing a Holiday gas station in Duluth with a local gas station. Many thanks, by the way, to the owner of the local station who volunteered his tax information for our use.

The Duluth station was valued at $388,000 in 2013, and was charged $13,110.72 in property taxes, which was at a rate of 3.379%.

The local operation, with $345,300 in value, was charged $14,274. That was a rate of 4.134%. Our local gas stations are being charged a property tax rate which is 22.34% higher than Duluth. No wonder our officials didn’t care to look too deeply into this subject.

Had the local station been charged the same rate as the Duluth station, the local station would have been charged only $11,667.69, or $2606.31 less. In other words, our local government took $2606.31 from this one station than they would have had they charged property tax at the same rate as Duluth. Based on this, doesn’t it seem as if they could legitimately charge us even more to offset this tax rate, rather than absorbing some of the extra taxes themselves?

Comparing the prices in Hibbing gives us even more dramatic numbers. Remember the article in which we showed that Hibbing spent 86.6% less than Grand Rapids? (http://grandrapidsvoice.com/2014/01/01/spending-comparison-between-hibbing-and-grand-rapids/) In that same article we can easily see that Grand Rapids charged 45.7% more in property taxes than Hibbing. That’s almost exactly twice the difference between Grand Rapids and Duluth.

Wait a minute. The property taxes are 22.34% higher in Grand Rapids than Duluth, and the prices in Grand Rapids are 5 to 10 cents higher at pump. The property taxes are 45.7% higher in Grand Rapids than in Hibbing, and the Grand Rapids pump prices are usually between 15 and 20 cents higher.

The difference in tax rates between these cities is 22.34% in one case, and 45.7% in the other. Double.

The difference in gas prices is 5-10 cents on one hand and 15-20 cents on the other. About double.

Coincidence? I don’t think so. The relationship between the tax rates and the prices are too similar to be brushed off that easily, and the failure of our elected officials to answer our many queries as to why the prices are different only reinforce our hypothesis.

Maybe instead of complaining to our station owners locally, we should thank them for absorbing a part of these extra taxes themselves when they could easily charge us even more and feel perfectly justified.

Instead, lets start asking our elected officials not why the prices are higher, but why these officials created the situation where they had to be.

28 thoughts on “Why Don’t We Pay MORE for Gas in Grand Rapids?

  1. Heather Kral

    Wow!!!!
    So why is Balsam Store, Petrichs Store, Cohasset and even Deer River charge the same for gas as Rapids?
    They would sell more gas if they dropped the price.
    And Keewatin is still Itasca County but I bought gas there last week for 16¢ less a gallon than the Grand Rapids price.

    Like

    1. Great question. What you are seeing here is the result of another part of the problem. State law requires stations to sell within seven cents of their wholesale price st the time of their last delivery. The sixteen cent price difference you refer to is a result of a lower wholesale price to Keewatin. This is also why some smaller stations do not change their process right away when the rest do…They simply are not allowed to do so until their next tanker arrives. I am no longer with Grand Rapids Voice, but I am sure they would be happy to elaborate more on this, our you can contact me directly through Facebook.

      Like

  2. Everyone who thinks that the status quo is acceptable should read Tom’s article directly above this. I am one of those people who left Grand Rapids, and was gone for 25 years before returning three years ago. Perhaps people who have never left don’t so easily notice the difference because it happened slowly. After returning from a 25 year absence, the differences, to me, were painfully obvious.

    Like

  3. tom

    It’s all about the green. You can go on all day about all the supposed reasons but as an individual that lived in that little piece of heaven…..it is nothing new. the “good old boys club” from buissness owners to the local law enforcement is really a sad affair ( looking from the outside in). Grand Rapids is ok to visit for a day or so, but to ever live there? Nah. As for the gas prices and all those fantacy numbers? Kind of like….hmmmmm…the argument over the minimum wage or abortion. Its greed.

    Like

  4. robert ward

    Tommy above is right on the mark here but the story I assume was not written to defend or protect gas prices but to open the ongoing dialogue on cost of local government at city and county levels. To tax burden to aside from property taxes like storm water sewer, pilot payment, 2% project accounting administration tax, building permits and the list goes on can all be seen in the comparison tables at the MN. State Auditor site. My understanding is Mike will be developing this story by showing the comparisons as an ongoing topic. So to the guy who wrote the second addition of war and peace above, yes we all know gas prices are high but don’t you think that because of the wieght of this enormous local goverrnment perhaps all things are more expensive here? I think as the story developes, and I may be wrong, you will see it’s not just about gas prices.

    Like

    1. Exactly Rob
      They’re are too many high costs of doing business.
      Gas prices are set by cost of doing business.
      The gas stations still in business in the rapids area don’t want to be like ALL the others that have been closing in the last few years i think displaying prices on boards are just a quick indicator of our regional high cost of business

      Like

  5. So the smallest part of net operating value, sale of gasoline, is now making up the difference for all station economics? No. You have stumbled upon the answer to the question here even though your over all thesis is wrong. The increased costs that a location faces means an increase in price wherever applicable. These increased costs can deal with things like minimum wage, cost of transportation, taxes, regional relationships, and a variable of other factors that come into the overall operating budget of a station. Some of the sales prices are fixed. For example you are looking at a major regional gas station for your analysis. They fix their costs for many of their in-store products so that there is a constant price on things like soda as you go from store to store. So therefore you are left with little option in what prices you can change to account for different regional costs. The base difference for the higher prices is reflected in cost of operation. But wait, then why don’t we see a huge variable rates from station to station in local markets. The answer is free market competition. Why is Hibbing less? Partly it is because there are lower operating costs, but also Wal-mart sees gas as a loss leader. Basically they see gas as a way to draw people in, not make a profit. Gas is priced accordingly to a non-profitable center. If the other stations in Hibbing are going to compete, they need to match this price. That free market. Also this is a very microscopic view of gas prices. Why does the majority of range cities reflect the Grand Rapids price? Ely, Babbitt, International Falls, Eveleth? Track these city prices and they will reflect the same price, and presumably profit margin as Grand Rapids. So while your thesis of taxes does play a contributing factor, the economic factors or whole economics of a station drives the price far more actively.

    Like

    1. Yes, the property tax is only a part of the equation, but it is a part. As we will show later, there are also other taxes that play a role in addition to this, and together are much more significant than most realize. Also, I have been researching the statutes, and found that last time Murphy tried to undercut the price as you seem to indicate, they were fined heavily.

      Like

  6. Pingback: How Much Did Itasca County Spend? | Grand Rapids Voice

  7. Its called fiscal disparities tax and its a tax added to every commercial property in itasca county and its going up rapidly. To make it worse guess who gets the revenue from this tax? You guessed it St Louis county yup the people who have lower gas prices than us. This tax was to have us help the other deprived towns in the 70s and is going up really fast in the last few years. If you dont know what im talking about or dont believe me google it then call your local officials and tell them we are tired of over taxing itasca co. Business owners because as you see the tax does get passed on to others.
    Jeff Peterson
    Pokegama Lake Store
    218-259-2042
    Ps. To the writer of this article did you see the line item on the tax statement Fiscal disparaties? If so when removed was the tax rate close to duluths?

    Like

    1. Fiscal disparities was an item not included in the forms I was given for this article, the property tax was the only one listed, but fiscal disparities IS on our list of topics to cover. Thank you for your comment.
      Mike Vroman

      Like

      1. Any time
        F.Y.I
        Pokegama lake store paid $2,919.00 last year in fiscal disp. Tax that the duluth and hibbing gas stations didnt have to pay. That is a fixes cost that gets passed directly to customers so we can stay in business. This may sound crude but please dont blame itasca co business owners.

        Like

  8. Incidentally, you told me I should do my research before posting. I did. Your source didn’t even HAVE that station or it’s price listed. Gas Buddy/ MN Gas Prices doesn’t have them all right on the front page.

    Like

    1. The exact price wasn’t the point, the average difference was. Claiming that the price is the same in places in Hibbing by ignoring the prevailing price seems as if you are trying to skew to facts to support your presumption that property taxes have no effect on prices. I am sure that with the length of your comments you have already lost the attention of any readers who may have started to follow, lengthy comment do deter attention, so I am probably the only one left in this conversation, and I am quite busy. Please bring verifiable evidence with your next assertion.

      Like

  9. How many gallons did the station in Duluth sell vs the station in Grand Rapids? What were their operating budgets? What were their utilities. My point is there are a ton of variables and $2000 one way or the other is not going to be much of a factor. A typical station in GR would make up that $2000 with a penny more on a gallon. The station at $3.49 was a small spur that is basically a mechanics shop with pumps outside. But they must make enough gas sales to make it worth the huge insurance and mechanical expense to have them there. Comparing property taxes on two stations with NO other figures means nothing. You want to talk about variables? Unemployment insurance required by law varies based on how many employees got fired and were able to collect unemployment based on reason for termination, over several years. That makes a big and immediate difference that would more than cancel out any property taxes. Do we have those figures? No. Do you have the electric rates? At commercial rates that could more than make up for $2000 in property taxes. How about equipment maintenance costs? Costs to heat the store in the winter? These can all vary for a number of reasons, and can vary be great amounts. Did you compare utility bills? Maybe GRPU is charging too much for electricity too, and the power bill is double. That would make a difference. Or maybe GRPU is cheaper, thereby canceling out the increase in taxes. One expense does not make the difference. the overall picture does.

    Like

    1. It seems as if you are leaving no stone unturned in an effort to defend higher property taxes. Yes, there are more causes for price discrepancies than one, but saying not to fix one because there are more is kind of like saying to the doctor, “Don’t bother fixing my broken wrist, because my leg is broken.”

      Like

  10. Fascinating. Then I guess the station I drove past in Hibbing this afternoon, with the big $3.49 sign out front was wrong then. note that Gas Buddy/MN Gas prices does not include ALL the stations. And the several I passed with $3.29 on them were all wrong, too. I just looked over a 2012 profit/loss/budget report for a typical smaller convenience store/gas station. Sales of 910,000, cost of those sales 626,000 (wholesale costs basically) operating costs (payroll, utilities, insurance, etc) 123,000, taxes, various other, costs. Out of all that, $2000 in property taxes is far from a critical item. Oddly, year after year, the stations in Hibbing with the higher prices remain in business. don’t just compare us to Hibbing and Duluth, either. Compare to other cities around the state. Bemidji, Park Rapids, Thief River Falls, Crookston, Mankato, etc. All come up cheaper and with some variance in prices. If you want to believe it’s the property taxes driving the prices up, get the figures from other towns. Then explain how $2000 impacts an operating budget of 700,000 dollars and how that tiny slice of the pie makes a difference. You won’t convince me that’s it. Might be a small slice of the pie. But it’s a huge pie.

    Like

  11. I myself have never said Murphy owns the Hibbing stations. They own a few. Presently the price in Hibbing ranges from $3.09 to $3.49, with quite a few 3.11 and 3.29’s in the middle. Yes, those additional costs can vary greatly. The tiny bit in property taxes just doesn’t matter in the grand scheme of things. Why is it that the prices in every store in Grand Rapids aren’t higher than the stores in other towns for other products, if the high property taxes in Grand Rapids are to blame? Why is it that EVERy station in Rapids has the same gas price? I was once a manager for a group of stations in the Twin Cities. Property taxes don’t even make a blip on the operating expense chart. Which station has the newer, more efficient coolers? That can affect the cost of electricity by several thousand dollars a year. Which station has had the fewest insurance claims involving customers? That has a HUGE effect on the cost of liability insurance. A couple thousand in taxes at a station with an operating budget/sales over a million yearly is nothing.

    Like

    1. While I was reading your comment, I checked the prices in Hibbing, and found most at $3.09, with the highest listed being a single station at $3.19. Please verify your information before you make the claim.
      What is the profit margin for the stations in Grand Rapids, could it be that it is so thin that there is very little flexibility? And if a station only a few blocks from you has a lower price, wouldn’t it make sense to lower yours to match theirs so that you don’t lose business?

      Like

  12. For this math to matter even slightly we would have to know what percentage of the business operating costs are made up of property taxes. Property taxes are a very very VERY tiny percentage of operating costs and it’s not even CLOSE to realistic to compare property tax percentages to gas price percentages. The argument also doesn’t hold for stations outside of Grand Rapids, or even Itasca County that are well outside the tax zone you are referring to. It’s not only stations within the City or the County. Further, if this was the reason, why would the station owners not have given this reason instead of the long list of reasons they have given instead, after responding to public outcry in the newspaper, before the City Council, and in an investigation by the Attorney Generals Office a few years ago? The most recent excuse was because the wholesaler/distributor charges about 10 cents a gallon more the second the truck comes into the area, and that it’s cheap in Hibbing because those stations are owned the the oil companies who are the distributors. The list of excuses has been long, and has never included property taxes. I appreciate your efforts, really I do. But a couple thousand a year one way or the other on taxes is not going to impact a station by much. That may represent only .5% of the stations total operating costs so would only impact the price necessary by the same percentage. Compare that to the cost of labor, insurance, power, repairs, maintenance, and the rest of a very long list. They could easily spend that difference in taxes in one or two pump repairs. Also you can’t use the difference in property value to determine the percentage in tax rate differences and directly compare that to operating costs. Either way, the difference of 2-4 thousand one way or the other is such a tiny amount of the operating costs. think of the labor. Even at just over minimum wage, a 40 hour employee would earn about 1200 a month. How many employees work at a 24 hour Holiday? Lets say 6 (a low figure) That’s over 86,000 JUST in wages. Add to that the cost of unemployment insurance and all the other costs per employee an employer pays, and you of course can assume that a manager, assistant manager, long time employees, etc make ore than that. I’m sure the actual labor cost tops 150,000 a year. Makes that $3000 in taxes look pretty insignificant, doesn’t it! What do you think the power bill runs for that store. At commercial rates, with all those coolers, probably around 1500 a month if not more. So there’s $18,000. I can’t even imagine what liability insurance might cost for a gas station with the potential for fire, customers hurting themselves on equipment of=r falling on ice, etc. I’m sure the figure would be mind boggling. those property taxes are even more tiny now, aren’t they. Yes, it’s all fun and games to blame it on the tax rate in Grand Rapids, but that doesn’t really have ANY impact on the bottom line at all. Lets compare the cost of liability insurance between Grand Rapids and Hibbing, or the cost of electricity, or the cost of unemployment insurance. Not to mention a Holiday station would most likely be paying franchise fees to the parent company, an Edwards Oil/Lucky Seven in Hibbing would not be paying these fees. They can amount to tens of thousands per year. Even a locally owned name brand generally pays franchise fees. Bottom line, of course, is that selling gas, just like selling milk or lightbulbs, is a free enterprise and a seller has the right to ask as much for their gas as they like. The fact that it’s high isn’t what bugs me. the fact that EVERY STATION has the SAME price bugs me. in EVERY other town the price varies. Sometimes by up to as much as 30 cents a gallon in Hibbing. Even in McGregor the price can vary among just three stations. But NEVER in Grand Rapids.

    Like

    1. I reread your comment to make sure I understood properly where you were going with it. While I agree that the transportation cost to deliver gets higher the further the travel from the source, all of your other variables seem to me to be relatively insignificant, as the costs of these do not tend to vary much from one area to another.
      I would challenge you, further, to provide us with a list of the stations owned by Murphy, as if they do own most of the stations in Hibbing, this is another story in and of itself, and needs to be discussed as well.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s