Suppose that the average household in a state consumes 500 gallons of gasoline a year

The consumer is necessarily better off. To see this, note that with a 10 cent per gallon tax, the consumer has to pay 500*0.1 = $50 more with the original consumption basket. This is exactly off set by the tax rebate of $50. In other words, the consumer is still able to afford the previous consumption bundle, facing now the new price. Given the tax, the budget line is now steeper. At the original optimal consumption bundle, the indifference curve is tangent to the budget line. Therefore, the new budget which (1) passes through the original consumption bundle and (2) has a steeper slope, must cut through the original indifference curve. In other words, the new budget line is tangent to an indifference that is to the northwest of the original indifference curve, which gives the consumer higher utility.