In this blog you will explore about the Federal Fuel Excise Tax in detail covering few topics like,
What is a Fuel Excise Tax?
An overview of the fuel excise tax, including taxed fuel types like gasoline and diesel, and its purposes, such as funding transportation, generating revenue, and encouraging efficient fuel use.
Guide to Different Types of Fuel Excise Taxes
Insights into taxes on traditional and alternative fuels, plus details on circumstances that trigger each tax.
How Much is the Fuel Excise Tax?
An outline of current tax rates for different fuels, referencing official IRS guidance.
Who Pays the Tax and Who Has Exemptions?
Details on who pays, typically fuel producers and distributors, and information on exemptions for agriculture, foreign missions, and specific industries.
Fuel excise tax is a levy imposed by the U.S. government on various types of fuels and fuel-related products, including gasoline, diesel, kerosene, liquefied petroleum gas (LPG), compressed natural gas (CNG), liquefied natural gas (LNG), liquefied hydrogen, “P Series” fuels, liquid fuels derived from biomass, and Fischer-Tropsch process liquid fuel from coal (including peat). This tax is applied under different circumstances to support multiple purposes:
Transportation Funding: Revenue from fuel taxes is often allocated to fund transportation infrastructure projects, such as road and bridge maintenance.
General Revenue: These taxes also serve as a source of general revenue for government operations.
Ecotax: Fuel taxes can encourage ecological sustainability by reducing fuel consumption and carbon emissions.
Incentivizing Consumers: Taxes may influence consumer behaviour by encouraging reduced driving, the use of fuel-efficient vehicles, or switching to alternative energy sources.
1. Diesel Fuel, Kerosene, and Gasoline Taxes
Diesel Fuel Tax
The tax on diesel fuel applies under the following conditions:
Removal at the terminal rack (IRS No. 60(a)).
Taxable events other than removal at the terminal rack (IRS No. 60(b)).
Sale or removal of biodiesel mixture not at the terminal rack (IRS No. 60(c)).
Kerosene Tax
The tax on kerosene is imposed in these situations:
Removal at the terminal rack (excluding airport locations) (IRS No. 35(a)).
Other taxable events besides removal at the terminal rack (IRS No. 35(b)).
Gasoline Tax
Gasoline taxes are levied under these circumstances:
Removal at the terminal rack (IRS No. 62(a)).
Taxable events other than removal at the terminal rack (IRS No. 62(b)).
Examples of "taxable events other than removal at the terminal rack" include:
Removal from any refinery.
Entry into the United States for consumption, use, or storage.
Sale to unregistered parties under IRC 4101, unless a prior taxable event occurred.
Removal or sale of blended taxable fuel.
Note: This list is not exhaustive.
2. Diesel-Water Fuel Emulsion Tax
The tax on diesel-water fuel emulsions is imposed on:
Removal at the terminal rack or any other taxable event (IRS No. 104).
3. Leaking Underground Storage Tank (LUST) Taxes
LUST taxes are generally imposed on:
Dyed diesel fuel (IRS No. 105).
Dyed kerosene (IRS No. 107).
Kerosene for aviation used in non-taxable ways (IRS No. 111).
Other exempt removals, including gasoline blendstocks and diesel/kerosene sold or used in Alaska (IRS No. 119).
Note: LUST taxes also apply to liquid fuels used in inland or intercoastal waterways unless taxed under IRC 4041(d) or IRC 4081.
4. Kerosene Used in Aviation
Tax is imposed on kerosene used for aviation in these cases:
Removal directly into an aircraft's fuel tank from a refinery or terminal (IRS No. 69).
Commercial aviation usage, provided the operator is registered and certifies use per Model Certificate K (IRS No. 77).
Note: Only registered commercial aviation providers (Form 637 Y registrants) can report this tax.
5. Aviation Gasoline Tax
Aviation gasoline tax applies to:
Removal from a refinery or terminal or upon entry into the U.S. (IRS No. 14).
Note: Aviation gasoline used in fractional ownership program aircraft is also subject to a surtax (IRS No. 13).
Refer our blog on federal excise tax on aviation fuel to get detailed information about the aviation fuel taxes.
6. Liquid Fuel Used in Fractional Ownership Program Aircraft
A surtax (IRS No. 13) is imposed on any liquid fuel used in fractional ownership aircraft programs. This tax is in addition to other applicable fuel taxes and covers:
Transportation related to a fractional owner.
Aircraft use, including deadhead services.
7. Other Fuels, Including Alternative Fuels
Taxes apply to liquid fuels (excluding gas oil, fuel oil, or products taxable under IRC 4081) delivered into the fuel tanks of motor vehicles, motorboats, or for certain bulk sales. This includes:
Liquefied Petroleum Gas (LPG) (IRS No. 112)
"P Series" Fuels (IRS No. 118)
Compressed Natural Gas (CNG) (IRS No. 120)
Liquefied Hydrogen (IRS No. 121)
Fischer-Tropsch Process Liquid Fuel (IRS No. 122)
Liquid Fuel Derived from Biomass (IRS No. 123)
Liquefied Natural Gas (LNG) (IRS No. 124)
In general, the fuel excise tax rates for various types of fuels are outlined by the IRS as follows:
Gasoline: The federal excise tax rate is $0.184 per gallon.
Diesel and Fuel: The rate is $0.244 per gallon. For Diesel-water fuel emulsion the rate is $0.198 per gallon.
Aviation Gasoline: This fuel is taxed at $0.194 per gallon.
Jet Fuel: The tax rate varies: for commercial use, it's $0.044 per gallon, and for non-commercial use, it's $0.219 per gallon.
Kerosene Fuel: The rate is $0.244 per gallon. For Kerosene for use in commercial aviation it is $0.044 per gallon.
For any liquid fuel used in a fractional ownership program aircraft it is $0.141 per gallon.
For “P Series” fuels and Liquefied hydrogen it is $0.184 per gallon.
For Fischer-Tropsch process liquid fuel from coal and Liquid fuel derived from biomass it is $0.244 per gallon.
LUST Tax: For dyed kerosene and dyed diesel it is $0.001 per gallon.
Alternative Fuels:
Liquefied Petroleum Gas (LPG): $0.183 per gallon.
Liquefied Natural Gas (LNG): $0.243 per gallon.
Who pays? - Federal fuel excise tax is typically imposed at various stages of distribution: during import, at the time of production, or when the fuel is sold to consumers.
Businesses that import, produce, or sell taxable fuels are generally responsible for paying the fuel excise tax. The cost of this tax is often passed along to the final consumer, even though the consumer does not directly pay the IRS.
Exemptions:
Foreign Missions and Personnel: Gasoline tax exemptions are available for foreign missions through specific tax-exempt credit card accounts. Cash purchases are ineligible.
Commercial Aviation: Charter companies pay full tax on fuel, claiming a refund later if used commercially.
Specific Industries: Sectors like fishing, farming, and manufacturing can receive exemptions for operational fuel use.
Agricultural Use: Farmers are eligible for tax-free fuel strictly for agricultural machinery.
Off-Road Use: Fuel for non-road equipment, like construction machinery, is exempt.
Alternative Fuel Credit: Credits for using clean energy fuels, promoting lower emissions and environmental sustainability.
Refer to our blog on who is exempt from federal excise tax on fuel to know more about the exemptions and how we can claim the credits or refund for the fuel excise taxes.To pay the Fuel Excise Tax, you must use Form 720, "Quarterly Federal Excise Tax Return." There are two main methods available:
Manual Filing: Download the latest version of Form 720 from the official IRS website. Complete the form carefully, and mail it along with a check for the tax payment to the IRS address specified for your region on the IRS website.
WRAP:
By reading this blog, you will gain a comprehensive understanding of the Federal Fuel Excise Tax. This includes detailed insights into the different types of fuel taxes, who is responsible for paying them, the various exemptions available, and the steps involved in paying the tax. This guide will equip you with the knowledge needed to navigate fuel excise tax regulations effectively.