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Fuel Tax

The federal government levies an excise tax on various motor fuels. Under current law, the excise tax rate is 18.3 cents per gallon on gasoline and 24.3 cents per gallon on diesel fuel. A 0.1 cents per gallon tax is also levied on top of these fuel tax rates to help fund expenses associated with fuel regulation. These rates are not automatically adjusted for inflation. The rate of tax is 24.3 cents per gallon in the case of liquefied natural gas, any liquid fuel (other than ethanol or methanol) derived from coal, and liquid hydrocarbons derived from biomass. Other alternative motor fuels, such as compressed natural gas (CNG), are generally taxed at a rate of 18.3 cents per gallon.

On average, as of January 2016, state and local taxes add 29.6 cents to gasoline and 29.38 cents to diesel, for a total US average fuel tax of 48.68 cents per gallon for gas and 54.40 cents per gallon for diesel. Specific tax rates also apply to special motor fuels. Under current law, federal motor fuels excise tax collections are credited to two federal spending accounts: the Highway Trust Fund (HTF) and the Leaking Underground Storage Tank (LUST) Trust Fund.

Excise taxes are imposed on all the following fuels.

  • Gasoline, including aviation gasoline and gasoline blendstocks.
  • Diesel fuel, including dyed diesel fuel.
  • Diesel-water fuel emulsion.
  • Kerosene, including dyed kerosene and kerosene used in aviation.
  • Other Fuels (including alternative fuels).
  • Compressed natural gas (CNG).
  • Fuels used in commercial transportation on inland waterways.
  • Any liquid used in a fractional ownership program aircraft as fuel.

Registration Requirements

The following discussion applies to excise tax registration requirements for activities relating to fuels only. See Form 637 for other persons who must register and for more information about registration.

Persons that are required to be registered:

You are required to be registered if you are a:

  • Blender;
  • Enterer;
  • Pipeline operator;
  • Position Holder;
  • Refiner;
  • Terminal Operator;
  • Vessel Operator
  • Producer or importer of alcohol, biodiesel, agri-biodiesel, and renewable diesel; or
  • Producer of cellulosic or second generation biofuel.

Persons that may register

You may, but are not required to, register if you are a:

  • Feedstock user,
  • Industrial user,
  • Throughputter that is not a position holder,
  • Ultimate vendor,
  • Diesel-water fuel emulsion producer,
  • Credit card issuer, or
  • Alternative fuel claimant.

Ultimate vendors, credit card issuers, and alternative fuel claimants do not need to be registered to buy or sell fuel. However, they must be registered to file claims for certain sales and uses of fuel. See Form 637 for more information.

A taxpayer reports its fuel excise tax obligation on Form 720, Quarterly Federal Excise Tax Return. Once a taxpayer submits Form 720 and remits the excise taxes due, it is possible that 100% or more of the excise taxes paid can be refunded to the taxpayer if the fuel is being used for an exempt purpose or qualifies for any of several available fuel tax credits, refunds, or payments.

Part I of Form 720 contains a long list of the products subject to federal excise taxes. Twenty-four categories of fuel and transactions involving specific fuel types are subject to federal excise taxes. For example, the following can trigger the excise tax on diesel fuel:

  • ARemoval of diesel at the terminal rack;
  • Taxable events other than removal at the terminal rack;
  • Sale or removal of biodiesel mixture other than removal at the terminal rack;
  • Removal of diesel-water fuel emulsion at the terminal rack or other taxable event; and
  • Sale of dyed diesel fuel (LUST tax).

Semimonthly deposits of excise taxes due:

After determining its excise tax liability, a taxpayer is generally required to make semimonthly deposits of the taxes via electronic funds transfer (EFT). The taxes for a semimonthly period are due by the 14th day following the semimonthly period. Taxpayers with a net liability for taxes on Form 720, Part 1, of $2,500 or less are not required to make semimonthly deposits. Instead, the taxes are payable with the taxpayer’s federal income tax return.

To ensure timely deposits, the EFT should be initiated at least one day before the deposit is due (before 8 p.m. ET). When it is not possible to initiate the deposit one day before, there is a limited same-day payment option. If a deposit due date falls on a nonbusiness day (e.g., weekends and legal holidays), the deposit will be considered on time if it is made by the close of the next business day.

When to file Form 720:

Form 720 must be filed for each quarter of the calendar year as follows:

Quarter Due by
January-March April 30
April-June July 31
July-September Oct. 31
October-December Jan. 31

To know more about various fuels that has excise tax liabilities, the event of taxation and which are exempt from excise tax and eligible for refunds can be found here

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