FUEL & EXCISE TAX
EXEMPTIONS
BY TWW ASSOCIATES LLC
DECEMBER 1, 2011
Theodore Williford, CPA
Managing Member
twilliford@twwassociatescpa.com
www.twwassociatescpa.com
Phone & Fax (301) 871-5407
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ANOTHER TAX?
• Like everything in business these days,
there is another tax to deal with.
• Is it complicated? Yes
• Is it required? Maybe
• Is there a form? Yes, several.
• Is it a cost of doing business? Yes.
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THE FUEL EXCISE TAX
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See IRS Publication 510
61 pages long
Includes fuel tax credits and refunds
Chapter 1 – Fuel Taxes
Chapter 2 – Fuel tax credits and refunds
Part 2 does not apply. It covers taxes
other than fuel taxes.
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Pub. 510 Chapter 1
• Form 720 Quarterly Federal Excise Tax
Return
• Form 720X Amended Federal Excise Tax
Return
• Form 4136 Credit for Federal Tax Paid On
Fuels (filed with your income tax return)
• Form 8849 to claim a refund.
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Federal Fuel Tax
• Taxed in the same manner as gasoline.
• Includes tax on diesel fuel.
• Diesel fuel is any liquid suitable for use as
a fuel in a diesel-powered highway
vehicle, and transmix.
• A diesel-powered highway vehicle is a
self-propelled vehicle designed to carry a
load over public highways and powered by
diesel fuel.
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Pub. 510 Chapter 2
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Fuel Tax Credits and Refunds
Nontaxable uses of fuel = a credit or refund
Includes farm use,
Off-highway business use,
Intercity and local buses,
By a school bus,
By a qualified local bus,
Exclusive use by a nonprofit educational
organization, including churches.
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Form 720
• Filed each quarter to report fuel taxes on
fuel purchased.
• If liable for diesel fuel tax on removal at
the terminal rack, use line 60a to report
gallons purchased,
• Tax rate is $.244 per gallon.
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Form 720 Schedule C Claims
• Claims – nontaxable use of undyed diesel fuel.
• Line 3 would be used to claim the credit for diesel fuels
during the first quarter following the last quarter of your
tax year.
• Claim must exceed $750 so you may have to aggregate
several quarters into one claim.
• Only one claim for any quarter by the ultimate purchaser.
• Do not use Schedule C if no tax liability on Form 720,
line 3, page 2.
• Use Form 4136 to claim a credit on your income tax
return or Form 8849 to claim a refund.
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Nontaxable Uses Defined
• Farm use in a trade or business of farming.
• Off-highway business use is basically where the
equipment is for construction (a bulldozer),
industrial use such as power generation,
cleaning, moving stuff (a forklift), a sawmill, etc.
• Intercity and local buses – a transit bus.
• By a school bus or local bus ( private transit
bus).
• By a nonprofit educational organization.
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Will you have a valid claim?
• Question to answer – what constitutes your nontaxable
use during the quarter?
• Check your facts and circumstances. You may be
audited and have to prove your claim.
• Possible nontaxable use for UMA members – your claim
is disclosed using codes established for the form.
• Code 5, intercity and local buses? $.17 / gallon.
• Code 6, qualified local bus? $.243 / gallon.
• Code 7, a bus transporting students & faculty? $.243 /
gallon.
• Code 13, exclusive use by a nonprofit educational
organization? $.17 / gallon.
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Intercity and Local Buses @
$.17 per gallon
• Code 5 – if you are running buses providing
scheduled transportation along a regular route
for the general public, or
• Nonscheduled transportation for more than 20
adults for the general public including
• Charter operations for hire by the general public,
not specifically for one person, group, or
organization.
• Credit will be $.17 per gallon of fuel.
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Qualified Local Bus @ $.243
per gallon
• Code 6 – a qualified local bus is similar to
Code 5 except • It is one under contract or receiving a
subsidy from any state or local
government to furnish the transportation.
• Credit is $.243 per gallon.
• Be sure you have documentation to show
the tie to a state or local government
agency, the contract.
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School Bus or Nonprofit Hire
• Code 7 – a school bus transporting students or
faculty for a qualified school.
• Credit is $.243 per gallon.
• Code 13 – a credit of $.17 per gallon for fuel
used to provide exclusive use to a nonprofit
educational organization that has a regular
faculty and curriculum, enrolled student body,
receiving instruction at a regular location.
• Code 13 - Includes schools operated by
churches or other IRC 501(c)3 organizations.
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Documenting Your Claim
• Generally IRS will accept any reasonable
method of calculating taxable vs.
nontaxable fuel use.
• Maintain records to back up your claim –
trip tickets, mileage logs, contract files,
fuel bills and invoices, etc.
• Use common sense – would you accept
what you are given if you were the
auditor? Does it pass the “smell” test?
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Documenting Your Claim #2
• Do not give the auditor a “shoe box” of
paper. Conduct this part of your business
as a business activity, like any other
aspect of your business.
• Consider using a computer program to
provide tracking – this can be a
spreadsheet, database, etc.
• A manual system (notebook, 3 ring binder,
etc.) is perfectly ok if neat, legible, and
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consistent in use.
Documenting Your Claim #3
• Most important – understand what your
claim is all about, why it is due you, what
is needed to document the claim, how
your system (computer or manual) works,
and –
• Be able to intelligently answer the
questions posed by an auditor and be able
to walk the auditor through the
documentation process, “a to z”.
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This is the end of our
presentation.
Thank you.
Ted
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