Chapter 1 - History and Overview
The increased usage of motor vehicles in the early 1920s created a demand for government expenditures to be used for highway development and improvement. To meet the needs of these expenditures, a Motor Fuels Tax was implemented.
Fuels revenues have historically been allocated primarily to highways. Gasoline tax revenue is allocated one-half to the state highway fund, one-fourth to the school fund and the remaining one-fourth to the county and road district highway fund and/or the state highway fund. Diesel fuel and liquefied gas tax revenues are allocated three-fourths to the state highway fund and one-fourth to the school fund.
- April 1, 1923: Initial taxation of gasoline at 1 cent per gallon.
- 1929: Distributors were required to be permitted and bonded.
- 1933: Motor fuel was defined to include diesel fuel and liquefied petroleum gas.
- 1941: Liquefied petroleum gas was taxed at 4 cents per gallon and diesel fuel at 8 cents per gallon.
- 1959: A Special Fuels Tax Law, Chapter 10, was created. Diesel and Liquefied gas were separated from the motor fuel tax law. Since most diesel and liquefied gas was used for non-highway purposes, a permit collection system was implemented to reduce the amount of refunding.
- 1969: The Special Fuels Tax law was divided into subChapter A for diesel and B for liquefied gas.
- 1980: The fuels tax law was completely rewritten. All fuels taxes were incorporated under Article 9 as follows: SubChapter A - General Provisions; B - Gasoline; C - Diesel Fuel; and D - Liquefied Gas.
- 1981: The sale of gasoline or diesel fuel for resale and in deliveries of 5,000 gallons or more shall have the tax computed at net gallons.
- 1982: The entire Motor Fuels Tax Law was recodified as Chapter 153.
- 1984: Effective August 1, 1984, the tax rates increased to 10 cents per gallon.
- 1987: Effective January 1, 1987, the tax rates increased to 15 cents per gallon.
- June 1, 1989: Effective by Rule 3.197 a person performing the functions of a distributor or a supplier is required to obtain a permit even if the person purchases only tax paid fuel.
- Sept. 1, 1989:
- The use of signed statements for the purchase of tax-free diesel fuel was restricted.
- A Petroleum Products Delivery Fee was enacted.
- The definitions of gasoline and diesel fuel were expanded to include blending agents.
- Sept. 1, 1991:
- Texas Public School Districts were exempted from gasoline, diesel fuel, and liquefied gas tax.
- Counties were exempted from the liquefied gas tax.
- Counties were exempted from the liquefied gas tax.
- Oct. 1, 1991: The tax rate for gasoline and diesel fuel increased to 20 cents per gallon.
- Sept. 1, 1993:
- The Comptroller can suspend a permit immediately without a hearing.
- Two new permit classifications were added: a gasoline jobber and a diesel jobber. These permit holders purchase and sell tax paid fuel only. A diesel jobber cannot sell tax-free including signed statement sales.
- Transportation companies may purchase fuel tax-free for the gallons used exclusively for Texas public school district transportation.
- The signed statement maximum single delivery amount is increased from 2,000 gallons to 3,000 gallons. The monthly maximum remains at 10,000 per month.
- Sept. 1, 1995:
- Petroleum Products Delivery Fee doubled.
- The Comptroller may collect a penalty from a person who gives an insufficient check to a permitted distributor or supplier for the payment of a debt that includes state motor fuels tax.
- Oct. 1, 1995:
- A person who operates a diesel fuel powered motor vehicle may furnish a permitted supplier a signed statement to purchase dyed diesel fuel tax-free, provided the fuel purchased may not be used to operate a motor vehicle on the public highways under state or federal law.
- Non-refundable credit on the renewal of a diesel tax prepaid user permit.
- Liquefied Gas (LG) interstate trucker based in Texas and licensed under IFTA is no longer required to prepay tax on vehicles operated for commercial purposes and traveling out of state.
- An LG dealer must collect and remit taxes on liquefied gas delivered into the fuel supply tank of a motor vehicle licensed under IFTA and displaying a current multistate fuel tax agreement decal.
- Interest imposed on delinquent taxes for an interstate trucker based in Texas and licensed under IFTA will begin to accrue the day following the report due date.
- Sept. 1, 1997: Motor Fuel Pump Labeling enforcement and administration transferred from the Comptroller to the Commissioner of Agriculture.
- Oct. 1, 1997:
- Statute of Limitations for Fuels Tax Refunds - permitted distributors, diesel fuel suppliers, and diesel fuel bonded users have four years in which to claim a refund of motor fuels taxes. Taxpayers must file an amended return for the period(s) in which the overpayment occurred to claim the credit.
- The four-year statute of limitations applies to gasoline or diesel fuel acquired on or after October 1, 1997. Gasoline or diesel fuel acquired before that date will continue to be subject to a one-year statute of limitations for purposes of refund. See Rule 3.173(c)(2) for exceptions.
- Sept. 1, 1999:
- Motor Fuels Tax Exemption and New Fee for Commercial Passenger Vehicles Operating on Fixed Routes. Exempts intrastate buses running scheduled routes from the motor fuels tax. Bus companies will file refund claims for ¾ of the tax paid and submit a return for the ¼ for the School Fund Benefit Fee.
- Petroleum Products Delivery Fee rates decreased.
- April 1, 2000: Petroleum Products Delivery Fee suspended.
- Sept. 1, 2000:
- SB1547 made major changes to the motor fuels statutes.
- Distributor and Suppliers are required to keep more detailed records for expanded reporting requirements.
- Importers and Exporters must possess a shipping document for that fuel created by the terminal or bulk plant from which the fuel was removed.
- Import Verification Numbers are required for motor fuel imported by cargo tank (truck) into Texas. A number is required for each cargo tank delivery into Texas.
- Export Diversion Numbers are required for fuel that has been diverted from the destination state and must be written on the shipping document.
- Signed Statement Registration. A person who wants to issue a signed statement to purchase tax-free dyed diesel fuel for off-highway use must register with the Comptroller for an End User Number (DD number). A person who uses diesel fuel exclusively for an agricultural purpose in off-highway equipment and wants to issue a signed statement to purchase tax-free dyed or undyed (clear) diesel fuel is required to register with the Comptroller for an Agricultural User Exemption Number (AG number). All signed statements currently on file with a supplier were revoked effective August 31, 2000, and must be maintained for four (4) years.
- Dyed Diesel Fuel Bonded User permit allows a person to purchase more than 10,000 gallons per month of tax-free dyed diesel fuel for use in off-highway equipment.
- Agricultural Bonded User permit allows a person to purchase more than 10,000 gallons per month of tax-free dyed and undyed diesel used exclusively for agricultural purposes.
- Diesel Tax Prepaid User Permit is restricted to persons whose use of diesel fuel is predominately in agricultural non-highway equipment.
- Common and Contract Carriers that transport gasoline or diesel fuel by cargo tanks (trucks) in Texas must register with the Comptroller. Common and contract carriers must file a quarterly informational report regarding their intrastate and interstate transportation of motor fuels. Sellers and suppliers must post a notice stating "Dyed Diesel Fuel, Nontaxable Use Only, Penalty for Taxable Use" at all bulk plants and retail pumps selling dyed diesel fuel.
- Use of Dyed Diesel Fuel. The law prohibits a person from operating a motor vehicle on a public highway in this state with taxable diesel fuel that contains dye unless the use of dyed diesel fuel is lawful under the United States Internal Revenue Code and regulations. Beginning with the September 2000 return, distributors and suppliers must pay the tax due on their monthly returns timely to receive the two percent discount.
- May 22, 2001: Administration and collection of the Motor Fuels Testing Fee was transferred from the Comptroller to the Texas Department of Agriculture.
- Sept. 1, 2001:
- Diesel fuel signed statement limits increased to 7,400 gallons per single delivery. Agricultural Exemption Signed Statement calendar month amount increased to 25,000 gallons. End User Signed Statement calendar month amount remains at 10,000 gallons. Oil and Gas Producers with End User Signed Statement numbers may increase their purchases to 25,000 gallons per calendar month provided they have obtained a letter from the Comptroller and have given a copy of the letter to their supplier.
- Petroleum Product Delivery Fee was reinstated and fees changed.
- Oct. 1, 2001: Technical corrections were made to clarify the requirements for using a signed statement. References to a permitted user of diesel fuel include dyed diesel fuel bonded user and agricultural bonded user. There will no longer be the tax refund claim filing fee of $1.50. Timely filing became a requirement for Dyed Diesel Fuel Bonded Users, Agricultural Bonded Users, Interstate Truckers and Liquefied Gas Dealers to obtain the filing discount.
- 2003: 2003 Permitted Gasoline Distributors and Diesel Fuel Suppliers are no longer required to make an early prepayment for the motor fuels taxes due in August of odd-numbered years, beginning with the August 2003 reporting period.
See Motor Fuels Permits and Tax Rate chart.
A fuels tax permit must be placed in a conspicuous location or be available for inspection at the owner's principal place of business. A copy of the permit must be kept at each place of business or the place of storage from which the motor fuel is sold, distributed or used. A copy must also be kept in each motor vehicle used by the permit holder to transport motor fuel purchased for resale, distribution or use.
The Comptroller may require a distributor, gasoline jobber, supplier, diesel jobber, agricultural bonded user or a dyed diesel bonded user to post a bond. The bond for a distributor or supplier will be two times the highest tax that could accrue on tax-free gasoline or diesel fuel purchased or acquired during a reporting period. A gasoline or diesel jobber shall post a bond in an amount according to past payment history. The minimum bond for distributors, suppliers and jobbers is $30,000, and the maximum is $600,000 unless undue risk is involved. The minimum bond of an agricultural bonded user or a dyed diesel bonded user is $10,000. The Comptroller may waive bond requirements or may release a bond after four years of satisfactory compliance.
Other acceptable security includes cash, assignment of a certificate of deposit, or an irrevocable letter of credit.
The statute includes specific record requirements as follows:
- Sec. 153.003. : Carrier Records
- Sec. 153.004. : Motor Fuel Transportation: Required Documents
- Sec. 153.018. : Motor Fuel Transportation: Required Documents
- Sec. 153.117. : Records - Gasoline:
- Interstate Trucker
- Aviation Fuel Dealer
- Gasoline Jobber
- Sec. 153.1195. : Refunds and Credits for Bad Debts
- Sec. 153.120. : Claims for Refunds
- Sec. 153.205. : Statement for Purchase of Diesel Fuel
- Sec. 153.219. : Records - Diesel:
- Aviation Fuel Dealer
- Interstate Trucker
- Diesel Jobber
- Sec. 153.220. : Invoices
- Sec. 153.2225. : Refunds and Credits for Bad
- Sec. 153.309. : Records - Liquefied Gas
Records must be kept for four years.
When possible, sampling should be considered in fuels audits using the procedures covered in the Auditing Fundamentals manual.
The following is a list of items or phases of a fuels tax audit where projections might be used:
- Disallowed tax-free sales
- Tax-free sales to non-permitted holders
- Tax-free sales not covered by signed statements
- Tax-free sales to interstate truckers
- Tax-free sales to persons where previous taxable sales have been made
- Taxable use
- Net to gross gallons
- Tax-free purchases (where volume is very large)
- Disallowed net sales where tax is due on gross gallons
The following is a list of items or phases of a fuels tax audit where projections are not recommended:
- Tax-paid purchases
- Tax-free purchases (unless volume is very large)
- Tax-free sales to permit holders
NOTE: The preceding lists are not all inclusive since circumstances may vary greatly.
See the Tax Rate Chart (PDF).
Motor Fuels Tax Audit Procedures Manual - Table of Contents
Maintained by the Audit Division