taxes

Motor Fuels Tax Audit Procedures Manual - Ch. 153

Chapter 13 - Refund Claims

Introduction

One of the functions of any fuels audit is to verify refund claims. A refund history should be requested and reviewed along with other data reported on the history. Also, occasionally auditors are assigned larger refund claims for verification via Revenue Accounting and an audit adjustment may or may not be necessary.

Who May File

A person may file a claim for refund of the state tax paid on gasoline or diesel fuel if he meets the qualifications specified in the Motor Fuels Tax Statutes and Rules.

  • Sec. 153.119. Refund of Taxes Paid on Excepted Uses of Gasoline
  • Sec. 153.120. Claims for Refunds
  • Sec. 153.121. When Gasoline Tax Refund May Be Filed
  • Sec. 153.222. Refunds of Taxes Paid on Excepted Uses of Diesel Fuel
  • Sec. 153.223. Claims for Refund
  • Sec. 153.224. When Diesel Fuel Tax Refund May be Filed
  • Rule 3.171. Records Required; Information Required
  • Rule 3.173 Refunds on Gasoline and Diesel Fuel Tax
  • Rule 3.176 Metering Devices Used to Claim Refund of Tax on Fuel Used in Power Take-Off and Auxiliary Power Units
  • Rule 3.184 Assignment of Refund Claims for Tax-Paid Gasoline Exported from Texas
  • Rule 3.200 Transportation Services for Public School Districts
  • Rule 3.203 Diesel Fuel Tax Exemption for Water, Fuel Ethanol, and Biodiesel Mixtures

When to File

A claim for refund of the fuels taxes paid must be filed and postmarked within one year from the first day of the calendar month following:

  • The purchase
  • The tax-exempt sale
  • The use if withdrawn for own use
  • Exports
  • Loss by fire, theft or accident

Special exception: Section 153.121(c) and 153.224(c) If in an audit of a supplier or distributor determines that tax-free sales were made to an unauthorized purchaser and the purchaser could have filed for a refund if the tax had been paid at the time of the sale, the unauthorized purchaser must file a refund claim within one year after the date of the final assessment.

The four-year statute of limitation applies to distributors, suppliers, dyed diesel bonded users and agricultural bonded users per 153.121(d) and 153.224(d) if:

  • The permit holder determines taxes were erroneously reported or that paid more taxes than were due this state because of a mistake of fact or law.
  • Credits may be taken on the tax report on which the error has occurred and tax payment made to the Comptroller. (Rule 3.173)

IMPORTANT LAW CHANGES:

  • Refund claims for taxes paid on gasoline and diesel fuel used in PTO motor vehicle air conditioning and heating systems BEFORE September 1, 2003, must be postmarked within 1 year from the date of use.
  • Refund claims for taxes paid on diesel fuel used in a PTO or auxiliary power unit BEFORE January 1, 2004, must be postmarked within 1 year from the date of use. Refunds postmarked after December 31, 2004, cannot be approved.
  • Refund claims for taxes paid on undyed (clear) diesel fuel used BEFORE January 1, 2004, in off-highway equipment, stationary engines and for other non-highway purposes must be postmarked within 1 year from the date of use. Refunds postmarked after December 31, 2004, cannot be approved.

Reason for Refund - Gasoline or Diesel

Exports
Exports from Texas by a non-permitted purchaser must be in quantities of 100 gallons or more. See Rule 3.173 for qualifications. This type of claim is usually filed by suppliers and distributors in New Mexico, Oklahoma, Louisiana, et al. who come into Texas in their own transport trucks to get their supply of fuel. The refund claims are usually accompanied by their fuels report to their own state. These taxpayers would be responsible for interstate trucker fuel usage.

Sales by Dealers or Jobbers to the Federal Government
The federal government generally will not pay state motor fuel taxes. This type of claim allows the non-permitted dealer or permitted jobber to recoup the tax they had to pay when they purchased the fuel tax paid and sold it tax-free. See Rule 3.173 for evidence required. Tax-free sales to the federal government by a supplier of distributor are reported on the monthly reports.

Loss by Fire, Theft or Accident
Beginning October 1, 1999, thefts losses are allowed provided they are supported by the required documentation per Rule 3.171 and 3.173.

Off-Highway Use
Includes non-highway vehicles such as farm tractors, right-of-way mowers, caterpillars, grader, forklifts, cranes, non-licensed motor vehicles used solely off-highway, stationary engines, diesel mixed with asphalt, etc. and other non-highway purposes. The claimant must have documentation showing that tax was paid on the purchase on any type claim on which a refund claim is made.

Fuel Used in Power Take-Off/Auxiliary Power Units
There are several methods that are allowed in determining the diesel fuel used for this type claim. These methods are defined in Rules 3.173 and 3.176.

  • Direct measurement or a metering device
  • Mileage factor. The non-taxable use may be determined by computing the taxable use at 1/4 gallon for each mile traveled on the highway. The rest will be considered as taxable.
  • Two tank method.
  • Fixed Percentage. This method (5%) may be used in lieu of any other method for any vehicle equipped with power take-off or auxiliary power unit.
  • Certain ready-mix concrete trucks and solid waste refuse trucks. Operators of ready-mix concrete trucks and sold waste refuse trucks may file for refund on 30% of the gasoline or diesel used in these trucks. This would include only those ready-mix delivery trucks with the rotating drum. Dump trucks used by the ready-mix company would only be allowed 5% if they are equipped with power units.
  • Proposed alternate method. The rule allows approval of other methods, if submitted in writing and approved by the Comptroller. There are a few companies that have reefer units connected to the fuel supply tank of the motor vehicle that have obtained written approval to use some other method such as so many gallons of fuel used per hour of operations.

Note: Effective September 1, 2003, motor vehicle air conditioning and heating will no longer be considered power take-off systems. (HB 2425)

Effective January 1, 2004, roll-off units, dump trucks and other types of trucks that transport solid waste no longer meet the definition of a solid-waste refuse vehicle. (Tax Code 162.001(56))

Diesel Fuel Purchasers Using a Signed Statement/AG and DD End User Numbers
A user may claim a refund of the tax paid on diesel fuel exceeding signed statement limitations discussed in Chapter 10. Documentation must be maintained to substantiate the refund claim. (Rule 3.173)

Jobbers
A jobber can make tax-free sales to the federal government, Texas public school districts, or a commercial transportation company providing transportation services to a Texas public school district and file a refund claim for the tax previously paid on the fuel.

Incidental Highway Use
The operator of a non-licensed motor vehicle such as a grease truck used in a refinery yard that occasionally goes outside of the yard for repairs can claim refund on fuel placed in the vehicle fuel supply tank, but he must make a deduction for that part used on the highway computed at 1/4 gallon per mile. Water well drilling trucks and certain oil well servicing trucks may be included in this category.

Texas Public School District Sales and Uses
A seller of gasoline or diesel fuel on which tax has been paid may file for refund of the tax on tax-free sales made to Texas public school districts. A seller includes jobbers and non-permitted dealers. These sales will be treated the same way as sales to the federal government. The refund claim form 01-106 has been revised to include a separate line item for Texas public school districts. A commercial transportation company that provides transportation services for a Texas public school district may claim a refund on tax-paid gasoline or diesel used for those services.

Federal Agency Claim for Refund on Tax-Paid Purchase
The federal government may file for a refund of taxes paid on fuel used exclusively by the federal government. See Rule 3.173.

Texas Non-profit Electric and Telephone Cooperatives
Texas nonprofit electric and telephone cooperatives ("Cooperatives") organized under Chapter 161, Utilities Code, are exempt from state excise taxes on motor fuels. Cooperatives can purchase tax-free gasoline and diesel fuel in bulk for use in their motor vehicles and equipment. Cooperatives are not required to display liquefied gas tax decals on their motor vehicles equipped with a dual carburetion system. Cooperatives will continue to pay the state motor fuel taxes when purchasing gasoline and diesel fuel at retail service stations, but may obtain a refund from the Comptroller by submitting Texas Claim for Refund of Gasoline and Diesel Fuel Taxes (form 06-106).

Bad Debt Deductions
A distributor or a supplier may use the monthly report for bad debt deductions. A credit for bad debts must be taken before the expiration of the applicable limitation period as provided by Chapter 111. The four-year statue of limitations begins when the account is determined to be uncollectable and worthless and is written as a bad debt on the accounting books. Therefore, a bad debt deduction could be valid for a sale of fuel made outside the audit period. See Rule 3.193 for qualifications and records required.

The following items may not be included as bad debt deductions:

  • Unpaid balances when items are repossessed.
  • The tax the customer refuses to pay to the vendor.
  • Difference in tax charged and current tax rates.
  • Amounts that are covered by insurance indemnification.
  • Expenses of collecting a bad debt or amounts paid to a third party for collection of a bad debt.

Bad debts may be deducted for sales made via credit card to commercial or agriculture customers at key or card lock locations. A distributor or supplier on sales to a dealer who sells some of his fuel via credit cards may deduct bad debts. However, the distributor or supplier cannot claim bad debt credit or refund on those sales made via credit card from owner or consignee service stations.

Assignment of refund Claims for Tax-Paid Gasoline Exported from Texas
See Rule 3.184. Also see Chapter 9 section on Export Sales.

Water, fuel ethanol and biodiesel mixtures
The volume of water, fuel ethanol, or biodiesel combined with taxable diesel is exempt from tax. (Rule 3.203) Effective October 1, 2001.

Refund Verification Assignments

All motor fuels refund verification assignments will be handled in the same manner as refund verification for other non-sales type assignments. Refund Verification Assignments that result from a refund claim submitted by non-permitted taxpayers will be coded using their URS designations: 86 (gasoline) or 87 (diesel). Amended returns resulting in a credit and refund claims submitted by permitted taxpayers will be coded on AWM as 90 06 (gasoline), 90 07 (diesel) 90 97 (diesel interstate trucker), etc.

If a permitted taxpayer submitted fuels tax refund claims for the tax for which they are permitted, the refund claim should be written up using the same periods that the taxpayer is set-up for filing reports.

Auditors will prepare schedules for gallons approved and one for denied gallons as indicated by their fieldwork. The schedules for approved and/or disapproved gallons will be summarized in the same manner as audit schedules (summary, audit adjustment report, index, and refund cover letter.). Schedules for disapproved gallons will be an exhibit in the assignment (refund) package.

Procedures for writing up motor fuels refund verifications should follow the guidelines and AP memos for all Refund Verification Assignments. Templates are available for the denial letters and motor fuels refund audit plan.

When the assignment is complete and ready for processing, the auditor should enter the following information on AWM in "assignment" comments:

  1. Verification that the purchase or use occurred within the applicable statute of limitations;
  2. The total number of gallons in question was tax paid;
  3. If the gallons purchased were delivered to a bulk storage tank or purchased at the pump;
  4. If the taxpayer had a distribution log for both on and off-highway uses; and,
  5. A brief description of the taxpayer's off road equipment and/or vehicles.

Handling Allowance

The total gallons refunded by report period should be reduced by the 2% handling allowance on all motor fuel refund audits and refund verification assignments. It is assumed that the distributor/supplier that originally remitted the tax filed timely and reduced the taxable gallons by the 2%.

Records

The motor fuels statutes are very explicit concerning the records required to request a refund. Records for gasoline refund requests are outlined in Sec.153.120 and Rule 3.173. Diesel requirements are described in 153.219(c)and Rule 3.173. Another statutory reference is:

Sec.153.013 (a)
A distributor, supplier, dealer, interstate trucker, jobber, dyed diesel fuel bonded user, or agricultural bonded user who fails to keep a record, issue an invoice, or file a report required by this Chapter, is presumed to have sold or used for taxable purposes all motor fuel shown by an audit by the Comptroller to have been sold to the distributor, supplier, dealer, interstate trucker, jobber, dyed diesel fuel bonded user, or agricultural bonded user. Motor fuel unaccounted for is presumed to have been sold or used for taxable purposes...

A dyed diesel fuel bonded user, an agricultural bonded user, or other user with nonhighway equipment who files a claim for a refund shall keep a record showing the number of gallons of:

  1. inventories of all diesel fuel on hand at the first of each month;
  2. all diesel fuel purchased or received, showing the name of the seller and the date of each purchase;
  3. all diesel fuel deliveries into the fuel supply tanks of motor vehicles;
  4. diesel fuel used for other purposes, showing the purpose for which used; and
  5. all diesel fuel lost by fire, theft, or accident.

Additional record keeping requirements are outlined in Rule 3.173 for gasoline and diesel.

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(Revised 02/2004)