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Motor Fuels Tax Audit Procedures Manual - Ch. 153
Chapter 3 - Diesel Fuel Law
- Introduction
- Definition
- Exceptions
- Computation of Tax
- Permit Types
- Permit Lists
- Specific Permits
- Records
- Reports
- Signed Statements
- Refunds
Introduction
A tax is imposed on the first sale or use of diesel fuel in Texas at the rate of 20 cents per gross or volumetric gallon. The tax rate to a qualifying transit company is 19 1/2 cents per gallon (See Rule 3.172). The first sale is described in an Attorney General's Opinion as the first taxable sale.
NOTE: See the chart in Chapter 1 for the tax rates and applicable periods.
Definition
"Diesel fuel" means kerosene or another liquid, or a combination of liquids blended together that is suitable for or used for the propulsion of a diesel-powered motor vehicle. The term includes products commonly referred to as kerosene, light cycle oil, number two fuel oil, distillate fuel, cutter stock, or heating oil, but does not include gasoline or liquefied gas.
Exceptions
Permitted suppliers may make tax-free sales of diesel fuel to:- Other permitted suppliers
- Aviation fuel dealers
- Bonded Users (through 08/31/00)
- Agricultural Bonded Users (beginning 09/01/00 through 12/31/03)(dyed & undyed diesel)
- Dyed Diesel Bonded Users (beginning 09/01/00)(dyed diesel only)
- Diesel delivered to a common or contract carrier, ocean-going vessel (including ship, tanker or boat) or a barge for export from Texas. The diesel cannot be taken to intermediate storage in Texas prior to export. NOTE: The ocean-going vessel or barge need not be a common or contract carrier. Consequently, the sale would be exempt even if made to the owner of the vessel. See Rule 3.187 for documentation required.
- Diesel sold to the federal government for its exclusive use. (Generally, the test is who pays for the fuel? If the federal government pays for the fuel, it is exempt. However, if a contractor for the government pays for the fuel, it is not exempt. A third party contractor is responsible for paying the tax to the state if tax free fuel purchased by the federal government is used by the contractor.)
- Diesel delivered by a permitted supplier to a permitted aviation fuel dealer, or delivered directly into aircraft or aircraft servicing equipment.
- Diesel tax prepaid users
- A purchaser who provides a signed statement (through 08/31/00).
- A purchaser who provides a signed statement with an AG number (effective 09/01/00 through 12/31/03)(dyed & undyed diesel)
- A purchaser who provides a signed statement with a DD number (effective 09/01/00)(dyed diesel only)
- The fuel-supply tanks of railway engines, motorboats, refrigeration units or other stationary equipment powered by a separate motor from a separate fuel supply tank. These can be included as exempt sales. The fact that the customer has highway vehicles would not matter.
- The fuel supply tanks of off-road equipment when fueled off-road
- Equipment not designed or licensed to operate on public roads.
- A retailer of kerosene when delivered into a storage facility at the retailer's business where all deliveries are exclusively for heating, cooking, lighting or similar non-highway use.
- A Texas public school district in this state for their exclusive use.
- Sales to a commercial transportation company that has paid the tax imposed on gasoline used by the company exclusively to provide transportation services to a Texas public school district.
- Diesel sold to a Texas non-profit electric or telephone cooperative. (A cooperative must pay the tax on diesel purchased at retail service stations, but may obtain a refund of the tax from the Comptroller.)
Computation of Tax
The amount of tax is based on the temperature-adjusted (net) volume of gallons sold to diesel jobbers, dealers, or other persons purchasing diesel fuel for resale, where such sales are made in single deliveries of 5,000 gallons or more, or in lesser quantities where required by city ordinance. On all other taxable sales, the tax must be based on gross gallons, for example deliveries for resale less than 5,000 gallons or to end users.
Permit Types
A supplier, diesel jobber, bonded user (through 08/31/00), agricultural user (beginning 09/01/00), dyed diesel user (beginning 09/01/00), interstate trucker, diesel tax prepaid user or an aviation fuel dealer must obtain a Fuels Tax Permit by filing an application with the Comptroller and bond when applicable.
There are nine types of diesel fuel permits:
- Supplier
- Diesel Jobber
- Bonded User (through 08/31/00)
- Agricultural User (beginning 09/01/00 through 12/31/03)
- Dyed Diesel User (beginning 09/01/00)
- Interstate Trucker*
- Diesel Tax Prepaid User (through 12/31/03)
- Aviation Fuel Dealer
- Trip Permit
A supplier may operate as a user or an aviation fuel dealer without securing separate permits. The supplier, diesel jobber, bonded user, agricultural user, dyed diesel user and aviation fuel dealer permits are permanent. The interstate trucker* permit and IFTA license are calendar year credentials and are automatically renewed by the Comptroller each year if the taxpayer is in good standing. The diesel fuel prepaid user must make application for a new permit each year for each vehicle. The trip permit is valid for the period stated on it, as determined by the Comptroller.
*Most Texas based Interstate Trucker - Diesel permits were placed in inactive status on June 30, 1995, when Texas became a member of IFTA. A person traveling solely between Texas and Mexico needs an Interstate Trucker - Diesel permit since Mexico is not a member of IFTA.
Permit Lists
The statute requires that a list of permitted tax-free suppliers, bonded users, agricultural bonded users, dyed bonded users, diesel tax prepaid users and aviation fuel dealers who are qualified to purchase diesel tax-free and jobbers who are qualified to purchase diesel tax paid be mailed to each distributor by December 20 of each year. Also, a supplemental list of additions and deletions is mailed to each supplier on a monthly basis. A supplemental list for November was not always prepared because the master list is being compiled at that time and any deletions or additions are merely included or deleted on the master lists. Permit holder lists are also available on the Comptroller's website.
Specific Permits
Supplier
This permit authorizes the tax-free sales of diesel to other suppliers, permitted users, aviation fuel dealers and persons furnishing a signed statement with an end user or agricultural exemption number. This permit also authorizes importing, exporting refining and blending; and authorizes the collection and remittance of tax on sales to dealers. Diesel Jobbers and other persons are not authorized to purchase tax-free. A supplier may act as an aviation fuel dealer or user without obtaining separate permits.
Diesel Jobber
This permit allows the permit holder to purchase tax-paid fuel for resale in bulk quantities. Reports are not required for this permit. Diesel Jobbers are NOT allowed to accept signed statements.
Agricultural Bonded User
This permit allows a person to purchase tax-free dyed and undyed diesel fuel used exclusively for agricultural purposes. (Effective 09/01/00 through 12/31/03).
Dyed Diesel Fuel Bonded User
This permit allows a person to purchase tax-free dyed diesel fuel for use in off-highway equipment. The permit does not authorize the purchase of tax-free undyed (clear) diesel fuel). (Effective 09/01/00)
Bonded User - Diesel Fuel
Authorizes a user, whose purchases of diesel fuel were predominantly for non-highway use, to purchase diesel fuel tax-free from permitted suppliers and to report and pay taxes to this state on that part of the diesel fuel that is delivered into the fuel supply tanks of motor vehicles owned or operated by the user. The bonded user can not make sales. These permits were revoked 09/01/00 due to statute changes.
Diesel Fuel Tax Prepaid User
Through 08/31/00 this permit authorizes a person whose purchases of diesel fuel were predominantly for non-highway use and whose only diesel-powered vehicles were passengers cars or light trucks with a registered gross weight of 10,000 pounds or less, to elect to prepay an annual diesel fuel tax to the Comptroller on each diesel powered motor vehicle in lieu of obtaining a bonded user permit. Effective 09/01/00, the issuance of a Diesel Tax Prepaid User permit was restricted to persons who use of diesel is predominately in agricultural non-highway equipment who elect to prepay the tax rather than obtain an Agricultural Bonded User permit. All other requirements of the previous Diesel Tax Prepaid User permit are applicable.
Interstate Trucker - Diesel
This permit authorizes persons who import diesel into Texas in the fuel supply tanks of qualified commercial motor vehicles to report and pay the tax due on the diesel imported into this state or to claim a credit or refund of the tax paid on diesel purchased in Texas and used outside Texas. Most Texas based Interstate Trucker - Diesel permits were placed in inactive status on June 30, 1995, when Texas became a member of IFTA. A person traveling solely between Texas and Mexico needs an Interstate Trucker - Diesel permit since Mexico is not a member of IFTA.
Aviation Fuel Dealer/Diesel
Authorizes a person who is the operator of an aircraft servicing facility to deliver tax-free aviation diesel exclusively into the fuel supply tanks of aircraft or into equipment used solely for servicing aircraft which is used exclusively off-highway. An aviation fuel dealer may not sell or distribute any diesel on which a fuels tax is required to be collected or paid to this state.
Trip Permit
Allows a trucker, who makes infrequent trips into Texas, to bring a qualified commercial motor vehicle into Texas for one trip. This license is in lieu of an interstate trucker's permit or an IFTA license. Only five such trips are allowed in a calendar year.
Records
Sec.153.219.
Text of subsec. (a) effective until September 1, 2000
| (a) | A supplier shall keep a record showing the number of gallons of:
|
History: Amendment effective October 1, 1999
Text of subsec. (a) effective September 1, 2000
| (a) | A supplier shall keep a record showing the number of gallons of:
|
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| (b) | A dealer shall keep a record showing the number of gallons of:
|
History: Amendment effective October 1, 1999.
Text of subsec. (c) effective until September 1, 2000
| (c) | A bonded user or other user with nonhighway equipment uses who files a claim for a refund shall keep a record showing the number of gallons of:
|
History: Amendment effective October 1, 1999.
Text of subsec. (c) effective September 1, 2000
| (c) | A dyed diesel fuel bonded user, an agricultural bonded user, or other user with nonhighway equipment uses who files a claim for a refund shall keep a record showing the number of gallons of:
|
||||||||
| (d) | An aviation fuel dealer shall keep a record showing the number of gallons of:
|
History: Amendment effective October 1, 1999.
| (e) | The records of an aviation fuel dealer made under Subsection (d)(3) of this section must show:
|
||||||||
| (f) | A permitted interstate trucker shall keep a record of:
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| (g) | The Comptroller may require selective schedules from a supplier, dealer, aviation fuel dealer, interstate trucker, diesel fuel jobber, or common or contract carrier for a purchase, sale, or delivery of diesel fuel if the schedules are not inconsistent with the requirements of this Chapter. | ||||||||
| (h) | The records required must be kept for four years and are open to inspection at all times by the Comptroller or the attorney general. | ||||||||
| (i) | A diesel fuel jobber shall keep a record showing the number of gallons of:
|
History: Amendment effective October 1, 1999.
Text of subsec. (j) effective September 1, 2000
| (j) | A supplier shall keep:
|
Reports
Following are reporting requirements of diesel fuel permittees:
Suppliers
- Monthly on or before 25th day of each month for the previous month.*
- Beginning September 1, 2000, reports cover the entire calendar month. Tax-free purchases, sales, imports and exports must be reported in the month that the fuel is removed from the terminal rack or bulk plant rack; not according to the invoice date, billing date or the date the fuel is received.
Bonded User (through August 31, 2000)
- Quarterly on or before the 25th day of the month following the end of the quarter.* May file annually if average quarterly tax liability is $600 or less.
Agricultural Bonded User, Dyed Diesel Bonded User (beginning September 1, 2000)
- Quarterly on or before the 25th day of the month following the end of the quarter.* May file annually if average quarterly tax liability is $600 or less.
Interstate Trucker
- Quarterly on or before the 25th day of the month following the end of the quarter.* May file annually if average quarterly tax liability is $600 or less.
*NOTE: If the 25th falls on a weekend or a federal holiday the next working day becomes the due date. Use terminal inquiry DUEDAY for specific month, quarter, or year due date.
Aviation Fuel Dealer
- No report required.
Trip Permit
- No report required.
Diesel Jobber
- No report required.
Report discounts or allowances:
Supplier
- 2% handling allowance for report periods through 08/30/2000 (timely payment not a requirement)
- 2% timely payment discount for report periods beginning 09/01/2000
Bonded User (through August 31, 2000)
- 1/2 % of taxable gallons handling allowance (timely payment not a requirement)
Agricultural Bonded User, Dyed Diesel Bonded User (beginning 09/01/00)
- 1/2 % of taxable gallons handling allowance for report periods through 09/30/2001(timely payment not a requirement)
- 1/2 % of taxable gallons timely payment discount for report periods beginning 10/01/2001
Interstate Trucker
- 1/2 % of taxable gallons handling allowance for report periods through 09/30/2001(timely payment not a requirement)
- 1/2 % of taxable gallons timely payment discount for report periods beginning 10/01/2001
Signed Statements
Prior to September 1, 2000
A supplier may make a tax-free sale of undyed (clear) diesel fuel to a purchaser who furnishes a signed statement that states:
- The purchaser does not operate any diesel-powered motor vehicles on the public highways;
- The purchaser will use all of the diesel fuel and none will be resold;
- None of the diesel fuel purchased in this state will be delivered or permitted by the purchaser to be delivered into the fuel supply tank of a motor vehicle.
A person who operates a diesel fuel powered motor vehicle may furnish a supplier a signed statement (Restricted Use) to purchase dyed diesel fuel tax-free. Dyed diesel may not be legally used by the purchaser to operate a motor vehicle on the public highways under state or federal law.
All signed statement purchases are limited to 3,000 gallons per delivery and 10,000 gallons per month.
Effective September 1, 2000
New restrictions were put in place on the issuance of a signed statement to purchase tax-free diesel fuel.
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. This number, prefixed with 'DD,' is used in conjunction with a signed statement. The End User Number may only be used to purchase tax-free dyed diesel fuel from a permitted supplier. Tax must be paid when purchasing undyed (clear) diesel fuel, but the end user is eligible to file for a refund if the undyed (clear) diesel is used in off-highway equipment.
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. This number, prefixed with "AG," is used in conjunction with a signed statement.
Only agricultural users are authorized to use signed statements to purchase tax-free undyed (clear) diesel fuel for use in off-highway equipment. All other off-highway users may purchase only dyed diesel fuel tax-free with a signed statement.
All signed statements on file prior to September 1, 2000 were revoked effective August 31, 2000.
The limitations remained at 3,000 per single transaction and no more than 10,000 gallons per calendar month.
Effective September 1, 2001
The amount of diesel fuel that may be purchased tax-free in a single delivery using a signed statement number increased from 3,000 gallons to 7,400 gallons. The total amount of diesel fuel (dyed and undyed) that may be purchased tax-free in a calendar month using an agricultural exemption signed statement number increased from 10,000 gallons to 25,000 gallons.
An end-user signed statement number can now be used to purchase 25,000 gallons of tax-free dyed diesel fuel (up from 10,000 gallons), if the fuel will be used in the original production of oil and gas. Taxpayers who qualify for this exception must obtain a letter from the Comptroller's office. A copy must be given to the supplier.
All other end-user, signed statement number holders may purchase no more than 10,000 gallons of tax-free dyed diesel fuel in a calendar month.
Refunds
Introduction
A person may claim a refund of taxes paid on diesel for the following reasons:
- exports of diesel from this state (100 gallons or more),
- sales to the federal government for its exclusive use,
- sales to or uses by a Texas public school district,
- sales to a commercial transportation company that has paid the tax imposed on diesel used by the company exclusively to provide transportation services to a Texas public school district,
- losses by fire, theft, or accident (100 gallons or more),
- uses of diesel in the operation of a motorboat,
- uses of diesel in tractors for agricultural purposes or for mowing a right-of-way,
- uses of diesel in aircraft and aircraft servicing equipment,
- uses of diesel in a stationary engine,
- any use except in a vehicle operated or intended to be operated on the public highways of this state,
- volume of water, fuel ethanol, or biodiesel combined with taxable diesel (Rule 3.203),
- uses of diesel by a Texas non-profit electric or telephone cooperative, and
- uses of diesel fuel by commercial passenger vehicles traveling on fixed routes within the state (Sec.548.001 Transportation Code).
Claims are on Texas Claim for Refund of Gasoline or Diesel Fuel Taxes form 06-106.
Suppliers, who use diesel in off-highway equipment, power take-off units, auxiliary power units, and other non-taxable purposes should keep a distribution log of all withdrawals from inventory and record their uses either as taxable or tax-free and report them on the monthly report. Suppliers cannot file refund claims, but are required to amend specific reports as needed.
Credit gallons or overpayments reported on the monthly tax return are automatically refunded.
Interstate truckers that report credit gallons on their quarterly or annual tax return automatically receive a refund. (See Limitations on Refunds in this section for additional information.)
Supporting Documentation
Records must be maintained for four years to support claims. However, the records do not need to be attached to the claim for refund.
Invoice Requirements
Each original invoice must be stamped or preprinted with the name and address of the seller and contain the following information.
- name of the purchaser
- date of delivery of the diesel
- date of issuance of the invoice
- number of gallons delivered
- amount of tax stated separately from the selling price or a notation that the selling price includes tax, and
- type of vehicle or equipment, such as motor boats, railway engines, highway vehicles, off-highway equipment, refrigeration units or stationary engines into which diesel is delivered.
The invoice must be made in duplicate. For tax purposes, the original invoice must be delivered to the purchaser no later than 30 days after the date of delivery of the gasoline.
A distribution log may be used in lieu of invoices, but must contain the same invoice requirement information.
NOTES:
- If delivery is through an automated method whereby the purchase is automatically applied to the purchaser's account, one invoice may be issued at the time of billing covering multiple purchases during the 30-day billing cycle.
- Copies of invoices complying with Rule 3.173 may be used as documentation.
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(Revised 02/2004)