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Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts

taxes

BUYING AND SELLING FUEL OIL

Petroleum fuel oils are classified into six grades, Numbers 1 – 6, based on each oil’s viscosity, volatility and toxicity.

When fuel oils are bought and sold, the fuel oil’s grade determines the buyer’s and seller’s tax responsibilities for reporting and paying motor fuel taxes and the petroleum products delivery (PPD) fee, or sales and use taxes.

Tax Responsibilities Based on Petroleum Fuel Oil Grades

Numbers 1 - 4
Motor Fuel Taxes and Petroleum Product Delivery (PPD) Fee

Fuel oil grades, Numbers 1 – 4, are subject to motor fuel taxes and usually the PPD fee (see Note below and definition of "motor fuel" in Tax Code Section 162.001 [42]).

  • Number 1, very light oils
    • Product examples – Jet fuels, kerosene, gasoline, no. 1 diesel, petroleum ether, petroleum spirit and petroleum naphtha.
  • Number 2, most light crude oils
    • Product examples – No. 2 diesel, no. 2 fuel oil (e.g., a distillate home heating oil).
  • Number 3, most crude oils
    • Product examples – Marine diesel oil, no. 3 distillate and no. 3 diesel fuel.
    • No. 3 fuel oil was a distillate fuel oil for burners requiring low-viscosity fuel. American Society for Testing Materials (ASTM) merged fuel grade no. 3 with no. 2. This term has rarely been used since the mid-20th century.
  • Number 4, intermediate to heavy crude oils
    • Product examples – Commercial heating oils, bunker A fuel oil (bunker A fuel oil consists of gasoil range bunker fuel, typically called marine diesel or marine gasoil).

Note – The four grades above include product examples that are not subject to the PPD Fee. These include naphtha-type and kerosene-type jet fuel, and a petroleum product destined for use in chemical manufacturing or for use in the feedstock of that manufacturing.

Numbers 5 - 6
Sales and Use Tax

Two fuel oil grades, Numbers 5 and 6, are subject to sales and use tax if the invoice clearly identifies the purchased product as bunker fuel B or C. See Tax Code Section 151.009 and Section 151.308 (a)(2).

  • Number 5, bunker fuel B
    • Product examples – Bunker B fuel oil
    • Description – Bunker fuel oil has a higher British Thermal unit (BTU) content and requires preheating to between 170 and 220 degrees Fahrenheit (between 77 and 104 degrees Celsius). This type of fuel oil is not capable of being used in a motor vehicle on the public highway and, therefore, does not meet our definition of a motor fuel. See definition of "motor fuel" in Tax Code Section 162.001 (42).
  • Number 6, bunker fuel C
    • Product Examples – Heavy fuel oil or residual fuel oil, bunker C fuel oil (i.e., vessel bunkering), furnace or heating fuel oil, no. 6 diesel fuel and no. 6 fuel oil, and are used in producing electricity, in various industries and vessel fuel bunkering.
    • Description – Bunker fuel oil requires preheating to between 220 and 260 degrees Fahrenheit (between 104 and 127 degrees Celsius). No. 6 fuel oil is what remains once gasoline and fuel oil distillate are extracted from crude oil through distillation. This type of fuel oil is not capable of being used in a motor vehicle on the public highway and, therefore, does not meet our definition of a motor fuel. See definition of "motor fuel" in Tax Code Section 162.001 (42).

Additional Petroleum Fuel Oil Information

Terms and Definitions

Motor fuels – For motor fuel taxes, a motor fuel is defined as gasoline, diesel fuel, gasoline blended fuel, compressed natural gas, liquefied natural gas and other products that are offered for sale, sold, used or capable of use as fuel for a gasoline-powered engine or a diesel-powered engine. See Tax Code Section 162.001 (42).

Petroleum product – For the petroleum products delivery (PPD) fee, a petroleum product is defined as a product obtained from distilling and processing crude oil and capable of being used as a fuel to drive a motor vehicle or propel an aircraft, including motor gasoline, gasohol, other alcohol blended fuels, aviation gasoline, kerosene, distillate fuel oil and no. 1 and no. 2 diesel. The term does not include naphtha-type jet fuel, kerosene-type jet fuel, or a petroleum product destined for use in chemical manufacturing or feedstock of that manufacturing. See Water Code Section 26.342 (11).

Viscosity refers to the oil’s ability to flow. Higher viscosity oils do not flow as easily and therefore take more energy and effort to pump from the ground, and may require preheating when used.

Volatility describes how quickly and easily the oil evaporates into the air. Higher-volatility oils need additional processes to control their environments during extraction to ensure that as little oil as possible is lost.

Toxicity refers to how poisonous and harmful the oil is to the environment, wildlife and humans during the extraction and refinement process. Oil spills do occasionally occur, and each oil poses different challenges and priorities during the cleanup.

Examples of Petroleum Fuel Oils

Some examples of petroleum fuel oils include

  • asphalt
  • aviation gasoline fuel ("avgas")
  • fuel oils (e.g., distillate and residual)
  • jet fuels (e.g., naphtha-type and kerosene-type)
  • kerosene
  • liquefied petroleum gases
  • lubricants
  • motor fuels (e.g., diesel, gasoline, compressed natural gas [CNG] or liquified natural gas [LNG])
  • petrochemical feedstocks
  • petroleum coke
  • road oil
  • special naphthas (e.g., paint thinners, cleaners or solvents)
  • unfinished oils
  • waxes

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