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.
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 ).
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.
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).
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.
Some examples of petroleum fuel oils include
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