As small business owners it only makes sense to take advantage of every opportunity to reduce your tax footprint. There are many exceptions and one of the most misunderstood is Fuel Tax Recovery.

The current federal tax on fuel is 24.4 cents per gallon for undyed diesel and 18.4 cents per gallon for gasoline. The taxes are collected from the fuel terminal at the time of distribution and deposited into the Highway Trust Fund. Approximately 83-87% is used for road construction and improvement, 11-15% pays for Mass Transit, and .01 cent per gallon goes to the Underground Storage Tank Fund. Some states have similar formulas on the use of fuel taxes, while others place the revenue collected into the General Revenue.

The fuel tax is intended to be collected from users of our nation’s highway. What the IRS defines as ‘off road’ use is normally eligible for a refund. To qualify for a refund, you must meet the exceptions of use as outlined by IRS publication 510.
As a rule of thumb, companies can apply for Fuel Tax Recovery if the amount refunded is $750 or more per quarter. For those amounts less than $750, a tax credit is applicable to Federal Income Tax that is filed. Keeping good records is essential in either scenario. You must demonstrate details of your fuel purchase including the total gallons, date, name and location, and the use of the fuel. Amended returns up to three years can be filed to claim the refund.

Refunds cannot be claimed for dyed diesel fuel used, regardless of the use, because there is no road use tax when it leaves the fuel terminal. Using dyed fuel in modern highway use diesel motors can cause damage to the selective catalytic reduction (SCR) system, and leaves traces found in the exhaust thus voiding any warranty. Not to mention the hefty penalty if determined you used dyed diesel for the highway. Part of that reason is the formula of dyed diesel, which is 33 times higher in sulfuric content designed for off road use motors and by-passing the EPA intent to provide cleaner air.

Several companies specialize in the recovery of fuel tax and their fee is normally based as a percentage of the tax recovered. However, statistics indicate that of the 1.2 million companies in the US, 90% operate 6 or fewer trucks. Leaving many owner/operators and small businesses with fleets to determine their own tax situation since these contingency-based arrangements would not be profitable when computing the tax recovery for small fleets.

Essentially, heavy trucks designed for road use, and not for the exclusive use of a government agency, cannot take a refund of the fuel tax. Those government agencies who qualify must apply to the fuel retailer for the refund with several authorization forms.

For companies and individuals, the exceptions include any usage not designated for road use. However, if the vehicle derives power to the non-road use from the same motor for propulsion, it cannot be claimed as an exception. A good example would be cement trucks that use the same motor to turn the cement drum via a PTO. Key to the IRS exception is that a separate motor is used to power the off road use. Semi truck owners can apply the exception to reefer units.

Mobile refrigeration units often have separate fuel tanks, making the calculations for the total usage easy to calculate. Some box trucks use the same tank for the refrigeration as they do with the propulsion motor. In these cases the fuel must be calculated by determining the fuel MPG, totals miles used, and idle time that is used by the propulsion motor. Subtracting that figure from the total gallons used will provide the amount of fuel used for off road use. Naturally, either method requires detailed records on the gallons purchased, name and location of the purchase, miles driven, idle time, and which account is associated with the off road use fuel tank.

Fuel purchasing statements from a fleet fuel card provide the best way to provide proof of taxes paid for fuel. Detailed statements include all the relevant data needed for the calculations and provide the transactions by location of the state where the purchase was made, making state fuel tax recovery easy. These statements can be exportable to accounting software and also into a Microsoft Excel document, thus providing a record in the event you are audited. The reports can log your maintenance expenses as well, further recording money spent that is applied to your expenses deduction.

 

Furthermore, a fleet fuel card from companies like 360fuelcard.com, provide online tools to determine your Fuel Tax Recovery. These reports provide the necessary transaction data, point drivers to discounts and rebates available from a large network of fuel retailers, and have no card fees. All of which gives the user a system to qualify for Fuel Tax Recovery virtually without any expense since the card pays back rebates on fuel at the pump.