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Fuels & Lubricants Discussion all about Fuels & Lubricants. synthetic oil, conventional oil, brands, change intervals, diesel grades, gelling and such debated items like that. Non TDI related postings will be moved or removed. This forum is NOT for the discussion of biodiesel and other alternative fuels.

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Old July 18th, 2001, 17:23   #1
Turbo Steve
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Default Off-Road Diesel - 101 & History of USA Highway Taxes on Fuels

Evolution of Federal Highway Taxes on Transportation Fuels

The present structure of federal excise taxes on motor fuels evolved from three public policy concerns:

(1) Revenue generation for budget deficit reduction;
(2) Revenue generation for highway infrastructure financing; and
(3) Energy policy considerations.

Deficit Reduction

The federal excise tax on gasoline was first enacted as part of the Revenue Act of 1932 (P.L. 154), although the first known federal proposal to tax gasoline goes back to the Wilson Administration. (See Endnote 14.) The tax, which was initially 1 cent per gallon, was enacted as part of a program of tax increases designed to generate additional revenue to reduce budget deficits, which were looming due to the deepest and longest economic recession in U.S. history. Revenues from the tax were allocated to the general fund for deficit reduction.

Revenue generation for deficit reduction was also the underlying rationale for the gasoline tax rate increases of 1940, 1941, 1951, and 1954. The increases of 1951, which were part of the Revenue Act of 1951, raised the gasoline tax from 1.5 cents to 2 cents per gallon and introduced the tax on diesel fuel, also at the rate of 2 cents per gallon. Revenue generation to help finance the Korean War was an additional reason for these tax rate increases. Revenue generation for deficit reduction was part of the rationale for the tax rate increases of 1990. The Omnibus Budget and Reconciliation Act of 1990 (P.L. 101-508) raised the gasoline and diesel fuel taxes, which had increased to 9.1 cents and 15.1 cents per gallon respectively during the 1980s, by another 5 cents per gallon and authorized that revenues from 2.5 cents of the 5.0 cent increase would go toward deficit reduction rather than the highway trust fund. The 1990 law also allowed diesel fuel used in trains to be taxed at 2.6 cents per gallon, with 2.5 cents for deficit reduction and 0.1 cents for the LUST fund. Prior to the 1990 law, diesel used in trains was tax-exempt because it was a non-highway use.

The Omnibus Budget Reconciliation Act of 1993, in addition to imposing a new tax on CNG, raised the tax rate on motor fuels used in highway transportation by 4.3 cents per gallon, and allocated all of the increase to the general fund. This increase was also undertaken largely for purposes of deficit reduction.

Highway Finance

In 1956, the Highway Trust Fund was created under the Federal-Aid Highway Act of 1956 (P.L. 84-627). This marked a fundamental change in federal highway financing -- from general revenues to motor fuels taxes. Under the Act, all gasoline tax revenues and most other highway user revenues went into that fund for highway construction finance. The purpose of the trust fund was to finance the cost of the interstate highway system. Thus, financing highway infrastructure rather than deficit reduction became the primary rationale underlying most of the increases in tax rates and expansion of the tax bases since then. From 1956 to 1982, there were two increases in tax rates, several extensions of expiration dates, and repeals of scheduled declines in tax rates. Each of these amendments was made to generate more money for the Highway Trust Fund programs.

Beginning in late 1982, another objective was added to the list. Rather than fiscal deficits or energy security, attention began to focus on the large portion of the roads and highways in this country that had fallen into disrepair and on the unemployment rate, which had risen steeply as a result of the 1981-82 economic recession. Between 1982 and 1990 there were four increases in the motor fuels excise taxes. Title I of the Surface Transportation Assistance Act of 1982 (P.L. 97-424) boosted the motor fuel excise taxes by 5 cents per gallon (to 9 cents). The 1982 law also provided that 1 cent of the 5 cents increase would be allocated to a special mass transit account. The Tax Reform Act of 1984 (P.L. 98-369) increased the diesel fuel tax another 6 cents per gallon in return for a repeal of a scheduled boost in truck taxes based on vehicle weights. This made the tax on diesel fuel 15 cents per gallon. A 0.1 cent per gallon tax was added by the Superfund Amendments and Reauthorization Act of 1986 (P.L. 99-499) to pay for the cleaning up of leaking underground storage tanks. This tax expired at the end of 1995.

Energy Policy Considerations

Beginning in the 1970s, energy policy considerations began to influence both the level of motor fuel taxation and, more importantly, the structure of tax rates. Reducing petroleum consumption and importation made it easier to support motor fuels excise tax increase proposals, and was the rationale for reducing the tax rates on alternative fuels, particularly alcohol fuels. Proposals to increase the federal excise tax on gasoline became common during and after the 1973/1974 Arab oil embargo and subsequent rises in crude oil prices. Coming in the aftermath of the 1973-74 oil shock, such proposals were intended largely to reduce consumption of motor fuels (by raising their prices), and thereby reduce oil imports. Perhaps the most ambitious of these proposals was that of Senator Henry Jackson, proposing to increase the tax by $1.00 per gallon.

The concept of taxing alternative fuels at lower rates, which began in the middle-70s in response to the first oil shock, was actually realized in 1978 with the enactment of the Energy Tax Act (P.L. 95-618). (See Endnote 15.) Prior to this law, there were no special exemptions for highway use of alternative motor fuels.

The federal exemption for alcohol fuels under the 1978 law was for the full amount of the gasoline tax: 4 cents per gallon. The Crude Oil Windfall Profits Tax (P.L. 96-223) extended the 4 cent exemption from October 1, 1984, to December 31, 1992. The Surface Transportation Assistance Act of 1982 (P.L. 97-424) raised the gasoline tax from 4 cents to 9 cents per gallon and also changed the exemption for gasohol from the complete 4 cent exemption to a partial 5 cent exemption (gasohol would be taxed at 4 cents per gallon instead of 9 cents per gallon). The Deficit Reduction Act of 1984 (P.L. 98-369) raised the diesel fuel tax from 9 cents to 15 cents per gallon as part of a compromise that also lowered the highway use taxes on trucks. The 1984 tax law also raised the gasohol exemption from 5 cents to 6 cents (i.e., it reduced the tax rate for gasohol from 4 cents to 3 cents), and retained the 9 cent exemption for "neat" alcohol fuels, and provided that alcohol produced from natural gas would also qualify for the exemption. The Tax Reform Act of 1986 (P.L. 99-514) reduced the excise tax exemption for 85% alcohol from 9 cents to 6 cents per gallon (for sales made beginning in 1987). The Technical and Miscellaneous Revenue Act of 1988 (P.L. 100-647) made minor liberalizations to the excise tax rules. Finally, the OBRA of 1990 reduced the alcohol fuels exemption to 5.4 cents per gallon. (See Endnote 16.)

The Energy Policy Act of 1992 (P.L. 102-486) extended the gasohol excise tax exemption to gasohol that contains less than 10% alcohol. Two categories of gasohol mixtures were prescribed: mixtures containing 7.7% alcohol; and mixtures containing 5.7% alcohol.

[ July 18, 2001: Message edited by: Turbo Steve ]
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Old July 18th, 2001, 17:27   #2
Turbo Steve
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Default Re: Off-Road Diesel - 101 & History of USA Highway Taxes on Fuels

Structure of Motor Fuels Exise Taxes

Traditional Fuels

The Internal Revenue Code (IRC) imposes excise taxes on most motor fuels used in a wide variety of transportation modes, with the tax rates per gallon varying by type of fuel (gasoline, diesel, or other) and use (highways, water, air, or rail). Generally, any type of liquid motor fuel used in transportation that is not specifically exempted is subject to tax.

The more typical, and most widely used fuels -- gasoline and diesel -- are taxed at 18.3 cents per gallon and 24.3 cents per gallon, respectively (IRC Section 4081). These tax rates have two components: for gasoline, a 14.0 cent highway trust fund rate (which goes into the Federal Highway Trust Fund), and a 4.3 cent deficit reduction rate (which is designated to the general fund for deficit reduction).

The 24.3 cent diesel tax rate comprises the 20.0 cent highway trust fund rate and the 4.3 cent deficit reduction rate [Section 4091, and Section 4041(a)]. An additional 0.1 cent Leaking Underground Storage Tank (LUST) trust fund rate expired at the end of 1995.

[ July 18, 2001: Message edited by: Turbo Steve ]
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Old July 18th, 2001, 17:32   #3
Turbo Steve
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Default Re: Off-Road Diesel - 101 & History of USA Highway Taxes on Fuels

According to various IRS and Federal Codes on fuels, "a trucker can buy diesel fuel tax free under the procedures of notice 88-132, 1988-2 C.B. 552, if the trucker intends to use the fuel in an off highway use such as in an engine that is not the propulsion engine of the vehicle. However, if a trucker buys diesel fuel tax free under these procedures and then uses it as a fuel in a diesel-powered highway vehicle, then the trucker is liable for the diesel fuel tax."

See IRC sections 4041(a)(1) and 4092 (b)(1)(C).
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Old July 18th, 2001, 17:34   #4
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Default Re: Off-Road Diesel - 101 & History of USA Highway Taxes on Fuels



IRS Abuse of Off-Road Diesel Penalties

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Old July 18th, 2001, 18:39   #5
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Default Re: Off-Road Diesel - 101 & History of USA Highway Taxes on Fuels

Diesel Emissions - 101 - or - USA Diesel Emission Standards for Cars and Light-Duty Trucks courtesy of DieselNet
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Old July 19th, 2001, 04:27   #6
SkyPup
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Default Re: Off-Road Diesel - 101 & History of USA Highway Taxes on Fuels

Diesel fuel dyeing as an enforcement tool actually began in the United States in 1993 under Environmental Protection Agency (EPA) regulations and was expanded for tax enforcement purposes, beginning January 1, 1994. The fuel dyeing programs were implemented for two distinct purposes:

to identify diesel fuel that does not meet the sulfur content and minimum cetane specifications of the EPA for use in highway vehicles, and to identify fuel sold tax-exempt from the Federal excise tax on diesel fuel and available only for non-taxable uses specified in the tax code.

The EPA fuel dyeing program, effective on October 1, 1993, required fuel that did not meet the EPA sulfur content and minimum cetane index specifications to be visibly marked with dye. In accordance with Section 211(g) of the Clean Air Act, such fuel is not be used in motor vehicles designed for highway use. Anyone who knowingly introduces such fuel into a motor vehicle designed for highway use is liable for a penalty of up to $25,000 per day per violation.
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