I've grown up here, vote regularly, read the paper, but, I admit it, I do not understand our road tax / fuel tax system. So, I'm starting this thread hoping to get more info.

I've gathered that marine diesel isn't "taxed" nor other off-road fuel. And home heating oil gets dyed, so it isn't "taxed", either. But, isn't it all taxed somehow? And, if off-road (like for airplanes) fuel isn't taxed, why not?

And, if we hypothetically consider that we raise money for infrastructure maintenance from fuel tax/surcharges, shouldn't any user of the infrastructure pay a 'fee'? (I think that petro users should pay the largest as they not only use the infrastructure, they pollute the atmosphere and support the oil industry...grumble, grumble, grumble...'scuse me while I climb down off my soapbox.)

Anyhow, anyone have any information? Or any better questions?

Many of the different diesel-like fluids that can be run in a diesel engine are dyed, and spiked with a chemical marker. The dyes and markers allow The Powers That Be (TPTB) to distinguish them.

On-road fuels are taxed with a "road tax" to try to evenly distribute the burden of highway maintainence according to individual use. The more you drive, the more fuel you use, therefore the more taxes you pay for the use of the roads. You can almost think of it as a hidden "toll" to use the government's roads.

The off-road diesel is available for diesel consumers who do not use the country's highway system. Bulldozers, generators and the like.

In the US I believe that alternative fuels are exempt from the road tax, but I may be incorrect. The idea being that if alternative fuels were cheap enough, everyone would be using them and polluting less, thus cleaning up the environment and reducing our dependance on foreign oil, blah blah blah. The tiny bit of revenue TPTB lose to the likes of us is worth it from a political standpoint.

The dyes and markers allow TPTB to tell when an individual, or worse a company, is trying to avoid the taxes, which are about a third of the cost of the fuel in my area (diesel $1.49/gal vs off-road diesel $.99/gal). The petrol (gasola) users are taxed also, and if there is off-road gasoline I am not aware of it (if you know, please tell).

The length of a short circuit is twice the distance from the middle to the end

Sorry,

[This message was edited by WVengineer on 15 December 2002 at 08:29 PM.]

sohj,
Don't feel bad if you don't understand the fuel tax "system" in the US. Like most "tax law" it started out simply enough and mutated over time. Originally fuel tax was designed to pay for road construction and maintenance. But like any tax which builds up in a "trust fund" (like social security) it was just too tempting to raid the fund when money was needed elsewhere by govts not wishing to appear as if they were raising taxes to do it.

As a result when the funds were needed for the purpose originally intended they were often not there and so the "fuel tax" needed to be increased. Again, and again, and again.

And not only the Federal govt. levies fuel taxes...most if not all states also tack on a fuel tax for each gallon of fuel purchased for on road use. While on the face of it fuel taxes are supposed to be essentially a user fee they no longer truly are.

Aircraft fuel is taxed differently since they only require "ports" not roads. The use of these ports is taxed by parking, landing, and other facility fees. Ditto for boats which have user fees directly assessed (sometimes) for use of infrastructure such as locks and docks.

WVengineer,

Sadly... alternative fuels for use on the roads are NOT exempt from either Federal or (most if not all) states fuel taxes. But in practical terms the states and Feds are unlikely to want to bother private individuals using alternative fuels. Some states (and maybe the Feds) have programs in place to reduce taxes on alternative fuels but not eliminate them.

Electric vehicles are generally not charged no pun intended) any fuel tax since it would be very difficult to determine what is owed given that the current tax collection system is based on gallons purchased (used) and electricity does not easily fit this model. Unfortunately vegoil and biodiesel does...but as I was told by our states (fuel tax) office...it is just not cost effective to try to collect from individuals making and using their own fuels to be worthwhile. Commercial producers and users of "home made" fuels might discover otherwise though.

And yes...there is the same (fuel tax) exemption for off road use of gasoline as well as diesel.

Bottom line is vegoil fuels are not actively taxed since it is not cost effective or politically desirable to do so currently. We slip by with the same implicit govt. "approval" as farmers who fill their pickups with untaxed fuels purchased for use in their tractors. It is just not worth the trouble of "busting" us.

Dana

I won't repost what is says since the page is copyrighted however thisGreaseCar IRS Post says that burning grease in your car is currently legal and tax free according to the IRS, although your state may think differently. I agree with other posters, if this really took off to the point that the government saw real money being lost I think these laws would quickly change.

from different offices, and yet the taxpayer is held liable for their mistakes, when someone (usually a judge) finally decides which IRS person was right.

Meanwhile, the Commonwealth of Virginia Department of Transportation has a 19 page form to be filled out (along with posting a minimum $2000. bond) for anyone blending or producing any alternative fuel for road use in any amount, and the reports which accompany it are supposed to be filed every MONTH. It all seems aimed at corporate users of massive amounts, but there are no exemptions for home brew experimenters, no matter how small.

My oldest daughter, however, is a tax expert with Price-Waterhouse Coopers, and she pointed out to me that on Virginia Income Taxes, the taxpayer is not required to send in any amount less than $10. My response to her was that this is the Department of Transportation, not the Commissioner of Revenue, and that although the amounts I would be reporting on the monthly form would be in the $2.50 - $3.50 range (at $0.175 per gallon), it would definitely be over $30. per year. She still advises me to forget it, but I'm nervous about my state employee's retirement fund being confiscated, so I worry. The main problem is that I have not yet found a reasonable source for the $2000. bond.

Virginia also uses road blocks to test the fuel in all diesel vehicles and has definitely put some huge fines on farmers using dyed tractor fuel in their road vehicles in recent years.

Life is like a beaver colony: one dam problem after another.

[This message was edited by Ichabod Schloppenheimer III on 16 December 2002 at 03:36 PM.]

Start with IRS Publication 510. The search functions at www.irs.gov may also be helpful.

I did quite a bit of research on this issue a year or two ago when I first got into biodiesel. At that time I could find no legal authority whatsoever to support the persistent rumor that there is an exemption from the US fuel excise tax for biodiesel or SVO. I concluded there is no such exemption.

In fact, there are backup provisions that subject "any liquid" placed into the fuel tank of a "diesel powered highway vehicle" to the tax. The large producers (World Energy and the like) all pay the tax because the fuel is taxable when sold for highway use.

I posted about my research when I did it. Anyone interested can probably find it by searching my user name or number.

I believe the reason we don't see more IRS enforcement action in the area of alternative fuels is it is not a cost-effective use of enforcement resources. The potential tax liabilities are small compared to the cost of detecting and prosecuting noncompliance . . .

This post isn't meant as legal advice. The law may have changed since I did my research. Do your own research and reach your own conclusions.

UPDATE: See the definition of "diesel fuel" in Pub. 510 at page 12. Is biodiesel an "excluded liquid?" Also check out the "back-up tax" on page 15 . . . Pub. 378 might also be helpful.

[This message was edited by Dante on 16 December 2002 at 04:30 PM.]

[This message was edited by Dante on 16 December 2002 at 04:57 PM.]

Back-Up Tax

Tax is imposed on the delivery of any of the following into the fuel supply tank of a diesel-powered highway vehicle, train, or bus.

*Any dyed diesel fuel or dyed kerosene for other than a nontaxable use.

*Any diesel fuel or kerosene on which a credit or refund (for fuel used for a nontaxable purpose) has been allowed.

*Any liquid other than gasoline, diesel fuel, or kerosene.

Generally, this back-up tax is imposed at a rate of 24.4 cents a gallon . . .

(emphasis added) Source: IRS Publication 510, page 15.

Boy, I'm glad I mention it when I'm not 100% sure of a bit of information. 24.4 cents a gallon. Crud. I'll have to check if the state has its own also, and if they intend to enforce it.

The length of a short circuit is twice the distance from the middle to the end

OK. So who are we supposed to write the check out to? And how do I/they keep track? Do I have to get my biodiesel reactor inspected for volume it contains? Is there ANY bureaucratic infrastructure?

NOT that I want any...but if I want to be entirely, cleanly, rub-the-IRS's-nose-in-it legal, HOW ARE WE SUPPOSED TO DO IT?

I think I posted something on that topic a while back. If you can't find it, the IRS Pubs are a good place to start. The IRS can also help (but you might still get bad advice as noted above). A decent CPA or Enrolled Agent can also help.

If I recall correctly, you can file a form (sorry, I don't recall the number) to comply with the federal law, but it can be impossible to comply with the law in some states. The law of many states is geared toward large operators and volumes of fuel and require large bonds. They don't all make it as easy as the Feds to comply A CPA or EA practicing in your state might be able to help you with state compliance.

There are no taxes on commercial B100 or home produced biodiesel.

Sohj, you can send that check to Tilly From Paradise care of your favourite numbered Swiss bank account.

Tilly SBC/IBA Counting House div

Matter is fundamentally lazy:- It always takes the path of least effort
Matter is fundamentally stupid:- It tries every other path first.
That is the heart of physics - The rest is details.

Your all so lucky, diesel costs the equvilent of over $5 per gallon in Britain, if we paid as little as you do, I doubt many people would bother with making their own fuel..

veggie oil rookie.

Here's some fuel tax compliance info from the NBB:

http://www.biodiesel.org/news/taxincentive/IRS_Fuel_Tax..._Document_121604.pdf

I'm a newbie and this is my first post. When I first got interested in this I called an alternative fuel hotline (I'll try to look up where it was) and asked about how wvo was taxed. The lady told me in no uncertian terms that wvo was not recognized by the EPA as a motor vehicle fuel, and it was therefor illegal to use it. By doing so I was at risk of being fined, drawn, quartered and subjected to many other unpleasantries. So the question is, how can you pay taxes on an illegal activity? I would have no problem paying some tax on this stuff but apparently we are a bunch of outlaws. I also thought there was a provision in the tax laws which allowed 400 gallons of home brew to be tax free per quarter. Whaddaya think?

Hello,
If anyone asks... I found this on the net and copy and pasted it FYI...
I live in CA and recently contacted the CARB to inquire about what could be done to make it legal to use and pay taxes on VO fuel. The response from CARB is that VO is not considered a (legal) fuel in CA. It seems that for a fuel to be considered legal it must first be tested... The Biodiesel folks did this and got it accepted as a legal fuel... However no one has done this with VO and untill they do?????? I guess it won't be leagal... some other considerations... if you had a car that burns wood is it legal? There is no tax on wood and it is a fuel... but not a recognized leagal fuel no matter how clean you burn it... CA BOE ( http://www.BOE.CA.GOV )does have a provision to collect an .18 cents per gallon tax commercial user of fuel like LPG, LNG, CNG, and alchol fuel if the vehicle exceeds 26,000 lbs. I called them and after a long conversation with a Mr. French... it was determined that basically if you don't fit into the boxes it throws them a curve and they really don't know what to do... He suggested I contact the IRS and fill out a form 673 then submit an application as a blender to the CA BOE. The review board would then make a visit to my site and come up with a determination if the VO would be an allowed motor fuel. I then asked if I added the VO to diesel fuel already in my tank what percentage could I used and still be in compliance without paying taxes? Initially he said that he thought any amount added to fuel was OK as long as taxes were paid on the diesel....but then recanted saying I should submit it for a determination..... I also asked about taxing electric vehicles and he responded that they were trying to figure out how to do that... I hope someone finds this helpfull.. Me? I don't think I'll be inviting the IRS and the fire dept. and every other city county and state angency over to my place for some Nog and holiday cheer any time soon... So for now we'll fly under the radar untill we're spotted.... and deal with it when it becomes an issue...
Anonymous....