Changes to Diesel Tax Rules Impacts Farmers

WASHINGTON - Farmers need to be aware of recent tax law changes to take advantage of the exemption from excise tax on diesel fuel used for farming according to the Internal Revenue Service. The recently-passed Omnibus Budget Reconciliation Act (OBRA) of 1993 changes the taxation of diesel fuels used on a farm for farming purposes, effective January 1, 1994.

Under prior law, the Internal Revenue Service says, farmers could either purchase diesel fuel tax-free using a certificate of exemption, Form 637, or purchase diesel fuel on which the tax had been paid. Farmers who purchased tax-paid fuel could apply for a refund or credit for the tax.

Under the new law, farmers still have an option. They may purchase specially-dyed fuel that is tax exempt. The dye shows that the fuel is destined for a tax-exempt use, such as farming. Farmers may also purchase clear fuel that has already been taxed. In this case, a registered ultimate vendor, i.e., the final seller, subtracts the 22.4-cent-per-gallon excise tax from the purchase price. The seller, not the farmer, files the claim for refund of the tax paid.

As farmers purchase fuel after December 31, 1993, they should keep these new rules in mind. They can no longer purchase the clear, tax-paid diesel fuel and get a credit or refund for taxes paid.

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