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. However, the rate for fuel for a diesel-powered train is 4.4 cents a gallon. The rate for delivery into the fuel supply tank of certain intercity or local buses is 7.4 cents a gallon.

Liability for tax.   Generally, the operator of the vehicle, bus, or train into which the fuel is delivered is liable for the tax. In addition, the seller of the diesel fuel or kerosene is jointly and severally liable for the tax if the seller knows or has reason to know that the fuel will be used for other than a nontaxable use. Generally, a seller of diesel fuel or kerosene is not liable for tax on fuel delivered into the fuel supply tank of a bus or train. However, the person that delivers the fuel into the fuel supply tank of a train, rather than the train operator, is liable for the tax if, at the time of delivery, the deliverer and the train operator are both registered by the IRS as train operators and a written agreement between them requires the deliverer to pay the tax.

Exemptions from the back-up tax.   The back-up tax does not apply to a delivery of diesel fuel or kerosene for uses (1) through (8) listed under Nontaxable Uses, next.

In addition, since the back-up tax is imposed only on the delivery into the fuel supply tank of a diesel-powered vehicle, bus, or train, the tax does not apply to diesel fuel or kerosene used as heating oil or in stationary engines.

Nontaxable Uses

The following are nontaxable uses of diesel fuel and kerosene.

1. Use on a farm for farming purposes (discussed later).
2. Exclusive use by a state (defined earlier under Gasoline).
3. Use in a vehicle owned by an aircraft museum (as discussed later under Aviation Fuel).
4. Use in a school bus (discussed later).
5. Use in a qualified local bus (discussed later).
6. Use in a highway vehicle that:
   1. Is not registered (and is not required to be registered) for highway use under the laws of any state or foreign country, and
   2. Is used in the operator's trade or business or for the production of income.
7. Exclusive use by a nonprofit educational organization.
8. Use in a highway vehicle owned by the United States that is not used on a highway.
9. Exported.
10. Use other than as a fuel in a propulsion engine of a diesel-powered highway vehicle (such as home heating oil).
11. Use as a fuel in a propulsion engine of a diesel-powered train (subject to back-up tax, discussed earlier).
12. Use in an intercity or local bus meeting certain qualifications, discussed later (subject to back-up tax, discussed earlier).

Used on a farm for farming purposes.   Diesel fuel or kerosene is used on a farm for farming purposes only if used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes.

Farm.   A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, and truck farms, orchards, plantations, ranches, nurseries, ranges, and feedyards for fattening cattle. It also includes structures such as greenhouses used primarily for raising agricultural or horticultural commodities. A fish farm is an area where fish are grown or raised - not merely caught or harvested.

Farming purposes.   Diesel fuel or kerosene is used on a farm for farming purposes if it is bought by the owner, tenant, or operator of the farm and used for any of the following purposes.

1. To cultivate the soil, or to raise or harvest any agricultural or horticultural commodity.
2. To raise, shear, feed, care for, train or manage livestock, bees, poultry, fur-bearing animals, or wildlife.
3. To operate, manage, conserve, improve, or maintain your farm and its tools and equipment.
4. To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity (as provided below).
5. To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if the planting, etc., is incidental to your farming operations (as provided below).

Diesel fuel or kerosene is treated as used on a farm for farming purposes if it is bought by a person other than the owner, tenant, or operator of the farm and used on the farm for any of the purposes in item (1) or (2).

Item (4) applies only if more than one-half of the commodity so treated during the tax year was produced on the farm. Commodity refers to a single raw product. For example, apples would be one commodity and peaches another. The more-than-one-half test applies separately to each commodity.

Item (5) applies if the operations are minor in nature when compared to the total farming operations.

If undyed diesel fuel or undyed kerosene is used on a farm for farming purposes, the fuel is not considered used for any other nontaxable use.

Not used for farming purposes.   Diesel fuel or kerosene is not used for farming purposes if it is used in any of the following ways.

• Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is used in transporting livestock, feed, crops, or equipment.
• For personal use, such as mowing the lawn.
• In processing, packaging, freezing, or canning operations.
• In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar.

Buses.   Diesel fuel or kerosene used in a school bus or in a qualified local bus is used for a nontaxable use and is not subject to excise tax. However, fuel used in an intercity or local bus is subject to a reduced rate of tax.

School bus.   A school bus is a bus engaged in the transportation of students and employees of schools. A school is an educational organization with a regular faculty and curriculum and a regularly enrolled body of students who attend the place where the educational activities occur.

Qualified local bus.   A qualified local bus is a bus meeting all the following tests.

• It is engaged in furnishing (for compensation) intracity passenger land transportation available to the general public.
• It operates along scheduled, regular routes.
• It has a seating capacity of at least 20 adults (excluding the driver).
• It is under contract with (or receiving more than a nominal subsidy from) any state or local government to furnish that transportation.

Intracity passenger land transportation means land transportation of passengers between points located within the same metropolitan area. It includes transportation along routes that cross state, city, or county boundaries if the routes remain within the metropolitan area.

A bus is under contract with a state or local government only if the contract imposes a bona fide obligation on the bus operator to furnish the transportation. A subsidy is more than nominal if it is reasonably expected to exceed an amount equal to 3 cents multiplied by the number of gallons of fuel used in buses on subsidized routes.

A company that operates its buses along subsidized and unsubsidized intracity routes may consider its buses qualified local buses only when the buses are used on the subsidized intracity routes.

Intercity or local bus.   A reduced tax of 7.4 cents a gallon is imposed on dyed fuel delivered into the fuel supply tank of an intercity or local bus. (See Back-Up Tax, earlier.) This is a bus engaged in furnishing (for compensation) passenger land transportation available to the general public. The bus must be engaged in one of the following activities.

• Scheduled transportation along regular routes regardless of the size of the bus.
• Nonscheduled transportation if the seating capacity of the bus is at least 20 adults (not including the driver).

A bus is available to the general public if the bus is available for hire to more than a limited number of persons, groups, or organizations.

Aviation Fuel

Aviation fuel is any liquid (other than gasoline or diesel fuel) that is suitable for use as a fuel in an aircraft.

Taxable Event

Tax of 21.9 cents per gallon is imposed on the sale or use of aviation fuel by its producer or importer. The producer or importer is liable for the tax.

Additional persons liable.   When the person liable for the tax willfully fails to pay the tax, joint and several liability for the tax is imposed on:

• Any officer, employee, or agent of the person who is under a duty to ensure the payment of the tax and who willfully fails to perform that duty, or
• Anyone who willfully causes the person to fail to pay the tax.

Producers.   Producers include refiners, blenders, and wholesale distributors of aviation fuel and dealers selling aviation fuel exclusively to producers of aviation fuel if these persons have been registered by the IRS. The term also includes the actual producer of aviation fuel. See Registration for Certain Activities, earlier.

Any person buying aviation fuel at a reduced rate is the producer of that fuel.

Wholesale distributors.   To qualify as a wholesale distributor, you must hold yourself out to the public as being engaged in the trade or business of either of the following.

1. Selling aviation fuel to producers or retailers or to users who purchase in bulk quantities (25 gallons or more) and accept delivery into bulk storage tanks and one of the following applies.
   1. At least 30% of your sales of aviation fuel during the preceding 12-month period are to these buyers, or
   2. At least 50% of the volume of aviation fuel is sold to these buyers and at least 500 of your sales during the preceding 12-month period are made to these buyers, or
2. Selling aviation fuel for nontaxable uses (such as use on a farm for farming purposes) and sell at least 70% of your volume of aviation fuel during the preceding 12-month period to these users.

Bulk storage tanks.   A bulk storage tank is a container that holds at least 50 gallons and is not the fuel supply tank of any engine mounted on, or attached to, an aircraft.

Refunds of Prior Tax

A registered aviation fuel producer holding aviation fuel on which a prior tax was paid (and not credited or refunded), can get a refund (without interest) of the tax. Generally, this applies when a producer buys taxed fuel from a retailer. No credit against any tax is allowed.

Conditions to allowance of refund.   A claim for refund of the tax is allowed only if all the following conditions are met.

1. A tax on the aviation fuel was paid to the government by an importer or producer (the first producer) and the tax has not been credited or refunded.
2. After the tax was imposed, the fuel was acquired by a registered aviation fuel producer (the second producer).
3. The second producer has filed a timely claim for refund that contains the information required (see Refund claim, later).
4. The first producer and any person that owns the fuel after its sale by the first producer and before its purchase by the second producer (a subsequent seller) have met the reporting requirements, discussed next.

Reporting requirements.   Generally, the first producer must file a report (the first producer's report). A model first producer's report is shown in Appendix C as Model Certificate H. The report must contain all information needed to complete the model.

Providing information.   The first producer must give a copy of the report to the person to whom the first producer sells the aviation fuel.

Each subsequent seller must give to its buyer a statement that provides all the information necessary to complete the Statement of Subsequent Seller (Aviation Fuel) shown in Appendix C as Model Certificate I. The statement can be at the bottom or on the back of the copy of the first producer's report (or in an attached document).

If the first producer's report relates to aviation fuel divided among more than one buyer, copies of that report should be made when the fuel is divided and a copy given to each buyer.

Refund claim.   You must make your claim for refund on Form 8849. Complete Schedule 6 (Form 8849) and attach it to Form 8849. Do not include this claim with a claim under another tax provision. See the form instructions for how and where to file the claim. You must attach all the following information to Schedule 6.

• Volume and type of aviation fuel.
• Date on which you acquired the aviation fuel included in the claim.
• Amount of tax on the fuel the first producer paid to the government and a statement that you have not included this tax in the sales price of the fuel and have not collected it from any buyer.
• A copy of the first producer's report that relates to the aviation fuel covered by the claim (discussed earlier).
• A copy of any statement of subsequent seller that you received with respect to the aviation fuel.

Aviation Fuel Exemptions

Registered producers may sell aviation fuel tax free or at a tax-reduced rate for sales to the persons or for the nontaxable uses described below, but only if certain prescribed conditions are met. No seller of aviation fuel is eligible to claim a credit or refund for aviation fuel used by the buyer for a nontaxable use.

Sales to other producers.   Registered producers may sell aviation fuel tax free to other registered producers of aviation fuel. The buyer must give the seller a written statement containing the buyer's registration number.

Sales for nontaxable uses.   A registered producer may sell aviation fuel tax free for any of the following uses.

• Use other than as a fuel in the propulsion engine of an aircraft (such as use as heating oil).
• Use in military aircraft owned by the United States or a foreign country.
• Use in a domestic air carrier engaged in foreign trade or trade between the United States and any of its possessions.
• Use in a foreign air carrier engaged in foreign trade or trade between the United States and any of its possessions, but only if the country in which the foreign carrier is registered allows U.S. carriers reciprocal privileges. For a list of these countries, see Revenue Ruling 74-346 in Cumulative Bulletin 1974-2, Revenue Ruling 75-109 in Cumulative Bulletin 1975-1, and Revenue Rulings 75-398 and 75-526 in Cumulative Bulletin 1975-2.
• Use on a farm for farming purposes, as discussed earlier under Diesel Fuel and Kerosene.
• Use in an aircraft or vehicle owned by an aircraft museum, discussed next.
• Certain helicopter and fixed-wing air ambulance uses, discussed later.
• Exclusive use by a state, as discussed earlier under Gasoline.
• Exclusive use by the United Nations.
• Exclusive use by a nonprofit educational organization.
• Export.

A buyer for these uses gives its supplier a signed exemption certificate stating the buyer's name, address, employer identification number, registration number (if applicable), and intended use. A buyer may give a separate exemption certificate for each purchase or may give one certificate to cover all purchases from a particular seller for up to 1 year.

Aircraft museums.   Aviation fuel may be sold tax free for use in an aircraft or vehicle (such as a ground servicing vehicle for aircraft) owned by an aircraft museum and used exclusively for purposes described in item (3) of the following definition.

An aircraft museum is an organization with all the following characteristics.

1. It is exempt from income tax as an organization described in section 501(c)(3) of the Internal Revenue Code.
2. It is operated as a museum under a state (or District of Columbia) charter.
3. It is operated exclusively for acquiring, exhibiting, and caring for aircraft of the type used for combat or transport in World War II.

Certain helicopter uses.   Aviation fuel may be sold tax free for use in a helicopter used for one of the following purposes.

1. Transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals, oil, or gas.
2. Planting, cultivating, cutting, transporting, or caring for trees (including logging operations).
3. Providing emergency medical transportation.

For items (1) and (2), this applies if the helicopter does not take off from, or land at, a facility eligible for assistance under the Airport and Airway Development Act of 1970, or otherwise use services provided pursuant to section 44509 or 44913(b) or subchapter I of chapter 471 of title 49, United States Code, during such use. For item (1), each flight segment is treated as a separate flight.

Fixed-wing air ambulance uses.   Aviation fuel may be sold tax free for use in a fixed-wing aircraft providing emergency medical transportation. The exemption applies if the aircraft is equipped for, and exclusively dedicated on that flight to, acute care emergency medical services.

Sales to commercial airlines.   Registered producers may sell aviation fuel at the tax-reduced rate of 4.4 cents a gallon to a registered commercial aircraft operator for use as a fuel in commercial aviation (other than foreign trade). See Registration for Certain Activities, earlier.

Commercial aviation is any use of an aircraft in the business of transporting persons or property by air for pay. However, commercial aviation does not include any of the following uses.

• Any use of an aircraft that has a maximum certificated takeoff weight of 6,000 pounds or less, unless the aircraft is operated on an established line. For more information, see Small aircraft under Special rules on Transportation Taxes, earlier.
• Any use exclusively for the purpose of skydiving.
• Any use of an aircraft owned or leased by a member of an affiliated group and unavailable for hire by nonmembers. For more information, see Aircraft used by affiliated corporations under Special Rules on Transportation Taxes, earlier.

To buy at a tax-reduced rate, the airline gives the seller a signed exemption certificate stating the buyer's name, address, employer identification number, registration number, and intended use of the fuel. An airline may give a separate exemption certificate for each purchase or may give one certificate to cover all purchases from a particular seller for up to 1 year.

Credits or Refunds

A credit or refund is allowable to the ultimate purchaser for taxed aviation fuel used for a nontaxable use. See Publication 378.

Special Motor Fuels

Special motor fuel means any liquid fuel including liquefied petroleum gas, liquefied natural gas, benzol, benzene, and naptha. However, gasoline, diesel fuel, kerosene, gas oil, and fuel oil do not qualify as special motor fuel.

Special motor fuels/alcohol mixture.   This is a blend of alcohol with special motor fuels. The blend must be at least 10% alcohol that is 190 proof or more. Figure the proof of any alcohol without regard to any added denaturants.

The alcohol includes methanol or ethanol. This includes methanol produced from methane gas formed in waste disposal sites. But it does not include alcohol produced from petroleum, natural gas, coal (including peat), or any derivative or product of these items.

Treat the separation of special motor fuel from an alcohol mixture on which tax has been imposed at a rate for special motor fuels/alcohol mixture as a sale of special motor fuel. The tax on the sale is imposed on the person who makes the separation. Reduce the tax on special motor fuel by the tax already paid on the alcohol mixture.

Qualified methanol and ethanol fuels.   A special rate applies to these fuels. These fuels consist of at least 85% methanol, ethanol, or other alcohol produced from a substance other than petroleum or natural gas.

Partially exempt methanol and ethanol fuels.   A special rate applies to these fuels. These fuels consist of at least 85% methanol, ethanol, or other alcohol produced from natural gas.

  

Motor vehicle.   For the purpose of applying the tax on the delivery of special motor fuels, motor vehicles include all types of vehicles, whether or not registered (or required to be registered) for highway use, that have both the following characteristics.

• They are propelled by a motor.
• They are designed for carrying or towing loads from one place to another, regardless of the type of material or load carried or towed.

Motor vehicles do not include any vehicle that moves exclusively on rails, or any of the following items.

Farm tractors	Trench diggers
Power shovels	Bulldozers
Road graders	Road rollers
Similar equipment that does not carry or tow a load

Taxable Event

Tax is imposed on the delivery of special motor fuels into the fuel supply tank of the propulsion engine of a motor vehicle or motorboat. However, there is no tax on the delivery if tax was imposed under the bulk sales rule, discussed later, or the delivery is for a nontaxable use, listed later. If the delivery is in connection with a sale, the seller is liable for the tax. If it is not in connection with a sale, the operator of the vehicle or boat is liable for the tax.

Liquefied petroleum gas (LPG).   Tax is imposed on the delivery of LPG into the fuel supply tank of certain intercity and local buses and qualified local and school buses and must be reported on Form 720 even though a credit or refund may be allowable for LPG used in those buses.

Bulk sales.   Tax is imposed on the sale of special motor fuels that is not in connection with delivery into the fuel supply tank of the propulsion engine of a motor vehicle or motorboat if the buyer furnishes a written statement to the seller stating the entire quantity of the fuel covered by the sale is for other than a nontaxable use, listed later. The seller is liable for this tax.

Tax rate.   The special motor fuels tax rate depends on the type of fuel involved. The tax rate for LPG is shown on Form 720 (IRS No. 61). The tax rates for all other special motor fuels are shown in the Form 720 instructions for other fuels (IRS No. 79).

Nontaxable Uses

The following are nontaxable uses of special motor fuels.

• In an off-highway business use (discussed later).
• Use in a boat engaged in commercial fishing.
• Use on a farm for farming purposes, as discussed earlier under Diesel Fuel and Kerosene.
• By a state for its exclusive use, as discussed earlier under Gasoline.
• By nonprofit educational organizations for their exclusive use, as discussed earlier under Communications Tax.
• By the United Nations for its official use.
• Use in a vehicle owned by an aircraft museum as discussed earlier under Aviation Fuel.
• Use in any boat operated by the United States for its exclusive use or any vessel of war of any foreign nation.

Off-highway business use.   This is use in a highway vehicle that is not registered (or required to be registered) for highway use under the laws of any state or foreign country and is used in the operator's trade or business or for the production of income. It also includes use in a vehicle owned by the United States that is not used on a highway.

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