Publication 378: Fuel Tax Credits and Refunds; Chapter 2

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Table of Contents

This chapter provides definitions of the terms used in Table 1–1 for nontaxable uses. If applicable, the type of use number from Table 1–1 is indicated in each heading.

On a Farm for Farming Purposes (No. 1)

On a farm for farming purposes means fuel used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes.

If undyed diesel fuel or undyed kerosene is used on a farm for farming purposes, the claim is made by the registered ultimate vendor.

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

Farming purposes. As an owner, tenant, or operator, you use fuel on a farm for farming purposes if you use it in any of the following ways.

To cultivate the soil or to raise or harvest any agricultural or horticultural commodity.
To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife.
To operate, manage, conserve, improve, or maintain your farm and its tools and equipment.
To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. For this use to qualify, you must have produced more than half the commodity so treated during the tax year. Commodity means a single raw product. For example, apples and peaches are two separate commodities.
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. Your tree operations will be incidental only if they are minor in nature when compared to the total farming operations.

If any other person, such as a neighbor or custom operator, performs a service for you on your farm for any of the purposes listed in (1) or (2), you are considered to be the ultimate purchaser that used the fuel on a farm for farming purposes. However, see Custom application of fertilizer and pesticide, next.

If doubt exists whether the owner, the tenant, or the operator of the farm bought the fuel, determine who bore the cost of the fuel. For example, if the owner of a farm and the tenant equally share the cost of gasoline that is used on a farm for farming purposes, each can claim a credit for the tax on one-half the fuel used.

Custom application of fertilizer and pesticide. The use of fuel in the aerial or other application of fertilizer, pesticides, or other substances is a use of fuel on a farm for farming purposes. In the case of gasoline and aviation fuel, you, as the owner, tenant, or operator, may waive your right to be treated as the ultimate purchaser. If you waive your right, the applicator is treated as having used the gasoline or aviation fuel on a farm for farming purposes. See Chapter 18 of Pub. 225, Farmer's Tax Guide, for a sample waiver.

To waive your right to be treated as the ultimate purchaser, you must take all the following actions.

Before the applicator files his or her claim, execute in writing an irrevocable agreement stating that you knowingly give up your right to the credit or refund. You may authorize an agent, such as a cooperative, to sign the waiver for you.
Identify clearly the period the waiver covers.

The applicator must retain a copy of the waiver and give you a copy. Do not send a copy to the Internal Revenue Service unless requested to do so.

The waiver may be a separate document or it may appear on an invoice or another document from the applicator. If the waiver appears on an invoice or other document, it must be printed in a section clearly set off from all other material, and it must be printed in type sufficiently large to put you on notice that you are waiving your right to the credit or refund. If the waiver appears as part of an invoice or other document, it must be signed separately from any other item that requires your signature.

The effective period of the waiver cannot extend beyond your tax year. When the period covered by the waiver extends beyond the applicator's tax year, the applicator can only claim a credit or refund for gasoline used in the part of the waiver period included in the applicator's tax year. The applicator must wait until the next tax year to file a claim for gasoline used in the rest of the waiver period.

Fuel not used for farming. Fuel is not used on a farm 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.

Off-Highway Business Use (No. 2)

Off-highway business use means fuel used in a trade or business or in an income-producing activity other than as a fuel in a highway vehicle registered or required to be registered for use on public highways. The terms “registered ”, “highway vehicle” and “public highway” are defined below. Do not consider any use in a boat as an off-highway business use.

Off-highway business use includes fuels used in any of the following ways.

In stationary machines such as generators, compressors, power saws, and similar equipment.
For cleaning purposes.
In forklift trucks, bulldozers, and earthmovers.

Generally, this use does not include nonbusiness use of fuel, such as use by minibikes, snowmobiles, power lawn mowers, chain saws, and other yard equipment.

Example.

Caroline owns a landscaping business. She uses power lawn mowers and chain saws in her business. The gasoline used in the power lawn mowers and chain saws qualifies as fuel used in an off-highway business use. The gasoline used in her personal lawn mower at home does not qualify.

Highway vehicle. A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following.

A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer).
A special kind of cargo, goods, supplies, or materials.
Some off-highway task unrelated to highway transportation, except as discussed next.

Vehicles not considered highway vehicles. Generally, the following kinds of vehicles are not considered highway vehicles.

Specially designed mobile machinery for nontransportation functions. A self-propelled vehicle is not a highway vehicle if all the following apply.
1. The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways.
2. The chassis has been specially designed to serve only as a mobile carriage and mount for the machinery or equipment, whether or not the machinery or equipment is in operation.
3. The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load.
Vehicles designed for off-highway transportation. A self-propelled vehicle is not a highway vehicle if both of the following apply.
1. The vehicle is designed primarily to carry a specific kind of load other than over the public highway for certain operations (construction, manufacturing, mining, processing, farming, drilling, timbering, or similar operations).
2. The vehicle's use in carrying this load over public highways is substantially limited or impaired because of its design. To make this determination, you can take into account whether the vehicle can travel at regular highway speeds, requires a special permit for highway use, or is overweight, overheight, or overwidth for regular highway use.

Public highway. A public highway includes any road in the United States that is not a private roadway. This includes federal, state, county, and city roads and streets.

Registered. A vehicle is considered registered when it is registered or required to be registered for highway use under the law of any state, the District of Columbia, or any foreign country in which it is operated or situated. Any highway vehicle operated under a dealer's tag, license, or permit is considered registered. A highway vehicle is not considered registered solely because a special permit allows the vehicle to be operated at particular times and under specified conditions.

Dual use of propulsion motor. Off-highway business use does not include any fuel used in the propulsion motor of a registered highway vehicle even though that motor also operates special equipment by means of a power take-off or power transfer. It does not matter if the special equipment is mounted on the vehicle.

Example.

The motor of a registered concrete-mixer truck operates both the engine and the mixing unit by means of a power take-off. The fuel used in the motor to run the mixer is not off-highway business use.

Use in separate motor. Off-highway business use includes fuel used in a separate motor to operate special equipment, such as a refrigeration unit, pump, generator, or mixing unit. If you draw fuel from the same tank that supplies fuel to the propulsion motor, you must figure the quantity used in the separate motor operating the special equipment. You may make a reasonable estimate based on your operating experience and supported by your records.

You can use devices that measure the miles the vehicle has traveled (such as hubometers) to figure the gallons of fuel used to propel the vehicle. Add to this amount the fuel consumed while idling or warming up the motor before propelling the vehicle. The difference between your total fuel used and the fuel used to propel the vehicle is the fuel used in the separate motor.

Example.

Hazel owns a refrigerated truck. It has a separate motor for the refrigeration unit. The same tank supplies both motors. Using the truck's hubometer, Hazel figures that 90% of the fuel was used to propel the truck. Therefore, 10% of the fuel is used in an off-highway business use.

Fuel lost or destroyed. You cannot treat fuel lost or destroyed through spillage, fire, or other casualty as fuel used in an off-highway business use.

Export (No. 3)

Export means fuel removed from the United States with the intention that the fuel remain in a foreign country or possession of the United States.

In a Boat Engaged in Commercial Fishing (No. 4)

In a boat engaged in commercial fishing means fuel used in taking, catching, processing, or transporting fish, shellfish, or other aquatic life for commercial purposes, such as selling or processing the catch, on a specific trip basis. They include boats used in both fresh and salt water fishing. They do not include boats used for both sport fishing and commercial fishing on the same trip.

Buses

In Certain Intercity and Local Buses (No. 5)

In certain intercity and local buses means fuel used in 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 operations if the seating capacity of the bus is at least 20 adults, not including the driver. Vans and similar vehicles used for van-pooling or taxi service do not qualify.

Available to the general public. This means you offer service to more than a limited number of persons or organizations. If a bus operator normally provides charter operations through travel agencies but has buses available for chartering by the general public, this service is available to the general public. A bus does not qualify when its operator uses it to provide exclusive services to only one person, group, or organization.

For Diesel Fuel in a Qualified Local Bus (No. 6)

In a qualified local bus means fuel used in a bus meeting all the following requirements.

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 is receiving more than a nominal subsidy from) any state or local government to furnish the transportation.

Intracity passenger land transportation. This is the 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.

Under contract. 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.

More than a nominal subsidy. 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.

In a School Bus (No. 7)

In a school bus means fuel used in a bus engaged in the transportation of students or 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.

For Diesel Fuel and Kerosene Used Other Than as a Fuel (No. 8)

Diesel Fuel and Kerosene

Diesel fuel and kerosene used other than as a fuel in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train (not including off-highway business use), means diesel fuel and kerosene used in the following ways:

For home heating, lighting, and cooking.
In boats.
For any of the following nonbusiness uses.

In stationary machines, such as generators and compressors.
For cleaning purposes.
In minibikes and snowmobiles.

In Foreign Trade (No. 9)

In foreign trade means fuel used in civil aircraft employed in foreign trade or trade between the United States and any of its possessions. In the case of aircraft registered in a foreign country, the country must allow reciprocal benefits for aircraft registered in the United States.

Certain Helicopter and Fixed-Wing Air Ambulance Uses (No. 10)

Certain helicopter uses. Certain helicopter uses means fuel used by a helicopter for any of the following purposes.

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

During a use described in items (1) and (2), the helicopter must 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. For item (1), treat each flight segment as a separate flight.

Fixed-wing air ambulance uses. Fixed-wing air ambulance uses means fuel used by a fixed-wing aircraft providing emergency medical services. The aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services.

For Aviation Fuel Used Other Than as a Fuel (No. 11)

Aviation fuel used other than as a fuel in the propulsion engine of an aircraft means aviation fuel used in the following ways.

In stationary machines, such as generators and compressors.
For cleaning purposes.
In vehicles.

In a Highway Vehicle Owned by the United States That is Not Used on a Highway (No. 12)

In a highway vehicle owned by the United States that is not used on a highway means fuel used in a vehicle was not used on public highways during the period covered by the claim. This use applies whether or not the vehicle is registered or required to be registered for highway use.

Exclusive Use by a Nonprofit Educational Organization (No. 13)

Exclusive use by a nonprofit educational organization means fuel used by an organization exempt from income tax under section 501(a) of the Internal Revenue Code that meets both of the following requirements.

It has a regular faculty and curriculum.
It has a regularly enrolled body of students who attend the place where the instruction normally occurs.

A nonprofit educational organization also includes a school operated by a church or other organization described in section 501(c)(3) of the Internal Revenue Code if the school meets the above requirements.

Exclusive Use by a State, Political Subdivision of a State, or the District of Columbia (No. 14)

If undyed diesel fuel or undyed kerosene is used by a state, the claim is made by the registered ultimate vendor.

Exclusive use by a state, political subdivision of a state, or the District of Columbia means fuel purchased by the state or local government for its exclusive use. A state or local government is any state, any political subdivision thereof, or the District of Columbia. An Indian tribal government is treated as a state only if the fuel is used in an activity that involves the exercise of an essential tribal government function. Gasoline, diesel fuel, and kerosene used by the American Red Cross is considered to be the use of these fuels by a state.

In an Aircraft or Vehicle Owned by an Aircraft Museum (No. 15)

In an aircraft or vehicle owned by an aircraft museum means fuel used in an aircraft or vehicle is owned by an organization that meets all the following requirements.

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

The aircraft or vehicle (such as a ground servicing vehicle for aircraft) must be used exclusively for the purposes described in item (3).

In Military Aircraft (No. 16)

In a military aircraft means fuel used in an aircraft owned by the United States or any foreign nation and constituting a part of its armed forces.

In Commercial Aviation (Other Than Foreign Trade)

In commercial aviation (other than foreign trade) means fuel used in an aircraft in the business of transporting persons or property by air for pay. However, commercial aviation does not include any of the following.

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.
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 of the group. The determination of whether an aircraft is available for hire by nonmembers is made on a flight-by-flight basis.

Use in a Train

Use in a train means fuel used in the propulsion engine of equipment or machinery that rides on rails. This includes use in a locomotive, work train, switching engine, and track maintenance machine.

Chapter 2 - Definitions