If you buy large amounts of gas or diesel fuel, you probably know how supply, demand, international markets, and production impact fuel prices. However, did you know that taxes make up about 20% of the cost of gas and diesel? The federal government levies heavy taxes for both gas and diesel fuel. Moreover, states impose taxes that will vary, and even counties can impose local taxes.
Fuel taxes are collected to pay for public road maintenance and repair. That means these taxes are not imposed for diesel and gas that is used for off-road or non-public road purposes. These taxes pay for programs that are important to commercial shippers, but what about off-road fleets? If your business operates off-road, but you do not always use red diesel fuel, you must know how you can recoup those taxes.
Exemptions apply at the time of purchase
There are a few ways for companies that operate off-road fleets to avoid fuel taxes. The easiest is purchasing tax-exempt diesel fuel, known as dyed or red diesel. This product is dyed red in order to identify it as tax-exempt and to be used only for approved purposes. If you use this type of diesel, you don’t need to file for a tax rebate.
Red diesel fuel is not designed for use on public roads, although it isn’t chemically any different than other type. Dyed products are designated for farming, construction, and sometimes home-heating purposes. Red diesel is used to power trailers, generators, and various types of heavy machinery.
It is illegal for anyone to use dyed fuel for public road uses. If you are caught using it for a commercial truck, you could be subject to fines and other criminal penalties. These penalties include paying the unpaid taxes and interest. Even if the dyed variants are mixed with regular diesel, you will be forced to pay the taxes on the full tank. The government will not differentiate between the dyed and undyed diesel if you use it illegally. Investigators are permitted to pull over your vehicle and test the fuel to see if any dye is present in the tank at any time.
Dyed diesel is unavailable for consumer purchase. Most of it is sold by special retailers in bulk to commercial firms. Therefore, if a consumer gas producer tries to sell your company dyed diesel fuel, it may not be legal.
Requesting a diesel fuel tax refund
Given the risks stated above, you may opt to file for a fuel tax refund rather than use dyed diesel fuel for off-road business purposes. Alternatively, what if you use dyed diesel for both on- and off-road purposes? It can be complicated to store almost identical fuels in separate tanks to avoid violating excise tax rules. Some companies purchase taxed diesel fuel and then request a refund to make their processes more efficient.
To obtain a refund, you must report the diesel your company has used for off-road purposes and file with both federal and state government agencies. Each state has its guidelines on what uses are approved for tax-exempt dyed diesel, which can differ from federal regulations. Make sure you carefully review both federal and state rules regarding fuel refunds and prepare your reports accordingly.
To prepare your tax report efficiently, your company should implement a tracking system for the use and consumption of all your fuels. The system should track how much fuel is used, when it is used, and for what purposes. Although it should provide you with the data you need, you should always speak with a tax professional about your system to make sure everything is correct.
Get high-quality red diesel fuel from a reliable fuel supplier
If you would like to purchase red diesel or other fuel products, contact the experts at Kendrick Oil today. We offer a wide variety of bulk fuel products and related services in Texas, Kansas, New Mexico, Oklahoma, Colorado, and Louisiana. Call us at (806) 250-3991 or Contact Us by email to learn more about What We Offer.