Motor carrier taxes

Scope

Fuel taxes, state taxes, and sales taxes apply to all motor carriers.

Regulatory citations

• 49 CFR 393 — Parts and accessories necessary for safe operation

Key definitions

• Highway motor vehicle: Any self-propelled vehicle designed to carry a load over public highways.
• Off-highway business use: 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. Off-highway business use includes fuels used in stationary machines such as generators, compressors, power saws, and similar equipment; for cleaning purposes; in forklift trucks, bulldozers, and earthmovers.
• Public highway: Any road in the United States that isn’t a private roadway. This includes federal, state, county, and city roads and streets.

Summary of requirements

Tax on gasoline and diesel fuel is payable to the Internal Revenue Service (IRS) by the person selling the fuel (the seller), who files the appropriate tax return when paying the tax to the IRS. The seller in turn passes the tax on to the purchaser at the pump.

If fuel is purchased and the tax has been paid, but the fuel is used for other than highway use (or the user is entitled to an exemption from paying the tax), a refund or credit of the tax paid may be provided to the purchaser.

If fuel is purchased and no tax has been paid, and it is then used in other than off-highway business or the user is not entitled to an exemption, the user must file Form 720, “Quarterly Federal Excise Tax Return,” and pay the appropriate tax rate.

Refunds of excise tax paid can be applied for quarterly or at year end, depending on the amount being claimed. For further information, see IRS Publication 510, “Excise Taxes.”

Certain nontaxable uses of diesel fuel for which a credit or refund may be available include use in a qualified local bus, a school bus, or under contract for state/local governments. Claims may be made for purchases of diesel fuel used in intercity or local buses.

A registered ultimate vendor who sells undyed diesel fuel to an ultimate purchaser, such as a purchaser of diesel for use in a qualified local bus, may make the claim if the purchaser waives the right to the credit or refund by providing the registered ultimate vendor with a waiver. The registered ultimate vendor must have the waiver at the time the credit or payment is claimed. Model waiver certificate N provided by the IRS can be used. The waiver certificate is provided in the appendix to IRS Publication 510.

Publication 510 also provides information on the most common tax situations and explains the tax law in plain language. It also explains how motor carriers may be able to get a credit or refund for the excise taxes paid on gasoline, diesel fuel, or special motor fuel. However, it should be noted that the information provided does not cover every situation and is not intended to replace the law or change its meaning.

Federal excise tax and exemptions for Auxiliary Power Units (APUs)

The 12% federal excise tax applies to the retail sale of:

• Truck chassis and bodies except truck chassis and bodies suitable for use with a vehicle with a gross vehicle weight (GVW) of 33,000 pounds or less;
• Trailer and semitrailer chassis and bodies except trailer and semitrailer chassis and bodies suitable for use with a vehicle with a GVW of 26,000 pounds or less; and
• Tractors of the kind chiefly use for highway transportation in combination with a trailer or semitrailer, except tractors that have a GVW of 19,500 pounds or less and a gross combined weight of 33,000 pounds or less.

The tax imposed on parts and accessories sold on or in connection with the units listed above and the tax imposed on the separate purchase of parts and accessories for the units listed above don’t apply to an idling reduction device, described next, or to insulation that has an R value of at least R35 per inch.

Idling reduction device means any device or system of devices that provides the tractor with services (such as heat, air conditioning, and electricity) without the use of the main drive engine while the tractor is temporarily parked or stationary. The device must be affixed to the tractor and determined by the Administrator of the EPA, in consultation with the Secretary of Energy and Secretary of Transportation, to reduce idling while parked or stationary.

To claim the exemption, a carrier must ensure that the APU device has been verified by the U.S. Environmental Protection Agency (EPA). Carriers can review EPA’s listing of verified and effective APU devices at https://www.epa.gov/smartway.

Motor carriers must also ensure that all devices installed on their commercial motor vehicles conform to the Federal Motor Carrier Safety Regulations, 49 CFR Part 393, Parts and Accessories Necessary for Safe Operation. Those regulations of particular concern to users of APUs are contained in 393.28, 393.30, and Subpart E of Part 393. These requirements dictate the specifications of installation of wiring and fuel systems for this equipment.

More information is available in the IRS “Instructions to Form 720,” and “Form 720 Quarterly Federal Excise Tax Return.”

State taxes

The state reference area includes information on motor carrier taxes such as corporation taxes, property/ad valorem taxes, sales and use taxes, franchise/gross receipts taxes, and fuel taxes. A few states, such as Connecticut, Kentucky, New York, New Mexico, and Oregon require carriers to file special highway-use taxes. Taxes vary according to the jurisdiction where they are applicable.

Sales taxes

Several states exempt the sale of tractor-semitrailers from sales tax, or may provide reduced sales taxes, as long as the equipment is used in interstate commerce and registered under the International Registration Plan. Conditions may apply to claiming the sales tax exemption; carriers must contact the state taxation departments for more information on legally claiming sales/use tax exemptions.