Let’s talk about deals.  What’s a deal?  Think you have one?  Are you happy with your deal?  Some people don’t even know there are deals.

Of course when I say “deals,” I’m talking about fuel discounts; i.e. when you’re not paying the price at the pump, but an adjusted price calculated after the purchase.  This could be off a price index like OPIS (Oil Price Information Service), NYMEX (New York Mercantile Exchange) or DOE (Department of Energy).  A common discount within fleets is OPIS “retail minus.”  Retail minus simply means that you are paying the price at the pump minus that number.  For example: retail minus 5 would be 5 cents off of the pump price.

So what are your deals?  Are they set up through your fuel card?  Do you have someone auditing them to make sure you’re actually receiving them?  Assuming that your deals are OPIS based, you’d need to subscribe to OPIS, have up to date tax information, be aware of freight costs, and take the time to go through every transaction to see they were priced correctly.  Believe me, mistakes are made.  These are not fool proof systems.

Do you think your deal is the best?  How do you know?  The first step would be to compare to similar sized fleets buying fuel in similar areas.  Maybe easier said than done.  Not everyone has a “peak behind the curtains” like we do.  We see tons of deals from all different vendors across the whole country.  We know what you should, or could be, paying and can compare that to what you are currently paying.  If this article hit home at any point, we should chat.  We offer a free analysis and can make you look like a hero by saving you a lot of money on your fuel program.

Periodically throughout the year, I need to update my records for all of the changes made to taxes charged for fuel.  Trust me when I tell you it’s a tedious task to sift through the information scattered across the internet for each state.  Even though there are web sites that consolidate fuel tax rates in one place, identifying potential exemptions takes more research than just glancing at summarized data.  That usually means a visit to a state’s site and digging into their tax regulations.

Since most of you typically don’t get involved in this type of research, I wanted to pass along some information that might save you some money.  However, this is not an all-inclusive guide because that’s just not possible considering tax rates and exemptions are complicated by multiple jurisdictions, fuel types, industries, and other factors.  Specific situations require additional research, but when you purchase fuel and pay Federal and state excise taxes, always consider whether there could be an opportunity to submit a claim for a tax refund if the fuel is used for exempt purposes.

Probably the most widely available excise tax exemption is when fuel is used for off-road purposes.  Construction equipment, farm machinery and generators are all good examples of off-road fuel usage.  Less obvious usage occurs with equipment mounted to an on-road vehicle such as a pump, mixer, compactor, reefer unit, or other PTO device.

In order to claim the refund, it’s important to keep in mind that fuel purchased to operate exempt equipment almost always needs to be tracked separately from the fuel used to propel an on-road vehicle.  This usually requires a separate fueling transaction with a separate receipt.  In addition, for equipment mounted to an on-road vehicle, most states require the exempt fuel to be stored in a separate tank so it is not drawn from the same fuel used to propel the vehicle.  Operationally, it could be a challenge to ensure your drivers take the time to isolate their fueling activity, but this is an important requirement that should not be ignored in order to qualify for the refund.

Companies that purchase substantial quantities of diesel fuel for off-road usage often make arrangements to purchase dyed fuel so they can avoid paying the taxes up front.  This eliminates the need to file a claim for a refund.  For other companies with smaller amounts of off-road usage who don’t purchase dyed fuel, they may feel it’s not worth the time and effort to claim the refund.  However, with combined Federal and state taxes averaging over 50 cents/gallon for diesel fuel, I would argue that they may missing out on a significant refund.

IRS Form 8849 is used for obtaining refunds of Federal excise tax and many states use similar forms.  As far as time and effort goes, believe it or not, these forms are actually not that complicated to prepare.  The hardest part is making sure you have the proper procedures in place to support your claim.

It’s important to mention again that every situation needs to be looked at closely because, in most states, excise taxes and sales taxes are mutually exclusive for fuel.  That means if you are able to claim fuel is exempt from excise tax, then the fuel may become subject to sales tax.  Depending on the price of fuel and the state’s sales tax rate, the offsetting state taxes may net to zero.  You might even owe more state sales tax than you could get back in state excise tax.  In those cases, no action should be taken to claim a refund for the state excise tax.  Don’t let that discourage you because there is still an opportunity to claim a refund for Federal excise tax.  At just over 18 cents per gallon for gasoline and 24 cents for diesel fuel, the refund dollars can still add up quick.

Please feel free to contact Sokolis Group Fuel Management if you have a fuel tax situation that you would like to discuss further.  We are ready to help you avoid overpaying taxes on fuel.

By Howard Abrams
Executive VP, CFO
Sokolis Group