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Are You Taking Advantage of the Off-Highway Fuel Tax Credit?

Posted on 01/22/12

When we purchase gasoline, part of the cost per gallon is an excise tax that goes toward maintaining our highways and roads.  However, in construction and other industries, it is common to utilize gas-operated machinery or equipment such as generators, compressors, mowers, excavators, etc. that are not used on roadways.  In such cases, what happens to the portion of the gasoline cost that is allocated toward highway maintenance?  The IRS provides a mechanism to request a refund of the tax paid on the gallons of fuel used for off-highway purposes.  A refund is requested by filing Form 4136 Credit for Federal Tax Paid on Fuels on their annual tax return.  If the refunds are in excess of $750 per quarter, Schedule 1 of Form 8849 Claim for Refund of Excise Taxes can be filed quarterly.

How is the Refund Calculated?

The refunded amount is determined by multiplying the number of gallons used times the current tax rate imposed.  Currently the rates are generally as follows:

  • Regular gas credit $0.184
  • Undyed Diesel Fuel $0.244
  • Other special rules and rates may apply depending on activity

The refund can also be used toward mobile machinery that is permanently mounted to a vehicle chassis.  However, it cannot be applied toward vehicles required to be registered for highway use under any State laws or motorboats (there are some exceptions for fishing vessels.)

How is the Deduction Substantiated?

The regulations do require specific information to be kept by the taxpayer for at least three years from the filing date.  It includes the following:

  • Gallons of fuel purchased
  • Date of purchase
  • Vendor name and address
  • Purpose of fuel
    • Highway or off-highway
    • If dual-purpose, amount used for each and how it was determined

While this data is not attached to the tax return, it is needed to substantiate the deduction.

How Can this Impact Your Business?

A few years back, we obtained a new tax client.  Upon review, we identified that the client was not taking advantage of this credit.  They now get a tax refund of approximately $3,000 per year by using this opportunity.

Some states provide additional refund opportunities.  For example, Florida allows a credit for undyed diesel fuel used for off-road purposes.

The Off-Highway Fuel Tax Credit is a tax savings that is often overlooked.  You want to make sure your business doesn’t miss this credit opportunity.  If you have questions or would like more information on the Off-Highway Fuel Tax Credit, please contact your Kerkering Barberio tax professional at 941-365-4617.

About the Author

Dan Harris

Kerkering, Barberio & Co.
1990 Main Street, Suite 801
Sarasota, FL 34236
(941) 365-4617

Dan Harris, CPA, is a manager, and his areas of practice include individual and business tax and general small business accounting. His primary focus is working in the construction industry. He also performs cost segregation studies.

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