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Publication 378
Fuel Tax Credits and Refunds
(Revised: 12/2002)


1. Fuels

Federal excise taxes are imposed on certain fuels. This chapter lists the nontaxable uses (described in chapter 2) of each fuel for which a credit or refund of the excise tax may be allowed to an ultimate purchaser. It also covers the credit or refund allowed gasohol blenders and registered ultimate vendors of undyed diesel fuel and undyed kerosene.

CAUTION: The ultimate purchaser of compressed natural gas and special motor fuels other than liquefied petroleum gas used in buses, discussed later, generally does not use taxed fuel for a nontaxable use and no credit or refund would be allowable. These fuels are described in Publication 510.

Type of use table.   Generally, the nontaxable uses listed under each fuel are from Table 1-1, which is contained in the Form 4136 instructions. The first column of the table is the number you enter on Form 4136 for that type of use.

Table 1-1. Type of Use Table
No. Type of Use
1 On a farm for farming purposes
2 Off-highway business use (for business use other than in a highway vehicle registered or required to be registered for highway use)
3 Export
4 In a boat engaged in commercial fishing
5 In certain intercity and local buses
6 For diesel fuel in a qualified local bus
7 In a bus transporting students and employees of schools (school buses)
8 For diesel fuel and kerosene used other than as a fuel in the propulsion engine of a train or diesel-powered highway vehicle (but not off-highway business use)
9 In foreign trade
10 Certain helicopter and fixed-wing air ambulance uses
11 For aviation fuel used other than as a fuel in the propulsion engine of an aircraft

The type of use table in the instructions for Form 8849 contains additional nontaxable uses. These uses are not discussed in this publication because the ultimate purchaser is generally a government entity or a tax-exempt organization.

Gasoline and Gasohol

The term gasoline means all products (including gasohol) commonly or commercially known or sold as gasoline with an octane rating of 75 or more that are suitable for use as a motor fuel. It includes gasoline blendstocks, discussed in Publication 510. Aviation gasoline is discussed later.

Nontaxable Uses

The following are the uses of gasoline and gasohol for which a credit or refund may be allowable to an ultimate purchaser.

  • On a farm for farming purposes (credit only).
  • Off-highway business use.
  • Export.
  • In a boat engaged in commercial fishing.
  • In an intercity or local bus.
  • In a school bus.

Gasohol Blending

A gasohol blender may be allowed a credit or refund for part of the excise tax imposed on gasoline the blender uses to produce gasohol. A gasohol blender is any person that regularly produces gasohol outside of the bulk transfer/terminal system for sale or use in the blender's trade or business.

The amount you may claim is based on the gallons of gasoline used to make gasohol. You cannot take a refund or credit if the gasoline was taxed at a reduced rate.

Gasohol.   Gasohol means a mixture of gasoline and alcohol that satisfies the alcohol-content requirements immediately after the mixture is produced. Alcohol includes ethanol and methanol. Generally, this includes ethanol used to produce ethyl tertiary butyl ether (ETBE) and methanol produced from methane gas formed in waste disposal sites. However, alcohol produced from petroleum, natural gas, coal (including peat), or any derivative or product of these items, and alcohol that is less than 190 proof, do not qualify as alcohol for these rules.

Alcohol-content requirements.   To qualify as gasohol, a mixture must contain a specific amount of alcohol by volume (without rounding). The amount of credit or refund depends on the type of gasohol you blend. There are three types of gasohol.

  • 10% gasohol. This is a mixture that contains at least 9.8% alcohol.
  • 7.7% gasohol. This is a mixture that contains at least 7.55%, but less than 9.8%, alcohol.
  • 5.7% gasohol. This is a mixture that contains at least 5.59%, but less than 7.55%, alcohol.

Any mixture that contains less than 5.59% alcohol is not gasohol.

Figure alcohol content on a batch-by-batch basis. If you splash blend a batch in an empty tank, figure the volume of alcohol (without adjustment for temperature) by dividing the metered gallons of alcohol by the total metered gallons of alcohol and gasoline as shown on each delivery ticket. However, if you add metered gallons of gasoline and alcohol to a tank already containing more than 0.5% of its capacity in a liquid, you must include the alcohol and non-alcohol fuel contained in that liquid in determining the volume of alcohol in that batch.

Example 1.   John uses an empty 8,000 gallon tank to blend alcohol and gasoline. His delivery tickets show that he blended Batch 1 using 7,200 metered gallons of gasoline and 800 metered gallons of alcohol. John divides the gallons of alcohol (800) by the total gallons of alcohol and gasoline delivered (8,000). Batch 1 qualifies as 10% gasohol.

Example 2.   John blends Batch 2 in an empty tank. According to his delivery tickets, he blended 7,220 gallons of gasoline and 780 gallons of alcohol. Because Batch 2 contains only 9.75% alcohol (780 8,000), it qualifies as 7.7% gasohol.

Batches containing at least 9.8% alcohol.   If a mixture contains at least 9.8% but less than 10% alcohol, part of the mixture is considered to be 10% gasohol. To figure that part, multiply the number of gallons of alcohol in the mixture by 10. The result is the number of gallons on which a credit or refund may be claimed if the gasoline in the mixture was taxed at the full rate. The remaining gallons in the mixture are excess liquid on which no credit or refund is allowed.

Example.   John uses an empty 8,000 gallon tank to blend gasoline and alcohol. The delivery tickets show he purchased and blended 7,205 metered gallons of gasoline and 795 metered gallons of alcohol. The gasoline was taxed at the full rate. The batch contains 9.9375% alcohol (795 8,000). John determines that 7,950 gallons (10 795) of the mixture qualifies as 10% gasohol. The other 50 gallons is excess liquid. John reduces the amount of gasoline (7,205 gallons) by the excess liquid (50 gallons) to determine the amount of gasoline used to produce the 10% gasohol. He can claim a refund or credit for part of the excise tax imposed on 7,155 gallons of gasoline. He cannot claim a refund or credit on the 50 gallons of excess liquid.

Batches containing at least 7.55% alcohol.   If a mixture contains at least 7.55% but less than 7.7% alcohol, part of the mixture is considered to be 7.7% gasohol. To figure that part, multiply the number of gallons of alcohol in the mixture by 12.987. The result is the number of gallons on which a credit or refund may be claimed if the gasoline in the mixture was taxed at the full rate. The remaining gallons in the mixture are excess liquid on which no credit or refund is allowed.

Batches containing at least 5.59% alcohol.   If a mixture contains at least 5.59% but less than 5.7% alcohol, part of the mixture is considered to be 5.7% gasohol. To figure that part, multiply the number of gallons of alcohol in the mixture by 17.544. The result is the number of gallons on which a credit or refund may be claimed if the gasoline in the mixture was taxed at the full rate. The remaining gallons in the mixture are excess liquid on which no credit or refund is allowed.

Aviation Gasoline

The term aviation gasoline means all special grades of gasoline suitable for use in aviation reciprocating engines and covered by ASTM specification D 910 or military specification MIL-G-5572.

Nontaxable Uses

The following are the uses of aviation gasoline for which a credit or refund may be allowable to an ultimate purchaser.

  • On a farm for farming purposes (credit only).
  • Export.
  • In foreign trade.
  • Certain helicopter and fixed-wing air ambulance uses.
  • In commercial aviation (other than foreign trade).

Undyed Diesel Fuel and Undyed Kerosene

The term diesel fuel means any liquid that, without further processing or blending, is suitable for use as a fuel in a diesel-powered highway vehicle or train. Diesel fuel does not include gasoline, kerosene, excluded liquid, No. 5 and No. 6 fuel oils covered by ASTM specification D 396, or F-76 (Fuel Naval Distillate) covered by military specification MIL-F-16884.

An excluded liquid is either of the following.

  1. A liquid that contains less than 4% normal paraffins.
  2. A liquid with all the following properties.
    1. Distillation range of 125 degrees Fahrenheit or less.
    2. Sulfur content of 10 ppm or less.
    3. Minimum color of +27 Saybolt.

The term kerosene means any of the following liquids.

  • One of the two grades of kerosene (No. 1-K and No. 2-K) covered by ASTM specification D 3699.
  • Kerosene-type jet fuel (aviation-grade kerosene) covered by ASTM specification D 1655 or military specification MIL-DTL-5624T (Grade JP-5) or MIL-DTL-83133E (Grade JP-8).

Kerosene also includes any liquid that would be described above but for the presence of a dye of the type used to dye kerosene for a nontaxable use.

However, kerosene does not include an excluded liquid, discussed earlier.

Nontaxable Uses

The following are the uses of undyed diesel fuel for which a credit or refund may be allowable to an ultimate purchaser.

  • Off-highway business use.
  • Export.
  • In an intercity or local bus.
  • In a qualified local bus.
  • In a school bus.
  • Used other than as a fuel.
  • In a train.

The following are the uses of undyed kerosene for which a credit or refund may be allowable to an ultimate purchaser.

  • Off-highway business use.
  • Export.
  • In a school bus.
  • Used other than as a fuel.

CAUTION: Only a registered ultimate vendor (blocked pump), discussed later, can claim a credit or refund for any nontaxable use of undyed kerosene if the kerosene is sold from a blocked pump.

Note:   Only a registered ultimate vendor (farming and state use), discussed later, can claim a credit or refund for undyed diesel fuel or undyed kerosene used on a farm for farming purposes or used by a state or local government.

No credit or refund is allowable for any use of dyed diesel fuel and dyed kerosene. You buy these fuels excise tax free. See Publication 510 for more information about these dyed fuels.

Sales by Registered Ultimate Vendors

This section describes registered ultimate vendors that may be allowed a credit or refund of the excise tax imposed on undyed diesel fuel and undyed kerosene.

Registered ultimate vendor (farming and state use).   This is a person that sells undyed diesel fuel or undyed kerosene to any of the following.

  • The owner, tenant, or operator of a farm for use by that person on a farm for farming purposes.
  • A person other than the owner, tenant, or operator of a farm for use by that person on a farm in connection with cultivating, raising, or harvesting.
  • A state or local government for its exclusive use.

The person must be registered by the IRS as an ultimate vendor.

A credit or refund may be allowable to the registered ultimate vendor if the vendor sold undyed diesel fuel or undyed kerosene to any of the users listed.

Registered ultimate vendor (blocked pump).   This is a person that sells undyed kerosene from a blocked pump. The person must be registered by the IRS as an ultimate vendor (blocked pump).

A credit or refund may be allowable to a registered ultimate vendor (blocked pump) if the vendor sold undyed kerosene from a blocked pump for its buyer's use other than as a fuel in a diesel-powered highway vehicle and the vendor had no reason to believe the kerosene would not be used in that manner.

Blocked pump.   A blocked pump is a fuel pump that meets all the following requirements.

  1. It is used to make retail sales of undyed kerosene for use by the buyer in any nontaxable use.
  2. It is at a fixed location.
  3. It is identified with a legible and conspicuous notice stating, UNDYED UNTAXED KEROSENE, NONTAXABLE USE ONLY.
  4. It meets either of the following conditions.
    1. It cannot reasonably be used to dispense fuel directly into the fuel supply tank of a diesel-powered highway vehicle.
    2. It is locked by the vendor after each sale and unlocked by the vendor only in response to a buyer's request for undyed kerosene for use other than as a fuel in a diesel-powered highway vehicle.

Registered ultimate vendor (blending).   This is a taxable fuel registrant (discussed in Publication 510), a registered ultimate vendor, or a registered ultimate vendor (blocked pump).

A credit or refund may be allowable to a registered ultimate vendor (blending) if the vendor sold undyed kerosene in an area described in an IRS declaration of extreme cold for the production of a cold weather blend.

Cold weather blend.   This is a blend of kerosene and diesel fuel produced in an area described in an IRS declaration of extreme cold and sold for use or used for heating purposes.

Aviation Fuel

The term aviation fuel means any liquid, other than gasoline or diesel fuel, that is suitable for use as a fuel in an aircraft.

Nontaxable Uses

The following are the uses of aviation fuel for which a credit or refund may be allowable to an ultimate purchaser.

  • On a farm for farming purposes.
  • Export.
  • In foreign trade.
  • Certain helicopter and fixed-wing air ambulance uses.
  • Used other than as a fuel.
  • In commercial aviation (other than foreign trade).

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