2. Definitions of
Nontaxable Uses
This chapter provides definitions relating to the nontaxable uses mentioned in chapter
1.
Farming Purposes
A credit or refund may be allowed for the excise tax on fuel used or
sold for use on a farm for farming purposes. Fuel is used on a farm for farming
purposes only if used in carrying on a trade or business of farming, on a farm in the
United States, and for farming purposes.
 If undyed
diesel fuel or undyed kerosene is used on a farm for farming purposes, the claim is made
by the registered ultimate vendor.
Farm. A farm includes livestock, dairy, fish, poultry, fruit,
fur-bearing animals, and truck farms, orchards, plantations, ranches, nurseries, ranges,
and feed yards for fattening cattle. It also includes structures such as greenhouses used
primarily for the raising of agricultural or horticultural commodities. A fish farm is an
area where fish are grown or raised - not merely caught or harvested.
Farming purposes. As an owner, tenant, or operator, you use fuel on
a farm for farming purposes if you use it in any of the following ways.
- To cultivate the soil or to raise or harvest any agricultural or horticultural
commodity.
- To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing
animals, or wildlife.
- To operate, manage, conserve, improve, or maintain your farm and its tools and
equipment.
- To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity.
For this use to qualify, you must have produced more than half the commodity so treated
during the tax year. Commodity means a single raw product. For example, apples and peaches
are two separate commodities.
- To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into
lumber, chipping, or other milling) trees for market, but only if the planting, etc., is
incidental to your farming operations. Your tree operations will be incidental only if
they are minor in nature when compared to the total farming operations.
If any other person, such as a neighbor or custom operator, performs a service for you
on your farm for any of the purposes listed in (1) or (2), you are considered to be the
ultimate purchaser that used the fuel on a farm for farming purposes. However, see Custom
application of fertilizer and pesticide, next.
If doubt exists whether the owner, the tenant, or the operator of the farm bought the
fuel, determine who bore the cost of the fuel. For example, if the owner of a farm and the
tenant equally share the cost of gasoline that is used on a farm for farming purposes,
each can claim a credit for the tax on one-half the fuel used.
Custom application of fertilizer and pesticide. The use of
fuel in the aerial or other application of fertilizer, pesticides, or other substances is
a use of fuel on a farm for farming purposes. You, as the owner, tenant, or operator, are
treated as the ultimate purchaser of the fuel. However, in the case of gasoline, you may
waive your right to be treated as the ultimate purchaser. If you waive your right, the
applicator is treated as having used the gasoline on a farm for farming purposes.
To waive your right to be treated as the ultimate purchaser, you must take all the
following actions.
- Before the applicator files his or her claim, execute in writing an irrevocable
agreement stating that you knowingly give up your right to the credit or refund. You may
authorize an agent, such as a cooperative, to sign the waiver for you.
- Identify clearly the period the waiver covers.
The applicator must retain a copy of the waiver and give you a copy. Do not send
a copy to the Internal Revenue Service unless requested to do so.
The waiver may be a separate document or it may appear on an invoice or another
document from the applicator. If the waiver appears on an invoice or other document, it
must be printed in a section clearly set off from all other material, and it must be
printed in type sufficiently large to put you on notice that you are waiving your right to
the credit or refund. If the waiver appears as part of an invoice or other document, it
must be signed separately from any other item that requires your signature.
The effective period of the waiver cannot extend beyond your tax year. When the period
covered by the waiver extends beyond the applicator's tax year, the applicator can only
claim a credit or refund for gasoline used in the part of the waiver period included in
the applicator's tax year. The applicator must wait until the next tax year to file a
claim for gasoline used in the rest of the waiver period.
Fuel not used for farming. You do not use fuel on a farm
for farming purposes when you use it in any of the following ways.
- Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is
used in transporting livestock, feed, crops, or equipment.
- For personal use, such as mowing the lawn.
- In processing, packaging, freezing, or canning operations.
- In processing crude gum into gum spirits of turpentine or gum resin or in processing
maple sap into maple syrup or maple sugar.
Off-Highway Business Use
A credit or refund may be allowed for the excise tax on fuel used for
an off-highway business use.
Off-highway business use is any use of fuel 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. The terms registered and public
highway are defined later. Do not consider any use in a boat as an off-highway
business use.
Off-highway business use includes fuels used in any of the following ways.
- In stationary machines such as generators, compressors, power saws, and similar
equipment.
- For cleaning purposes.
- In forklift trucks, bulldozers, and earthmovers.
Generally, this use does not include nonbusiness use of fuel, such as use by minibikes,
snowmobiles, power lawn mowers, chain saws, and other yard equipment.
Example. Joanna owns a landscaping business. She uses power lawn
mowers and chain saws in her business. The gasoline used in the power lawn mowers and
chain saws qualifies as fuel used in an off-highway business use. The gasoline used in her
personal lawn mower at home does not qualify.
Highway vehicle. A highway
vehicle is any self-propelled vehicle designed to carry a load over public highways,
whether or not it is also designed to perform other functions. Examples of vehicles
designed to carry a load over public highways are passenger automobiles, motorcycles,
buses, and highway-type trucks and truck tractors. A vehicle is a highway vehicle even
though the vehicle's design allows it to perform a highway transportation function for
only one of the following.
- A particular type of load, such as passengers, furnishings, and personal effects (as in
a house, office, or utility trailer).
- A special kind of cargo, goods, supplies, or materials.
- Some off-highway task unrelated to highway transportation, except as discussed next.
Vehicles not considered highway vehicles. Generally, the
following kinds of vehicles are not considered highway vehicles.
- Specially designed mobile machinery for nontransportation functions. A self-propelled
vehicle is not a highway vehicle if all the following apply.
- The chassis has permanently mounted to it machinery or equipment used to perform certain
operations (construction, manufacturing, drilling, mining, timbering, processing, farming,
or similar operations) if the operation of the machinery or equipment is unrelated to
transportation on or off the public highways.
- The chassis has been specially designed to serve only as a mobile carriage and mount for
the machinery or equipment, whether or not the machinery or equipment is in operation.
- The chassis could not, because of its special design and without substantial structural
modification, be used as part of a vehicle designed to carry any other load.
- Vehicles designed for off-highway transportation. A self-propelled vehicle is not a
highway vehicle if both of the following apply.
- The vehicle is designed primarily to carry a specific kind of load other than over the
public highway for certain operations (construction, manufacturing, mining, processing,
farming, drilling, timbering, or similar operations).
- The vehicle's use in carrying this load over public highways is substantially limited or
impaired because of its design. To make this determination, you can take into account
whether the vehicle can travel at regular highway speeds, requires a special permit for
highway use, or is overweight, overheight, or overwidth for regular highway use.
Public highway. A public highway includes any road in the United
States that is not a private roadway. This includes federal, state, county, and city roads
and streets.
Registered. A vehicle is considered registered when it is registered
or required to be registered for highway use under the law of any state, the District of
Columbia, or any foreign country in which it is operated or situated. Any highway vehicle
operated under a dealer's tag, license, or permit is considered registered. A highway
vehicle is not considered registered solely because a special permit allows the vehicle to
be operated at particular times and under specified conditions.
Dual use of propulsion motor. Off-highway business use does not
include any fuel used in the propulsion motor of a registered highway vehicle even though
that motor also operates special equipment by means of a power take-off or power transfer.
It does not matter if the special equipment is mounted on the vehicle.
Example. The motor of a registered concrete-mixer truck operates
both the engine and the mixing unit by means of a power take-off. The fuel used in the
motor to run the mixer is not used in an off-highway business use.
Use in separate motor. Off-highway business use includes fuel used
in a separate motor to operate special equipment, such as a refrigeration unit, pump,
generator, or mixing unit. If you draw fuel from the same tank that supplies fuel to the
propulsion motor, you must figure the quantity used in the separate motor operating the
special equipment. You may make a reasonable estimate based on your operating experience
and supported by your records.
You can use devices that measure the miles the vehicle has traveled (such as
hubometers) to figure the gallons of fuel used to propel the vehicle. Add to this amount
the fuel consumed while idling or warming up the motor before propelling the vehicle. The
difference between your total fuel used and the fuel used to propel the vehicle is the
fuel used in the separate motor.
Example. Sara owns a refrigerated truck. It has a separate motor
for the refrigeration unit. The same tank supplies both motors. Using the truck's
hubometer, Sara figures that 90% of the fuel was used to propel the truck. Therefore, 10%
of the fuel is used in an off-highway business use.
Fuel lost or destroyed. You cannot treat fuel lost or destroyed
through spillage, fire, or other casualty as fuel used in an off-highway business use.
Export
A credit or refund may be allowed for the excise tax on fuel that is
exported.
Fuel is exported when it is shipped from the United States to a foreign country or
possession of the United States with the intention that the fuel remain in the foreign
country or possession of the United States.
Commercial Fishing
A credit or refund may be allowed for the excise tax on fuel used in a
boat engaged in commercial fishing.
Boats engaged in commercial fishing include only watercraft used in taking, catching,
processing, or transporting fish, shellfish, or other aquatic life for commercial
purposes, such as selling or processing the catch, on a specific trip basis. They include
boats used in both fresh and salt water fishing. They do not include boats used for both
sport fishing and commercial fishing on the same trip.
Buses
A credit or refund may be allowed for the excise tax on fuel used in certain buses.
Intercity or Local Bus
An intercity or local bus is a bus engaged in furnishing (for
compensation) passenger land transportation available to the general public. The
bus must be engaged in one of the following activities.
- Scheduled transportation along regular routes regardless of the size of the bus.
- Nonscheduled operations if the seating capacity of the bus is at least 20 adults, not
including the driver. Vans and similar vehicles used for van-pooling or taxi service do
not qualify.
Available to the general public. This means you offer service to
more than a limited number of persons or organizations. If a bus operator normally
provides charter operations through travel agencies but has buses available for chartering
by the general public, this service is available to the general public. A bus does not
qualify when its operator uses it to provide exclusive services to only one person, group,
or organization.
Qualified Local Bus
A qualified local bus is a bus meeting all the following requirements.
- It is engaged in furnishing (for compensation) intracity passenger land transportation
available to the general public.
- It operates along scheduled, regular routes.
- It has a seating capacity of at least 20 adults (excluding the driver).
- It is under contract with (or is receiving more than a nominal subsidy from) any state
or local government to furnish the transportation.
Intracity passenger land transportation. This is the land
transportation of passengers between points located within the same metropolitan area. It
includes transportation along routes that cross state, city, or county boundaries if the
routes remain within the metropolitan area.
Under contract. A bus is under contract with a state or local
government only if the contract imposes a bona fide obligation on the bus operator to
furnish the transportation.
More than a nominal subsidy. A subsidy is more than nominal if it is
reasonably expected to exceed an amount equal to 3 cents multiplied by the number of
gallons of fuel used in buses on subsidized routes. A company that operates its buses
along subsidized and unsubsidized intracity routes may consider its buses qualified local
buses only when the buses are used on the subsidized intracity routes.
School Bus
A school bus is a bus engaged in the transportation of students or
employees of schools. A school is an educational organization with a regular
faculty and curriculum and a regularly enrolled body of students who attend the place
where the educational activities occur.
Used Other Than as a Fuel
A credit or refund may be allowed for the excise tax on fuel used
other than as a fuel in a propulsion engine.
Diesel Fuel and Kerosene
This nontaxable use applies to diesel fuel and kerosene used other than as a fuel in
the propulsion engine of a diesel-powered highway vehicle or diesel-powered train. This
use does not include off-highway business use, discussed earlier. This use applies to
diesel fuel and kerosene used in the following ways.
- For home heating, lighting, and cooking.
- In boats.
- For any of the following nonbusiness uses.
- In stationary machines, such as generators and compressors.
- For cleaning purposes.
- In minibikes and snowmobiles.
Aviation Fuel
This nontaxable use applies to aviation fuel used other than as a fuel in the
propulsion engine of an aircraft. This use applies to aviation fuel used in the following
ways.
- In stationary machines, such as generators and compressors.
- For cleaning purposes.
- In vehicles.
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