Irs Validates $278/Mixer Truck Pto Fuel Tax Credit

National Ready Mixed Concrete Association Government Affairs staff noted last month delivery of a much-anticipated Internal Revenue Service (IRS) report


National Ready Mixed Concrete Association Government Affairs staff noted last month delivery of a much-anticipated Internal Revenue Service (IRS) report on Power Take-Off (PTO) fuel use to Congress. Section 11144 of the SAFETEA-LU highway bill directs the agency to estimate the amount of tax paid on fuel consumed due to mixer trucks’ PTO operations and determine if it is technically and administratively feasible to exempt related fuel use from the federal excise tax.

Using a weighted average of state allowances for mixer trucks, the IRS determined that PTO off-highway operation accounts for 30.2 percent of vehicles’ fuel consumption. Applying this percentage to data derived from the Department of Commerce’s 2002 Vehicle Inventory and Use Survey (VIUS), the IRS determined that the industry annually consumes nearly 88 million gallons of diesel in mixer PTO operations, or 1,142 gallons/truck/year. Multiplying the 1,142 gallons by the current tax rate of $0.244 would provide an average per-truck credit of $278/year.

Under current law, the report adds, all fuel used in the propulsion engine of a registered highway vehicle is subject to tax, and a credit or refund is not allowed, even if that engine also provides power for a PTO. By contrast, a credit or refund is allowed for fuel used in a separate motor on the vehicle, even if that motor draws fuel from the same tank that supplies the propulsion engine of the vehicle.

The IRS report indicates that there are approximately 2 million single-unit and tractor-trailer PTO vehicles, consuming roughly 6 billion gallons of fuel/year. The portion of the fuel that is consumed by the propulsion engine to power PTO equipment is about 18.7 percent. At a minimum, exempting from taxation any fuel dedicated to PTO use would potentially decrease the Highway Trust Fund or the general Treasury by $275 million/year.

While several options to exempt PTO fuel usage may be proffered, NRMCA Government Affairs staff notes, each presents a unique set of challenges for IRS. Among primary concerns are the additional agency resources needed to ensure compliance, the potential need for IRS SB/SE to register more than 10,000 ultimate vendors, and validation and determination of equitable PTO allowance rates by vehicle type. The IRS report points out that within each of the suggested options is the potential for excise and/or income tax abuse. As such, a primary concern for IRS is whether resources will be available to ensure and maintain compliance with any potential tax law change. However, the report did not conclude that a PTO credit would be either technically or administratively unfeasible.

In December 2006, NRMCA finalized and submitted to the IRS a two-page summary of a more extensive report (from September) tracing the history of fuel use, and providing an explanation and results of fuel tests done for the bulk of 2006 on about 250 trucks. The summary also made the case for either a flat $293-per-truck annual tax rebate (based on 22 percent of the average amount of fuel used by mixer trucks in off-highway function in a given year) or a system by which each truck receives a 22 percent rebate based on actual fuel use. Stemming from a SAFETEA highway bill provision NRMCA secured, the mixer truck fuel-usage survey was conducted in all climates, with rear- and front-discharge models of all makes and power sources. This gives the IRS a reference point to just how significant [PTO] fuel usage is, noted NRMCA Vice President of Government & Legal Affairs Bob Sullivan.

At this point, it is unclear whether the $278 tax credit will be in addition to rebate amounts 30 states currently allow truck operators for fuel consumed in an off-highway business use. Some states offer flat rebates varying from 20 percent to more than 40 percent, and others offer credits or refunds in the 30-35 percent range, plus whatever the operator can prove Û boosting the percentage significantly.

The federal government does not tax off-highway business use, which is defined as any nonpropulsive fuel use, regardless of what type of road is traveled. Under state laws, off-highway business use is defined such that states not only do not tax the fuel consumed in nonpropulsive operations; they also do not tax fuel consumed during operations off public roads.

Since it is not likely all states will adopt the federal definition for off-highway business use, at the individual company level, no producer should feel a negative tax credit difference.