What is a Fuel Tax Refund?

While the largest factor in the price of gasoline is the cost of crude oil, the second largest is the tax placed on gas by federal and state governments. The federal taxes on gasoline amounts to 18.5 cents per gallon and is used to pay for transportation services. All states have excise taxes on motor fuels, although there is a wide range in the rates. In 2009, New York had the highest state tax on gasoline, adding 44.5 cents per gallon, while Alaska’s tax ranks the lowest at eight cents per gallon. In addition to the excise taxes, eleven states have a gas sales tax or other form of tax on gasoline. Diesel is taxed separately and is especially high in California. Gas tax revenues help to pay for many state services such as road and bridge maintenance. Because fuels are so heavily taxed, the federal government and many states have a fuel tax refund available.

The federal government provides a fuel tax refund for gasoline, diesel, kerosene and alternative fuels. To qualify for the refund, taxpayers have to use the fuel for particular purposes that are considered exempt by the tax code. According to the IRS, nontaxable uses of fuel include the fuel used on a farm for farming, the fuel used in commercial aviation, the fuel used in foreign trades, and the fuel used in military aircraft. Other exceptions to the federal fuel tax are listed on the IRS website. Another interesting initiative the federal government has taken related to fuel costs is the tax credit program for fuel-efficient vehicles begun in 2006 which will continue until 31 December 2010.

Who can apply for the refunds and which fuels are eligible differ between states, but all share similarities with federal tax refund guidelines. For example, some states might allow a fuel tax refund for dyed diesels while others do not. Some states have environmental taxes, which are nonrefundable, while others don’t. In some states, it is even possible to receive a fuel tax refund for fuel purchased but not used. Not surprisingly, fuel tax refund rates also vary by state. Because of all the variation, it is important to consult the website for the state in which the fuel tax refund is being requested. The website should contain the guidelines for eligibility as well the necessary application forms. Many state tax refunds are available until the end of the year and are not tied to the income tax deadlines.