Sylvie Willis
In Montana, fuel taxes are collected from licensed distributors and passed down to the consumer. The state's fuel tax system is funded through a combination of federal (88.5%) and state/local (11.5%) sources. Federal motor fuel excise taxes are collected by the IRS and used to support the Federal Highway Administration. The federal tax rate for gasoline is 18.4 cents per gallon, while diesel fuel is taxed at 24.4 cents per gallon. In addition, a 0.1 cent per gallon charge is included for the Leaking Underground Storage Tank Trust Fund. Licensed distributors in Montana are responsible for paying taxes and cleanup fees, which may be refunded or credited under certain conditions.
| Characteristics | Values |
|---|---|
| Type of tax | Fuel tax |
| Who pays the tax | Licensed distributors pay the special fuel license tax to the Department of Transportation. The motor fuel tax is then passed down to the customer or ultimate consumer. |
| Tax rate | The federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. The federal excise tax rates on various motor fuel products include a 0.1 ¢ per gallon charge for the Leaking Underground Storage Tank Trust Fund (LUST). |
| What the tax is used for | The monies are used to support and maintain a safe transportation system across Montana. Montana's roads and bridges are funded through a combination of federal (88.5%) and state/local (11.5%) funding sources. |
| Exemption | Only those gallons of JP4 or JP8 (jet fuel) that are sold directly to the Military Defense Fuel Supply Center are exempt from the total .04 tax. |
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What You'll Learn
Federal and state/local funding sources
In Montana, the price per gallon of fuel includes fuel taxes, which are collected and remitted to the state. These monies are used to support and maintain a safe transportation system within the state. Montana's roads and bridges are funded through a combination of federal (88.5%) and state/local (11.5%) funding sources.
The Federal excise tax rates on motor fuel products include a 0.1 ¢ per gallon charge for the Leaking Underground Storage Tank Trust Fund (LUST). The United States federal excise tax on gasoline is 18.4 cents per gallon and 24.4 cents per gallon for diesel fuel. Kerosene for aviation use (jet fuel) is taxed at $0.244 per gallon unless a reduced rate applies. For example, if kerosene is removed directly from an on-airport terminal and placed into the fuel tank of an aircraft for non-commercial use, the tax rate is $0.219.
State road and bridge revenues are generated through fuel taxes, gross vehicle weight fees, and other related fees. The licensed distributor is the collector of the state tax for the Montana Department of Transportation (MDT). The distributor purchases the fuel at the terminal without the tax and cleanup fee included in the price. The tax and cleanup fee are then passed on to the next licensed distributor in the chain until it reaches the consumer.
The motor fuel tax is passed down to the customer or ultimate consumer. Licensed distributors pay the special fuel license tax to the Department of Transportation. Distributors and retailers of biodiesel produced in Montana are eligible for refunds of 2 cents and 1 cent per gallon, respectively, which must be applied for within 30 days after the quarter ends.
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Licensed distributors and cleanup fees
In Montana, the taxation point of gasoline, aviation fuel, and diesel fuel is "at the distributor level". Licensed distributors are responsible for collecting the state tax for the Montana Department of Transportation (MDT). The license allows distributors to purchase fuel at the terminal without the tax and cleanup fee included in the price.
Terminals, refineries, blenders, and importers are required to have this license because they have access to fuel that has not yet been taxed, either from the pipeline, by producing fuel, or by importing it from another state. Licensed exporters buy the fuel in Montana and then leave the state. Distributors who are not refiners, terminals, importers, exporters, or licensed before 1969, and do not blend alcohol with gasoline but qualify as wholesalers, may choose to become licensed under the wholesaler option.
The cleanup fee works in the same way as the tax, with a few exemptions. The last licensed distributor in the chain is responsible for paying the tax and cleanup fee. If one licensed distributor sells to another, the burden of the tax and cleanup fee is passed on to the next licensed distributor. If a licensed distributor exports any fuel directly from a terminal outside of Montana, the cleanup fee is not assessed. However, if the fuel has been stored in any tanks in Montana and is then exported, the cleanup fee is due. Retail owners of storage tanks in Montana can apply to the DEQ for cleanup costs due to leaking underground storage tanks. Only those gallons of JP4 or JP8 (jet fuel) sold directly to the Military Defense Fuel Supply Center are exempt from the cleanup fee.
Licensed distributors pay the special fuel license tax to the Department of Transportation, which is then passed down to the customer or end consumer. City, state, and federal governments may use untaxed dyed special fuel on public roads or may apply for a refund of taxes paid on special fuel, regardless of its use.
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Tax exemptions
The price of motor fuel in Montana includes federal motor fuel excise taxes, which are used to support the Federal Highway Administration. Federal excise tax rates on various motor fuel products include a 0.1 ¢ per gallon charge for the Leaking Underground Storage Tank Trust Fund (LUST). State and federal excise taxes typically amount to about 13% of the cost of a gallon of gas.
Montana's roads and bridges are funded through a combination of federal (88.5%) and state/local (11.5%) sources. The Montana Department of Transportation (MDT) receives no funding from the state's general fund revenue. Instead, federal and state road and bridge revenues are generated from fuel taxes, gross vehicle weight fees, and other related fees.
Montana offers several tax exemptions and incentives for specific types of fuel and fuel producers:
- Only those gallons of JP4 or JP8 (jet fuel) sold directly to the Military Defense Fuel Supply Center are exempt from the total .04 tax.
- Special fuel sold to the Military or Railroad is exempt from the cleanup fee.
- Biodiesel produced from waste vegetable oil feedstock is exempt from the state special fuel tax.
- Special fuel with dye injected at a terminal is exempt from tax.
- Ethanol-blended gasoline must meet certain requirements to be exempt from state property taxes during the construction of an ethanol manufacturing facility and for 10 years after completion.
- Licensed distributors who pay the special fuel tax on biodiesel made entirely from Montana components may claim a refund of $0.02 per gallon.
- Owners or operators of a retail motor fuel outlet may claim a refund of $0.01 per gallon of biodiesel purchased from a licensed distributor if the biodiesel is made entirely from Montana components.
- Biodiesel, ethanol, renewable diesel, and sustainable aviation fuel production facilities may be eligible for property tax abatements.
- The sale of electricity by public EV charging stations is subject to a tax of $0.03 per kilowatt-hour, but EV charging stations at private residences or homeowners' associations are exempt.
- The Montana Department of Environmental Quality (DEQ) offers grants for the replacement of qualified diesel transit buses with new electric, hybrid, compressed natural gas, or propane shuttle or transit buses.
- Montana-based ethanol producers are eligible for a tax incentive of $0.20 per gallon of ethanol produced solely from Montana agricultural products.
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Refunds and credits
The price per gallon of fuel in Montana includes fuel taxes, which are collected and remitted to the state. These fuel taxes are used to support and maintain a safe transportation system across the state. While the federal government contributes the majority of funding for Montana's roads and bridges, state and local funding sources are still crucial, with fuel taxes being a significant component of this.
Montana's fuel tax system includes provisions for refunds and credits under certain conditions. Here are the key points regarding refunds and credits:
- Refund for Biodiesel Sales: Licensed distributors selling biodiesel produced entirely from Montana-sourced ingredients are eligible for a refund of 2 cents per gallon. Retailers selling the same biodiesel are eligible for a refund of 1 cent per gallon. To claim these refunds, applications must be submitted within 30 days after the end of each quarter.
- Exemptions for Special Biodiesel: Biodiesel fuel produced from waste vegetable oil feedstock is considered special biodiesel. Producers of this fuel must register annually with the department and report the amount produced and used by February 15 of the following year. This special biodiesel, when injected with dye at a terminal, is exempt from taxation.
- Refund for City, State, and Federal Governments: City, state, and federal governments may apply for a refund of taxes paid on special fuel, regardless of its use. This includes untaxed dyed special fuel used on public roads.
- Exemption for Military Jet Fuel: Gallons of JP4 or JP8 jet fuel sold directly to the Military Defense Fuel Supply Center are exempt from the total tax.
- Alternative Fuel Credit: The Alternative Fuel Conversion Credit was repealed by the 2021 Montana State Legislature. This credit was applicable to individuals, corporations, partnerships, or small businesses paying taxes in Montana for converting vehicles to alternative fuels. However, it is no longer available, and taxpayers cannot carry forward this credit.
It is important to note that these policies are subject to change, and specific statutes, such as MCA and ARM, should be referenced for the most up-to-date information. Additionally, there may be other specific cases or conditions that apply to refunds and credits that are not covered here.
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Federal tax increases
The current federal excise tax on gasoline in the United States is 18.4 cents per gallon, while diesel fuel is taxed at 24.4 cents per gallon. These tax rates have been static since 1993 and are not indexed to inflation, resulting in a significant decline in their purchasing power over time. As of April 2019, state and local taxes further add to the burden, with an average of 34.24 cents for gasoline and 35.89 cents for diesel, bringing the total US volume-weighted average fuel tax to 52.64 cents per gallon for gasoline and 60.29 cents per gallon for diesel.
Proponents of federal tax increases argue that it is necessary to maintain and improve transportation infrastructure. The revenue generated from these taxes is crucial for supporting the Highway Trust Fund and ensuring safe and well-maintained roads and bridges. Additionally, the National Surface Transportation Infrastructure Financing Commission recommended a more significant increase in gasoline and diesel taxes in their 2009 report, suggesting a 10-cent hike for gasoline and a 15-cent increase for diesel to compensate for the loss in purchasing power due to inflation.
However, critics of federal tax increases on fuel argue that the revenue generated is often diverted to unrelated government programs and debt servicing. They contend that gas taxes and "user fees" should be sufficient to cover road-related spending. Additionally, the fixed-rate nature of federal fuel taxes has led to a decline in their purchasing power over time, as vehicle fuel efficiency has improved, and infrastructure costs have risen. This has resulted in a disparity between the tax rate from 1993 and its value today when adjusted for inflation.
Montana's fuel taxation system further complicates the matter. The taxation point for gasoline, aviation fuel, and diesel fuel is at the distributor level, with licensed distributors collecting state taxes. While this system has its advantages, it adds another layer of complexity when considering federal tax increases, as the impact on distributors and consumers may vary. Nonetheless, federal taxes in Montana are crucial, as federal funding accounts for 88.5% of the state's road and bridge funding, with the remaining 11.5% coming from state and local sources.
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Frequently asked questions
The price of motor fuel in Montana includes federal motor fuel excise taxes, which are used to support the Federal Highway Administration, and state taxes, which are used to maintain a safe transportation system.
Licensed distributors pay the special fuel license tax to the Montana Department of Transportation. The tax is then passed down to the customer.
The federal excise tax on gasoline is 18.4 cents per gallon. State and local taxes add about 34.24 cents to gasoline, making the total volume-weighted average fuel tax about 52.64 cents per gallon.
Kerosene for use in aviation (jet fuel) is generally taxed at $0.244 per gallon. A reduced rate of $0.219 is applied if the kerosene is removed directly from an on-airport terminal into the fuel tank of an aircraft for non-commercial use.
