Mercedes Mullins
Texas has a number of laws and regulations regarding the taxation of dyed diesel fuel. The taxation of dyed diesel fuel is a complex issue in Texas, with several laws and regulations that govern its use and taxation status. The tax status of dyed diesel fuel depends on a variety of factors, including the purpose for which it is used, the quantity purchased, and whether it is sold, purchased, imported, or exported. Texas has specific rules and penalties for the redirection of diesel fuel intended for export back into the state. The state also offers discounts for timely payments and certain tax-exempt entities.
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What You'll Learn
Tax exemptions for non-profit food banks
In Texas, certain nonprofit organizations can be exempt from paying taxes on purchases. These exemptions are generally granted to organizations that devote most of their activities to charitable causes, such as easing poverty, disease, pain, and suffering by providing food, medicine, shelter, clothing, etc. to those in need.
Nonprofit food banks, for example, are exempt from diesel fuel taxes as per House Bill 3599, which came into effect on September 1, 2023. This bill exempts from tax any diesel fuel sold to a non-profit food bank and delivered into either a storage facility or trucks with a gross vehicle weight of 25,000 pounds or more, owned by the nonprofit food bank and used for food delivery.
Other tax exemptions for nonprofit organizations in Texas include sales tax exemptions during qualified tax-free fundraisers, exemptions for selling taxable items through a for-profit entity, and exemptions for selling alcoholic beverages during authorized fundraising events. Additionally, nonprofit senior citizen groups can hold tax-free sales events, and certain nonprofit corporations, such as burial sites and homeowners' associations, are exempt from franchise taxes.
To apply for tax exemption, nonprofit organizations in Texas must complete the appropriate forms (such as AP-204, AP-205, or AP-206) and provide all necessary documentation. They must also continue to file franchise tax reports and public information reports until the exemption is granted.
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Monthly limitations on dyed diesel purchases
In Texas, the first removal of diesel fuel from a terminal is taxable. However, the sale of dyed diesel fuel can be made without collecting tax if the purchaser provides a signed statement to a licensed supplier or distributor, along with an end-user number issued by the comptroller. This signed statement relieves the supplier or distributor from proving that the sale of dyed diesel for a non-highway purpose was not taxable.
To purchase dyed diesel fuel without paying tax, individuals must apply to the comptroller for an end-user number, which is to be used in conjunction with a signed statement. A licensed supplier or distributor cannot make a tax-free sale of dyed diesel fuel unless the purchaser has an end-user number.
The monthly limitations on dyed diesel purchases in Texas are prescribed by Subsection (c) of the Texas Tax Code Section 162.206. This limit is set at 25,000 gallons of dyed diesel fuel per month and applies regardless of whether the fuel is purchased in a single transaction or multiple transactions during that month. If a purchaser exceeds this limit, they are required to obtain a dyed diesel fuel bonded user license, and any excess gallons purchased or sold will be considered a taxable transaction.
It is important to note that any taxable use of dyed diesel fuel purchased under a signed statement will result in the purchaser forfeiting their right to buy dyed diesel fuel tax-free for one year from the date of the offense. Additionally, any taxes, interest, and penalties found to be due must be paid by the purchaser to the licensed supplier or distributor.
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Tax-free purchases and sales
In Texas, the sale of dyed diesel fuel may be exempt from tax if the purchaser provides a signed statement and an end-user number issued by the comptroller. This statement must declare that the purchaser does not operate any diesel-powered motor vehicles on public highways, will use all the fuel purchased, and will not resell any of it. The purchaser must also declare that none of the fuel will be delivered or permitted to be delivered into the fuel supply tank of a motor vehicle.
The licensed supplier or distributor is relieved of the burden of proof that the sale was not taxable to the purchaser, unless one of the following occurs:
- The statement is revoked in writing by either party.
- The comptroller notifies the supplier or distributor in writing that the purchaser may no longer make tax-free purchases.
- The supplier or distributor is put on notice by making taxable sales of dyed diesel fuel to a purchaser who has previously furnished a signed statement.
Any tax-free purchases, sales, imports, and exports must be reported in the month the fuel is removed from the terminal rack or bulk plant rack, not according to the invoice date, billing date, or the date the fuel is received.
Purchasers are limited to 3,000 gallons per delivery and 10,000 gallons per month of tax-free dyed diesel fuel. Any gallons purchased or sold in excess of these limitations constitute a taxable purchase or sale.
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Penalties for redirecting fuel to Texas
The use of dyed diesel fuel on public roads is prohibited in Texas. The IRS launched the dyed fuel enforcement program in 1994 to prevent the illegal use of dyed diesel, which is designated only for off-road vehicles and equipment. The fine for using dyed diesel illegally is $10/gallon or $1,000 per violation, whichever is greater. For instance, if a vehicle is found with 20 gallons of red diesel in its tank, the fine will be $1,000.
In Texas, licensed suppliers, permissive suppliers, distributors, importers, and exporters who purchase diesel fuel for export but redirect it to a destination in Texas are subject to a penalty of $2,000 or five times the amount of tax due, whichever is greater. A penalty of $200 is assessed for each subsequent sale of tax-free diesel fuel in Texas that is not reported within 180 days of the original report of the sale.
Additionally, a $50 penalty is assessed for each report filed after the due date. If the tax is paid 1-30 days after the due date, a 5% penalty is added, and if it is paid over 30 days late, a 10% penalty is applied.
In certain circumstances, penalty relief has been granted by the IRS for the use of dyed diesel fuel in Texas. During the Texas wildfires, which disrupted the supply of diesel fuel, the IRS did not impose penalties for the use of dyed diesel in certain counties. This relief was in effect from February 23, 2024, to March 22, 2024, and applied to specific Texas counties.
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Signed statements for tax-free purchases
In Texas, the first removal of diesel fuel from a terminal is taxable, except for dyed diesel fuel, which can be purchased tax-free using a signed statement. This exemption applies to both the sale of dyed diesel fuel and its removal from a terminal.
To purchase dyed diesel fuel tax-free, a buyer must furnish a licensed supplier or distributor with a signed statement and an end user number issued by the comptroller. This number must begin with either "AG" or "DD". The statement must be signed by the buyer or their authorized representative and specify that:
- Only dyed diesel fuel will be purchased using the signed statement.
- All dyed diesel fuel will be used by the buyer and not be resold.
- None of the dyed diesel fuel will be delivered into the fuel supply tanks of motor vehicles operated on public highways.
There are monthly limitations on the amount of dyed diesel fuel that can be purchased tax-free, which is currently set at 25,000 gallons per calendar month. This limit applies regardless of whether the fuel is purchased in a single transaction or multiple transactions during the month. Any subsequent purchase, sale, or delivery that exceeds the 25,000-gallon limit during the same calendar month becomes taxable.
It is important to note that the signed statement and end user number relieve the licensed supplier or distributor from the burden of proof that the sale of dyed diesel fuel for a non-highway purpose was not taxable. However, this relief is subject to certain conditions, including the possibility of revocation by the purchaser or licensed supplier/distributor, notification from the comptroller, or taxable sales by the purchaser after furnishing the signed statement.
If a taxable use of dyed diesel fuel purchased under a signed statement occurs, the purchaser may face criminal penalties and forfeit their right to buy dyed diesel fuel tax-free for one year from the offense date. Any taxes, interest, and penalties assessed to the licensed supplier or distributor due to the purchaser's false or erroneous statement become the purchaser's debt and are recoverable by legal means.
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Frequently asked questions
Yes, the first removal of diesel fuel from a terminal in Texas is taxable. However, there are some exceptions where the sale of dyed diesel fuel can be made without collecting tax.
The sale of dyed diesel fuel may be non-taxable if the purchaser provides a signed statement to a licensed supplier or distributor that includes an end user number issued by the comptroller. The purchaser must apply for this number.
The signed statement must include confirmation that the purchaser does not operate any diesel-powered motor vehicles on public highways, that all the diesel will be used and not resold, and that none of the diesel will be delivered into the fuel supply tank of a motor vehicle.
Yes, purchases are limited to 3,000 gallons per delivery and 10,000 gallons per month.
