Ameer Randolph
California's fuel tax system is complex, with various taxes imposed on different types of fuel. The state collects excise taxes from gasoline and diesel suppliers before they deliver the fuel to retail stations. The excise tax rate for diesel fuel in California has changed over time, with a partial exemption for diesel fuel applicable from October 1, 2022, to September 30, 2023. This exemption excludes the use of dyed diesel on highways, which is subject to excise taxes. Biodiesel, waste vegetable oil, and straight vegetable oil are taxed at the same rate as diesel fuel. Additionally, California imposes a backup tax on diesel fuel, which is deposited into the Motor Vehicle Fuel Account to fund refunds and highway construction and maintenance. The tax rates for diesel fuel in California are determined by the California Department of Tax and Fee Administration (CDTFA), which also outlines specific regulations for dyed diesel fuel to ensure its nontaxable use.
| Characteristics | Values |
|---|---|
| Tax Period | October 1, 2022, through September 30, 2023 |
| Tax Rate | Not mentioned |
| Tax Applicability | Dyed Diesel, Biodiesel, waste vegetable oil (WVO), straight vegetable oil (SVO) |
| Tax Exemption | Aviation Gasoline, Dyed Diesel (if not used on highway) |
| Additional Tax | Excise tax on gasoline and diesel suppliers before they deliver fuel to retail stations |
| Payment Responsibility | Fuel vendors, not end consumers |
| Payment Due Date | Last day of each month for the previous month |
| Applicable Laws | Motor Vehicle Fuel Tax Law (MVFTL), Diesel Fuel Tax Law, Use Fuel Tax Law |
| Backup Tax | Imposed on the sale of diesel fuel with a refund claim, delivery of diesel-powered highway vehicles |
| Penalty | $10 for every gallon of dyed diesel fuel sold without proper notice or $1000 multiplied by the total number of violations |
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What You'll Learn
Excise tax on diesel fuel
California has the highest prices for gasoline and diesel fuels in the nation. As of July 1, 2021, the California Department of Tax and Fee Administration set the gasoline excise tax rate at 51.1 cents per gallon and the diesel excise tax rate at 38.9 cents per gallon. The sales tax on gasoline is 2.25% plus applicable district taxes, and 13% for diesel.
The Motor Vehicle Fuel Tax Law (MVFTL) and the Diesel Fuel Tax Law impose excise taxes on gasoline and diesel fuel in California when the following events occur: removal at the refinery or terminal rack, entry into the state, sale to an unlicensed person, or the removal or sale of blended motor vehicle fuel or diesel fuel in this state by the blender. The Diesel Fuel backup tax is imposed on the sale of any diesel fuel on which a refund has been claimed. The state collects excise taxes from gasoline and diesel suppliers before they deliver fuel to retail stations.
In California, Jet Fuel is subject to a state excise tax of $0.02 per gallon. The primary excise taxes on fuel in California are on gasoline, though most states also tax other types of fuel. In California, Alternative Fuel is subject to a state excise tax of Section 8651, an excise tax imposed for the use of "fuel" at eighteen cents ($0.18) per gallon.
Biodiesel, waste vegetable oil (WVO), and straight vegetable oil (SVO) are taxed at the same rate as diesel fuel. Dyed Diesel is not subject to excise taxes unless it is used on a highway.
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Sales tax exemptions
In California, the state collects excise taxes from gasoline and diesel suppliers before they deliver the fuel to retail stations. The state imposes excise taxes on gasoline and diesel fuel in the following scenarios:
- Removal at the refinery or terminal rack
- Entry into the state
- Sale to an unlicensed person
- Removal or sale of blended motor vehicle fuel or diesel fuel in the state by the blender
The Motor Vehicle Fuel Tax Law (MVFTL) and the Diesel Fuel Tax Law impose these excise taxes. The Diesel Fuel backup tax is imposed on the sale of any diesel fuel on which a refund has been claimed. The MVF backup tax is imposed on the delivery of fuel to a motor vehicle fuel-powered highway vehicle.
There are several exemptions to these taxes. For instance, sales tax does not apply to aviation gasoline used to propel aircraft. Additionally, the prepayment of sales tax does not apply to aviation gasoline. Biodiesel, waste vegetable oil, and straight vegetable oil are taxed at the same rate as diesel fuel.
In the case of dyed diesel fuel, it is not subject to excise taxes unless it is used on a highway. The only lawful use of dyed diesel fuel on California highways is for registered qualified highway vehicle operators, exempt bus operators, or government entities. The sale of diesel to persons who contract to haul agricultural products for a rancher, farmer, or food processors may qualify for a partial tax exemption. To qualify for the partial tax exemption, the contractor must use the diesel for transport to buyers or intermediate points for handling agricultural products produced and owned by a rancher, farmer, or a business owned by a rancher or farmer.
California also offers a Diesel Fuel Tax Exemption for diesel fuel used on a farm for farming purposes, which reduces federal and state excise taxes. A farmer may purchase diesel fuel tax-free by using an exemption certificate or by purchasing dyed diesel fuel.
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Dyed diesel fuel
In California, dyed diesel fuel is not subject to excise taxes unless it is used on highways. When used off-road, it is taxed at the standard statewide sales tax rate of 7.25% plus applicable district taxes. This rate is 5.75% less than the rate for diesel fuel, which is 13%.
The best way to purchase dyed diesel fuel in California is through a fuel card, which is restricted solely to the purchase of fuel. A license approved by the state's comptroller is not needed to purchase dyed diesel in California; instead, all you need is a fuel card and a statement of intent. To apply for a fuel card, you can fill out an online form. Once your application is submitted, you will be assigned an account representative who can answer any additional questions about purchasing off-road diesel in California.
It is important to note that dyed diesel fuel is dyed red to ensure it is only used for off-road applications. This distinction is essential, as the use of dyed diesel fuel on highways can result in tax evasion penalties.
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Prepayment of sales tax
In California, the prepayment sales tax rate for diesel fuel is determined by the California Department of Tax and Fee Administration (CDTFA) by March 1 of each year. The rates are generally effective from July 1 of the subsequent year to June 30 of the following year.
The prepayment sales tax rate for diesel fuel is based on 80% of the combined state and local sales tax rate on the arithmetic average selling price, excluding sales tax, as reported by industry publications. If the price of diesel fuel increases or decreases, resulting in prepayments that consistently exceed or fall below the retailers' sales tax liability, the board may readjust the rate.
Suppliers are required to collect prepayment of retail sales tax from the purchaser at the time of sale. However, if no sale occurs at the time the diesel fuel tax is imposed, the supplier must prepay the retail sales tax.
The prepayment rates per gallon for diesel fuel have been adjusted over time. For example, effective July 1, the prepayment rate per gallon was reduced from 44.5 cents to 38.5 cents.
For more detailed information on prepayment sales tax rates for diesel fuel in California, you can refer to Publication 82, Prepaid Sales Tax and Sales of Fuel, available on the CDTFA website or by contacting their Customer Service Center.
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Federal motor fuel excise taxes
- Gasoline, Diesel/Kerosene, and Compressed Natural Gas rates include a 0.1 ¢ per gallon charge for the Leaking Underground Storage Tank Trust Fund (LUST).
- The Alternative Fuel is taxed at 18 ¢ per gallon.
- Liquefied petroleum gas is taxed at $0.06 per gallon.
- Compressed natural gas is taxed at $0.0887 for each 126.67 cubic feet or 5.66 pounds.
- Liquid natural gas is taxed at $0.1017 for each 6.06 pounds.
- An excise tax is imposed on ethanol or methanol containing no more than 15% gasoline or diesel fuels at one-half the rate prescribed by Section 8651 for each gallon of fuel used.
The price of all motor fuel sold in California includes federal motor fuel excise taxes, which are collected from the manufacturer by the IRS and used to support the Federal Highway Administration. These taxes are ultimately passed on to the consumer in the fuel's retail price.
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Frequently asked questions
The sales tax on diesel fuel in California varies depending on the type of fuel involved and may be adjusted annually or more frequently if necessary. The rate for the period of October 1, 2022, to September 30, 2023, is publicly available.
For this period, the partial exemption for diesel fuel also applies to sales of Dyed Diesel. Dyed Diesel is not subject to Excise Taxes unless used on highways.
Dyed Diesel is diesel fuel that is dyed under the United States Environmental Protection Agency (EPA) or the Internal Revenue Service (IRS) rules for high or low sulphur diesel fuel.
The seller is presumed to know that the dyed diesel fuel will be used for a taxable use and may be subject to a penalty of $10 for every gallon of dyed diesel fuel sold without proper notice or $1,000 multiplied by the total number of violations, whichever is greater.
Fuel vendors pay the fuel excise taxes in California, and this cost is passed on in the retail price of the fuel.
