Regan Brown
California has some of the highest state excise taxes on gasoline and diesel fuel in the country. The state collects excise taxes from gasoline and diesel suppliers before they deliver the fuel to retail stations. These taxes are then deposited into the Motor Vehicle Fuel Account in the Transportation Tax Fund, which is used to pay refunds authorized by the Diesel Fuel Tax Law. While fuel tax is paid by vendors and not end consumers, the taxes are passed on in the fuel's retail price. In California, the federal excise tax on diesel is $0.244 per gallon, while the state diesel fuel excise tax is $0.441 per gallon.
| Characteristics | Values |
|---|---|
| Type of tax | Excise tax |
| Who pays the tax | Fuel vendors |
| Who collects the tax | California state, IRS |
| Where does the tax revenue go | Motor Vehicle Fuel Account in the Transportation Tax Fund, Highway Users Tax Account, State Highway Account, Aeronautics Account, Harbors and Watercraft Revolving Fund, Off-Highway Vehicle Trust Fund, Department of Food and Agriculture Fund |
| Tax rate | Federal: $0.244 per gallon, State: $0.441 per gallon |
| Applicable laws | Motor Vehicle Fuel Tax Law (MVFTL), Diesel Fuel Tax Law, Diesel Fuel Law, Motor Vehicle and Aircraft Fuels Regulation, Diesel Fuel Tax Annotations |
| Exemptions | Dyed diesel fuel, fuel for aircraft, fuel for farmers, fuel for exempt bus operators, fuel for the United States government and its agencies, armed forces, and instrumentalities |
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What You'll Learn
Federal and state excise taxes
In California, the state collects excise taxes from diesel suppliers before they deliver fuel to retail stations. An excise tax is a tax directly levied on certain goods by a state or federal government.
The federal excise tax on diesel is currently 24.4 cents ($0.244) per gallon. The state diesel fuel excise tax (from July 1, 2023, through June 30, 2024) is 44.1 cents ($0.441) per gallon. These tax rates are based on energy content relative to gasoline. In most areas, state and federal excise taxes amount to about 13% of the cost of a gallon of gas.
In California, Jet Fuel is subject to a state excise tax of $0.02 per gallon. This tax is imposed upon every aircraft jet fuel dealer at the rate of $0.02 for each gallon of aircraft jet fuel sold to an aircraft jet fuel user or used by the dealer as an aircraft jet fuel user. An aircraft jet fuel user is any person who uses aircraft jet fuel for the propulsion of an aircraft in California, except common carriers by air engaged in the business of transporting persons or property for hire or compensation.
Payments of fuel excise taxes are made by fuel vendors, not by end consumers, though the taxes will be passed on in the fuel's retail price. Fuel tax is due on the last day of each month for the previous month. Payment on the annual flat rate tax is due only once a year. Fuel producers and vendors in California have to pay fuel excise taxes and are responsible for filing various fuel tax reports with the California government.
The diesel fuel tax revenue is deposited into the Motor Vehicle Fuel Account in the Transportation Tax Fund to pay the refunds authorized by the Diesel Fuel Tax Law. The balance of the revenue is transferred by the Controller to the Highway Users Tax Account, which is then transferred to the State Highway Account. Local shares are transferred to the city and county road funds to construct and maintain public roads and mass transit systems.
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Sales tax rates
In California, the state collects excise taxes from diesel suppliers before they deliver the fuel to retail stations. The federal excise tax on diesel is currently 24.4 cents ($0.244) per gallon. The state diesel fuel excise tax (from July 1, 2023, through June 30, 2024) is 44.1 cents ($0.441) per gallon. These state and federal excise taxes amount to about 13% of the cost of a gallon of gas.
In addition to the federal and state excise taxes, there are also sales taxes imposed on diesel fuel in California. The sales tax rate for diesel fuel must include any applicable district taxes in effect at the location where the diesel fuel is sold. The sales tax is applied to the price of the fuel after the federal excise tax has been added but before the state diesel fuel tax is added.
There are certain exemptions to the diesel fuel tax. For instance, dyed diesel fuel, which is designated for off-road use, is not subject to excise taxes unless used on the highway. Biodiesel, waste vegetable oil (WVO), and straight vegetable oil (SVO) are taxed at the same rate as diesel fuel. However, there are exemptions for diesel fuel sold to farmers for farming purposes, exempt bus operators, and the United States government and its agencies.
It is important to note that while fuel vendors are responsible for paying the excise taxes and filing fuel tax reports, these taxes are passed on to the consumer in the retail price of the fuel.
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Tax exemptions
California imposes excise taxes on gasoline and diesel fuel. However, there are certain tax exemptions for diesel fuel in the state.
The Motor Vehicle Fuel Tax Law (MVFTL) and the Diesel Fuel Tax Law impose excise taxes on gasoline and diesel fuel in California. However, there are specific scenarios where tax exemptions apply. These exemptions are outlined in Chapter 3 of the Motor Vehicle Fuel Tax Law (MVF) and Diesel Fuel Tax Law (DFT). Here are some cases where tax exemptions may apply:
- Agricultural Use: There is a partial tax exemption for diesel fuel used in farming activities or food processing. Farmers, ranchers, and agricultural businesses may qualify for this exemption. To claim the exemption, diesel fuel must be used for farming purposes, such as transporting harvested agricultural products.
- Dyed Diesel Fuel: Dyed diesel fuel, which is designated for off-road use and has a distinct colour due to EPA and IRS rules, is exempt from excise taxes as long as it is not used on public highways. Severe penalties are imposed if dyed diesel is used on highways.
- Aviation Gasoline: Aviation gasoline used to propel aircraft is exempt from sales tax, provided that the purchaser presents an Exemption Certificate for Motor Vehicle Fuel for Propelling Aircraft.
- Exempt Bus Operators: Diesel fuel sold to exempt bus operators for use in exempt bus operations is exempt from taxation when the supplier has the required certificate (CDTFA-231-DB).
- United States Armed Forces: MVF (motor vehicle fuel) sold to the United States Armed Forces for use in ships or aircraft, or for use outside of California, is exempt from taxation.
- Treaty Exemptions: Representatives of the United States and countries that have entered into treaties with the United States are exempt from national, state, and municipal taxes.
It is important to note that tax laws and exemptions can be complex and subject to change. For the most up-to-date and accurate information, it is recommended to refer to the California Department of Tax and Fee Administration's website or consult with a tax professional.
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Tax revenue allocation
California imposes various taxes on diesel fuel, including federal and state excise taxes, and sales taxes. The state collects excise taxes from diesel suppliers before they deliver the fuel to retail stations. The excise tax rates on diesel fuel in California are as follows:
- A state excise tax of $0.18 per gallon for alternative fuels
- A state excise tax of $0.02 per gallon for jet fuel
- A federal excise tax of $0.10 per gallon for diesel/kerosene, which includes a 0.1 ¢ per gallon charge for the Leaking Underground Storage Tank Trust Fund (LUST)
The diesel fuel tax revenue is deposited into the Motor Vehicle Fuel Account in the Transportation Tax Fund. The balance of the revenue is transferred to the Highway Users Tax Account and then to the State Highway Account. Local shares are also transferred to city and county road funds to construct and maintain public roads and mass transit systems.
In addition to excise taxes, diesel fuel is also subject to sales taxes in California. When used off-road, dyed diesel is taxed at the combined statewide sales tax rate, plus applicable district taxes. However, it is important to note that dyed diesel is generally exempt from excise taxes unless it is used on highways.
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Tax relief
In California, the state collects excise taxes from diesel suppliers before they deliver fuel to retail stations. The federal excise tax on diesel is $0.244 per gallon, while the state diesel fuel excise tax is $0.441 per gallon. These taxes are included in the price of diesel fuel and are passed on to the end consumer, although they are paid by fuel vendors.
There are certain exemptions to these taxes. For instance, dyed diesel fuel, which is designated for off-road use, is not subject to excise taxes unless used on a highway. Additionally, there are specific tax relief provisions for those affected by a California disaster, and exemptions for diesel fuel sold for farming purposes, exempt bus operations, and to the United States government and its agencies.
The revenue generated from diesel fuel taxes is deposited into the Motor Vehicle Fuel Account in the Transportation Tax Fund, with the balance transferred to the Highway Users Tax Account and the State Highway Account. This funding is crucial for constructing and maintaining public roads and mass transit systems in California.
While the taxes on diesel fuel can be a significant cost for consumers and vendors, the revenue generated is essential for maintaining California's transportation infrastructure. The state offers tax relief and exemptions to specific groups, ensuring a balance between generating revenue and providing support to those in need.
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Frequently asked questions
The federal excise tax on diesel is currently 24.4 cents ($0.244) per gallon. The state diesel fuel excise tax is 44.1 cents ($0.441) per gallon.
Payments of fuel excise taxes are made by fuel vendors, not by end consumers, though the taxes will be passed on in the fuel's retail price.
The diesel fuel tax revenue is deposited into the Motor Vehicle Fuel Account in the Transportation Tax Fund. The balance is transferred to the Highway Users Tax Account, which is then transferred to the State Highway Account. Local shares are transferred to the city and county road funds to construct and maintain public roads and mass transit systems.
