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COM-
RPT
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HIST
, HRRepNo 108-755, Conference Committee Report
on the American Jobs Creation Act of 2004, HR
4520, (October 8, 2004), Part 07 of 08
|
A second set of rules applies to passive foreign
investment companies that are not qualified electing
funds, under which U.S. shareholders pay tax on
certain income or gain realized through the company,
plus an interest charge that is attributable to the
value of deferral.688
A third set of rules applies to passive foreign
investment company stock that is marketable, under
which electing U.S. shareholders currently take into
account as income (or loss) the difference between
the fair market value of the stock as of the close
of the taxable year and their adjusted basis in such
stock (subject to certain limitations), often
referred to as "marking to market."689
Under section 1297(e), which was enacted in 1997 to
address the overlap of the passive foreign
investment company rules and subpart F, a controlled
foreign corporation generally is not also treated as
a passive foreign investment company with respect to
a
U.S.
shareholder of the corporation. This exception
applies regardless of the likelihood that the
U.S.
shareholder would actually be taxed under subpart F
in the event that the controlled foreign corporation
earns subpart F income. Thus, even in a case in
which a controlled foreign corporation's subpart F
income would be allocated to a different shareholder
under the subpart F allocation rules, a
U.S.
shareholder would still qualify for the exception
from the passive foreign investment company rules
under section 1297(e).
House
Bill
No provision.
Senate
Amendment
The provision adds an exception to section 1297(e)
for
U.S.
shareholders that face only a remote likelihood of
incurring a subpart F inclusion in the event that a
controlled foreign corporation earns subpart F
income, thus preserving the potential application of
the passive foreign investment company rules in such
cases.
Effective date. --The provision is effective
for taxable years of foreign corporations beginning
after
February 13, 2003
, and for taxable years of
U.S.
shareholders with or within which such taxable years
of such foreign corporations end.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
C.
Reduction of Fuel Tax Evasion
1. Exemption from certain excise taxes for mobile
machinery vehicles and modification of definition of
offhighway vehicle (sec. 651 of the House bill, sec.
896 of the Senate amendment, and secs. 4053, 4072,
4082, 4483, 6421, and 7701 of the Code)
Present
Law
Under present law, the definition of a "highway
vehicle" affects the application of the retail
tax on heavy vehicles, the heavy vehicle use tax,
the tax on tires, and fuel taxes.690
Section 4051 of the Code provides for a 12-percent
retail sales tax on tractors, heavy trucks with a
gross vehicle weight ("GVW") over 33,000
pounds, and trailers with a GVW over 26,000 pounds.
Section 4071 provides for a tax on highway vehicle
tires that weigh more than 40 pounds, with higher
rates of tax for heavier tires. Section 4481
provides for an annual use tax on heavy vehicles
with a GVW of 55,000 pounds or more, with higher
rates of tax on heavier vehicles. All of these
excise taxes are paid into the Highway Trust Fund.
Federal excise taxes are also levied on the motor
fuels used in highway vehicles. Gasoline is subject
to a tax of 18.4 cents per gallon, of which 18.3
cents per gallon is paid into the Highway Trust Fund
and 0.1 cent per gallon is paid into the Leaking
Underground Storage Tank ("LUST") Trust
Fund. Highway diesel fuel is subject to a tax of
24.4 cents per gallon, of which 24.3 cents per
gallon is paid into the Highway Trust Fund and 0.1
cent per gallon is paid into the LUST Trust Fund.
The Code does not define a "highway
vehicle." For purposes of these taxes, Treasury
regulations define a highway vehicle as any
self-propelled vehicle or trailer or semitrailer
designed to perform a function of transporting a
load over the public highway, whether or not also
designed to perform other functions. Excluded from
the definition of highway vehicle are (1) certain
specially designed mobile machinery vehicles for
non-transportation functions (the "mobile
machinery exception"); (2) certain vehicles
specially designed for off-highway transportation
for which the special design substantially limits or
impairs the use of such vehicle to transport loads
over the highway (the "off-highway
transportation vehicle" exception); and (3)
certain trailers and semi-trailers specially
designed to function only as an enclosed stationary
shelter for the performance of non-transportation
functions off the public highways.691
The mobile machinery exception applies if three
tests are met: (1) the vehicle consists of a chassis
to which jobsite machinery (unrelated to
transportation) has been permanently mounted; (2)
the chassis has been specially designed to serve
only as a mobile carriage and mount for the
particular machinery; and (3) by reason of such
special design, the chassis could not, without
substantial structural modification, be used to
transport a load other than the particular
machinery. An example of a mobile machinery vehicle
is a crane mounted on a truck chassis that meets the
forgoing factors.
On June 6, 2002, the Treasury Department put forth
proposed regulations that would eliminate the mobile
machinery exception.692
The other exceptions from the definition of highway
vehicle would continue to apply with some
modifications. Under the proposed regulations, the
chassis of a mobile machinery vehicle would be
subject to the retail sales tax on heavy vehicles
unless the vehicle qualified under the off-highway
transportation vehicle exception. Also, under the
proposed regulations, mobile machinery vehicles may
be subject to the heavy vehicle use tax. In
addition, the tax credits, refunds, and exemptions
from tax may not be available for the fuel used in
these vehicles.
On June 6, 2002, the Treasury Department put forth
proposed regulations that would modify the
off-highway transportation vehicle exception.693
Under the proposed regulations, a vehicle is not
treated as a highway vehicle if it is specially
designed for the primary function of transporting a
particular type of load other than over the public
highway and because of this special design its
capability to transport a load over the public
highway is substantially limited or impaired. A
vehicle's design is determined solely on the basis
of its physical characteristics. In determining
whether substantial limitation or impairment exists,
account may be taken of factors such as the size of
the vehicle, whether it is subject to the licensing,
safety, and other requirements applicable to highway
vehicles, and whether it can transport a load at a
sustained speed of at least 25 miles per hour. Under
the proposed regulation, it is not material that a
vehicle can transport a greater load off the public
highway than it is permitted to transport over the
public highway.
The proposed regulation provides an exception to the
definition of a highway vehicle for
nontransportation trailers and semitrailers.694
Under the proposed regulation, a trailer or
semitrailer is not treated as a highway vehicle if
it is specially designed to function only as an
enclosed stationary shelter for the carrying on of
an offhighway function at an offhighway site. For
example, a trailer that is capable only of
functioning as an office for an offhighway
construction operation is not a highway vehicle.
House
Bill
The provision codifies the present-law mobile
machinery exemption for purposes of three taxes: the
retail tax on heavy vehicles, the heavy vehicle use
tax, and the tax on tires. Thus, if a vehicle can
satisfy the three-part test, it will not be treated
as a highway vehicle and will be exempt from these
taxes.
For purposes of the fuel excise tax, the three-part
design test is codified and a use test is added by
the provision. Specifically, in addition to the
three-part design test, the vehicle must not have
traveled more than 7,500 miles over public highways
during the owner's taxable year. Refunds of fuel
taxes are permitted on an annual basis only. For
purposes of this rule, a person's taxable year is
his taxable year for income tax purposes.
Effective date. --The provision generally is
effective after the date of enactment. As to the
fuel taxes, the provision is effective for taxable
years beginning after the date of enactment.
Senate
Amendment
The Senate amendment provides that mobile machinery
vehicles are subject to tax as highway vehicles. The
provision provides for the recovery of taxes paid
(other than fuel taxes) over a two-year period if
such vehicle travels less than 5,000 miles per year.
Fuel taxes for mobile machinery vehicles must be
paid and then a refund sought if the mileage
requirement is met. Refunds of fuel taxes are
permitted on an annual basis only. Like the House
bill, for purposes of this rule, a person's taxable
year is his taxable year for income tax purposes.
Vehicles owned by an organization described in
section 501(c), exempt from tax under section
501(a), need only satisfy the three-part design test
to recover taxes paid with respect to such vehicles.
Effective date. --The provision generally is
effective after the date of enactment. As to the
fuel taxes, the provision is effective for taxable
years beginning after the date of enactment.
Conference
Agreement
The conference agreement follows the House bill.
Vehicles owned by an organization described in
section 501(c), exempt from tax under section
501(a), need only satisfy the threepart design test
to recover taxes paid with respect to such vehicles.
The conference agreement adopts the definition of an
offhighway transportation vehicle and a
nontransportation trailer and semitrailer described
in Proposed Treasury Regulation section
48.4051-1(a)(2).
For example, as provided in the proposed
regulations,695
Vehicle C consists of a truck chassis on which an
oversize body designed to transport and apply liquid
agricultural chemicals on farms has been installed.
It is capable of transporting a load over the public
highway. It is 132 inches in width, which is
considerably in excess of standard highway vehicle
width. For travel on uneven and soft terrain, it is
equipped with oversize wheels with high-flotation
tires, and nonstandard axles, brakes, and
transmission. It has a special fuel and carburetor
air filtration system that enable it to perform
efficiently in an environment of dirt and dust. It
is not able to maintain a speed of 25 miles per hour
for more than one mile while fully loaded. Because
Vehicle C is a self-propelled vehicle capable of
transporting a load over the public highway, it
would meet the general definition of a highway
vehicle. However, its considerable physical
characteristics for transporting its load other than
over the public highway, when compared with its
physical characteristics for transporting the load
over the public highway, establish that it is
specially designed for the primary function of
transporting its load other than over the public
highway. Further, the physical characteristics for
transporting its load other than over the public
highway substantially limit its capability to
transport a load over the public highway. Therefore,
Vehicle C is an offhighway vehicle and is not
treated as a highway vehicle.
Effective date. --Generally effective after
the date of enactment. As to the fuel taxes,
effective for taxable years beginning after the date
of enactment.
2. Taxation of aviation-grade kerosene (sec. 652
of the House bill, sec. 871 of the Senate amendment,
and secs. 4041, 4081, 4082, 4083, 4091, 4092, 4093,
4101, and 6427 of the Code)
Present
Law
In general
Aviation fuel is kerosene and any liquid (other than
any product taxable under section 4081) that is
suitable for use as a fuel in an aircraft.696
Unlike other fuels that generally are taxed upon
removal from a terminal rack,697
aviation fuel is taxed upon sale of the fuel by a
producer or importer.698
Sales by a registered producer to another registered
producer are exempt from tax, with the result that,
as a practical matter, aviation fuel is not taxed
until the fuel is used at the airport (or sold to an
unregistered person). Use of untaxed aviation fuel
by a producer is treated as a taxable sale.699
The producer or importer is liable for the tax. The
rate of tax on aviation fuel is 21.9 cents per
gallon.700
The tax on aviation fuel is reported by filing Form
720 - Quarterly Federal Excise Tax Return.
Generally, semi-monthly deposits are required using
Form 8109B - Federal Tax Deposit Coupon or by
depositing the tax by electronic funds transfer.
Partial exemptions
In general, aviation fuel sold for use or used in
commercial aviation is taxed at a reduced rate of
4.4 cents per gallon.701
Commercial aviation means any use of an aircraft in
a business of transporting persons or property for
compensation or hire by air (unless the use is
allocable to any transportation exempt from certain
excise taxes).702
In order to qualify for the 4.4 cents per gallon
rate, the person engaged in commercial aviation must
be registered with the Secretary703
and provide the seller with a written exemption
certificate stating the airline's name, address,
taxpayer identification number, registration number,
and intended use of the fuel. A person that is
registered as a buyer of aviation fuel for use in
commercial aviation generally is assigned a
registration number with a "Y" suffix (a
"Y" registrant), which entitles the
registrant to purchase aviation fuel at the 4.4
cents per gallon rate.
Large commercial airlines that also are producers of
aviation fuel qualify for registration numbers with
an "H" suffix. As producers of aviation
fuel, "H" registrants may buy aviation
fuel tax free pursuant to a full exemption that
applies to sales of aviation fuel by a registered
producer to a registered producer. If the
"H" registrant ultimately uses such
untaxed fuel in domestic commercial aviation, the H
registrant is liable for the aviation fuel tax at
the 4.4 cents per gallon rate.
Exemptions
Aviation fuel sold by a producer or importer for use
by the buyer in a nontaxable use is exempt from the
excise tax on sales of aviation fuel.704
To qualify for the exemption, the buyer must provide
the seller with a written exemption certificate
stating the buyer's name, address, taxpayer
identification number, registration number (if
applicable), and intended use of the fuel.
Nontaxable uses include: (1) use other than as fuel
in an aircraft (such as use in heating oil); (2) use
on a farm for farming purposes; (3) use in a
military aircraft owned by the United States or a
foreign country; (4) use in a domestic air carrier
engaged in foreign trade or trade between the United
States and any of its possessions;705
(5) use in a foreign air carrier engaged in foreign
trade or trade between the United States and any of
its possessions (but only if the foreign carrier's
country of registration provides similar privileges
to United States carriers); (6) exclusive use of a
State or local government; (7) sales for export, or
shipment to a United States possession; (8)
exclusive use by a nonprofit educational
organization; (9) use by an aircraft museum
exclusively for the procurement, care, or exhibition
of aircraft of the type used for combat or transport
in World War II, and (10) use as a fuel in a
helicopter or a fixed-wing aircraft for purposes of
providing transportation with respect to which
certain requirements are met.706
A producer that is registered with the Secretary may
sell aviation fuel tax-free to another registered
producer.707
Producers include refiners, blenders, wholesale
distributors of aviation fuel, dealers selling
aviation fuel exclusively to producers of aviation
fuel, the actual producer of the aviation fuel, and
with respect to fuel purchased at a reduced rate,
the purchaser of such fuel.
Refunds and credits
A claim for refund of taxed aviation fuel held by a
registered aviation fuel producer is allowed708
(without interest) if: (1) the aviation fuel tax was
paid by an importer or producer (the "first
producer") and the tax has not otherwise been
credited or refunded; (2) the aviation fuel was
acquired by a registered aviation fuel producer (the
"second producer") after the tax was paid;
(3) the second producer files a timely refund claim
with the proper information; and (4) the first
producer and any other person that owns the fuel
after its sale by the first producer and before its
purchase by the second producer have met certain
reporting requirements.709
Refund claims should contain the volume and type of
aviation fuel, the date on which the second producer
acquired the fuel, the amount of tax that the first
producer paid, a statement by the claimant that the
amount of tax was not collected nor included in the
sales price of the fuel by the claimant when the
fuel was sold to a subsequent purchaser, the name,
address, and employer identification number of the
first producer, and a copy of any required statement
of a subsequent seller (subsequent to the first
producer but prior to the second producer) that the
second producer received. A claim for refund is
filed on Form 8849, Claim for Refund of Excise
Taxes, and may not be combined with any other
refunds.710
A payment is allowable to the ultimate purchaser of
taxed aviation fuel if the aviation fuel is used in
a nontaxable use.711
A claim for payment may be made on Form 8849 or on
Form 720, Schedule C. A claim made on Form 720,
Schedule C, may be netted against the claimant's
excise tax liability.712
Claims for payment not so taken may be allowable as
income tax credits713
on Form 4136, Credit for Federal Tax Paid on Fuels.
House
Bill
The provision changes the incidence of taxation of
aviation fuel from the sale of aviation fuel to the
removal of aviation fuel from a refinery or
terminal, or the entry into the
United States
of aviation fuel. Sales of not previously taxed
aviation fuel to an unregistered person also are
subject to tax.
Under the provision, the full rate of tax --21.9
cents per gallon --is imposed upon removal of
aviation fuel from a refinery or terminal (or entry
into the
United States
). Aviation fuel may be removed at a reduced rate
--either 4.4 or zero cents per gallon --only if the
aviation fuel is: (1) removed directly into the wing
of an aircraft (i) that is registered with the
Secretary as a buyer of aviation fuel for use in
commercial aviation (e.g., a "Y"
registrant under current law), (ii) that is a
foreign airline entitled to the present law
exemption for aviation fuel used in foreign trade,
or (iii) for a tax-exempt use; or (2) removed or
entered as part of an exempt bulk transfer.714
An exempt bulk transfer is a removal or entry of
aviation fuel transferred in bulk by pipeline or
vessel to a terminal or refinery if the person
removing or entering the aviation fuel, the operator
of such pipeline or vessel, and the operator of such
terminal or refinery are registered with the
Secretary.
Under a special rule, the provision treats certain
refueler trucks, tankers, and tank wagons as a
terminal if certain requirements are met. For the
special rule to apply, a qualifying truck, tanker,
or tank wagon must be loaded with aviation fuel from
a terminal: (1) that is located within an airport,
and (2) from which no vehicle licensed for highway
use is loaded with aviation fuel, except in exigent
circumstances identified by the Secretary in
regulations. It is intended that a terminal is
located within an airport if the terminal is located
in a secure facility on airport grounds. For
example, if an access road runs between a terminal
and an airport's runways, and the terminal, like the
runways, is physically located on airport grounds
and is part of a secure facility, it is intended
that under the provision the terminal is located
within the airport. It is intended that an exigent
circumstance under which loading a vehicle
registered for highway use with fuel would not
disqualify a terminal under the special rule would
include, for example, the unloading of fuel from
bulk storage tanks into highway vehicles in order to
repair the storage tanks.
In order to qualify for the special rule, a refueler
truck, tanker, or tank wagon must: (1) deliver the
aviation fuel directly into the wing of the aircraft
at the airport where the terminal is located; (2)
have storage tanks, hose, and coupling equipment
designed and used for the purposes of fueling
aircraft; (3) not be registered for highway use; and
(4) be operated by the terminal operator (who
operates the terminal rack from which the fuel is
unloaded) or by a person that makes a daily
accounting to such terminal operator of each
delivery of fuel from such truck, tanker, or tank
wagon.715
The provision does not change the applicable rates
of tax under present law, 21.9 cents per gallon for
use in noncommercial aviation, 4.4 cents per gallon
for use in commercial aviation, and zero cents per
gallon for use by domestic airlines in an
international flight, by foreign airlines, or other
nontaxable use. The provision imposes liability for
the tax on aviation fuel removed from a refinery or
terminal directly into the wing of an aircraft for
use in commercial aviation on the person receiving
the fuel, in which case, such person self-assesses
the tax on a return. The provision does not change
present-law nontaxable uses of aviation fuel, or
change the persons or the qualifications of persons
who are entitled to purchase fuel at a reduced rate,
except that a producer is not permitted to purchase
aviation fuel at a reduced rate by reason of such
persons' status as a producer.
Under the provision, a refund is allowable to the
ultimate vendor of aviation fuel if such ultimate
vendor purchases fuel tax paid and subsequently
sells the fuel to a person qualified to purchase at
a reduced rate and who waives the right to a refund.
In such a case, the provision permits an ultimate
vendor to net refund claims against any excise tax
liability of the ultimate vendor, in a manner
similar to the present law treatment of ultimate
purchaser payment claims.716
As under present law, if previously taxed aviation
fuel is used for a nontaxable use, the ultimate
purchaser may claim a refund for the tax previously
paid. If previously taxed aviation fuel is used for
a taxable non aircraft use, the fuel is subject to
the tax imposed on kerosene (24.4 cents per gallon)
and a refund of the previously paid aviation fuel
tax is allowed. Claims by the ultimate vendor or the
purchaser that are not taken as refund claims may be
allowable as income tax credits.
For example, for an airport that is not served by a
pipeline, aviation fuel generally is removed from a
terminal and transported to an airport storage
facility for eventual use at the airport. In such a
case, the aviation fuel will be taxed at 21.9 cents
per gallon upon removal from the terminal. At the
airport, if the fuel is purchased from a vendor by a
person registered with the Secretary to use fuel in
commercial aviation, the purchaser may buy the fuel
at a reduced rate (generally, 4.4 cents per gallon
for domestic flights and zero cents per gallon for
international flights) and waive the right to a
refund. The ultimate vendor generally may claim a
refund for the difference between 21.9 cents per
gallon of tax paid upon removal and the rate of tax
paid to the vendor by the purchaser. To obtain a
zero rate upon purchase, a registered domestic
airline must certify to the vendor at the time of
purchase that the fuel is for use in an
international flight; otherwise, the airline must
pay the 4.4 cents per gallon rate and file a claim
for refund to the Secretary if the fuel is used for
international aviation. If a zero rate is paid and
the fuel subsequently is used in domestic and not
international travel, the domestic airline is liable
for tax at 4.4 cents per gallon. A foreign airline
eligible under present law to purchase aviation fuel
taxfree would continue to purchase such fuel
tax-free.
As another example, for an airport that is served by
a pipeline, aviation fuel generally is delivered to
the wing of an aircraft either by a refueling truck
or by a "hydrant" that runs directly from
the pipeline to the airplane wing. If a refueling
truck that is not licensed for highway use loads
fuel from a terminal located within the airport (and
the other requirements of the provision for such
truck and terminal are met), and delivers the fuel
directly to the wing of an aircraft for use in
commercial aviation, the aviation fuel is taxed at
4.4 cents per gallon upon delivery to the wing and
the person receiving the fuel is liable for the tax,
which such person would be able to self-assess on a
return.717
If fuel is loaded into a refueling truck that does
not meet the requirements of the provision, then the
fuel is treated as removed from the terminal into
the refueling truck and tax of 21.9 cents per gallon
is paid on such removal. The ultimate vendor is
entitled to a refund of the difference between 21.9
cents per gallon paid on removal and the rate paid
by a commercial airline purchaser (assuming the
purchaser waived the refund right). If fuel is
removed from a terminal directly to the wing of an
aircraft registered to use fuel in commercial
aviation by a hydrant or similar device, the person
removing the aviation fuel is liable for a tax of
4.4 cents per gallon (or zero in the case of an
international flight or qualified foreign airline)
and may self-assess such tax on a return.
Under the provision, a floor stocks tax applies to
aviation fuel held by a person (if title for such
fuel has passed to such person) on October 1, 2004.
The tax is equal to the amount of tax that would
have been imposed before October 1, 2004, if the
provision was in effect at all times before such
date, reduced by the tax imposed by section 4091, as
in effect on the day before the date of enactment.
The Secretary shall determine the time and manner
for payment of the tax, including the nonapplication
of the tax on de minimis amounts of aviation fuel.
Under the provision, 0.1 cents per gallon of such
tax is transferred to the LUST Trust Fund. The
remainder is transferred to the Airport and Airway
Trust Fund.
Effective date. --Effective for aviation fuel
removed, entered, or sold after September 30, 2004.
Senate
Amendment
The Senate amendment is similar to the House bill,
except that refueler trucks, tankers, and tank
wagons are not subject to special rules, and there
is no provision for liability for, and
self-assessment of, tax by the person receiving fuel
removed from a refinery or terminal directly into
the wing of an aircraft (whether by refueling
vehicle or otherwise).
Effective date. --Effective for aviation fuel
removed, entered, or sold after
September 30, 2004
.
Conference
Agreement
The conference agreement follows the House bill,
with the following modifications. The rule that
permits certain refueler trucks to be treated as a
terminal for purposes of the provision is modified
to require that, in addition to the requirements
specified in the House bill, a qualifying truck,
tanker, or tank wagon must be loaded with aviation
fuel from a terminal that is located within a
secured area of an airport. The Secretary is
required to publish, by December 15, 2004, and
maintain a list of airports that include a secured
area in which a terminal is located.718
In addition, the conference agreement modifes the
requirement that in order to qualify for the special
rule, a refueler truck, tanker, or tank wagon must
deliver the aviation fuel directly into the wing of
the aircraft at the airport where the terminal is
located to a requirement that a refueler truck,
tanker, or tank wagon be loaded with aviation fuel
for delivery into aircraft at the airport where the
terminal is located.
The conference agreement modifies the floor stocks
tax. Under the conference agreement, a floor stocks
tax applies to aviation fuel held by a person (if
title for such fuel has passed to such person) on
January 1, 2004. The tax is equal to the amount of
tax that would have been imposed before January 1,
2004, if the proposal was in effect at all times
before such date, reduced by (1) the tax imposed by
section 4091, as in effect on the day before such
date and, (2) in the case of kerosene held
exclusively for the holder's own use, the amount
which such holder would reasonably expect under the
proposal to be paid as a refund for a nontaxable use
with respect to the kerosene. The tax does not apply
to kerosene held in the fuel tank of an aircraft on
January 1, 2004. The Secretary shall determine the
time and manner for payment of the tax, including
the nonapplication of the tax on de minimis amounts
of aviation fuel. Under the conference agreement,
0.1 cents per gallon of such tax is transferred to
the LUST Trust Fund. The remainder is transferred to
the Airport and Airway Trust Fund.
The conferees expect the Secretary to delay the due
date of the excise tax return with respect to
aviation fuel for the quarter beginning on January
1, 2005. It is intended that the requirement of
semi-monthly deposits of aviation fuel taxes
continue unchanged.
Effective date. --Effective for
aviation-grade kerosene removed, entered, or sold
after December 31, 2004.
3. Provide for transfer from Airport and Airway
Trust Fund to Highway Trust Fund to adjust for
continued highway use of aviation fuel (sec. 872 of
the Senate amendment and secs. 9502 and 9503 of the
Code)
Present
Law
Aviation fuel is kerosene and any liquid (other than
any product taxable under section 4081) that is
suitable for use as a fuel in an aircraft.719
In general, the rate of tax on aviation fuel is 21.9
cents per gallon.720
Aviation fuel sold for use or used in commercial
aviation is taxed at a reduced rate of 4.4 cents per
gallon.721
Certain sales of aviation fuel are exempt from tax.722
Taxes received for aviation fuel, except for the
LUST Trust Fund financing rate, are appropriated to
the Airport and Airway Trust Fund.723
Such appropriation occurs even if aviation fuel is
used for non aviation purposes.
Taxes received on taxable fuel for transportation
purposes generally are appropriated to the Highway
Trust Fund.724
House
Bill
No provision.
Senate
Amendment
The provision directs the Secretary to transfer from
the Airport and Airway Trust Fund to the Highway
Trust Fund annually an amount equivalent to amounts
received in the Airport and Airway Trust Fund which
are attributable to fuel that is used primarily for
highway transportation purposes. The Secretary is
directed to transfer 11 percent of such amount to
the Mass Transit Account.
Effective date. --Effective on
October 1, 2004
.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
4. Mechanical dye injection and related penalties
(sec. 653 of the House bill, secs. 873, 874 and 875
of the Senate amendment and secs. 4082 and 6715 and
new sec. 6715A of the Code)
Present
Law
Statutory rules
Gasoline, diesel fuel and kerosene are generally
subject to excise tax upon removal from a refinery
or terminal, upon importation into the United
States, and upon sale to unregistered persons unless
there was a prior taxable removal or importation of
such fuels.725
However, a tax is not imposed upon diesel fuel or
kerosene if all of the following are met: (1) the
Secretary determines that the fuel is destined for a
nontaxable use, (2) the fuel is indelibly dyed in
accordance with regulations prescribed by the
Secretary,726
and (3) the fuel meets marking requirements
prescribed by the Secretary.727
A nontaxable use is defined as (1) any use that is
exempt from the tax imposed by section 4041(a)(1)
other than by reason of a prior imposition of tax,
(2) any use in a train, or (3) certain uses in buses
for public and school transportation, as described
in section 6427(b)(1) (after application of section
6427(b)(3)).728
The Secretary is required to prescribe necessary
regulations relating to dyeing, including
specifically the labeling of retail diesel fuel and
kerosene pumps.729
A person who sells dyed fuel (or holds dyed fuel for
sale) for any use that such person knows (or has
reason to know) is a taxable use, or who willfully
alters or attempts to alter the dye in any dyed
fuel, is subject to a penalty.730
The penalty also applies to any person who uses dyed
fuel for a taxable use (or holds dyed fuel for such
a use) and who knows (or has reason to know) that
the fuel is dyed.731
The penalty is the greater of $1,000 per act or $10
per gallon of dyed fuel involved. In determining the
amount of the penalty, the $1,000 is increased by
the product of $1,000 and the number of prior
penalties imposed upon such person (or a related
person or predecessor of such person or related
person).732
The penalty may be imposed jointly and severally on
any business entity, each officer, employee, or
agent of such entity who willfully participated in
any act giving rise to such penalty.733
For purposes of the penalty, the term "dyed
fuel" means any dyed diesel fuel or kerosene,
whether or not the fuel was dyed pursuant to section
4082.734
Regulations
The Secretary has prescribed certain regulations
under this provision, including regulations that
specify the allowable types and concentration of
dye, that the person claiming the exemption must be
a taxable fuel registrant, that the terminal must be
an approved terminal (in the case of a removal from
a terminal rack), and the contents of the notice to
be posted on diesel fuel and kerosene pumps.735
However, the regulations do not prescribe the time
or method of adding the dye to taxable fuel.736
Diesel fuel is usually dyed at a terminal rack by
either manual dyeing or mechanical injection. The
regulations also provide that a terminal operator is
jointly and severally liable for unpaid tax if
undyed diesel fuel or kerosene is removed and the
terminal operator provides any person with
documentation that such fuel is dyed.737
House
Bill
With respect to terminals that offer dyed fuel, the
provision eliminates manual dyeing of fuel and
requires dyeing by a mechanical system. Not later
than 180 days after enactment of this provision, the
Secretary of the Treasury is to prescribe
regulations establishing standards for tamper
resistant mechanical injector dyeing. Such standards
shall be reasonable, cost-effective, and establish
levels of security commensurate with the applicable
facility.
The provision adds an additional set of penalties
for violation of the new rules. A penalty, equal to
the greater of $25,000 or $10 for each gallon of
fuel involved, applies to each act of tampering with
a mechanical dye injection system. The person
committing the act is also responsible for any
unpaid tax on removed undyed fuel. A penalty of
$1,000 is imposed upon the operator of a mechanical
dye injection system for each failure to maintain
the security standards for such system.738
An additional penalty of $1,000 is imposed upon such
operator for each day any such violation remains
uncorrected after the first day such violation has
been or reasonably should have been discovered. For
purposes of the daily penalty, a violation may be
corrected by shutting down the portion of the system
causing the violation. If any of these penalties are
imposed on any business entity, each officer,
employee, or agent of such entity or other
contracting party who willfully participated in any
act giving rise to such penalty shall be jointly and
severally liable with such entity for such penalty.
If such business entity is part of an affiliated
group, the parent corporation of such entity shall
be jointly and severally liable with such entity for
the penalty.
Effective date. --The provision is effective
180 days after the date that the Secretary issues
the required regulations. The Secretary must issue
such regulations no later than 180 days after
enactment.
Senate
Amendment
The Senate amendment contains a mechanical dyeing
provision similar to the provision in the House
bill, except that the Secretary of the Treasury is
to prescribe regulations establishing standards by
June 30, 2004
.
The Senate amendment also contains two additional
provisions not in the House bill.
The Senate amendment denies administrative appeal or
review for repeat offenders (more than two
violations) of present law after a chemical analysis
of the fuel, except in the case of a claim regarding
fraud or mistake in the chemical analysis or error
in the mathematical calculation of the amount of
penalty.
The Senate amendment also extends present-law
penalties to any person who knows that the strength
or composition of any dye or marking in any dyed
fuel has been altered, chemically or otherwise, and
who sells (or holds for sale) such fuel for any use
that the person knows or has reason to know is a
taxable use of such fuel.
Effective date. --Penalties relating to
mechanical dyeing systems are effective 180 days
after the regulations are issued. The prohibition of
certain administrative review is effective for
penalties assessed after date of enactment. The
extension of present law penalties is effective on
date of enactment.
Conference
Agreement
The conference agreement follows the House bill with
respect to mechanical dye injection systems and
related penalties. The conference agreement follows
the Senate amendment with respect to denying
administrative review to repeat offenders and
extending present law penalties to any person who
knows that the strength or composition of any dye or
marking in any dyed fuel has been altered,
chemically or otherwise, and who sells (or holds for
sale) such fuel for any use that the person knows or
has reason to know is a taxable use of such fuel.
5. Terminate dyed diesel use by intercity buses
(sec. 876 of the Senate amendment and secs. 4082 and
6427 of the Code)
Present
Law
A manufacturer's tax of 24.4 cents per gallon
applies to diesel fuel.739
Diesel fuel that is to be used for a nontaxable
purpose will not be taxed upon removal from the
terminal if it is dyed to indicate its nontaxable
purpose. Use in an intercity bus is a nontaxable use
for purposes of the manufacturers tax on diesel
fuel. However, diesel fuel is subject to a retail
backup tax. The retail tax is 7.4 cents per gallon
for intercity buses, but only applies if no tax was
imposed on the diesel under the manufacturers tax.739a
Thus, dyed diesel removed from the terminal is
exempt from the manufacturers tax but a tax of 7.3
cents per gallon (plus .1 for LUST) is imposed on
the delivery of the dyed fuel into the fuel supply
tank of the intercity bus. The operator of the bus
is liable for the tax.
House
Bill
No provision.
Senate
Amendment
The Senate amendment eliminates the ability of
intercity buses to buy dyed diesel and self-assess
the 7.4 cents per gallon. Under the provision,
operators of such buses must buy clear fuel and seek
a refund of the difference between 24.4 and 7.4
cents per gallon of tax on diesel fuel. The
provision permits refund claimants to obtain
interest if they file their refund claims
electronically and the Secretary does not pay such
claims within 20 days. The provision also permits
ultimate vendors to make such refund claims if the
bus operator assigns its right to claim a refund to
the ultimate vendor.
Effective date - The provision is effective
for fuel sold after
September 30, 2004
.
Conference
Agreement
The conference agreement follows the Senate
amendment, except the conference agreement does not
include the provision that deems credit card issuers
the ultimate vendor for purchases made by credit
card.
Effective date. --The provision is effective
for fuel sold after
January 1, 2005
.
6. Authority to inspect on-site records (sec. 654
of the House bill, sec. 877 of the Senate amendment,
and sec. 4083 of the Code)
Present
Law
The
IRS
is authorized to inspect any place where taxable
fuel740
is produced or stored (or may be stored). The
inspection is authorized to: (1) examine the
equipment used to determine the amount or
composition of the taxable fuel and the equipment
used to store the fuel; and (2) take and remove
samples of taxable fuel. Places of inspection
include, but are not limited to, terminals, fuel
storage facilities, retail fuel facilities or any
designated inspection site.741
In conducting the inspection, the
IRS
may detain any receptacle that contains or may
contain any taxable fuel, or detain any vehicle or
train to inspect its fuel tanks and storage tanks.
The scope of the inspection includes the book and
records kept at the place of inspection to determine
the excise tax liability under section 4081.
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