Table t.--Comparison of Federal Motor Fuels Excise Tax Rates on Various Transportation Sectors
(Present and Proposed Law)
(rates shown in cents per gallon)

Present Law Proposed Law
Transportation Sector Trust Fund General Fund Total Tax Trust Fund General Fund Total Tax
Highway Transportation’
In general (trucks, automobiles)
Gasoline 140 43 18.3 14.0 no tax 14.0
Diesel fuel 20.0 43 24.3 20.0 no tax 20.0
Special motor fuels* 14.0 43 18.3 14.0 no tax 14.0
Intercity bus
Gasoline no tax no tax no tax no tax no tax no tax
Diesel fuel 3.0 43 713 3.0 no tax 3.0
Rail Transportation no tax 5.55 5.55 no tax 1.25 1.25.
Water Transportation
Inland waterway 20.0 43 24.3 20.0 no tax 20.0
Recreational boats
Gasoline 14.0 4.3 18.3 14.0 no tax 14.0
Diesel fuel no tax 24.4 24.4 no tax 20.1 20.1
Air Transportation
Commercial aviation no tax? 43 43 no tax? no tax no tax
Noncommercial aviation
Gasoline 14.0° 43 18.3 14.0° no tax 140
Jet fuel no tax? 43 43 no tax? no tax no tax

' Reduced highway motor fucls excise tax rates apply to mixtures of taxable fuels with ethanol and methanol produced from renewable sources (i.e.,
"gasohol") and to certain "neat" (at least 85 percent pure) methanol fuels produced from natural gas.

2 Examples of special motor fuels are propane, liquefied natural gas ("LNG"), other liquids used as a fuel in highway transportation, and compressed
natural gas ("CNG"). CNG, a gaseous fuel rather than a liquid fuel, is subject only to a General Fund tax of 48.54 cents per thousand cubic feet (the equivalent of

the 4.3-cents-per-gallon rate on propane). -

> Before January 1, 1996, commercial aviation trust fund taxes consisted of a 10-percent domestic passenger tax, a $6 dollar international passenger
departure tax, and a 6.25-percent domestic air cargo tax.

* Before January 1, 1996, an additional | -cent-per-gallon tax was imposed on noncommercial aviation gasoline.

5 Before January 1, 1996, a 17.5-cents-per-gallon tax was imposed


Joint Committee on Taxation
May 8, 1996
ICX-19-96

TEMPORARY REPEAL OF 4.3-CENTS-PER-GALLON GENERAL
FUND TRANSPORTATION MOTOR FUELS EXCISE TAX

Scheduled for Markup by the
Committee on Ways and Means
On May 9, 1996

Present Law

Separate Federal excise taxes are imposed on specified transportation motor fuels.
Taxable fuels include gasoline, diesel fuel and special motor fuels used for highway
transportation, gasoline and diesel fuel used in motorboats, diesel fuel used in trains, fuels used
in inland waterway shipping, and aviation fuel (gasoline and jet fuel). Motor fuels used by all of
these transportation sectors are subject to a permanent 4.3-cents-per gallon excise tax, enacted by
the Omnibus Budget Reconciliation Act of 1993 (the "1993 Act"), Revenues from the 4.3-cents-
per-gallon excise tax are retained in the General Fund of the Treasury.

Transportation sectors that benefit from Federal public works and environmental
programs are subject to additional tax rates (beyond the 4.3-cents-per-gallon General Fund rate)
to finance Federal trust funds established as a financing source for those programs. Motor fuels
excise taxes other than the 4.3-cents-per-gallon transportation motor fuels excise tax generally
are temporary (i.e., have scheduled expiration dates). As a result of the financing needs of these
public works and environmental programs, the aggregate tax rate varies for each transportation
sector and fuel. For example, diesel fuel used in automobiles and trucks is subject to a total tax
tate of 24.3 cents per gallon, while gasoline used in these vehicles is subject to an 18.3-cents-
per-gallon tax rate. Diesel fuel used in trains is subject to an aggregate General Fund tax rate of
5.55 cents per galion but not to any trust fund rate (because there is no Federal rail construction
trust fund).

In addition to the taxes imposed directly on transportation motor fuels, excise taxes
formerly were imposed on crude oil (and imported refined petroleum products) to finance the
Hazardous Substance Superfiund program (before January 1, 1996) and the Oil Spill Liability
Trust Fund program (before January 1, 1995). A further excise tax on motor fuels, the Leaking
Underground Storage Tank Trust Fund tax, expired after December 31, 1995.

Between 1956 and 1990, motor fuels excise taxes generally were imposed only for
Federal trust fund financing. The first deviation from this practice occurred when the Omnibus



Budget Reconciliation Act of 1990 imposed a temporary (through September 30, 1995) 2.5-
cents-per-galion General Fund excise tax on highway and rail transportation motor fuels. In
addition to imposing the 4.3-cents-per-gallon General Fund transportation motor fuels excise tax,
described above, the 1993 Act also extended the 1990 General Fund excise tax rate and provided
that revenues from the tax on highway motor fuels be deposited in the Highway Trust Fund
during the period October 1, 1995 through September 30, 1999. The 1990 General Fund excise
tax on diesel fuel used in trains was extended at a reduced rate of 1.25 cents per gallon during the
same period.

Description of Proposal
Repeal of 4.3-cents-per-gallon transportation motor fuels excise tax

The proposal would repeal the 4.3-cents-per-gallon General Fund transportation motor
fuels excise tax imposed in 1993 during the period beginning seven days after enactment and
ending on December 31, 1996. Statutorily, this would be accomplished by reducing the
aggregate tax rate that otherwise would be imposed by 4.3 cents per gallon, or adjusting the
amount of an exemption (e.g., in the case of commercial aviation jet fuel). The proposal would
not affect any of the motor fuels excise taxes that are dedicated finding sources for Federal
environmental or public works trust fund programs.

Table 1, below, summarizes the excise tax rates imposed on transportation motor fuels
under present law and the proposal, by trust fund and General Fund components.

Because the 4.3-cents-per-gallon transportation motor fuels excise tax (along with other
applicable excise taxes on the same fuels) is imposed on certain motor fuels before the fuels
reach the consumer level, the proposal includes rules comparable to present-law "floor stocks
refund" provisions that allow refunds to producers (including importers) and other dealers for
fuel held for sale on the effective date of the tax reduction when the excise tax already has been
paid. These refunds must be claimed by persons liable for payment of the tax (“position
holders"), based on amounts of tax-paid fuel they own on the tax-repeal date and on documented
claims from dealers that purchased tax-paid fuel from them and hold the fuel for sale on the tax-
repeal date. As under the present-law floor stocks refund provisions, no refunds are allowable for
fuel held at retail sale locations. These refunds are intended to be allowable either as refund
claims filed with the Internal Revenue Service or as credits against required deposits and
payments of other excise taxes owed by the claimants.

The proposal further would impose floor stocks taxes, identical to those imposed in 1993,
on taxable fuels held on January 1, 1997, when the tax-repeal period expires.

Sense of the Congress on benefit to ultimate consumers

The proposal includes a statement that it is the Sense of Congress that the full benefit of
repeal of the 4.3-cents-per-gallon transportation motor fuels excise tax be flowed through to

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consumers, and that position holders claiming refunds immediately credit their customers!
accounts to reflect floor stocks refunds allowable under the proposal.

Study
The proposal would direct the General Accounting Office to study the impact of repeal of

the 4.3-cents-per-gallon transportation motor fuels excise tax and to report its findings to
Congress.

Effective Date

The proposal would be effective on the date of enactment for taxable fuels removed,
entered, sold or used more than six days after that date and before January 1, 1997.

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