COMPARISON OF CERTAIN PROVISIONS OF H.R. 4520 AS PASSED BY THE

HOUSE OF REPRESENTATIVES AND AS AMENDED BY THE SENATE:

ALCOHOL FUELS AND FUEL FRAUD PROVISIONS

Prepared by the Staff of the

JOINT COMMITTEE ON TAXATION

September 29, 2004

JCX-65-04
ii

Contents

Page

INTRODUCTION ...................................................................................................................................................................................... 1

I. RESTRUCTURING OF INCENTIVES FOR ALCOHOL FUELS AND TRUST FUND RECEIPTS................................................. 3

A. Restructuring of Alcohol Fuel Excise Tax Incentives, Elimination of the General Fund’s Partial Retention of Alcohol Fuel

 Taxes, and Extension of Section 40 Alcohol Fuels Income Tax Credit (sec. 251 and 252 of the House bill and sec. 861

of the Senate amendment)............................................................................................................................................................... 3

B. Elimination of General Fund Retention of Motorboat and Small Engine Fuel Taxes (sec. 251 of the House bill)....................... 5

C. Incentives for Biodiesel and Biodiesel Fuel Mixtures (secs. 861 and 862 of the Senate amendment) .......................................... 6

D. Extension of Additional Duty on Ethyl Alcohol (sec. 861 of the Senate amendment) .................................................................. 7

II. REDUCTION OF FUEL TAX EVASION............................................................................................................................................ 9

A. Exemption from Certain Excise Taxes for Mobile Machinery (sec. 651 of the House bill and sec. 896 of the Senate

amendment)..................................................................................................................................................................................... 9

B. Aviation Jet Fuel ........................................................................................................................................................................... 10

1. Taxation of aviation-grade kerosene (sec. 652 of the House bill and sec. 871 of the Senate amendment).............................. 10

2. 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)................................................................................................................ 13

C. Dyed Fuel...................................................................................................................................................................................... 14

1. Mechanical dye injection equipment and penalties related to dyed fuel (sec. 653 of the House bill and secs. 873, 874

 and 875 of the Senate amendment) ........................................................................................................................................... 14

2. Terminate dyed diesel use by intercity buses (sec. 876 of the Senate amendment) ................................................................. 15

D. Modification of Inspection of Records Provisions ....................................................................................................................... 16

1. Authority to inspect on-site records (sec. 654 of the House bill and sec. 877 of the Senate amendment) ............................... 16

2. Assessable penalty for refusal of entry (sec. 878 of the Senate amendment)........................................................................... 16

E. Registration and Reporting Requirements .................................................................................................................................... 17

1. Registration of pipeline or vessel operators required for exemption of bulk transfers to registered terminals or refineries

 (sec. 655 of the House bill and sec. 879 of the Senate amendment)......................................................................................... 17
Page

iii

2. Display of registration and penalties for failure to display registration and to register (secs. 656 and 657 of the

 House bill and secs. 880, 881, 882 of the Senate amendment)................................................................................................. 18

3. Modification of information reporting and penalties for failure to report (sec. 657 of the House bill and secs. 882 and 895

 of the Senate amendment)......................................................................................................................................................... 19

4. Information reporting for persons claiming alcohol fuel or biodiesel tax benefits (sec. 883 of the Senate amendment) ........ 20

F. Imports .......................................................................................................................................................................................... 21

1. Liability for tax on fuel imported by unregistered persons. (sec. 658 of the House bill and sec. 884 of the Senate

 amendment)............................................................................................................................................................................... 21

2. Reconciliation of on-loaded cargo to entered cargo (sec. 885 of the Senate amendment) ....................................................... 22

G. Heavy Highway Vehicle Use Tax Modifications (sec. 659 of the House bill and sec. 890 of the Senate amendment) .............. 23

H. Modification of Ultimate Vendor Refund Claims With Respect to Farming (sec. 660 of the House bill and sec. 887

of the Senate amendment)............................................................................................................................................................. 24

I. Dedication of Revenues from Certain Penalties to the Highway Trust Fund (sec. 661 of the House bill and sec. 891

of the Senate amendment)............................................................................................................................................................. 24

J. Taxable Fuel Refunds for Certain Ultimate Vendors (sec. 662 of the House bill and sec. 888 of the Senate amendment) ........ 25

K. Two-Party Exchanges (sec. 663 of the House bill and sec. 889 of the Senate amendment) ........................................................ 26

L. Simplification of Tax on Tires (sec. 664 of the House bill)......................................................................................................... 27

M. Miscellaneous Fuel Provisions..................................................................................................................................................... 28

1. Tax on sale of diesel fuel whether suitable for use or not in a diesel-powered vehicle or train (sec. 886 of the Senate 

 amendment)............................................................................................................................................................................... 28

2. Nonapplication of export exemption to the delivery of fuel into the fuel tank of motor vehicles removed from

 United States (sec. 892 of the Senate amendment)................................................................................................................... 28

N. Total Accountability (secs. 893, 894, and 895 of the Senate amendment)................................................................................... 29
1

INTRODUCTION

On June 16, 2004, the House of Representatives passed H.R. 4520, the “American Jobs Creation Act of 2004.” On July 15, 

2004, the Senate amended H.R. 4520 by substituting the text and title of S. 1637, the “Jumpstart Our Business Strength (JOBS) Act,”1

and an additional non-tax amendment. 

The House bill and the Senate amendment each repeal the extraterritorial income exclusion provisions of present law, provide

provisions to reduce the effective income tax imposed on income earned from certain domestic production activities, and make 

numerous other changes to the Internal Revenue Code. This document, 2 prepared by the staff of the Joint Committee on Taxation, 

compares those provisions that restructure incentives for alcohol fuels and that prevent fuels’ tax fraud.

In previous publications,3 staff of the Joint Committee on Taxation compared provisions of H.R. 4520 as passed by the House 

of Representatives and as amended by the Senate relating to the repeal of the extraterritorial income exclusion, domestic production 

provisions, provisions relating to the corporate income tax rates applicable to small corporations, provisions relating to tax incentives 

for manufacturers, small businesses, and agriculture, certain revenue raising provisions, and expiring provisions. In subsequent 

 

1

 The Senate originally passed S. 1637 on May 11, 2004.

2

 This document may be cited as follows: Joint Committee on Taxation, Comparison of Certain Provisions of H.R. 4520 as 

Passed by the House of Representatives and as Amended by the Senate: Alcohol Fuels and Fuel Fraud Provisions (JCX-XX-04), 

September XX, 2004. 

3

 Joint Committee on Taxation, Comparison of Certain Provisions of H.R. 4520 as Passed by the House of Representatives 

and as Amended by the Senate: Provisions Relating to the Repeal of the Exclusion for Extraterritorial Income, Domestic Production 

Provisions, and the Corporate Income Tax Rates Applicable to Small Corporations (JCX-XX-04), September XX, 2004, Joint 

Committee on Taxation, Comparison of Certain Provisions of H.R. 4520 as Passed by the House of Representatives and as Amended 

by the Senate: Job Creation Tax Incentive for Manufacturing, Small Business, and Farming (JCX-XX-04), September XX, 2004, 

Joint Committee on Taxation, Comparison of Certain Provisions of H.R. 4520 as Passed by the House of Representatives and as 

Amended by the Senate: Certain Revenue Provisions (JCX-XX-04), September XX, 2004, and Joint Committee on Taxation, 

Comparison of Certain Provisions of H.R. 4520 as Passed by the House of Representatives and as Amended by the Senate: Expiring 

Provisions (JCX-XX-04), September XX, 2004.
2

publications, the staff of the Joint Committee on Taxation will compare other provisions of H.R. 4520 as passed by the House of 

Representatives and as amended by the Senate.
3

Provision Present Law House Bill Senate Amendment

I. RESTRUCTURING OF 

INCENTIVES FOR ALCOHOL 

FUELS AND TRUST FUND

RECEIPTS

A. Restructuring of Alcohol Fuel 

Excise Tax Incentives, 

Elimination of the General 

Fund’s Partial Retention of 

Alcohol Fuel Taxes, and 

Extension of Section 40 Alcohol 

Fuels Income Tax Credit

(sec. 251 and 252 of the House 

bill and sec. 861 of the Senate 

amendment) 

The excise tax on gasoline is 18.4 

cents per gallon (including .01 cent 

of the Leaking Underground 

Storage Tank Trust Fund (“LUST 

Trust Fund” tax). The tax on diesel 

fuel and kerosene is 24.4 cents per 

gallon (including .01 cent of the 

LUST Trust Fund tax). Blends of 

gasoline and alcohol are taxed at 

lower rates and gasoline used in 

producing gasohol are taxed at 

lower rates depending on the type 

of alcohol and its volume in the 

mixture. A reduced rate also 

applies to diesel fuel and kerosene 

that is combined with alcohol. If 

gasoline, diesel fuel, kerosene or 

aviation fuel on which the regular 

rate of tax was imposed is used in 

producing a qualified alcohol fuel 

mixture sold in that person’s trade 

or business, that person is entitled 

to payment equal to the difference 

between the regular rate and the 

applicable reduced rate. In the case 

of gasohol with respect to which a 

reduced excise tax is paid, 2.5 

cents per gallon of the reduced tax 

Repeals reduced-rate sales of fuel 

for blending with alcohol.

Allows the alcohol fuel mixture 

credit under section 40(a)(1) (with 

certain modifications) to be used as 

a credit against section 4081 tax 

liability by providing a per-gallon 

excise tax credit for each gallon of 

alcohol used to produce a qualified 

alcohol fuel mixture. 

The credit is generally 52 cents per 

gallon of alcohol used by the 

taxpayer to produce a qualified 

mixture. The credit is paid out of 

the General Fund with no Highway 

Trust Fund reimbursement. The 

Highway Trust Fund is credited the 

full amount of tax without regard 

to any excise tax credits taken.

The term alcohol includes an 

alcohol gallon equivalent of ethyl 

Similar to the House bill, with the 

following substantive differences 

noted below:

Same as the House bill.

Similar to the House bill, in that it 

provides a per-gallon excise tax 

credit for each gallon of alcohol 

used to produce a qualified alcohol 

fuel mixture to be used against 

section 4081 liability. 

Same as the House bill.

Same as the House bill.
4

Provision Present Law House Bill Senate Amendment

is retained in the General Fund; 2.8 

cents in the case of fuel to be 

blended with alcohol.

Section 40 provides a per-gallon 

income tax credit for alcohol used 

as a motor fuel (the “alcohol 

credit”) or used to produce a 

qualified alcohol fuel mixture (the 

“alcohol fuel mixture credit”). The 

credit is 52 cents per gallon in 2004 

and declines to 51 cents per gallon 

for 2005-2007. In the case of 

ethanol, section 40 provides a 

separate 10-cents-per-gallon credit 

for small producers for up to 15 

million gallons for any taxable 

year. These section 40 credits 

generally terminate after December 

31, 2007. 

tertiary butyl ether or other ethers 

produced from alcohol. 

Provides that refiners can treat 

qualified mixtures as sold upon 

removal from the refinery.

Provides outlay payments to 

producers of alcohol fuel mixtures.

Credit and payment provisions 

related to alcohol fuel mixtures 

terminate after 2010.

Repeals the requirement that the 

2.5/2.8 cents per gallon regarding 

alcohol fuels be retained in the 

General fund.

Effective date.–Generally for fuel 

sold or used after September 30, 

2004. The repeal of the General 

Fund retention requirement is 

effective for taxes imposed after 

September 30, 2003.

Provides that a qualified mixture 

includes a mixture of alcohol and a 

taxable fuel which is removed from 

the refinery by a person producing 

such mixture. 

Provides outlay payments to 

producers of alcohol fuel mixtures 

and neat alcohol used as fuel.

Same as the House bill.

Same as the House bill.

Extends the section 40 income tax 

credit through 2010.

Importers and producers of alcohol 

to be registered with the Secretary.

Effective date.–Same as the House 

bill.
5

Provision Present Law House Bill Senate Amendment

B. Elimination of General Fund 

Retention of Motorboat and 

Small Engine Fuel Taxes

(sec. 251 of the House bill)

The Aquatic Resources Trust Fund 

is funded by a portion of the 

receipts from the excise tax 

imposed on motorboat gasoline and 

special motor fuels, as well as a 

portion of the tax imposed on 

gasoline used as a fuel in the 

nonbusiness use of small-engine 

outdoor power equipment (“small 

engines”), that are initially 

deposited into the Highway Trust 

Fund.

4.8 cents per gallon of the total 

18.4 cents per gallon imposed on 

fuel used in motorboats and small 

engines is retained in the General 

Fund. 0.1 cent per gallon is 

transferred to the LUST Trust 

Fund. The balance of 13.5 cents 

per gallon is initially transferred to 

the Highway Trust Fund, and then 

retransferred to the Aquatic 

Resources Trust Fund.

The General Fund retention of a 

portion of the motorboat and small 

engine fuel taxes is scheduled to 

expire after September 30, 2005.

No taxes on fuel used in 

motorboats and gasoline used in 

small engines are retained in the 

General Fund. Except for the 

funding of LUST Trust Fund, all 

these taxes are initially transferred 

to Highway Trust Fund. 

Effective date.–Effective for taxes 

imposed after September 30, 2006.

No provision.
6

Provision Present Law House Bill Senate Amendment

C. Incentives for Biodiesel and 

Biodiesel Fuel Mixtures

(secs. 861 and 862 of the Senate 

amendment)

No income or excise tax incentives 

are provided for biodiesel fuels 

under present law.

No provision. Provides a 50 cents-per-gallon 

income tax credit similar to the 

present-law ethanol benefits for 

each gallon of biodiesel used or 

sold as fuel or used in the 

production of a qualified biodiesel 

mixture that is used or sold as fuel. 

Biodiesel derived from virgin 

sources (agri-biodiesel) receives an 

increased credit of $1.00 per 

gallon. A qualified biodiesel 

mixture is a mixture of biodiesel 

and diesel fuel sold by the producer 

of the mixture to any person for use 

as a fuel or used by the producer as 

a fuel. The fuels do not have to be 

sold or used by the producer in a 

diesel-powered engine to qualify 

for the credit.

Effective date.–Fuel produced and 

sold or used after September 30, 

2004 in taxable years ending after 

such date and before January 1, 

2007.

Provides per-gallon excise tax 

credits for qualified biodiesel fuel 

mixtures. 
7

Provision Present Law House Bill Senate Amendment

The credit is generally 50 cents and 

$1.00 per gallon of biodiesel and 

agri-biodiesel, respectively.

Provides outlay payments to 

producers of biodiesel fuel 

mixtures and users of neat 

biodiesel.

Credit and payment provisions 

related to biodiesel terminate after 

2006.

Importers and producers of 

biodiesel must be registered with 

the Secretary.

Effective date.–Fuel produced and 

sold, used or removed after 

September 30, 2004. Registration 

requirements are effective April 1, 

2005.

D. Extension of Additional Duty 

on Ethyl Alcohol (sec. 861 of the 

Senate amendment)

Customs duties on ethyl alcohol or 

any mixture containing ethyl 

alcohol are set at 14.27 cents per 

liter if such ethyl alcohol or 

mixture is to be used as a fuel or in 

producing a mixture to be used as a 

fuel, or is suitable for such uses. 

The provision sunsets October 1, 

2007. Customs duties on ethyl 

tertiary butyl ether and any mixture 

containing ethyl tertiary-butyl ether 

No provision. The provisions are extended such 

that the current customs duties 

relating to ethyl alcohol sunset 

January 1, 2011, and the current 

customs duties relating to ethyl 

tertiary butyl ether sunset upon the 

earlier of January 1, 2011, and the 

date on which Treas. Reg. sec. 

1.40-1 is declared invalid or 

withdrawn.
8

Provision Present Law House Bill Senate Amendment

are set at 5.99 cents per liter. The 

provision sunsets upon the earlier 

of October 1, 2007, and the date on 

which Treas. Reg. sec. 1.40-1 is 

declared invalid or withdrawn.

Effective date.–Date of enactment.
9

Provision Present Law House Bill Senate Amendment

II. REDUCTION OF FUEL TAX 

EVASION

A. Exemption from Certain 

Excise Taxes for Mobile 

Machinery (sec. 651 of the House 

bill and sec. 896 of the Senate 

amendment)

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. The Code does not define a 

“highway vehicle.” For purposes 

of these taxes, among the vehicles 

excluded under Treasury 

regulations are certain specially 

designed mobile machinery 

vehicles for nontransportation 

functions (the “mobile machinery 

exception”). 

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. 

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 threepart test, it will not be treated as a 

highway vehicle and will be 

exempt from these taxes. 

Fuel taxes for mobile machinery 

vehicles must be paid and then a 

refund sought if a mileage 

requirement is met. Specifically, in 

addition to the three-part design 

test, the vehicle must not have 

traveled more than 7,500 miles on 

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 

their taxable year for income tax 

purposes. 

Effective date.–Generally effective 

after the date of enactment. As to 

the fuel taxes, the provision is 

Provides that mobile machinery 

vehicles are subject to tax as 

highway vehicles.

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. 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.–Same as the House 

bill. 
10

Provision Present Law House Bill Senate Amendment

On June 6, 2002, the Treasury 

Department put forth proposed 

regulations that would eliminate 

the mobile machinery exception.

effective for taxable years 

beginning after the date of 

enactment.

B. Aviation Jet Fuel

1. Taxation of aviation-grade 

kerosene (sec. 652 of the House 

bill and sec. 871 of the Senate 

amendment)

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. Unlike other fuels that 

generally are taxed upon removal 

from a terminal rack, aviation fuel 

is taxed upon sale of the fuel by a 

producer or importer. The rate of 

tax on aviation fuel is 21.9 cents 

per gallon. 

In general, aviation fuel sold for 

use or used in commercial aviation 

is taxed at a reduced rate of 4.4

cents per gallon. In order to 

qualify for the 4.4 cents per gallon 

rate, the person engaged in 

commercial aviation must be 

registered with the Secretary and 

provide the seller with a written 

exemption certificate. 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. 

A producer that is registered with 

The bill 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. 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, 

(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.

Under a special rule, the provision 

treats certain refueler trucks, 

Similar to 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).
11

Provision Present Law House Bill Senate Amendment

the Secretary may sell aviation fuel 

tax-free to another registered 

producer. 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. 

A claim for refund of taxed 

aviation fuel held by a registered 

aviation fuel producer is allowed 

(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. A payment is 

allowable to the ultimate purchaser 

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. 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 licensed 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.

Also imposes liability for the tax 

on aviation fuel removed from a 

refinery or terminal directly into 
12

Provision Present Law House Bill Senate Amendment

of taxed aviation fuel if the 

aviation fuel is used in a 

nontaxable use. A claim made on 

Form 720, Schedule C, may be 

netted against the claimant’s excise 

tax liability. Claims for payment 

not so taken may be allowable as 

income tax credits.

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. 

A refund (without interest) 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. 

Also, a floor stocks tax applies to 

aviation fuel held by a 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 
13

Provision Present Law House Bill Senate Amendment

the tax, including the 

nonapplication of the tax on de 

minimis amounts of aviation fuel. 

Also, a 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.

Effective date.–Effective for 

aviation fuel removed, entered, or 

sold after September 30, 2004.

2. 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)

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. In general, the rate of tax 

on aviation fuel is 21.9 cents per 

gallon. Aviation fuel sold for use 

or used in commercial aviation is 

taxed at a reduced rate of 4.4 cents 

per gallon. Certain sales of 

aviation fuel are exempt from tax.

Taxes received for aviation fuel, 

except for the LUST Trust Fund 

financing rate, are appropriated to 

the Airport and Airway Trust Fund. 

Such appropriation occurs even if 

aviation fuel is used for non 

aviation purposes.

No provision. Directs the Secretary to pay from 

the Airport and Airway Trust Fund 

to the Highway Trust Fund 

annually an amount as determined 

by the Secretary equivalent to 

amounts received in the Airport 

and Airway Trust Fund that are 

attributable to fuel that is used 

primarily for highway 

transportation purposes.

Eleven percent of such amount 

shall be paid to the Mass Transit 

Account of the Highway Trust 

Fund.

Effective date.–Effective on 

October 1, 2004.
14

Provision Present Law House Bill Senate Amendment

Taxes received on taxable fuel for 

transportation purposes generally 

are appropriated to the Highway 

Trust Fund.

C. Dyed Fuel

1. Mechanical dye injection 

equipment and penalties related 

to dyed fuel (sec. 653 of the 

House bill and secs. 873, 874 and 

875 of the Senate amendment)

Diesel fuel may be dyed at a 

terminal rack by manual dyeing or 

by mechanical injection. 

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. 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. 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). The 

penalty may be imposed jointly and 

severally on any business entity, 

Requires mechanical dyeing with 

respect to terminals that offer dyed 

fuel. The Secretary of the Treasury 

is to prescribe regulations 

establishing standards within 180 

days after enactment.

Additional assessable penalties are 

imposed:

• for tampering with the 

mechanical system, equal to the 

greater of $25,000 or $10 per 

gallon per act. The person 

tampering is responsible for any 

additional tax. 

• upon the system operator for 

failure to maintain security 

standards, a penalty of $1,000. An 

additional penalty is imposed of 

$1,000 per day for each day a 

violation remains uncorrected.

• Joint and several liability for 

willful participants and affiliated 

business entities.

Similar to the House bill, except 

that the Secretary of the Treasury is 

to prescribe regulations 

establishing standards by June 30, 

2004, and contains the following 

additional provisions:

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.

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.
15

Provision Present Law House Bill Senate Amendment

and each officer, employee, or 

agent of such entity who willfully 

participated in any act giving rise 

to such penalty.

Effective date.–180 days after the 

regulations are issued.

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.

2. Terminate dyed diesel use by 

intercity buses (sec. 876 of the 

Senate amendment)

A manufacturer’s tax of 24.4 cents 

per gallon applies to diesel fuel. 

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. Thus, dyed diesel removed 

from the terminal is exempt from 

the manufacturers tax but a tax of

7.4 cents per gallon 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. 

Under present law, intercity bus 

operators also may buy fully taxed 

undyed diesel and seek a refund of 

the difference between the 24.4 

No provision. Eliminates the ability of intercity 

buses to buy dyed diesel and selfassess the 7.4 cents per gallon. 

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 also permits 

ultimate vendors to make refund 

claims if the bus operator assigns 

its right to claim a refund to the 

ultimate vendor. Permits refund 

claimants to obtain interest if they 

file their refund claims 

electronically and the Secretary 

does not pay such claims within 20 

days (45 days for paper claims). If 

the purchase of the fuel was made 

by credit card, the person 

extending the credit is treated as 

the ultimate vendor.
16

Provision Present Law House Bill Senate Amendment

cents per gallon rate and the 7.4 

cents per gallon rate.

Effective date.–Fuel sold after 

September 30, 2004.

D. Modification of Inspection of 

Records Provisions

1. Authority to inspect on-site 

records (sec. 654 of the House bill 

and sec. 877 of the Senate 

amendment)

The IRS is authorized to inspect 

any place where taxable fuel 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. The scope of the inspection 

includes the books and records kept 

to determine the excise tax liability 

under section 4081.

Expands the scope of the 

inspection to include any books, 

records or shipping papers 

pertaining to the sale and 

transportation of taxable fuel, 

located in any authorized 

inspection locations or possessed 

by any carrier.

Effective date.–Date of enactment.

Same as House bill.

2. Assessable penalty for refusal 

of entry (sec. 878 of the Senate 

amendment)

The IRS is authorized to inspect 

any place where taxable fuel is 

produced or stored (or may be 

stored). Any person that refuses to 

allow an inspection is subject to a 

penalty in the amount of $1,000 for 

each refusal. The IRS is not able to 

assess this penalty in the same 

manner as it would a tax. It must 

first seek the assistance of the 

Department of Justice to obtain a 

judgment. Assessable penalties are 

payable upon notice and demand 

No provision. In addition to the $1,000 penalty 

under present law, an assessable 

penalty is imposed with respect to 

the refusal of entry of any person 

with the intent to transport and 

distribute untaxed, adulterated fuel 

mixtures or to transport and 

distribute dyed diesel fuel for 

taxable use. The assessable 

penalty is $1,000 for such refusal. 

The penalty will not apply if it is 

shown that such failure is due to 

reasonable cause. If the penalty is 
17

Provision Present Law House Bill Senate Amendment

by the Secretary and are assessed 

and collected in the same manner 

as taxes.

imposed on a business entity, the 

proposal provides for joint and 

several liability with respect to 

each officer, employee, or agent of 

such entity or other contracting 

party who willfully participated in 

the act giving rise to the penalty. If 

the business entity is part of an 

affiliated group, the parent 

corporation also will be jointly and 

severally liable for the penalty.

Effective date.–October 1, 2004.

E. Registration and Reporting 

Requirements 

1. Registration of pipeline or 

vessel operators required for 

exemption of bulk transfers to 

registered terminals or refineries 

(sec. 655 of the House bill and 

sec. 879 of the Senate 

amendment)

In general, gasoline, diesel fuel, 

and kerosene (“taxable fuel”) are 

taxed upon removal from a refinery 

or a terminal. Tax also is imposed 

on the entry into the United States 

of any taxable fuel for 

consumption, use, or warehousing. 

The tax does not apply to any 

removal or entry of a taxable fuel 

transferred in bulk (a “bulk 

transfer”) to a terminal or refinery 

if both the person removing or 

entering the taxable fuel and the 

operator of such terminal or 

refinery are registered with the 

Secretary. Present law does not 

Requires that for a bulk transfer of 

a taxable fuel to be exempt from 

tax, any pipeline or vessel operator 

that is a party to the bulk transfer 

be registered with the Secretary. 

Transfer to an unregistered party 

will subject the transfer to tax. The 

Secretary is required to publish 

periodically a list of all registered 

persons that are required to 

register.

Similar to the House bill, except 

that with respect to a bulk transfer 

on which no tax is paid, the Senate 

Amendment imposes a penalty on 

any person who knowingly 

transfers taxable fuel in bulk to an 

unregistered person. The penalty is 

the greater of $10,000 or $1 per 

gallon and is increased for multiple 

prior violations. No penalty is 

imposed upon a showing by the 

taxpayer of reasonable cause. The 

provision authorizes amounts 

equivalent to the penalties received 

to be appropriated to the Highway 

Trust Fund.
18

Provision Present Law House Bill Senate Amendment

require that the vessel or pipeline 

operator that transfers fuel as part 

of a bulk transfer be registered in 

order for the transfer to be exempt. 

For example, a registered refiner 

may transfer fuel to an unregistered 

vessel or pipeline operator who in 

turn transfers fuel to a registered 

terminal operator. The transfer is 

exempt despite the intermediate 

transfer to an unregistered person.

Effective date.–Effective on 

October 1, 2004, except that the 

Secretary is required to publish the 

list of registered persons beginning 

on July 1, 2004.

Effective date.–Effective on 

October 1, 2004, except that the 

Secretary is required to publish the 

list of persons required to register 

by June 30, 2004.

2. Display of registration and 

penalties for failure to display 

registration and to register

(secs. 656 and 657 of the House 

bill and secs. 880, 881, 882 of the 

Senate amendment)

Blenders, enterers, pipeline 

operators, position holders, 

refiners, terminal operators, and 

vessel operators are required to 

register with the Secretary with 

respect to fuels taxes imposed by 

sections 4041(a)(1) and 4081. A 

non-assessable penalty for failure 

to register is $50. A criminal 

penalty of $5,000, or imprisonment 

of not more than five years, or 

both, together with the costs of 

prosecution also applies to a failure 

to register and to certain false 

statements made in connection 

with a registration application.

Requires that every operator of a 

vessel who is required to register 

with the Secretary display on each 

vessel used by the operator to 

transport fuel, proof of registration 

through an electronic identification 

device prescribed by the Secretary. 

A failure to display such proof of 

registration results in a penalty of 

$500 per month per vessel. The 

amount of the penalty is increased 

for multiple prior violations. No 

penalty is imposed upon a showing 

by the taxpayer of reasonable 

cause. The provision authorizes 

amounts equivalent to the penalties 

received to be appropriated to the 

Highway Trust Fund.

The provision imposes a new 

assessable penalty for failure to 

Similar to the House bill, except 

that: the increase in the penalty for 

multiple prior violations for failure 

to display proof of registration is 

determined differently, and the 

Secretary shall require that persons 

that operate a terminal or refinery 

or a customs bonded storage 

facility within a foreign trade zone 

register and report to the Secretary.
19

Provision Present Law House Bill Senate Amendment

register of $10,000 for each initial 

failure, plus $1,000 per day that the 

failure continues. No penalty is 

imposed upon a showing by the 

taxpayer of reasonable cause. In 

addition, the provision increases 

the present-law non-assessable 

penalty for failure to register from 

$50 to $10,000 and the present law 

criminal penalty for failure to 

register from $5,000 to $10,000. 

The provision authorizes amounts 

equivalent to any of such penalties 

received to be appropriated to the 

Highway Trust Fund.

Effective date.–The provision 

requiring display of registration is 

effective on October 1, 2004. The 

provisions relating to penalties is 

effective for penalties imposed 

after September 30, 2004.

Effective date.–Effective on 

October 1, 2004, except that the 

penalties for failure to register are 

effective for failures pending or 

occurring after September 30, 

2004.

3. Modification of information 

reporting and penalties for 

failure to report (sec. 657 of the 

House bill and secs. 882 and 895 

of the Senate amendment)

A fuel information reporting 

program, the Excise Summary 

Terminal Activity Reporting 

System (“ExSTARS”), requires 

terminal operators and bulk 

transport carriers to report monthly 

on the movement of any liquid 

product into or out of an approved 

terminal. Terminal operators file 

Imposes a new assessable penalty 

for failure to file a report or to 

furnish information required in a 

report required by the ExSTARS 

system. The penalty is $10,000 per 

failure with respect to each vessel 

or facility (e.g., a terminal or other 

facility) for which information is 

required to be furnished. No 

Similar to House bill, except that 

electronic filing of ExSTARS 

reports is mandated for persons that 

have 25 or more reportable 

transactions in a month, and 

technical wording differences. 
20

Provision Present Law House Bill Senate Amendment

Form 720-TO - Terminal Operator 

Report, which shows the monthly 

receipts and disbursements of all 

liquid products to and from an 

approved terminal. Bulk transport 

carriers (barges, vessels, and 

pipelines) that receive liquid 

product from an approved terminal 

or deliver liquid product to an 

approved terminal file Form 720-

CS - Carrier Summary Report, 

which details such receipts and 

disbursements. In general, the 

penalty for failure to file a report or 

a failure to furnish all of the 

required information in a report is 

$50 per report.

penalty is imposed upon a showing 

by the taxpayer of reasonable 

cause. The provision authorizes 

amounts equivalent to the penalties 

received to be appropriated to the 

Highway Trust Fund.

Effective date.–Effective for 

penalties imposed after 

September 30, 2004.

Effective date.–Effective for 

failures pending or occurring after 

September 30, 2004. The 

electronic reporting provision is 

effective on October 1, 2004.

4. Information reporting for 

persons claiming alcohol fuel or 

biodiesel tax benefits (sec. 883 of 

the Senate amendment)

The Code provides an income tax 

credit for each gallon of ethanol 

and methanol derived from 

renewable sources (e.g., biomass) 

used or sold as a fuel, or used to 

produce a qualified alcohol fuel 

mixture, such as gasohol. The 

amount of the credit is currently 

equal to 52 cents per gallon 

(ethanol) and 60 cents per gallon 

(methanol). This tax credit is 

provided to blenders of the 

alcohols with other taxable fuels, 

or to the retail sellers of unblended 

alcohol fuels. Part or all of the 

benefits of the income tax credit 

No provision. Requires persons claiming the 

Code benefits related to alcohol 

fuels and biodiesel to provide 

information related to, and for the 

coordination of, such benefits as 

the Secretary may require to ensure 

the proper administration and use 

of such benefits. The Secretary 

may deny, revoke or suspend the 

registration of any person to 

enforce this requirement.

Effective date.–October 1, 2004.
21

Provision Present Law House Bill Senate Amendment

may be claimed through reduced 

excise taxes paid, either in 

reduced-tax sales or by expedited 

blender refunds on fully taxed sales 

of gasoline to obtain the benefit of 

the reduced rates. The amount of 

the income tax credit determined 

with respect to any alcohol is 

reduced to take into account any 

benefit provided by the reduced 

excise tax rates. There is no 

information reporting requirement 

for persons taking advantage of 

these benefits. 

F. Imports

1. Liability for tax on fuel 

imported by unregistered 

persons. (sec. 658 of the House 

bill and sec. 884 of the Senate 

amendment)

Tax is imposed on the entry into 

the United States of any taxable 

fuel for consumption, use, or 

warehousing. The “enterer” is 

liable for the tax. An enterer 

generally means the importer of 

record (under customs law) with 

respect to the taxable fuel. 

However, if the importer of record 

is acting as an agent (a broker for 

example), the person for whom the 

agent is acting is the enterer. If 

there is no importer of record for 

taxable fuel entered into the United 

States, the owner of the taxable 

fuel at the time it is brought into 

the United States is the enterer. An

The importer of record is jointly 

and severally liable for the tax 

imposed upon entry of fuel into the 

United States if, under regulations, 

any other person that is not 

registered with the Secretary as a 

taxable fuel registrant is liable for 

such tax. If the importer of record 

is liable for the tax and such tax is 

not paid on or before the last date 

prescribed for payment, the 

Secretary may collect such tax 

from the Customs bond posted with 

respect to the importation of the 

taxable fuel to which the tax 

relates.

For fuel entering the United States 

(other than transfers in bulk) for 

consumption, use, or warehousing, 

the proposal provides that the tax is 

immediately due and payable at the 

time of entry, if the enterer is not 

registered with the IRS. Upon the 

failure to pay tax or post bond, the 

Customs Service is authorized 

under the proposal to deny entry of 

the shipment into the United States. 

The Secretary also may seize the 

fuel on which the tax is due or 

detain the vehicle transporting such

fuel until such tax is paid. If no tax 

has been paid or bond filed within 
22

Provision Present Law House Bill Senate Amendment

importer’s liability for Customs 

duties includes a liability for any 

internal revenue taxes that attach 

upon the importation of 

merchandise unless otherwise 

provided by law or regulation (19 

CFR 141.3).

Effective date.–Fuel entered after 

September 30, 2004.

five days of the seizure, the 

Secretary may sell the fuel. 

Effective date.–Date of enactment.

2. Reconciliation of on-loaded 

cargo to entered cargo (sec. 885 

of the Senate amendment)

Final Custom regulations were 

issued on October 31, 2002, 

pertaining to cargo destined for 

importation into the United States 

or exportation from the United 

States. The regulations require the 

advance and accurate presentation 

of certain manifest information 

prior to lading at the foreign port 

and encourage the presentation of 

this information electronically. 

Customs must receive from the 

carrier the vessel’s Cargo 

Declaration (Customs Form 1302) 

or the electronic equivalent within 

24 hours before such cargo is laden 

aboard the vessel at the foreign 

port. Certain carriers of bulk 

cargo, however, are exempt from 

these filing requirements. Such 

bulk cargo includes that composed 

of free flowing articles such as oil, 

grain, coal, ore and the like, which 

can be pumped or run through a 

chute or handled by dumping. 

Thus, taxable fuels are not covered 

No provision. Not later than one year after the 

date of enactment, the Secretary of 

Homeland Security, together with 

the Secretary, is to promulgate 

regulations providing for the 

transmission to the IRS of 

information pertaining to cargo of 

taxable fuels destined for 

importation into the United States, 

prior to such importations. 

Effective date.–Date of enactment.
23

Provision Present Law House Bill Senate Amendment

by the Cargo Declaration 

requirement.

G. Heavy Highway Vehicle Use 

Tax Modifications (sec. 659 of 

the House bill and sec. 890 of the 

Senate amendment)

For vehicles over 55,000 pounds, 

an annual use tax is imposed at 

specified rates according to weight. 

The annual use tax is imposed for a 

taxable period of July 1 through 

June 30. Generally, the tax is paid 

by the person in whose name the 

vehicle is registered. In certain 

cases, taxpayers are allowed to pay 

the tax in installments. Present law 

permits proration of the tax if the 

vehicle is stolen, destroyed, or 

when the first use of the vehicle 

occurs after the first month of the 

taxable period. Any highway 

motor vehicle that is issued a base 

plate by Canada or Mexico and is 

operated on U.S. highways is 

subject to the use tax whether or 

not the vehicles are required to be 

registered in the United States. 

The tax rate for Canadian and 

Mexican vehicles is 75 percent of 

the rate that would otherwise be 

imposed.

Eliminates the ability to pay the tax 

in installments. 

Eliminates the reduced rates for 

Canadian and Mexican vehicles.

Requires taxpayers with 25 or more 

vehicles for any taxable period to 

file their returns electronically. 

Permits proration of tax for 

vehicles sold during the taxable 

period.

Effective date.–Taxable periods 

beginning after the date of 

enactment.

Includes all of the provisions of the 

House bill.

In addition, under regulations to be 

prescribed by the Secretary, every 

taxpayer that pays the heavy 

highway vehicle use tax to receive 

and display on the vehicle an 

electronic identification device as 

prescribed by the Secretary. The 

device is to be received and 

displayed not later than one month 

after the due date of the return of 

tax with respect to each taxable 

period. 

Eliminates the present-law ability 

to prorate tax when the first use of 

the vehicle occurs after the first 

month of the taxable period.

Effective date.–Generally effective 

for taxable periods beginning after 

the date of enactment. Requires 

the Secretary to issue regulations 

regarding electronic identification 

devices no later than October 1, 

2005.
24

Provision Present Law House Bill Senate Amendment

H. Modification of Ultimate 

Vendor Refund Claims With 

Respect to Farming (sec. 660 of 

the House bill and sec. 887 of the 

Senate amendment)

If diesel fuel, kerosene, or aviation 

fuel on which tax has been 

imposed is used by any person in a 

nontaxable use, the Secretary is to 

refund (without interest) the 

amount of tax imposed. The 

refund is made to the ultimate 

purchaser of the taxed fuel. 

However, in the case of diesel fuel 

or kerosene used on a farm for 

farming purposes or by a State or 

local government, refund payments 

are paid to the ultimate, registered 

vendors (“ultimate vendors”) of 

such fuels.

In the case of diesel fuel or 

kerosene used on a farm for 

farming purposes, the provision 

limits ultimate vendor claims for 

refund to sales of such fuel in 

amounts less than 250 gallons per 

farmer per claim period.

Effective date.–Fuels sold for 

nontaxable use after the date of 

enactment.

Same as the House bill except that 

limit on ultimate vendor claims for

refund applies to amounts less than 

500 gallons per farmer per claim 

period.

Effective date.– Same as the House 

bill.

I. Dedication of Revenues from 

Certain Penalties to the Highway 

Trust Fund (sec. 661 of the 

House bill and sec. 891 of the 

Senate amendment) 

Present law does not dedicate to 

the Highway Trust Fund any 

revenues from penalties assessed 

and collected by the Secretary.

Dedicates to the Highway Trust 

Fund amounts equivalent to the 

penalties assessed under the 

penalty provisions created by the 

bill as well as the existing penalties 

(as increased by the provision) for 

failing to register under section 

4101 (dedicates penalties from 

secs. 6715, 6715A, 6717, 6718, 

6725, 7232 and 7272).

Effective date.–Penalties assessed 

after October 1, 2004.

Similar to the House bill. Because 

the Senate amendment creates 

penalties that are not included in 

the House bill, the text of the 

provision is slightly different 

(dedicates penalties from secs. 

6715, 6715A, 6717, 6718, 6719, 

6720, 6725, 7232 and 7272).

Effective date.–Penalties assessed 

after October 1, 2004.
25

Provision Present Law House Bill Senate Amendment

J. Taxable Fuel Refunds for 

Certain Ultimate Vendors

(sec. 662 of the House bill and 

sec. 888 of the Senate 

amendment)

In the case of gasoline on which 

tax has been paid and sold to a 

State or local government, to a 

nonprofit educational organization, 

for supplies for vessels or aircraft, 

for export, or for the production of 

special fuels, a wholesale 

distributor that sells the gasoline 

for such exempt purposes is treated 

as the person who paid the tax and 

thereby is the proper claimant for a 

credit or refund of the tax paid. In 

the case of undyed diesel fuel or 

kerosene used on a farm for 

farming purposes or by a State or 

local government, a credit or 

payment is allowable only to the 

ultimate, registered vendors 

(“ultimate vendors”) of such fuels.

 

In general, refunds are paid without 

interest. In the case of 

overpayments of tax on gasoline, 

diesel fuel, or kerosene that is used 

to produce a qualified alcohol 

mixture and for refunds due 

ultimate vendors of diesel fuel or 

kerosene used on a farm for 

farming purposes or by a State or 

local government, the Secretary is 

required to pay interest on refunds 

of $200 or more ($100 or more in 

the case of kerosene) due to the 

For sales of gasoline to a State or 

local government or to a nonprofit 

educational organization for its 

exclusive use on which tax has 

been imposed, the provision 

conforms the payment of refunds to 

that procedure established under 

present law in the case of diesel 

fuel or kerosene. That is, the 

ultimate vendor claims the refund.

Also modifies the payment of 

interest on refunds. For 

overpayments of tax on gasoline, 

diesel fuel, or kerosene that is used 

to produce a qualified alcohol 

mixture and for refunds due 

ultimate vendors of diesel fuel or 

kerosene used for farming purposes 

or by a State or local government, 

all refunds unpaid after 45 days 

must be paid with interest. If the 

taxpayer has filed for refund by 

electronic means, refunds unpaid 

after 20 days must be paid with 

interest.

For claims for refund of tax paid on 

diesel fuel or kerosene sold to State 

and local governments and for 

claims for refund of tax paid on 

gasoline sold to State and local 

governments or to a nonprofit 

Same as the House bill.
26

Provision Present Law House Bill Senate Amendment

taxpayer arising from sales over 

any period of a week or more, if 

the Secretary does not make 

payment of the refund within 20 

days.

educational organization and for 

which the ultimate purchaser 

utilized a credit card, the provision 

deems the person extending the 

credit to the ultimate purchaser to 

be the ultimate vendor. That is, the 

credit card company administers 

claims for refund and is responsible 

for supplying documentation 

required from ultimate vendors. 

Effective date.–October 1, 2004. Effective date.–Same as the House 

bill.

K. Two-Party Exchanges

(sec. 663 of the House bill and 

sec. 889 of the Senate 

amendment)

Most fuel is taxed when it is 

removed from a registered 

terminal. The party liable for 

payment of this tax is the “position 

holder.” The position holder is the 

person reflected on the records of 

the terminal operator as holding the 

inventory position in the fuel and 

has a contractual agreement with 

the terminal operator to store and 

provide services with respect to the 

fuel. 

It is common industry practice for 

oil companies to serve customers 

of other oil companies under 

exchange agreements, e.g., where 

Company A’s terminal is more 

conveniently located for wholesale 

or retail customers of Company B. 

Permits two registered parties to 

switch position holder status in fuel 

within a registered terminal if all of 

the following occur: 

(1) The transaction includes a 

transfer from the first position 

holder, i.e., the person who holds 

the inventory position for taxable 

fuel in the terminal as reflected in 

the records of the terminal operator 

prior to the transaction;

(2) The exchange transaction 

occurs at the same time as 

completion of removal across the 

rack from the terminal by the 

receiving person or its customer; 

Same as the House bill.
27

Provision Present Law House Bill Senate Amendment

In such cases, the exchange 

agreement party (Company B in 

the example) owns the fuel when 

the motor fuel is removed from the 

terminal and sold to B’s customer.

(3) The terminal operator in its 

books and records treats the 

receiving person as the person that 

removes the product across a 

terminal rack for purposes of 

reporting the transaction to the 

IRS; and 

(4) The transaction is the subject of 

a written contract.

Effective date.–Date of enactment.

L. Simplification of Tax on Tires 

(sec. 664 of the House bill)

A graduated excise tax is imposed 

on the sale by a manufacturer (or 

importer) of tires designed for use 

on highway vehicles. There is no 

tax on tires weighing 40 pounds or 

less. For tires weighing greater 

than 40 pounds the tax rate

increases from 15 to 50 cents per 

pound depending upon the weight 

of the tire. The tax expires after 

September 30, 2005.

Replaces the present-law tax rates 

with a tax rate based on the load 

capacity of the tire. In general, the 

tax is 9.4 cents for each 10 pounds 

of tire load capacity in excess of 

3,500 pounds. In the case of a 

biasply tire, the tax rate is 4.7 cents 

for each 10 pounds of tire load 

capacity in excess of 3,500 pounds. 

A biasply tire is any tire 

manufactured primarily for use on 

piggyback trailers.

Modifies the definition of a tire to 

conform to certain regulations of 

the Department of Transportation. 

The provision also exempts from 

tax any tire sold for the exclusive 

use of the Department of Defense 

or the Coast Guard.

No provision.
28

Provision Present Law House Bill Senate Amendment

Effective date.–Sales in calendar 

years beginning more than 30 days 

after the date of enactment.

M. Miscellaneous Fuel 

Provisions

1. Tax on sale of diesel fuel 

whether suitable for use or not in 

a diesel-powered vehicle or train 

(sec. 886 of the Senate 

amendment)

Upon the occurrence of certain 

events, the Code imposes an excise 

tax on taxable fuel. Under section 

4083(a), “taxable fuel” includes 

diesel fuel. Diesel fuel is defined 

as any liquid, other than gasoline, 

that without further processing or 

blending, is suitable for use as a 

fuel in a diesel-powered highway 

vehicle or train. A liquid is 

suitable for this use if the liquid has 

practical and commercial fitness 

for use in the propulsion engine of 

a diesel-powered highway vehicle 

or diesel-powered train. 

No provision. Modifies the definition of diesel 

fuel to include any liquid sold or 

offered for sale as fuel for use as a 

fuel in a diesel-powered highway 

vehicle or train. The liquid does 

not have to be suitable for use in a 

diesel-powered engine or train.

Effective date.–Date of enactment.

2. Nonapplication of export 

exemption to the delivery of fuel 

into the fuel tank of motor 

vehicles removed from United 

States (sec. 892 of the Senate 

amendment).

Special provisions under the Code 

provide for a refund of tax to any 

person who sells gasoline to 

another for exportation. It is the 

long-standing administrative 

position of the IRS that the 

exemption from excise tax by 

reason of exportation does not 

apply to the sale of motor fuel 

pumped into a fuel tank of a 

vehicle that is to be driven, or 

No provision. Reaffirms the long-standing IRS 

position taken in Rev. Rul. 69-150 

and restates present law by 

amending the Code definition of 

export to exclude the delivery of a 

taxable fuel into a fuel tank of a 

motor vehicle that is shipped or 

driven out of the United States. 

Imposes a tax on the sale of taxable 

fuel at a duty-free sales enterprise 
29

Provision Present Law House Bill Senate Amendment

shipped, directly out of the United 

States. See Rev. Rul. 69-150.

unless there was a prior taxable 

removal, or entry of such fuel.

Effective date.–Sales or deliveries 

made after the date of enactment.

N. Total Accountability

(secs. 893, 894, and 895 of the 

Senate amendment)

An excise tax is imposed upon: (1) 

the removal of any taxable fuel 

from a refinery or terminal; (2) the 

entry of any taxable fuel into the 

United States; or (3) the sale of any 

taxable fuel to any person who is 

not registered with the IRS to 

receive untaxed fuel, unless there 

was a prior taxable removal or 

entry. A “taxable fuel” is gasoline, 

diesel fuel (any liquid suitable for 

use other than gasoline suitable for 

use in a diesel-powered engine or 

train), and kerosene. Gasoline 

includes, to the extent provided in 

regulations, gasoline blendstocks 

and products commonly used as 

additives in gasoline. The term 

“gasoline blendstocks” does not 

include any product that cannot be 

blended into gasoline without 

further processing or fractionation 

(“off-spec gasoline”). The term 

taxable fuel also does not include 

any liquid that contains less than 

four percent normal parafins, or 

any liquid that has a distillation 

No provision. Creates a new category of taxable 

liquids, “reportable liquids”. A 

reportable liquid is any petroleumbased liquid other than a taxable 

fuel. For purposes of the 

imposition of tax, the provision 

treats “reportable liquids” in a 

manner similar to taxable fuels. 

Tax is imposed upon the removal, 

entry, or sale of such liquids, 

unless the removal, entry, or sale 

is: (1) to a registered person who 

certifies that such liquid will not be 

used as a fuel or in the production 

of a fuel; or (2) the sale is to the 

ultimate purchaser of such liquid.

Authorizes the Secretary to pay 

(without interest) an amount equal 

to the tax imposed, if a person 

establishes that the ultimate use of 

a gasoline blendstock, or additive, 

was not to produce gasoline. 

Similarly, if tax is imposed on a 

reportable liquid and the person 

establishes that the liquid was not 

used to produce a taxable fuel, the 
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Provision Present Law House Bill Senate Amendment

range of 125 degrees Fahrenheit or 

less, sulfur content of 10 ppm or 

less and minimum color of +27 

Saybolt (these are known as 

“excluded liquids”).

If certain conditions are met, the removal, entry, or sale of gasoline 

blendstocks is not taxable. Diesel 

fuel and kerosene 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. Undyed 

aviation-grade kerosene also is 

exempt from tax at the rack if it 

destined for use as a fuel in an 

aircraft. Feedstock kerosene that a 

registered industrial user receives 

by pipeline or vessel also is exempt 

from the dyeing requirement. 

The IRS collects data under the 

ExSTARS reporting system that 

tracks all removals across the 

terminal rack regardless of whether 

or not the product is technically 

excluded from the definition of 

gasoline, diesel or blendstocks. 

ExSTARS reporting identifies the 

position holder at the time of 

removal. Below the rack, no 

information is gathered for exempt 

or excluded products or uses.

Secretary is authorized to pay 

(without interest) an amount equal 

to the tax imposed on such person 

with respect to the reportable 

liquid.

Provides that dyed diesel (a taxable 

fuel) also is taxable unless removed 

by a person registered with the 

Secretary under section 4101. 

The Secretary is to require that all 

persons removing refined product, 

whether a taxable product or an 

untaxed product, over the terminal 

rack to report such products on a 

monthly excise tax return. 

Effective date

.–Fuel sold or used 

after September 30, 2004.

Requires information reporting 

with respect to taxable fuels 

removed, entered or transferred 

from any refinery, pipeline or 

vessel which is registered with the 

Secretary.

Effective date

.–October 1, 2004.
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Provision Present Law House Bill Senate Amendment

Taxpayers file quarterly excise tax 

returns showing only net taxable 

gallons. Taxpayers do not account 

for gallons they claim to be exempt 

on such returns. Although the 

return is a quarterly return, the 

excise taxes are paid in 

semimonthly deposits. If deposits 

are not made as required, a 

taxpayer may be required to file 

returns on a monthly or 

semimonthly basis instead of 

quarterly.