OVERVIEW OF HIGHWAY TRUST FUND EXCISE TAXES

AND RELATED INTERNAL REVENUE CODE

EXPENDITURE PROVISIONS

Scheduled for a Public Hearing

Before the

SENATE COMMITTEE ON FINANCE

on May 9, 2002

Prepared by the

Staff of the

JOINT COMMITTEE ON TAXATION

May 7, 2002

JCX-37-02
i

CONTENTS

Page

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

I. OVERVIEW OF HIGHWAY TRUST FUND EXCISE TAXES......................................... 2

II. OVERVIEW OF INTERNAL REVENUE CODE PROVISIONS GOVERNING 

ADMINISTRATION OF THE HIGHWAY TRUST FUND................................................ 8

III. ROLES OF DIFFERENT CONGRESSIONAL COMMITTEES IN TRANSPORTATION 

EXCISE TAXES AND HIGHWAY TRUST FUND PROGRAMS................................... 10

IV. TREATMENT OF DEDICATED EXCISE TAXES UNDER CBO REVENUE 

BASELINE .......................................................................................................................... 13

V. OVERVIEW OF HIGHWAY TRUST FUND EXCISE TAX SIMPLIFICATION 

RECOMMENDATIONS BY THE STAFF OF THE JOINT COMMITTEE ON 

TAXATION......................................................................................................................... 15

VI. SUMMARY OF BILLS RELATING TO THE HIGHWAY TRUST FUND 

INTRODUCED IN THE SENATE DURING THE 107TH CONGRESS ........................... 22

APPENDIX................................................................................................................................... 24
1

INTRODUCTION

The Senate Committee on Finance has announced a public hearing to examine Highway 

Trust Fund expenditure purposes. This document,1 prepared by the staff of the Joint Committee 

on Taxation, provides a description of present-law provisions relating to Highway Trust Fund 

and recommendations of the Joint Committee on Taxation regarding simplification of the 

Highway Trust Fund excise taxes. The document further includes a summary of bills regarding 

the Highway Trust Fund excise taxes that have been introduced in the Senate during the 107th

Congress.

 

1

 This document may be cited as follows: Joint Committee on Taxation, Overview of 

Highway Trust Fund Excise Taxes and Related Internal Revenue Code Expenditure Provisions, 

(JCX-37-02), May 7, 2002.
2

I. OVERVIEW OF HIGHWAY TRUST FUND EXCISE TAXES

Present Law

In general

Six separate excise taxes are imposed to finance the Federal Highway Trust Fund 

program. Three of these taxes are imposed on highway motor fuels. The remaining three are a 

retail sales tax on heavy highway vehicles, a manufacturers' excise tax on heavy vehicle tires, 

and an annual use tax on heavy vehicles. A substantial majority of the revenues produced by the 

Highway Trust Fund excise taxes is derived from the taxes on motor fuels. The six taxes are 

summarized below.

Except for 4.3 cents per gallon of the Highway Trust Fund fuels tax rates, all of these 

taxes are scheduled to expire after September 30, 2005. The 4.3-cents-per-gallon portion of the 

fuels tax rates is permanent.2 Highway Trust Fund expenditure authority is scheduled to expire 

after September 30, 2003. The two-year delay in scheduled expiration of the excise taxes from 

that for expenditure authority reflects the operation of an anti-deficit provision (the so-called 

“Harry Byrd Rule”) that governs Highway Trust Fund expenditures.3

Highway motor fuels taxes

The Highway Trust Fund motor fuels tax rates are as follows: 4

Gasoline 18.3 cents per gallon

Diesel fuel and kerosene 24.3 cents per gallon

Special motor fuels 18.3 cents per gallon generally5

 

2

 This portion of the tax rates was enacted as a deficit reduction measure in 1993. 

Receipts from it were retained in the General Fund until 1997 legislation provided for their 

transfer to the Highway Trust Fund.

3

 This rule limits Highway Trust Fund obligations generally to the current year's ending 

balance plus two years projected revenues (sec. 9503(d)). 

4

 These fuels are subject to an additional 0.1-cent-per-gallon excise tax to fund the 

Leaking Underground Storage Tank (“LUST”) Trust Fund (secs. 4041(d) and 4081(a)(2)(B)). 

That tax is imposed as an “add-on” to other existing taxes.

5

 The statutory rate for certain special motor fuels is determined on an energy equivalent 

basis, as follows:

Liquefied petroleum gas (propane) 13.6 cents per gallon

Liquefied natural gas 11.9 cents per gallon

Methanol derived from petroleum or 

natural gas

9.15 cents per gallon

Compressed natural gas 48.54 cents per MCF
3

Exemptions

Present law includes numerous exemptions (including partial exemptions) for specified 

uses of taxable fuels or for specified fuels. Because the gasoline and diesel fuel taxes generally 

are imposed before the end use of the fuel is known, many of these exemptions are realized 

through refunds to end users of tax paid by a party that processed the fuel earlier in the 

distribution chain. These exempt uses and fuels include:

(1) use in State and local government and nonprofit educational organization highway 

vehicles;

(2) use in buses engaged in transporting students and employees of schools;

(3) use in private local mass transit buses having a seating capacity of at least 20 

adults (not including the driver) when the buses operate under contract with (or 

are subsidized by) a State or local governmental unit to furnish the transportation; 

and

(4) use in private intercity buses serving the general public along scheduled routes. 

(Such use is totally exempt from the gasoline excise tax and is exempt from 17 

cents per gallon of the diesel fuel tax.)

In addition to exemptions for these highway uses of otherwise taxable motor fuels, fuels 

used in off-highway uses (limited to off-highway business uses in the case of gasoline), 

including use on farms for farming purposes, generally are exempt from these motor fuels taxes.6 

In no case is excise tax imposed on fuel used in an off-highway use used to fund the Highway 

Trust Fund. Rather, where tax is imposed, it is used to finance other Trust Funds (e.g., 

motorboat gasoline and special motor fuel taxes from non-business off-highway use dedicated to 

the Aquatic Resources Trust Fund) or is retained in the General Fund (e.g., tax on diesel fuel 

used in trains).

Partial exemptions from the Highway Trust Fund excise taxes are provided for alcohol 

fuels that are used as special motor fuels or are blended with gasoline for use as a highway motor 

fuel (e.g., “gasohol”). In the case of ethanol and renewable source methanol (derived from 

sources other than petroleum, natural gas, or coal) used as an alcohol special motor fuel, the 

excise tax exemption is equal to 5.3 cents per gallon (6.0 cents per gallon for methanol) and the 

 

See sec. 4041(a)(2) and (3) and 4041(m).

The compressed natural gas tax rate is equivalent only to 4.3 cents per gallon of the rate 

imposed on gasoline and other special motor fuels rather than the full 18.3-cents-per-gallon rate. 

The tax rate for the other special motor fuels is equivalent to the full 18.3 cents per gallon 

gasoline and special motor fuels tax rate.

6

 Diesel fuel is the same fuel (#2 fuel oil) as is commonly used as home heating oil. Fuel 

oil used as heating oil is not subject to the Federal excise tax.
4

same amount per gallon of blended fuels consisting of gasoline or diesel fuel blended with these 

alcohols in prescribed proportions.7 The partial exemption for ethanol fuels is scheduled to 

decline to an ultimate level of 5.1 cents per gallon by 2007. This exemption is coordinated with 

an income tax credit equal to 53 cents per gallon (similarly scheduled to decline to 51 cents per 

gallon) for ethanol and 60 cents per gallon for renewable source methanol, producing a net tax 

subsidy for these fuels.

Present law allows alcohol blenders (persons that blend ethanol or renewable source 

methanol with gasoline for use as a highway motor fuel) a choice of three methods of realizing 

this benefit. First, the benefit may be realized in whole or in part by the income tax credit 

described. Second, blenders that register with the Internal Revenue Service (the “IRS”) may 

purchase gasoline to be blended with alcohol in certain gasoline/alcohol ratios at a special 

reduced tax rate (and alcohol tax-free) so that the tax paid on the gasoline is reduced by the 

portion of the alcohol benefit in excess of full tax-exemption for the alcohol. Third, blenders 

purchasing gasoline bearing the full 18.3-cents-per-gallon tax rate and blending the gasoline with 

alcohol may apply for a refund (on a weekly basis). Unlike most excise tax refunds, these 

refunds bear interest unless paid by the IRS within 20 days.8

Administration of the taxes

Gasoline, diesel fuel, and kerosene.–Gasoline, diesel fuel, and kerosene are taxed when 

the fuels are removed from a refinery or registered pipeline or barge terminal (sec. 4081(a)(1)). 

Typically, these fuels are transferred by pipeline or barge in large quantities (“bulk”) to terminal 

storage facilities that geographically are located closer to destination retail markets. A fuel is 

taxed when it “breaks bulk,” i.e., when it is removed from the refinery or terminal, typically by 

truck or rail car, for delivery to a smaller wholesale facility or a retail outlet. The party liable for 

 

7

 The excise exemption is scheduled to expire after September 30, 2007; the income tax 

credit is scheduled to expire after December 31, 2007 (or earlier, if the Highway Trust Fund 

excise taxes actually drop to 4.3 cents per gallon before that date).

8

 The choice of how the alcohol tax benefit is realized generally depends on the 

arrangements under which the blender purchases gasoline, the blender's tax circumstances, or 

proportions of gasoline and alcohol in the blended fuel. For example, reduced tax rate gasoline 

purchases may be used to realize the full renewable source alcohol fuels tax benefit only on 

gasoline/alcohol mixtures that meet either of three proportions: 90, 92.3, or 94.5 percent 

gasoline and 10, 7.7, or 5.5 percent alcohol respectively. The balance of the alcohol tax benefit 

on nonconforming mixtures must be claimed through the income tax credit.

Blenders that receive their gasoline pursuant to inventory exchange agreements among 

suppliers (where one taxpayer-supplier delivers fuel from its terminal to a customer of another 

such supplier and bills the other supplier rather than the blender) may not purchase gasoline at 

reduced tax rates. These blenders are eligible for the expedited excise tax refunds.

All taxpayers are eligible for the income tax credit; however, that credit may not be used 

to offset alternative minimum tax liability and is not refundable.
5

payment of the taxes is the “position holder,” i.e., the person shown on the records of the 

terminal facility as owning the fuel. 

All persons owning taxable motor fuels before tax is paid must be registered with the IRS 

(sec. 4101). Additionally, terminal facilities must register with the IRS as a condition of storing 

untaxed (or undyed) motor fuels (including motor fuels that are not owned by the terminal 

operator). Sale or other transfer of fuel to an unregistered party or removal to an unregistered 

facility before the fuel breaks bulk results in imposition of tax on that transaction. If the fuel 

subsequently is entered into and removed from a registered terminal, a second tax is imposed. 

Refund claims are allowed to prevent double taxation. 

In general, all fuel removed from a registered terminal facility is subject to tax, without 

regard to whether the ultimate use of the fuel is taxable (e.g., non-taxable use for heating or other 

off-highway business use such as farming). Exceptions are provided allowing diesel fuel and 

kerosene to be removed for use a non-taxable use or in an intercity bus or a train eligible for a 

reduced tax rate if the fuel is indelibly dyed at the time of removal. All gasoline removals are 

subject to tax. 

Most aviation jet fuel is a special grade of kerosene. The Code allows undyed aviation 

grade kerosene to be removed from terminals without payment of the Highway Trust Fund tax if 

(1) the kerosene is removed by pipeline to an airport, or (2) the fuel is removed for use in an 

airplane by or on behalf of a registered aviation fuel dealer. The pipeline recipient or dealer in 

turn is responsible for payment of any Airport and Airway Trust Fund tax that may be due on the 

kerosene. (The Airport and Airway Trust Fund fuels taxes are imposed at the wholesale level in 

the distribution chain.)

Refunds or income tax credits may be claimed (generally by consumers) for fuels on 

which tax is paid and which ultimately are used in a non-taxable use. The rules governing how 

and by whom a refund is claimed differ by type of fuel, by end use, and by dollar amount of the 

claim. Except in the case of gasohol and kerosene sold from certain “blocked pumps” for which 

weekly claims are allowed, no more than one claim per quarter may be filed. Refund claims may 

be filed only if prescribed dollar thresholds are satisfied. If the dollar amounts are not satisfied 

in a calendar year, refunds must be claimed as credits on income tax returns. Unlike income tax 

refunds, excise tax refunds generally do not bear interest if they are not paid within set periods. 

However, interest does accrue on gasohol and kerosene “blocked pump” refunds if not paid 

within 20 days.

Finally, exceptions to the general practice of consumers claiming fuels tax refunds for 

fuels sold to States and local governments and farmers, and for kerosene sold from blocked 

pumps for heating purposes. Those refunds must be claimed by actual taxpayers, wholesale 

distributors, or ultimate vendors.

Special motor fuels.–The special motor fuels tax is imposed on retail sale of the fuel, or 

on use if the fuel is consumed before a retail sale occurs. 
6

Non-fuels excise taxes

Retail sales tax on tractors, heavy trucks, and heavy trailers

A 12-percent retail sales tax is imposed on the first retail sale of tractors, heavy trucks 

(over 33,000 pounds) and trailers (over 26,000 pounds) (sec. 4051). The taxable weight is the 

“gross vehicle weight,” which is the fully loaded, certified weight. In general, this tax is 

imposed on the price of a fully equipped highway vehicle. However, the price of certain 

equipment unrelated to the highway transportation function of the vehicle is excluded from the 

tax base (sec. 4053). Additionally, a credit against the tax is allowed for the amount of tire 

excise tax imposed on manufacturers of new tires installed on the vehicle. 

The term first retail sale includes the first sale of a “remanufactured” vehicle (sec. 

4052(a)). Whether modifications to a vehicle constitute a “repair” or the manufacture of a new 

(remanufactured) vehicle involves significant factual determinations.

Manufacturers tax on heavy vehicle tires

Tires designed for use on heavy highway vehicles are subject to a graduated tax, based on 

the weight of the tire (sec. 4071).

40 pounds or less No tax

40-70 pounds 15 cents per pound 40 pounds

70-90 pounds 4.50 plus 30 cents per pound over 70 

pounds

Over 90 pounds $10.50 plus 50 cents per pound over 90 

pounds

Retread tires are not subject to tax except when the retreading covers the entire outer 

surface of the tire (i.e., is “bead to bead”).

Annual use tax for heavy vehicles

An annual use tax is imposed on heavy highway vehicles, at the rates shown below (sec. 

4081).

Under 55,000 pounds No tax

55,000-75,000 pounds $100 plus $22 per 1,000 pounds over 

55,000

Over 75,000 pounds $550

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 quarterly installments. Exemptions and reduced rates are provided 

for certain “transit-type buses,” trucks used for fewer than 5,000 miles on public highways 

(7,500 miles for agricultural vehicles), and logging trucks.
7

The Highway Trust Fund excise taxes are reported to the IRS on Form 720, Quarterly 

Federal Excise Tax Return. A copy of that form is included as an Appendix to this document.
8

II. OVERVIEW OF INTERNAL REVENUE CODE PROVISIONS GOVERNING 

ADMINISTRATION OF THE HIGHWAY TRUST FUND

Code section 9503 contains the operative rules for transfer of revenues to the Highway 

Trust Fund and for expenditure of monies from the Trust Fund. 

In general, these rules provide for transfer of “gross receipts” from the Highway Trust 

Fund excise taxes to the Trust Fund (sec. 9503(b)).9 The transfers are net of refunds for tax 

overpayments. Additionally, 2.5 cents per gallon of the tax imposed on gasohol are retained in 

the General Fund. Also with respect to gasohol, Highway Trust Fund revenues are reduced by 

the amount of the tax subsidy claimed through the excise tax system, but not for amounts 

claimed as income tax credits.10

Amounts deposited in the Highway Trust Fund are divided between a Mass Transit 

Account and a residual, or Highway, Account. The Mass Transit Account receives 2.86 cents 

per gallon of the Highway Trust Fund motor fuels excise taxes.11 The balance of the motor fuels 

tax receipts and all receipts from the three non-fuels excise taxes are deposited in the Highway 

Account.

The Code allows expenditure of Highway Trust Fund monies for the purposes authorized 

under each of the highway authorization Acts that have been enacted since creation of the Trust 

Fund in 1956, as those Acts were in effect on the date of enactment of the Transportation Equity 

Act for the 21st Century (“TEA 21”) (sec. 9503(c)). These expenditures are limited by an 

internal to the Trust Fund anti-deficit provision, the so-called “Harry Byrd Rule”. This Byrd 

Rule requires the Treasury Department to determine, on a quarterly basis, the amount (if any) by 

which unfunded highway authorizations exceed projected net Highway Trust Fund tax receipts 

for the 24-month period beginning at the close of each Fiscal Year (sec. 9503(d)). If there is an 

excess, apportionments to the States under the Highway Trust Fund are reduced by that amount.

The Code further contains a special enforcement provision to prevent expenditure of 

Highway Trust Fund monies for purposes not authorized in section 9503 (i.e., not approved by 

the tax-writing committees of Congress) (sec. 9503(b)(5)). This provision provides that should 

such unapproved expenditures occur, no further excise tax receipts will be transferred to the 

 

9

 Gross receipts do not reflect the effect on actual budget receipts resulting from 

interaction of the excise taxes with the Federal income tax. Thus, the Highway Trust Fund 

receives a greater amount than the actual budget gain experienced by the Federal Government 

from imposition of these taxes. See Section III below for a more complete discussion of this 

rule. 

10 See Section I, above, for a description of the three methods the alcohol fuels tax 

benefits may be realized.

11 This amount is adjusted to reflect the proportional taxes imposed on certain special 

motor fuels that are subject to tax at special “Btu equivalent” rates. There is no reduction in the 

Mass Transit portion to reflect the reduced tax per gallon paid on gasohol.
9

Highway Trust Fund. Rather, the taxes will continue to be imposed with receipts being retained 

in the General Fund. This enforcement provision provides specifically that it applies not only to 

unauthorized expenditures under the current Code provisions, but also to expenditures pursuant 

to future legislation that may provide for them unless either the legislation providing for the 

expenditure amends section 9503's expenditure authorization provisions or otherwise authorizes 

the expenditure as part of a revenue Act. (Enactment of future legislation in either of these 

circumstances would invoke the jurisdiction of the tax-writing committees.) 
10

III. ROLES OF DIFFERENT CONGRESSIONAL COMMITTEES

IN TRANSPORTATION EXCISE TAXES AND

HIGHWAY TRUST FUND PROGRAMS

Because the Highway Trust Fund excise taxes, like many other transportation excise 

taxes, are dedicated to Trust Fund programs, extensions and modifications of the taxes frequently 

have been considered in conjunction with extensions and revisions of Trust Fund expenditure 

programs. Viewed in their totality, the excise taxes and programmatic expenditures require 

approval by at least three committees in each House of Congress--the tax-writing committee, one 

or more authorizing committees, and the appropriations committee. The tax-writing committees 

determine what revenues will be dedicated to the Trust Fund and review Trust Fund expenditure 

purposes; the authorizing committees consider competing transportation needs on a detailed 

level; and, the appropriations committees reconcile transportation spending needs with all other 

Federal spending needs. Historically, tax provisions and expenditure authorizations generally 

have been enacted as separate titles of a single Act; appropriations generally have been enacted 

separately as part of the annual Congressional appropriations process.

Raising revenues

Imposition of excise taxes and other “revenue measures” is within the exclusive 

jurisdiction of the House Committee on Ways and Means and the Senate Committee on Finance. 

Extension or modification of existing taxes, reinstatement of expired excise taxes, and imposition 

of fees and other measures which constitute revenue measures are included within this 

jurisdiction.12

Authorizing committees may impose, or may authorize executive agencies to impose, 

non-tax, or true, user fees that agencies may charge for specific services they provide. There are 

often disagreements as to whether certain charges constitute “fees” or “taxes.” These 

disagreements generally arise in one of three contexts: (1) determining whether there has been an 

unconstitutional delegation of the taxing power;13 (2) determining whether legislation constitutes 

a revenue measure that must originate in the House of Representatives;14 or (3) determining the 

committee assignment (including sequential committee referral) for a particular bill.15

 

12 See, e.g., Rule 1(s)(3) of the rules of the House of Representatives.

13 Article I, Section 8 of the U.S. Constitution includes among the enumerated powers of 

Congress the “. . . Power To lay and collect Taxes, Duties, Imposts, and Excises. . . .” Congress 

is limited in its ability to delegate legislative authority to the Executive Branch.

14 Article I, Section 7 of the U.S. Constitution (commonly referred to as the “Origination 

Clause”) provides that “[a]ll Bills for raising Revenue [must] originate in the House of 

Representatives. . . .” A privileged motion available to any Member, commonly referred to as a 

“blue slip” motion, enforces this prerogative of the House.

15 See, e.g., 137 Cong. Rec. H501 (January 15, 1991) (statement of the Speaker of the 

House providing guidance for the application of House Rule XXI, Clause 5(b), regarding the 

referral of bills.
11

In general, a true fee is a charge levied on a class that directly avails itself of a 

governmental program, and is used solely to finance that program rather than to finance the costs 

of Government generally. The amount of the fee charged to any payor generally may not exceed 

the direct costs of providing the services with respect to which the fee is charged. Fees are not 

imposed on the general public; there must be a reasonable connection between the payors of the 

fee and the agency or function receiving the fee.16 Those paying a fee have the choice of not 

utilizing the governmental service or avoiding the regulated activity and thereby avoiding the 

charge. In other words, the fee can be viewed as a payment for a special privilege, as opposed to 

a mandatory charge (or tax) imposed on the public at large for general or specified (e.g., Trust 

Fund) governmental purposes.

Establishment of trust funds; dedication of excise tax revenues and authorization of 

expenditures

Transportation Trust Funds are governed by parallel provisions of the United States 

Code. First, the Internal Revenue Code (Title 26, sec. 9501 et. seq.) contains the operative 

provisions for all Federal Trust Funds to which specific excise tax revenues are dedicated. As 

described above, the provisions governing the Highway Trust Fund are contained in section 

9503. These Code provisions provide for the transfer of specified revenues to the Trust Fund, 

include administrative provisions for management of Trust Fund monies, and provide general or 

specific purposes for which Trust Fund expenditures may be made. These Trust Fund provisions 

are within the jurisdiction of the Committee on Ways and Means and the Committee on Finance. 

Amendments to these provisions generally are contained in revenue titles of combined 

authorization and revenue legislation.

Generally, the Trust Fund expenditure purposes included in the Code approve general 

expenditure purposes and cross-reference authorizing Acts, which contain specific program 

expenditure details. On occasion, however, the tax-writing committees have addressed (either 

with approval or disapproval) specific expenditure purposes contemplated by authorizing 

legislation. Trust Fund monies may not be spent for a purpose that is not approved in the 

relevant Code Trust Fund provisions.

The Code transfers amounts equivalent to “gross receipts” raised by the transportation 

excise taxes, rather than the “net revenues” produced by those taxes, to the transportation Trust 

Funds. Net revenues equal approximately 75 percent of gross receipts. The concept of net 

 

16 See, e.g., the Statement of Managers on the Federal Aviation Reauthorization Act of 

1996, clarifying that certain fees which the FAA is authorized to charge for overflight services 

provided to aircraft that neither take-off nor land within the United States may “not exceed the 

aggregate annual direct costs incurred by the FAA in providing air traffic services to such 

flights.” (H. Rept. 104-848, p. 110) Also, the report of the House Committee on Transportation 

and Infrastructure on that same legislation, to the effect that these user fees may not be based on 

“any non-cost based determination of the 'value' of the service provided. For example, assuming 

similar cost of serving different carrier and aircraft types, the FAA user fees should not vary 

based on factors such as aircraft seating capacity or revenues derived from passenger fares.” 

(H. Rept. 104-714, Part 1, p. 50).
12

revenues reflects budget scorekeeping conventions that discount excise tax revenues by the 

amount that income tax receipts are expected to decrease as a result of monies being removed 

from the private economy for payment of excise taxes.17

Trust Fund expenditure (but not revenue dedication) provisions also are contained in 

transportation titles of the United States Code. These provisions generally authorize specifically 

identified expenditure purposes, with accompanying dollar amounts that are authorized to be 

spent therefore. These provisions are within the jurisdiction of the authorizing committees: in 

the House, generally, the Committees on Transportation and Infrastructure, Energy and 

Commerce, and Science and Technology; and in the Senate, generally, the Committees on 

Environment and Public Works, Banking, Housing and Urban Affairs, and Commerce, Science, 

and Technology.

Unused cash balances in certain Trust Funds earn interest on investments in Government 

securities (Code sec. 9602). These earnings are available, as are the dedicated excise tax 

revenues, for expenditure from the respective Trust Funds. Balances in the Highway Trust Fund 

do not earn interest pursuant to an agreement on budgetary treatment of that Trust Fund that was 

enacted as part of the Transportation Equity Act for the 21st Century (“TEA 21”).

Expenditure appropriations

The transportation Trust Funds, including the Highway Trust Fund, provide that monies 

in the Trust Funds may be spent only when they are appropriated. The operative Trust Fund 

provisions may provide for expenditures pursuant to advance appropriations, or pursuant to 

authority granted to the Executive Branch to enter into contracts obligating the United States to 

spend amounts not exceeding legislatively prescribed maximums with actual appropriations 

following. Monies generally are appropriated and levels of annual permitted contract authority 

are established as part of the Congressional appropriations process.

 

17 See, Joint Committee on Taxation, Discussion of Revenue Estimation Methodology 

and Process (JCS-14-92), August 13, 1992.
13

IV. TREATMENT OF DEDICATED EXCISE

TAXES UNDER CBO REVENUE BASELINE

The Budget Enforcement Act provides that excise taxes that are dedicated to Trust Funds 

are assumed permanent for budget scorekeeping purposes. This means that revenues from the 

excise taxes are automatically included each year in the Congressional Budget Office (“CBO”) 

and Office of Management and Budget forecast of Government receipts (the “revenue baseline”),

even though the taxes may be scheduled to expire before the end of the baseline period. The 

CBO issues this annual baseline as part of its overall economic forecast each February; the 

forecast is used in developing the Congressional budget resolution. Both revenue and spending 

estimates are determined relative to that forecast (and the budget resolution) throughout the 

year.18 As a result of their inclusion in the revenue baseline, extensions of Trust Fund excise 

taxes generally are not scored as raising revenues when the extensions are enacted. On the other 

hand, reductions in those excise taxes (even as part of an extension of the taxes) are scored as 

losing revenue.

The following examples illustrate the operation of these budget scorekeeping rules.

Example (1).–The Highway Trust Fund excise taxes are scheduled to expire after 

September 30, 2005. Assume that as part of Highway Trust Fund expenditure reauthorization 

legislation in 2003, Congress extends these taxes for three additional years. No additional 

Federal revenues would be scored from this extension because the 2003 CBO revenue baseline 

will reflect permanent imposition of the excise taxes under the Budget Act rule that current 

dedicated excise taxes are assumed permanent.

Example (2).–Assume that as part of the highway legislation described in Example (5), 

the Highway Trust Fund special motor fuels tax on alternative fuels is extended at a lower rate 

than is imposed under present law. This provision would be scored as having a revenue loss 

because the CBO revenue baseline assumes the present-law tax rates to be permanent. (Note that 

as shown by Example (1), extension of the underlying excise taxes provides no revenue increase 

to offset this loss.)

Example (3).–In 1995, the Airport and Airway Trust Fund excise taxes were scheduled to 

expire after December 31, 1995. The taxes had been imposed since before January 1, 1995. In 

November 1995, when Congress passed the Balanced Budget Act of 1995 extending these excise 

taxes, no revenue increase was scored from the extension. This occurred because the February 

1995 CBO revenue baseline, against which legislation was scored, assumed permanent 

imposition of these dedicated excise taxes (i.e., the scheduled expiration date was disregarded in 

forecasting future Government receipts).

Example (4).–In actuality, the Airport and Airway Trust Fund excise taxes expired after 

December 31, 1995. When the CBO issued its 1996 revenue baseline, projected future receipts 

 

18 The CBO typically issues an update of its February forecast in August; however, 

because the budget resolution is based on the February baseline, revenue estimates continue to be 

determined by reference to the February baseline throughout the year.
14

from the Airport Trust Fund excise taxes were deleted, and deficit forecasts were adjusted 

accordingly. The excise taxes were re-imposed by the Small Business Job Protection Act of 

1996 (the “Small Business Act”) for the period August 27, 1996, through December 31, 1996. 

Because the Airport Trust Fund excise taxes had expired when the 1996 CBO revenue baseline 

was issued, no revenue from these excise taxes was included in the baseline, and thus, revenue 

increases were scored from their reinstatement in the Small Business Act, for the approximately 

four-month period during which the taxes actually were re-imposed.

Example (5).–Assume the Highway Trust Fund excise taxes expire as scheduled after 

September 30, 2005. When the February 2006 CBO revenue baseline is issued, the Highway 

Trust Fund excise taxes will have expired and the baseline will not include any projected receipts 

from them. If Congress acts to re-impose the taxes in 2006 after the CBO baseline is issued, 

revenue increases will be scored for the period during which the taxes are re-imposed.
15

V. OVERVIEW OF HIGHWAY TRUST FUND EXCISE TAX SIMPLIFICATION 

RECOMMENDATIONS BY THE STAFF

OF THE JOINT COMMITTEE ON TAXATION

In April 2001, the staff of the Joint Committee on Taxation issued a report on the state of 

the Federal tax system and recommendations for simplifying that system.19 The report was 

required by the IRS Restructuring and Reform Act of 1998 and was funded by appropriations 

approved by the Congress. Several recommendations regarding the Highway Trust Fund excise 

taxes were included in the report. The Joint Committee staff recommendations regarding the 

Highway Trust Fund excise taxes are reproduced below.20

“Recommendation 1: Reduce the number of separate taxes imposed

to finance the Highway Trust Fund

The Joint Committee staff recommends that the number of taxes imposed to 

finance Highway Trust Fund programs should be reduced by eliminating or 

consolidating the non-fuels taxes. The rates at which the fuels taxes or the 

restructured non-fuels taxes are imposed could be adjusted to ensure that 

future funding for Trust Fund programs is not affected.

Unlike taxes the revenues from which are retained in the General Fund of 

the Treasury, excise taxes dedicated to Trust Funds typically are designed to 

reflect a cost-benefit relationship between the taxpayer and the beneficiaries of 

the Trust Fund programs being financed. [. . . t]he decision to structure the 

Highway Trust Fund excise taxes consistent with the findings of a Department of 

Transportation cost allocation study adds significant complexity to the Code. 

This complexity results from reliance on multiple, separate excise taxes that yield 

relatively small amounts of Federal revenue, but require significant factual 

determinations. In some cases, these taxes directly impact large numbers of 

taxpayers whose individual tax obligations are relatively small. 

Historically, approximately 90 percent of the revenues for the Highway 

Trust Fund have been produced by the motor fuels excise taxes. For example, in 

Fiscal Year 2000, the motor fuels excise taxes yielded gross receipts of $30.1 

billion. The heavy vehicle retail sales tax produced $3.1 billion, the tire excise 

tax yielded $436 million, and the annual use tax yielded $900 million. The Joint 

Committee staff recommendation would retain the historical user charge nature of 

 

19

 See, Joint Committee on Taxation, Study of the Overall State of the Federal Tax 

System and Recommendations for Simplification, Pursuant to Section 8022(3)(B) of the Internal 

Revenue Code of 1986 (JCS-3-01), April 2001, vol. II at pp. 478-489.

20 The discussion related to Recommendation 4(e) below (repeal of terminal dyeing 

mandate) has been deleted. That recommendation was enacted by the Job Creation and Worker 

Assistance Act of 2002.
16

these taxes, but would shift some emphasis from academic cost allocation studies 

in favor of simplified compliance. 

Compliance issues are high relative to revenue yield for the non-fuels 

excise taxes. For example, the retail sales tax applies to the first sale of a new or 

“remanufactured” vehicle. Statutory and regulatory safe harbors are provided for 

determining when a repair is so extensive that a vehicle has been remanufactured 

with the result that a new tax is imposed. These safe harbors are based on relative 

values before and after the modifications, change in transportation function, and 

extension of the useful life or transportation function of the vehicle. In practice, 

the safe harbors are sufficiently imprecise that many transactions are subject to 

IRS audit challenge, often long after the transaction is complete. Thus, the vendor 

may lose the opportunity to pass the tax through to the customer who purchased a 

vehicle as a result of innocent mistakes in applying the present rules.

Other factual issues arise from the fact that the tax applies only to highway 

vehicles.21 The definition of highway vehicle is unclear in the case of vehicles 

that are used both on and off highway (e.g., heavy construction equipment). 

Similarly, certain types of equipment unrelated to the transportation function of a 

vehicle, but which are mounted on the vehicle, are exempt from tax. The 

determination of whether this equipment is related to the transportation function 

of the vehicle (and is therefore taxable) results in numerous IRS and taxpayer 

audit disputes as well.

Finally, despite the relatively small portion of Highway Trust Fund 

revenues it yields, the annual use tax on heavy vehicles includes not only special 

rules such as those for logging and agricultural vehicles which give rise to factual 

uncertainty, but also directly involves as “taxpayers” every heavy vehicle owner 

in the United States. Many such vehicle owners own only a single or a few 

vehicles, making IRS enforcement efforts inefficient if tax is not paid voluntarily. 

Similarly, Mexican- and Canadian-registered trucks operating in the United States 

are subject to the tax if they travel over 5,000 U.S. miles in a year. The only 

mechanism for monitoring compliance in these instances is border checks by the 

U.S. Customs Service. As a result, the costs associated with enforcement exceed 

the tax collected in many cases.

The Joint Committee staff recommendation could be accomplished by any 

of several modifications to the current tax structure. First, the three non-fuels 

excise taxes could be eliminated and the rates of the motor fuels taxes could be 

increased to protect Trust Fund program funding. Some would suggest that such 

a change would “under tax” heavy vehicle users at the expense of automobile and 

light truck users; however, reliance on the motor fuels taxes would have 

significant tax administration advantages. Because the gasoline, diesel fuel, and 

 

21 The definition of highway vehicle also is important for determining whether fuel is 

subject to tax.
17

kerosene excise taxes are imposed at “narrow” points in the distribution chain of 

those fuels, there are significantly fewer persons directly involved in the 

calculation and remittance of the taxes.22 Further, the items subject to tax are 

clearly identifiable; therefore, the current complex factual determinations and 

accompanying audit disputes presented by the heavy vehicle retail sales tax would 

be eliminated.

Alternatively, separate taxes imposed on heavier vehicles could be 

retained, but in a consolidated form requiring fewer factual determinations (to 

reduce taxpayer uncertainty and IRS audit disputes) and/or yielding greater 

revenue per tax (to promote more productive use of IRS resources). For example, 

the three current taxes could be consolidated into a single weight-distance tax 

imposed on heavy vehicles. Such a tax would be more responsive to the costbenefit principle that tax liability should be based on highway damage done than 

are any of the current non-fuels excise taxes because it would be directly related 

to miles driven. A weight distance tax would raise a similar issue regarding 

number of taxpayers to that presented by the current heavy vehicle annual use tax: 

all truck owners would be taxpayers. However, vehicle dealers and 

manufacturers and tire manufacturers no longer would be taxpayers. Further, if 

structured based on gross vehicle weight and total miles driven, the tax would not 

present many of the factual uncertainties that arise with the current heavy vehicle 

retail sales tax.23 

Finally, on a more limited basis, the retail sales tax and the tire tax could 

be consolidated. While such a modification would eliminate at least one set of 

current taxpayers, taxpayer uncertainty and complexity would not be reduced if 

the heavy vehicle retail sales tax were retained because of the inherent factual 

uncertainties over whether actions constitute repair or remanufacture. Imposed at 

a higher rate, the retail sales tax would increase the pressure on these factual 

determinations for taxpayers and the IRS. While not reducing complexity, the 

increased dollar significance of the issues could justify expenditure of more 

resources by taxpayers and the IRS on tax compliance.

Similarly, if the tire tax were retained at an increased rate, the current 

exemption for retread tires should be reviewed because a higher tax rate on new 

 

22 The special motor fuels excise tax is imposed at the retail level; however, revenues 

from that tax and users of those fuels represent only a small fraction of the total motor fuels 

revenues and users.

23 An example of a simplified weight-distance tax structure would be a tax at a fixed rate 

per mile (based on gross vehicle weight) for each mile driven. Gross vehicle weight would be 

defined as the maximum certified weight of the vehicle (the same as under the current heavy 

vehicle retail sales tax). Mileage data currently is reported to the Department of Transportation 

and is used to apportion State motor fuels tax liability among States so this information is readily 

available today as well.
18

tires would increase current market distortions in favor of untaxed retreads. 

Elimination of the tire tax, on the other hand, would make new tires more 

competitive, and potentially achieve some safety benefits.

Recommendation 2: Clarify the definition of “highway vehicle”

The Joint Committee staff recommends that the definition of highway 

vehicle should be clarified to eliminate taxpayer uncertainty about the 

taxability of motor fuels and retail sales (if the retail sales tax is 

retained).

In most cases, motor fuels are taxable only when used in a highway 

vehicle. Similarly, the retail sales tax on heavy highway vehicles does not apply 

to off-road vehicles or to equipment that is unrelated to the transportation function 

of a highway vehicle. As described above, there is no uniform definition of what 

is a highway vehicle or of what equipment forms a component of such a vehicle. 

Parties currently are litigating the classification of many heavy vehicles (e.g., 

highway construction trucks and trucks equipped to dig holes for utility poles 

alongside highways) in an attempt to exempt the vehicles (and fuel used in them) 

from these taxes despite the fact that much of their working time is spent on 

highways. Additionally, in the case of equipment installed on a highway vehicle, 

the present-law determination can be so highly factual that the manner in which 

the equipment is attached to the vehicle chassis determines whether the equipment 

is subject to tax.

A uniform definition of highway vehicle that includes within that 

definition (1) all equipment customarily used on such a vehicle and (2) all 

vehicles permitted to drive on highways would eliminate the current taxpayer 

confusion and resulting IRS audit disputes. 

Recommendation 3: Eliminate the installment payment option for

the heavy vehicle annual use tax (if that tax is 

retained)

The Joint Committee staff recommends that the option to pay the 

heavy vehicle annual use tax in quarterly installments be eliminated 

(if that tax is retained).

The heavy vehicle annual use tax is imposed once per twelve-month 

period, July 1 through June 30. Taxpayers are allowed to pay the tax (maximum 

of $550 per truck) in quarterly installments. The “taxpayer” for this tax is the 

vehicle owner. This results in this tax having the greatest number of persons 

actually remitting tax of any Highway Trust Fund tax. Further, many taxpayers 

are liable only for relatively small amounts of tax. 

Low compliance by smaller owner-operators and taxable vehicles having 

base registrations in Canada or Mexico led the Congress to require States to verify 
19

with the IRS that the tax has been paid before issuing annual State registrations.24 

In the case of taxpayers that elect quarterly installment payments, the IRS has no 

procedure for ensuring that installments subsequent to the first one actually are 

paid. Thus, it is possible for taxpayers to receive State registrations when only the 

first quarterly installment is paid. Similarly, it is possible for taxpayers repeatedly 

to pay the first quarterly installment and continue to receive State registrations 

because the IRS has no computerized system for checking past compliance when 

it issues certificates of payment for the current year. In the case of taxpayers 

owning only one or a few vehicles, it is not cost effective for the IRS to monitor 

and enforce compliance.

If this tax is retained, eliminating the quarterly installment option would 

eliminate current opportunities for tax evasion without requiring devotion of IRS 

resources to non-cost-effective enforcement activities.

Recommendation 4: Simplify motor fuels refund and tax

collection procedures25

The Joint Committee staff recommends that several technical 

modifications should be made to the present Code provisions 

governing motor fuels refund procedures and tax collection:

(a) Timing and threshold requirements for claiming quarterly refunds 

should be consolidated to allow a single claim to be filed on an aggregate 

basis for all fuels.

(b) To the extent necessary to implement item (a), differing present-law 

exemptions should be conformed.

(c) Clarification of the party exclusively entitled to a refund should be 

provided in cases in which present law is unclear. 

(d) The regulatory definition of “position holder” (the party liable for 

payment of the gasoline, diesel fuel, and kerosene taxes) should be modified 

to recognize certain two-party terminal exchange agreements between 

registered parties.

(e) The condition of registration requiring terminals to offer for sale both 

undyed and dyed diesel fuel and kerosene should be repealed.

 

24 This requirement is in transportation provisions governing eligibility for Highway 

Trust Fund monies.

25 If appropriate, these recommendations would apply to the aviation gasoline and jet 

fuels taxes as well. See the section on Airport and Airway Trust Fund Excise Taxes.
20

Refund provisions

Under present law, numerous differing refund rules create complexity for 

consumers as well as for IRS personnel who have to review refund claims. The 

Joint Committee staff recommendation would conform eligibility for exemptions 

with regard to fuel uses that are nontaxable, the persons entitled to claim refunds, 

and the time in which processing must occur if no interest is to be paid to 

claimants. Thus, to the maximum extent consistent with ensuring tax compliance,

a single claim could be filed for all amounts due a person with respect to tax 

included in the price of any taxable fuel used in non-taxable use. Further, because 

of the multiple circumstances giving rise to refunds, flexibility should be provided 

with regard to timing and amendment of refund claims to the extent that 

compliance objectives are not harmed.

Person entitled to claim refunds.–Because the motor fuels excise taxes are 

imposed at points in the chain of distribution away from the consumer, most 

exemptions are realized by means of refunds. In many cases, the rules governing 

these exemptions date from periods before the tax collection regimes of present 

law were enacted. Some refunds are payable to wholesale distributors and 

ultimate vendors while others may be claimed only by consumers. When refunds 

are available to intervening parties that also are excise-tax taxpayers, certain 

refunds may be claimed as credits against current excise tax liability while others 

may not.

Differing definitions of nontaxable use.–The uses on which tax is not 

imposed differ between the gasoline and diesel fuel and kerosene taxes. An 

example of such a difference is the off-highway use fuels tax exemption. For 

gasoline, only off-highway “business” use is exempt; for diesel fuel and kerosene, 

all off-highway use is exempt.26

Timing of refund claims.–Excise tax refunds for which actual refund 

claims are filed typically may be filed quarterly (if a minimum dollar threshold is 

met) and generally do not bear interest. In certain cases (e.g., ethanol blenders 

and ultimate vendors of kerosene in certain cases) persons may file claims as 

frequently as weekly and interest is payable on the claim if not paid within 20 

days. Consumers that do not satisfy the minimum dollar thresholds must claim 

refunds as credits against income tax for the year in which the claim accrues. 

Finally, refunds payable to persons that actually remit tax to the IRS typically 

may be claimed as credits against semi-monthly excise tax deposits. 

 

26 If these exemptions were conformed to include non-business off-highway use of 

gasoline, the modifications would have to include a different source of revenue for the wetlands 

sub-account of the Aquatic Resource Trust Fund's Sport Fish Restoration Account. That subaccount is funded with assumed receipts from gasoline taxes on non-business fuel for offhighway small engines (e.g., snow blowers and all-terrain vehicles).
21

Recognition of certain two-party terminal exchange agreements

An additional part of this recommendation would modify the regulatory 

definition of “position holder” to recognize the provisions of two-party terminal 

exchange agreements among registered parties -- at least in the case of ethanol 

blending transactions. The IRS investigates persons as a condition of their 

owning non-tax-paid motor fuels or purchasing gasoline at reduced tax rates to be 

blended with ethanol. As of January 2001, there were 981 registered position 

holders and 1280 registered ethanol blenders. It is common industry practice for 

position holders to serve customers of other position holders, e.g., where 

Company A's terminal is more conveniently located for wholesale or retail 

customers of Company B.27 In such cases, the motor fuel is removed in the name 

of the exchange agreement partner (Company B in the example) rather than that 

of the actual customer. 

When ethanol is to be blended with gasoline being removed, the tax due 

on the gasoline is reduced. Failure to recognize these two-party terminal 

exchange agreements eliminates the availability of reduced-tax-rate removals of 

the gasoline to be blended with ethanol. Instead, the blender (actual customer) 

removing the gasoline has to pay the full gasoline tax and file a refund claim. 

Such refund claims may be filed weekly and must be paid by the IRS within 20 

days or interest accrues on the unpaid claims.

Assuming that the IRS adequately monitors the trustworthiness of position 

holders as a condition of their registration, recognizing the two-party terminal 

exchange agreements should not reduce compliance.28 However, such a move 

would reduce the number of refund claims that must be filed and processed as 

well as eliminating the “float” cost to blenders.”

 

27 All gasoline and diesel fuel is “generic” until proprietary additives are injected on 

removal from a terminal facility to make the gasoline “branded” or unique to the company under 

whose name it is marketed at retail.

28 Full implementation of a planned IRS computer tracking system for motor fuels 

currently under development should reduce, if not eliminate, potential tax evasion from 

implementation of this recommendation.
22

VI. SUMMARY OF BILLS RELATING TO THE HIGHWAY TRUST FUND 

INTRODUCED IN THE SENATE DURING THE 107TH CONGRESS

A. S.594

On March 22, 2001, Senator Nickles introduced S.594. The bill would revise the excise 

tax on heavy truck tires. The bill would impose a tax equal to eight cents for each 10 pounds of 

tire load capacity in excess of 3500 pounds on tires of the type used on highway vehicles, if 

wholly or in part made of rubber, sold by the manufacturer, producer, or importer.

B. S. 878

On May 15, 2001, Senator Inhofe introduced S. 878. The bill would prorate the heavy 

vehicle use tax between the first and subsequent purchasers of the same vehicle within one 

taxable period.

C. S. 907

On May 17, 2001, Senator Carnahan introduced S. 907. Among other things, the bill 

would further extend section 40 of the Code, relating to alcohol used as fuel.

D. S. 1058

On June 19, 2001, Senator Hutchinson, for himself and Senator Dayton, introduced S. 

1058. The bill would provide an income tax credit for biodiesel used as fuel and would provide 

for a reduction of motor fuel excise taxes on biodiesel mixtures.

E. S. 1092

On June 22, 2001, Senator Gramm introduced S. 1092. The bill would exempt feed, 

seed, or fertilizer truck chassis from the excise tax on heavy trucks and trailers.

F. S. 1306

On August 2, 2001, Senator Baucus, for himself and 18 other Senators, introduced S. 

1306, the “Highway Trust Fund Recovery Act of 2001.” The bill would amend the Code to 

transfer all excise taxes imposed on alcohol fuels to the Highway Trust Fund.

G. S. 1942

On February 13, 2002, Senator Lincoln, for herself and Senators Dayton and Johnson 

introduced S. 1942, the “Biodiesel Promotion Act of 2002.” The bill would provide an income 

tax credit for biodiesel used as fuel and would provide for a reduction of motor fuel excise taxes 

on biodiesel mixtures.

H. S. 1979

On March 1, 2002, Senator Baucus introduced S. 1979, the “Energy Tax Incentives Act 

of 2002.” Among its provisions are (1) a requirement that all excise taxes imposed on alcohol 
23

fuels be transferred to the Highway Trust Fund, and (2) an income tax credit for biodiesel used as 

fuel and a reduction of motor fuel excise taxes on biodiesel mixtures. The bill would also allow 

a refiner blending ETBE and gasoline to transfer the alcohol fuels credit to a registered position 

holder that is a member of the same controlled group of corporations as the refiner, and the 

position holder could use the excise tax credit to offset its liability for excise taxes. 

Alternatively, in lieu of excise tax rate reductions for specified gasohol blends, a refiner blending 

ETBE and gasoline would accrue an excise tax credit equal to the amount of the alcohol fuels 

credit. The refiner could use this credit to offset its excise tax liability for highway motor fuels.

I. H.R. 4

On April 25, 2002, the Senate passed H.R. 4, as amended by the Senate. Division H of 

H.R. 4 contains the energy tax incentives of S. 1979 with modifications, including (1) a 

requirement that all excise taxes imposed on alcohol fuels be transferred to the Highway Trust 

Fund (sec. 2006), and (2) an income tax credit for biodiesel used as fuel and a reduction of motor 

fuel excise taxes on biodiesel mixtures (sec. 2008). Section 2007 of the bill would also allow a 

refiner blending ETBE and gasoline to transfer the alcohol fuels credit to a registered position 

holder that is a member of the same controlled group of corporations as the refiner, and the 

position holder could use the excise tax credit to offset its liability for excise taxes. 

Alternatively, in lieu of excise tax rate reductions for specified gasohol blends, a refiner blending 

ETBE and gasoline would accrue an excise tax credit equal to the amount of the alcohol fuels 

credit. The refiner could use this credit to offset its excise tax liability for highway motor fuels.
24

APPENDIX
Form 720 Quarterly Federal Excise Tax Return

(Rev. January 2002) OMB No. 1545-0023

Department of the Treasury

Internal Revenue Service

For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions.

If you are not using

a preprinted label,

enter your name,

address, employer

identification

number, and

calendar quarter of

return. See the

separate

instructions.

FOR IRS USE ONLY

Name Quarter ending T

FF

Number, street, and room or suite no. Employer identification number

If you have a P.O. box, see page 3.

FD

FP

City, state, and ZIP code (If you have a foreign address, see page 3.) I

T

Check applicable boxes:

Environmental Taxes (Attach Form 6627.) Tax IRS No.

Ozone-depleting chemicals (ODCs) 98

Communications and Air Transportation Taxes Tax IRS No.

Local telephone service, toll telephone service, and teletypewriter exchange service 22

Transportation of persons by air 26

Transportation of property by air 28

Use of international air travel facilities 27

Fuel Taxes Number of gallons Rate Tax IRS No.

60

Dyed diesel fuel used in trains 71

.184

Liquefied petroleum gas (LPG) (such as propane or

butane)

79

62

(b) Gasoline, tax on taxable events other than removal

at terminal rack

.14555 58

Gasoline removed or entered for production of 10%

gasohol

.15513 73

Aviation fuel .219 69

Aviation gasoline 14

.044 77

Aviation fuel for use in commercial aviation (other than

foreign trade)

Form 720 (Rev. 1-2002)

98

22

26

28

27

60

71

61

62

58

73

69

14

77

IRS No.

IRS No.

IRS No.

78 Dyed diesel fuel used in certain intercity or local buses .074

79 Other fuels (See instructions.)

61

78

.136

Cat. No. 10175Y



Part I

19 ODC tax on imported products 19

(a) Gasoline, tax on removal at terminal rack

.184

59 10% gasohol .131 59

.16308 74

75 7.7% gasohol .14319 75

76 5.7% gasohol .15379 76

101 Compressed natural gas (taxed at $.4854 per thousand cubic feet) 101

(a) Diesel fuel, tax on removal at terminal rack

(b) Diesel fuel, tax on taxable events other than removal

at terminal rack

$.244

.244

(c) Gasoline, tax on failure to blend or later separation

(See instructions.)

Final return One-time filing

.194

35 35

(a) Kerosene, tax on removal at terminal rack

(b) Kerosene, tax on taxable events other than removal

at terminal rack

.244

.244 





.044

Gasoline removed or entered for production of 7.7%

gasohol

Gasoline removed or entered for production of 5.7%

gasohol

74

Address change
Form 720 (Rev. 1-2002) Page 2

Manufacturers Taxes Number of tons Tax Sales price Rate IRS No.

Coal—Underground mined $1.10 per ton 36

4.4% of sales price 37

Coal—Surface mined $ .55 per ton 38

39

Highway-type tires (See instructions.)

Gas guzzler tax (Attach Form 6197.)

Vaccines (See instructions.) 97

Foreign Insurance Taxes Premiums paid Rate Tax IRS No.

Policies issued by foreign insurers (See instructions.)

Casualty insurance and indemnity bonds $ .04

Life insurance, sickness and accident policies, and annuity contracts 30

Reinsurance

Total tax. Add line 1, Part I, and line 2, Part II

1

2

Claims (See instructions. Complete Schedule C.)

3

4

5

6

7a

9

IRS No.

66

40

36

37

38

39

IRS No.

97

30

66

40

IRS No. Floor Stocks Tax Tax IRS No.

Total. Add all amounts in Part I. Complete Schedule A unless one-time filing. 

IRS No.

41 Sport fishing equipment

Electric outboard motors and sonar devices

Bows

Inland waterways fuel use tax

Total. Add all amounts in Part II. 

10

Subtract line 4 from 3. If the result is less than zero, enclose the amount in parentheses

Total of lines 6 and 7a 

Balance Due. If line 5 is greater than line 8, enter the difference. This amount must be paid with the return. Enclose check

or money order for full amount payable to the “United States Treasury.” Write your EIN, “Form 720,” and the quarter on it 

Overpayment. If line 8 is greater than line 5, enter the difference. If you have an entry that is

less than zero on line 5, combine line 5 and line 8. Check if you want the overpayment:

Applied to your next return, or Refunded to you.

Tax IRS No.

42

44

64

41

42

44

64

IRS No. Number of gallons Rate Tax IRS No.

Deposits made for the quarter 

4.4% of sales price

.01

.01

$ .244

$

$

20 Ozone-depleting chemicals (floor stocks) (Attach Form 6627.) 20

51 Alcohol sold as but not used as fuel (See instructions.) 51



Part III

Part II

Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge

and belief, it is true, correct, and complete.

Sign

Here  Signature Date  Title

Type or print name below signature. Telephone number ( )

3

9

10

IRS No. Luxury Tax

92 Passenger vehicles (See instructions.) 92

Tax IRS No.

Ship Passenger Tax Number of persons Rate Tax IRS No.

29 Transportation by water $3 per person 29

IRS No.

Amount of obligations Rate Tax IRS No.

31 Obligations not in registered form 31

IRS No.

$ .01

Other Excise Tax

Rate

3% of sales price over base amount

Rate

10% of sales price

3% of sales price

11% of sales price

102 Arrow components 12.4% of sales price 102

Form 720 (Rev. 1-2002)

4

5

8

Overpayment from previous quarters 

8

Enter the amount from Form 720X

included on line 7a, if any

IRS No. Retail Tax

33 Truck, trailer, and semitrailer chassis and bodies, and tractors

Tax IRS No.

33

Rate

12% of sales price

7a

6

b

7b

Designee

name 

Third Do you want to allow another person to discuss this return with the IRS (see page 3 of the separate instructions)?

Party

Designee Phone

no. 

Personal identification

( ) nunber (PIN) 

Yes. Complete the following. No.
Note: You must complete Schedule A if you have a liability for any tax in Part I of Form 720. Do not complete Schedule A

for Part II taxes (sport fishing equipment, electric outboard motors and sonar devices, bows, arrow components, inland

waterways fuel use, alcohol sold but not used as fuel, or any floor stocks tax) or for one-time filings.

1 Regular method taxes

(a)

First month A

Second month C

Third month E

Period

1st–15th day 16th–last day

B

D

F

(b) Net liability for regular method taxes. Add the amounts for each semimonthly period.

2 Alternative method taxes (IRS Nos. 22, 26, 28, and 27)

M

O

Q

Period

1st–15th day 16th–last day

N

P

R

(b) Alternative method taxes. Add the amounts for each semimonthly period.

Record of Net

Tax Liability

(a) Record of Taxes

Considered as

Collected

First month

Second month

Third month

Form 720 (Rev. 1-2002) Page 3

Schedule A Excise Tax Liability (See page 8 of the instructions.)

*Complete only as instructed. See page 8.

Special rule for September* 

Special rule for September* 

Form 720 (Rev. 1-2002)
Form 720 (Rev. 1-2002) Page 4

Schedule C Claims

1

3

375

10% gasohol

7.7% gasohol

5.7% gasohol

.131

.14319

.15379

Nontaxable Use of Gasoline and Gasohol

Rate Gallons Amount of claim

Gasoline $.184 362

Nontaxable Use of Undyed Diesel Fuel

Rate Gallons

$.244

5

b 353

a

c

Nontaxable use

CRN

CRN

359

376

Amount of claim

Period of claim 

Month your income tax year ends 

Period of claim 

Claimant certifies that the diesel fuel did not contain visible evidence of dye.

Claimant has the name and address of the person(s) who sold the diesel fuel to the claimant and the date(s) of the purchase(s) and if

exported, the required proof of export.

Use in trains .20

Caution: Claims cannot be made on line 3 for diesel fuel used on a

farm for farming purposes or for exclusive use by a state or local

government.

● Complete Schedule C for claims only if you are reporting liability in Part I or II of Form 720.

● Attach a statement explaining each claim as required. Include your name and EIN on the statement. See page 8

of the instructions.

a

b

c

d

2 Nontaxable Use of Aviation Gasoline

Nontaxable Use of Aviation Fuel

Other nontaxable use

Used in commercial aviation (other than foreign trade)

Other nontaxable use

$.15

c

a

b .194

a Use in commercial aviation (other than foreign trade)

369

Rate Gallons Amount of claim CRN

Rate Gallons Amount of claim CRN

$.175

Period of claim 

Period of claim 

.044

Use in certain intercity and local buses .17

6 Sales by Registered Ultimate Vendors of Undyed Diesel Fuel

Rate Gallons

$.244 360 b

a Use on a farm for farming purposes

Use by a state or local government .244

Amount of claim CRN

Period of claim 

Exception. If any of the diesel fuel included in this claim did contain visible evidence of dye, attach a detailed explanation and check here 

Claimant sold the diesel fuel at a tax-excluded price, repaid the amount of tax to the buyer, or has obtained written consent of the buyer

to make the claim; and obtained the required certificate from the buyer and has no reason to believe any information in the certificate or

statement is false. See the instructions for additional information to be submitted.

UV Registration Number 

Exception. If any of the diesel fuel included in this claim did contain visible evidence of dye, attach a detailed explanation and check here 

Claimant certifies that the diesel fuel did not contain visible evidence of dye.

Form 720 (Rev. 1-2002)

.219

4 Nontaxable Use of Undyed Kerosene

Rate Gallons

$.244

b 348

a

c

Nontaxable use

Amount of claim CRN

Period of claim 

Claimant certifies that the kerosene did not contain visible evidence of dye.

Claimant has the name and address of the person(s) who sold the kerosene to the claimant and the date(s) of the purchase(s) and if

exported, the required proof of export.

Use in trains .20

Caution: Claims cannot be made on line 4 for kerosene used on a farm

for farming purposes, for exclusive use by a state or local government,

or for sales from a blocked pump.

Use in certain intercity and local buses .17

Exception. If any of the kerosene included in this claim did contain visible evidence of dye, attach a detailed explanation and check here 

354

324

350

360

346

347

355

377

b Other nontaxable use

Type

of use

Type

of use

Type

of use

Type

of use

Type

of use
Form 720 (Rev. 1-2002) Page 5

Total claims. Add all amounts on lines 1-11. Enter the result here and on page 2, Part

III, line 4 of Form 720. 12

Amount of claim CRN

12

Gasohol Blending

Type of gasohol Rate Gallons of

10% gasohol

7.7% gasohol

5.7% gasohol

8

357

Other claims. See page 10 of the instructions.

9

b

a

c

7

11

Amount of claim CRN

(rate x gals. of gasoline)

$.03845

.02887

.02092

Claimant certifies that it bought gasoline taxed at the full rate and blended it with alcohol to make gasohol. The gasohol was sold or used

in claimant’s trade or business. For each batch of gasohol, claimant has the required information relating to the purchase of the gasoline

and alcohol used to make the gasohol and to support the amount claimed.

Period of claim 

Sales by Registered Ultimate Vendors of Undyed Kerosene

Rate Gallons

b 346

a Use on a farm for farming purposes

Use by a state or local government

Amount of claim CRN

Period of claim 

Exception. If any of the kerosene included in this claim did contain visible evidence of dye, attach a detailed explanation and check here. 

Claimant sold the kerosene at a tax-excluded price, repaid the amount of tax to the buyer, or has obtained the written consent of the buyer to make

the claim; and obtained the required certificate (for lines 7a and 7b) from the buyer or has the statement required by Regulations section

48.6427-10(e)(4) (for line 7c) and has no reason to believe any information in the certificate or statement is false. See the instructions for additional

information to be submitted.

UV Registration Number 

c Sales from a blocked pump

Use of LPG in Certain Buses Period of claim 

Rate Gallons

352

b

a Certain intercity and local buses

Use in qualified local buses

Amount of claim CRN

Gasoline Alcohol

Gasoline

Claimant sold the gasoline, gasohol, or aviation gasoline at a tax-excluded price, repaid the amount of the tax to the ultimate vendor, or has

obtained the written consent of the ultimate vendor to make the claim; and has the required supporting information.

Rate Gallons Amount of claim CRN

362

375

Gasoline

10% gasohol

7.7% gasohol

Aviation gasoline

$.184

.131

.14319

.194

a

b

c

e

359

324

Earliest date of sale included in claim  10

d 5.7% gasohol .15379 376

$.244

$.062

.244

.244

.136

Claimant certifies that the kerosene did not contain visible evidence of dye.

UP Registration Number 

Latest date of sale included in claim 

Form 720 (Rev. 1-2002)

356

363

Type

of use

a Section 4051(d) tire credit

b

c

d

e

f

g

h

c Use in school buses .136

361

366

For claims under section 6416(b)(2) relating to certain uses and resales of certain articles subject to manufacturers or retailers taxes, claimant

sold the article at a tax-excluded price, repaid the amount of tax to the ultimate vendor, or has obtained the written consent of the ultimate

vendor to make the claim.