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Tax Alert: Non-Highway Use Fuel Tax Credit Available for Certain Businesses

Your business could be overlooking a refund of some of the Federal and state taxes you pay on motor fuels such as gasoline, diesel, and kerosene. In most states and for the Federal government, these taxes are collected specifically for highway and road construction and maintenance. Taxes you pay on fuels used to power vehicles and equipment used off-road may qualify for a refund or a credit against your income tax.

Examples of qualified use include farm equipment, off-road equipment, commercial fishing and whaling boats, airplanes, and trains. A refund is also available to private operators of school buses and buses for public transport.

For Federal purposes, the credit applies only to business use of fuel. By far, the most challenging category of qualified use is in off-road equipment. Examine your business for fuel used in generators, compressors, power saws, and similar equipment. Forklifts, bulldozers, and earthmovers also qualify.

Also consider a vehicle chassis that has permanently mounted to it machinery or equipment used to perform construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations. If the operation of the machinery or equipment is unrelated to transportation, the chassis has been specially designed to serve only as a mobile carriage and mount for the machinery or equipment, and the chassis could not, without substantial structural modification, be used as part of a vehicle, the use is considered off-road use.

Off-road use does not include any fuel used in the propulsion motor of a registered highway vehicle, even if that motor also operates special equipment by means of a power take-off or power transfer, such as using the truck motor to operate a cement mixer. However, off-road use includes fuel used in a separate motor to operate special equipment, such as a refrigeration unit. If you draw fuel from the same tank that supplies fuel to the propulsion motor, you must determine the quantity used in the separate motor operating the special equipment.

A self-propelled vehicle is not considered a highway vehicle, if the vehicle is designed primarily to carry a specific kind of load off-road for construction, manufacturing, mining, processing, farming, drilling, timbering, or similar operations; and the vehicle's use in carrying this load over public highways is substantially limited or impaired because of its design. To make the impairment determination, you can take into account whether the vehicle can travel at regular highway speeds, requires a special permit, or is over-weight, over-height, or over-width.

A credit or refund is not allowed for fuel used in the propulsion engine of a registered highway vehicle, even if the vehicle is used off the highway. Also, fuel that is lost or destroyed through fire, spillage, or evaporation does not qualify.

Records to support your credit or refund should establish the number of gallons used, the dates of purchase, the names and addresses of suppliers and amounts bought from each, the purposes for which you used the fuel, and the number of gallons used for each purpose.

If your business uses fuels as described above, please contact Joseph Tighe, CPA, J.H. Cohn partner, at or 973-618-6243, or your J.H. Cohn engagement partner to discuss fuel tax credits that may be available to you.

Download the full PDF.

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and J.H. Cohn LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Published date: 8/23/2012

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