Gasoline prices in Michigan fluctuate wildly throughout the year. In January 2019, the average price was $2.15 per gallon. As the weather approached the summer month, gas prices reached $2.85 per gallon in May 2019. Several factors cause gasoline prices to change during the year and include location (e.g. transportation costs over greater distance), seasonal and weather considerations, supply and demand (e.g. holiday travel), and the global factors affecting crude oil prices. But do federal and state taxes play a role in the variation of gas price?
FEDERAL AND STATE FUEL EXCISE TAXES IMPOSED
At the federal level as of 2019, the Internal Revenue Code imposes an excise tax on fuel sold to a person as follows:
- Gasoline other than aviation gasoline = 18.3 cents per gallon. 26 U.S.C. §4081(a)(2)(A)(i).
- Aviation gasoline = 19.3 cents per gallon. 26 U.S.C. §4081(a)(2)(A)(ii). This tax rate will be reduced to 4.3 cents per gallon after September 30th, 2022. 26 U.S.C. §4081(d)(1).
- Diesel fuel or kerosene = 24.3 cents per gallon. 26 U.S.C. §4081(a)(2)(A)(iii). This tax rate will be reduced to 4.3 cents per gallon after September 30th, 2022. 26 U.S.C. §4081(d)(1). If a diesel-water fuel emulsion additive is used, the tax is reduced to 19.7 cents. 26 U.S.C. §4081(a)(2)(D). If kerosene is put directly into the fuel tank of an aircraft for aviation, there is an additional 4.3 cent tax per gallon for commercial aviation and 21.8 cent tax for non-commercial aviation. 26 U.S.C. §4081(a)(2)(C).
- An additional 0.1 cent per gallon tax is imposed on all sales of gasoline, diesel fuel and kerosene for financing of the Leaking Underground Storage Tank Trust Fund. 26 U.S.C. §4081(a)(2)(B).
The federal excise tax is a flat tax and does not increase as the price of fuel per gallon increases.
At the state level, the Michigan Motor Fuel Tax Act, Public Act 403 of 2000, imposes on motor fuel sold to a person is as follows:
- As of January 1st, 2017, 26.3 cents per gallon on gasoline. MCL 207.1008(1)(a)(ii).
- As of January 1st, 2017, 26.3 cents per gallon on diesel fuel. MCL 207.1008(1)(b)(ii).
- Beginning January 1st, 2022 and every first day of the year afterwards, the Michigan Department of Treasury shall determine a cents-per-gallon rate by multiplying the rate in effect the previous year by 1 plus the lesser of 0.05 or the inflation rate and round up the product to the nearest 1/10 of a cent. MCL 207.1008(1)(c).
The motor fuel tax imposed is in lieu of any other tax imposed by the state or any of its municipalities except for the 6% sales tax or the 6% use tax. MCL 207.1022(1). The Michigan motor fuel tax is a flat tax and does not increase as the price of fuel per gallon increases, but the amount of sales tax or use tax imposed is variable depending on the price. Michigan is one of eight states that imposed a sales tax in addition to the fuel tax. As a result, Michigan has some of this highest gas prices per gallon in the United States.
If a raw gallon of gasoline in Michigan was sold for $2.00, the taxes imposed on it include:
- 18.3 cents per federal excise tax.
- 0.1 cents per Leaking Underground Storage Tank Trust Fund financing.
- 26.3 cents per Michigan motor fuel tax.
- 12.0 cents per Michigan sales tax (6% of $2.00)
- TOTAL = 56.7 cents.
If a gallon of gas at the pump sells for $2.56 cents, then 22% of the price is composed of federal and state taxes.
FEDERAL AND STATE FUEL EXCISE TAX EXEMPTIONS
If you meet one of the several exemptions available under federal law, you may be able to claim a refund of fuel excise taxes paid by filing Form 8849 (or Schedule C if you file Form 720) to the Internal Revenue Service. In addition, you may also be able to claim a tax credit on Form 4136 if the fuel used for an exempt use was less than $750.00, it wasn’t included in any previous claim for refund or credit, and the off-highway business use of mobile machinery was less than 7,500 miles on public highways. You may claim an exemption for fuel taxes on any of the following:
- The fuel was used on a farm for farming purposes in carrying on a trade or business. 26 U.S.C. 4041(f).
- The fuel was used in an off-highway business or income-producing activity other than as a registered highway vehicle (e.g. bulldozers used in excavation). 26 U.S.C. 4041(b)(1).
- Fuel exported from the United States. 26 U.S.C. 4041(g)(3).
- Fuel used in a boat engaged in commercial fishing (taking, catching, processing or transporting fish, shellfish or other aquatic life). 26 U.S.C. 4042.
- Fuel used in intercity and local buses available to the general public. 26 U.S.C. 4041(a)(1)(C)(iii).
- Fuel used in a school bus engaged in transporting students and school employees. 26 U.S.C. 4041(a)(1)(C)(iii).
- Diesel fuel and kerosene used for a use other than propelling a vehicle on a highway (e.g. home heating, lighting, cooking, in boats, in stationary machines such as generators and compressors, and in minibikes and snowmobiles). 26 CFR §48.4041-8(b)(2).
- Fuel used in civil aircraft employed in foreign trade. 26 U.S.C. 4041(g)(1).
- Fuel used in certain helicopter and fixed-wing aircraft uses (e.g. emergency medical transportation, logging operations or mineral exploration). 26 U.S.C. 4041(l).
- Fuel used by a qualified blood collector organization (e.g. American Red Cross). 26 U.S.C. 4041(g)(5).
- Fuel used in a highway vehicle that wasn’t used on a highway during the tax year. 26 CFR §48.4041-8(b)(1).
- Fuel used by nonprofit educational organization (including church-operated schools) exempt from income tax under 26 U.S.C. 501(a). 26 U.S.C. 4041(g)(4).
- Fuel exclusively used by a state, political subdivision of a state or the District of Columbia. 26 U.S.C. 4041(g)(2).
- Fuel used in aircraft or vehicles owned by an aircraft museum. 26 U.S.C. 4041(h).
The taxpayer seeking the refund needs to keep records supporting the claim. This information must include logs, invoices, credit card records or receipts keeping track of the following:
- The number of gallons purchased during the tax year
- The dates of the fuel purchases
- Names and addresses of suppliers and amounts purchased from each supplier.
- The nontaxable exempt use being claimed.
- The number of gallons used for each non-exempt use.
Michigan residents may seek a refund of the motor fuel tax paid from the Department of Treasury for any of the following non-taxable purposes:
- Fuel was used for a non-highway purpose (except for snowmobiles, off-road vehicles or certain boats). MCL 207.1033.
- Fuel sold tax-free by the person seeking the refund or claiming the deduction to the federal government, the state government, or a political subdivision of the state for use in a motor vehicle owned and operated or leased and operated by the federal government, state government, or a political subdivision of the state. MCL 207.1034.
- Fuel sold tax-free by the person seeking the refund or claiming the deduction to a nonprofit, private, parochial, or denominational school, college, or university for use in a school bus owned and operated or leased and operated by the educational institution that is used in the transportation of students to and from the institution or to and from school functions authorized by the administration of the institution. MCL 207.1035.
- Fuel acquired and stored by a licensed exporter. MCL 207.1036, MCL 207.1043.
- Fuel used in an implement of husbandry or otherwise used for a nonhighway purpose not otherwise exempted. MCL 207.1039.
- Fuel accidently contaminated, lost or destroyed as a direct result of a sudden and unexpected casualty loss (unless already reimbursed by an insurance company). MCL 207.1040.
- Fuel used in a community action agency vehicle. MCL 207.1041.
- Fuel used in a certified motor bus with a capacity of 10 or more people. MCL 207.1042.
- Fuel used in a motor vehicle with a common fuel supply tank from which motor fuel or alternative fuel is used both to propel the vehicle and to operate attached equipment (up to 15% of the fuel tax paid). MCL 207.1045.
The claim for refund must be submitted on a claim form to the Michigan Department of Treasury within 18 months of the purchase of fuel. The taxpayer is required to keep and present the original invoice for the purchase with the claim. If records of the gas purchase and the exempted use are not kept, Michigan will deny the refund.
If you have any questions about federal or state fuel excise taxes or need assistance making a claim for refund or credit, do not hesitate to contact the attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.