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IRS.gov Website
Publication 510
taxmap/pubs/p510-006.htm#en_us_publink1000116867

Diesel Fuel and Kerosene(p7)

rule
EIC
When this publication was prepared for printing, all or a portion of the taxes on diesel fuel and kerosene were scheduled to expire on September 30, 2011. To find out if the taxes are extended, monitor the news media or go to www.irs.gov, click on Forms and Publications, and then click on Changes to Current Tax Products.
Generally, diesel fuel and kerosene are taxed in the same manner as gasoline (discussed earlier). However, special rules (discussed later) apply to dyed diesel fuel and dyed kerosene, and to undyed diesel fuel and undyed kerosene sold or used in Alaska for certain nontaxable uses and undyed kerosene used for a feedstock purpose.
Diesel fuel means: 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. A liquid may possess this practical and commercial fitness even though the specified use is not the predominant use of the liquid. However, a liquid does not possess this practical and commercial fitness solely by reason of its possible or rare use as a fuel in the propulsion engine of a diesel-powered highway vehicle or diesel-powered train. Diesel fuel does not include gasoline, kerosene, excluded liquid, No. 5 and No. 6 fuel oils covered by ASTM specification D396, or F-76 (Fuel Naval Distillate) covered by military specification MIL-F-16884.
An excluded liquid is either of the following.
  1. A liquid that contains less than 4% normal paraffins.
  2. A liquid with all the following properties.
    1. Distillation range of 125 degrees Fahrenheit or less.
    2. Sulfur content of 10 ppm or less.
    3. Minimum color of +27 Saybolt.
Transmix means a by-product of refined products created by the mixing of different specification products during pipeline transportation.
taxmap/pubs/p510-006.htm#en_us_publink1000116868

Kerosene.(p7)

rule
This means any of the following liquids.
However, kerosene does not include excluded liquid, discussed earlier.
Kerosene also includes any liquid that would be described above but for the presence of a dye of the type used to dye kerosene for a nontaxable use.
taxmap/pubs/p510-006.htm#en_us_publink1000116869

Diesel-powered highway vehicle.(p7)

rule
This is any self-propelled vehicle designed to carry a load over public highways (whether or not also designed to perform other functions) and propelled by a diesel-powered engine. Specially designed mobile machinery for nontransportation functions and vehicles specially designed for off-highway transportation are generally not considered diesel-powered highway vehicles. For more information about these vehicles and for information about vehicles not considered highway vehicles, see Off-Highway Business Use (No. 2) in chapter 2.
taxmap/pubs/p510-006.htm#en_us_publink1000116870

Diesel-powered train.(p7)

rule
This is any diesel-powered equipment or machinery that rides on rails. The term includes a locomotive, work train, switching engine, and track maintenance machine.
taxmap/pubs/p510-006.htm#en_us_publink1000116871

Taxable Events(p8)

rule
The tax on diesel fuel and kerosene is $.244 per gallon. It is imposed on the removal, entry, or sale of diesel fuel and kerosene. Each of these events is discussed later. Only the $.001 LUST tax applies to dyed diesel fuel and dyed kerosene, discussed later.
If the tax is paid on the diesel fuel or kerosene in more than one event, a refund may be allowed for the "second" tax paid. See Refunds of Second Tax, in chapter 2.
taxmap/pubs/p510-006.htm#en_us_publink1000116872

Use in certain intercity and local buses.(p8)

rule
Dyed diesel fuel and dyed kerosene cannot be used in certain intercity and local buses. A claim for $.17 per gallon may be made by the registered ultimate vendor (under certain conditions) or the ultimate purchaser for undyed diesel fuel or undyed kerosene sold for use in certain intercity or local buses. An intercity or local bus is a bus engaged in furnishing (for compensation) passenger land transportation available to the general public. The bus must be engaged in one of the following activities. A bus is available to the general public if the bus is available for hire to more than a limited number of persons, groups, or organizations.
taxmap/pubs/p510-006.htm#en_us_publink1000116873

Removal from terminal.(p8)

rule
All removals of diesel fuel and kerosene at a terminal rack are taxable. The position holder for that fuel is liable for the tax.
taxmap/pubs/p510-006.htm#en_us_publink1000116874
Two-party exchanges.(p8)
In a two-party exchange, the receiving person, not the delivering person, is liable for the tax imposed on the removal of taxable fuel from the terminal at the terminal rack. A two-party exchange means a transaction (other than a sale) where the delivering person and receiving person are both taxable fuel registrants and all of the following apply.
taxmap/pubs/p510-006.htm#en_us_publink1000116875
Terminal operator's liability.(p8)
The terminal operator is jointly and severally liable for the tax if the terminal operator provides any person with any bill of lading, shipping paper, or similar document indicating that diesel fuel or kerosene is dyed (discussed later).
The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator and is not a registrant. However, a terminal operator will not be liable for the tax in this situation if, at the time of the removal, the following conditions are met.
taxmap/pubs/p510-006.htm#en_us_publink1000116876

Removal from refinery.(p8)

rule
The removal of diesel fuel or kerosene from a refinery is taxable if the removal meets either of the following conditions. The refiner is liable for the tax.
taxmap/pubs/p510-006.htm#en_us_publink1000116877
Exception.(p8)
The tax does not apply to a removal of diesel fuel or kerosene at the refinery rack if all the following conditions are met.
  1. The diesel fuel or kerosene is removed from an approved refinery not served by pipeline (other than for receiving crude oil) or vessel.
  2. The diesel fuel or kerosene is received at a facility operated by a registrant and located within the bulk transfer/terminal system.
  3. The removal from the refinery is by:
    1. Railcar and the same person operates the refinery and the facility at which the diesel fuel or kerosene is received, or
    2. For diesel fuel only, a trailer or semi-trailer used exclusively to transport the diesel fuel from a refinery (described in (1)) to a facility (described in (2)) less than 20 miles from the refinery.
taxmap/pubs/p510-006.htm#en_us_publink1000116878

Entry into the United States.(p8)

rule
The entry of diesel fuel or kerosene into the United States is taxable if the entry meets either of the following conditions. The enterer is liable for the tax.
taxmap/pubs/p510-006.htm#en_us_publink1000116879
Importer of record's liability.(p8)
The importer of record is jointly and severally liable for the tax with the enterer if the importer of record is not the enterer of the taxable fuel and the enterer is not a taxable fuel registrant.
However, an importer of record meeting both of the following conditions at the time of the entry will not be liable for the tax.
  1. The importer of record has an unexpired notification certificate (discussed under Gasoline) from the enterer.
  2. The importer of record has no reason to believe any information in the certificate is false.
taxmap/pubs/p510-006.htm#en_us_publink1000116880
Customs bond.(p8)
The customs bond will not be charged for the tax imposed on the entry of the diesel fuel or kerosene if at the time of entry the surety has an unexpired notification certificate from the enterer and has no reason to believe any information in the certificate is false.
taxmap/pubs/p510-006.htm#en_us_publink1000116881

Removal from a terminal by unregistered position holder or unregistered pipeline or vessel operator.(p8)

rule
The removal by bulk transfer of diesel fuel or kerosene from a terminal is taxable if the position holder for that fuel or the operator of the pipeline or vessel is not a registrant. The position holder is liable for the tax. The terminal operator is jointly and severally liable for the tax if the position holder is a person other than the terminal operator. However, see Terminal operator's liability under Removal from terminal, earlier, for an exception.
taxmap/pubs/p510-006.htm#en_us_publink1000116882

Bulk transfers not received at approved terminal or refinery.(p8)

rule
The removal by bulk transfer of diesel fuel or kerosene from a terminal or refinery or the entry of diesel fuel or kerosene by bulk transfer into the United States is taxable if the following conditions apply.
  1. No tax was previously imposed (as discussed earlier) on any of the following events.
    1. The removal from the refinery.
    2. The entry into the United States.
    3. The removal from a terminal by an unregistered position holder.
  2. Upon removal from the pipeline or vessel, the diesel fuel or kerosene is not received at an approved terminal or refinery (or at another pipeline or vessel).
The owner of the diesel fuel or kerosene when it is removed from the pipeline or vessel is liable for the tax. However, an owner meeting all the following conditions at the time of the removal will not be liable for the tax. The operator of the facility where the diesel fuel or kerosene is received is liable for the tax if the owner meets these conditions. The operator is jointly and severally liable if the owner does not meet these conditions.
taxmap/pubs/p510-006.htm#en_us_publink1000116883

Sales to unregistered person.(p8)

rule
The sale of diesel fuel or kerosene located within the bulk transfer/terminal system to a person that is not a registrant is taxable if tax was not previously imposed under any of the events discussed earlier.
The seller is liable for the tax. However, a seller meeting all the following conditions at the time of the sale will not be liable for the tax. The buyer of the diesel fuel or kerosene is liable for the tax if the seller meets these conditions. The buyer is jointly and severally liable if the seller does not meet these conditions.
taxmap/pubs/p510-006.htm#en_us_publink1000116884
Exception.(p9)
The tax does not apply to a sale if all of the following apply.
taxmap/pubs/p510-006.htm#en_us_publink1000116885

Removal or sale of blended diesel fuel or kerosene.(p9)

rule
The removal or sale of blended diesel fuel or blended kerosene by the blender is taxable. Blended taxable fuel produced using biodiesel is subject to the tax. See Blended taxable fuel under Definitions, earlier.
The blender is liable for the tax. The tax is figured on the number of gallons not previously subject to the tax.
Persons who blend biodiesel with undyed diesel fuel to produce and sell or use a biodiesel mixture outside the bulk transfer/terminal system must pay the diesel fuel tax on the volume of biodiesel in the mixture. Generally, the biodiesel mixture must be diesel fuel (defined earlier). See Form 720 to report this tax. You also must be registered by the IRS as a blender. See Form 637 for more information.
However, if an untaxed liquid is sold as taxable fuel and that untaxed liquid is used to produce blended taxable fuel, the person that sold the untaxed liquid is jointly and severally liable for the tax imposed on the blender's sale or removal of the blended taxable fuel.
taxmap/pubs/p510-006.htm#en_us_publink1000116886

Additional persons liable.(p9)

rule
When the person liable for the tax willfully fails to pay the tax, joint and several liability for the tax applies to:
taxmap/pubs/p510-006.htm#en_us_publink1000116887

Credits or Refunds(p9)

rule
A credit or refund is allowable for the tax on undyed diesel fuel or undyed kerosene used for a nontaxable use. For more information, see chapter 2.
taxmap/pubs/p510-006.htm#en_us_publink1000116888

Dyed Diesel Fuel and Dyed Kerosene(p9)

rule
EIC
Dyed diesel fuel and dyed kerosene are subject to $.001 per gallon LUST tax as discussed below, unless the fuel is for export.
The excise tax is not imposed on the removal, entry, or sale of diesel fuel or kerosene (other than the LUST tax) if all the following tests are met.
taxmap/pubs/p510-006.htm#en_us_publink1000116890

Dyeing requirements.(p9)

rule
Diesel fuel or kerosene satisfies the dyeing requirements only if it satisfies the following requirements.
taxmap/pubs/p510-006.htm#en_us_publink1000116891

Notice required.(p9)

rule
A legible and conspicuous notice stating either: DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE or DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE must be:
  1. Provided by the terminal operator to any person that receives dyed diesel fuel or dyed kerosene at a terminal rack of that operator, and
  2. Posted by a seller on any retail pump or other delivery facility where it sells dyed diesel fuel or dyed kerosene for use by its buyer.
The notice under item (1) must be provided by the time of the removal and must appear on all shipping papers, bills of lading, and similar documents accompanying the removal of the fuel.
Any seller that fails to post the required notice under item (2) is presumed to know that the fuel will be used for a taxable use (a use other than a nontaxable use listed later). That seller is subject to the penalty described next.
taxmap/pubs/p510-006.htm#en_us_publink1000116892

Penalty.(p9)

rule
A penalty is imposed on a person if any of the following situations apply.
  1. Any dyed fuel is sold or held for sale by the person for a use the person knows or has reason to know is not a nontaxable use of the fuel.
  2. Any dyed fuel is held for use or used by the person for a use other than a nontaxable use and the person knew, or had reason to know, that the fuel was dyed.
  3. The person willfully alters, chemically or otherwise, or attempts to so alter, the strength or composition of any dye in dyed fuel.
  4. The person has knowledge that a dyed fuel that has been altered, as described in (3) above, sells or holds for sale such fuel for any use for which the person knows or has reason to know is not a nontaxable use of the fuel.
The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. After the first violation, the $1,000 portion of the penalty increases depending on the number of violations.
This penalty is in addition to any tax imposed on the fuel.
If the penalty is imposed, each officer, employee, or agent of a business entity who willfully participated in any act giving rise to the penalty is jointly and severally liable with that entity for the penalty.
There is no administrative appeal or review allowed for the third and subsequent penalty imposed by Internal Revenue Code section 6715 on any person except for:
If you are liable for the penalty, you may also be liable for the back-up tax, discussed later. However, the penalty applies only to dyed diesel fuel and dyed kerosene, while the back-up tax may apply to other fuels. The penalty may apply if the fuel is held for sale or use for a taxable use while the back-up tax does not apply unless the fuel is delivered into a fuel supply tank.
taxmap/pubs/p510-006.htm#en_us_publink1000116893
Exception to penalty.(p9)
The penalty under item (3) will not apply in any of the following situations.
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Alaska and Feedstocks(p9)

rule
Tax of $.001 per gallon is imposed on:
taxmap/pubs/p510-006.htm#en_us_publink1000116895

Removal for sale or use in Alaska.(p10)

rule
No tax is imposed on the removal, entry, or sale of diesel fuel or kerosene in Alaska for ultimate sale or use in certain areas of Alaska for certain nontaxable uses. The removal or entry of any diesel fuel or kerosene is not taxed if all the following requirements are satisfied.
  1. The person otherwise liable for the tax (position holder, refiner, or enterer):
    1. Is a registrant,
    2. Can show satisfactory evidence of the nontaxable nature of the transaction, and
    3. Has no reason to believe the evidence is false.
  2. In the case of a removal from a terminal, the terminal is an approved terminal.
  3. The owner of the fuel immediately after the removal or entry holds the fuel for its own use in a nontaxable use (discussed later) or is a qualified dealer.
If all three of the requirements above are not met, then tax is imposed at $.244 per gallon.
A qualified dealer is any person that holds a qualified dealer license from the state of Alaska or has been registered by the IRS as a qualified retailer. Satisfactory evidence may include copies of qualified dealer licenses or exemption certificates obtained for state tax purposes.
taxmap/pubs/p510-006.htm#en_us_publink1000116896
Later sales.(p10)
The excise tax applies to diesel fuel or kerosene sold by a qualified dealer after the removal or entry. The tax is imposed at the time of the sale and the qualified dealer is liable for the tax. However, the sale is not taxable (other than the LUST tax at $.001 per gallon) if all the following requirements are met.
taxmap/pubs/p510-006.htm#en_us_publink1000116897

Feedstock purposes.(p10)

rule
The $.001 per gallon LUST tax is imposed on the removal or entry of undyed kerosene if all the following conditions are met.
  1. The person otherwise liable for tax (position holder, refiner, or enterer) is a registrant.
  2. In the case of a removal from a terminal, the terminal is an approved terminal.
  3. Either:
    1. The person otherwise liable for tax uses the kerosene for a feedstock purpose, or
    2. The kerosene is sold for use by the buyer for a feedstock purpose and, at the time of the sale, the person otherwise liable for tax has an unexpired certificate (described later) from the buyer and has no reason to believe any information on the certificate is false.
If all of the requirements above are not met, then tax is imposed at $.244 per gallon.
Kerosene is used for a feedstock purpose when it is used for nonfuel purposes in the manufacture or production of any substance other than gasoline, diesel fuel, or Other Fuels. For example, kerosene is used for a feedstock purpose when it is used as an ingredient in the production of paint, but is not used for a feedstock purpose when it is used to power machinery at a factory where paint is produced. A feedstock user is a person that uses kerosene for a feedstock purpose. A registered feedstock user is a person that has been registered by the IRS as a feedstock user. See Registration Requirements, earlier.
taxmap/pubs/p510-006.htm#en_us_publink1000116898
Later sales.(p10)
The excise tax ($.244 per gallon) applies to kerosene sold for use by the buyer for a feedstock purpose (item (3)(b) above) if the buyer in that sale later sells the kerosene. The tax is imposed at the time of the later sale and that seller is liable for the tax.
taxmap/pubs/p510-006.htm#en_us_publink1000116899
Certificate.(p10)
The certificate from the buyer certifies the buyer is a registered feedstock user and the kerosene will be used by the buyer for a feedstock purpose. The certificate may be included as part of any business records normally used for a sale. A model certificate is shown in the Appendix as Model Certificate G. Your certificate must contain all information necessary to complete the model.
A certificate expires on the earliest of the following dates.
The buyer must provide a new certificate if any information on a certificate has changed.
taxmap/pubs/p510-006.htm#en_us_publink1000116900

Back-up Tax(p10)

rule
Tax is imposed on the delivery of any of the following into the fuel supply tank of a diesel-powered highway vehicle.
Generally, this back-up tax is imposed at a rate of $.244 per gallon.
taxmap/pubs/p510-006.htm#en_us_publink1000116901

Liability for tax.(p10)

rule
Generally, the operator of the vehicle into which the fuel is delivered is liable for the tax. In addition, the seller of the diesel fuel or kerosene is jointly and severally liable for the tax if the seller knows or has reason to know that the fuel will be used for other than a nontaxable use.
taxmap/pubs/p510-006.htm#en_us_publink1000116902

Exemptions from the back-up tax.(p10)

rule
The back-up tax does not apply to a delivery of diesel fuel or kerosene for uses 1, 2, 6, 7, 12, 13, 14, and 15 listed under Nontaxable Uses in chapter 2.
In addition, since the back-up tax is imposed only on the delivery into the fuel supply tank of a diesel-powered vehicle or train, the tax does not apply to diesel fuel or kerosene used as heating oil or in stationary engines.