How to Maximize Motor Fuel Business Profits through Excise Tax Strategy
An effective excise tax strategy can be a competitive advantage. By approaching excise tax strategy and compliance with a calculated mindset, you can maximize profit for your organization. Unfortunately, excise tax compliance can get overlooked. It's often seen as a passthrough and the true value of the excise tax team is often not clearly understood.
This blog discusses several strategies your excise tax team can use to contribute to the bottom line and examples you can utilize to communicate upwards in your organization to showcase your tax team’s value.
Strategies to Maximize Your Excise Tax Strategy:
- Maximizing fuel collection allowance
- TARE allowance
- Shrinkage allowance
- Relinquishing bonds
- Update vendor licenses
- Utilize due date tracking software
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Maximize Fuel Profits Through Excise Tax Strategy
Uncover a variety of strategies designed to enhance the bottom line, all of which can be implemented by the excise tax team.
Maximizing Fuel Collection Allowance
Did you know in some states, if you pay your fuel tax on time, you get to deduct a percentage from your total tax due? This is called a collection allowance. As an agreement for you doing business per the state or federal limitations of that license and reporting on your business, the state “awards” you this allowance. This is not as easy as it sounds, and it won't happen on its own. Having a knowledgeable and proactive tax team is important for capitalizing on collection allowance.
Some prerequisites to this money-saving deduction are that you must:
- Have a license in that state
- File on time
- File accurately
Below is a list of states that offer a collection allowance based on license type. For more information, reference The FTA Uniformity Book.
| Alabama | Yes - Filed Timely | Supplier / Permissive Supplier | 0.5% on amount payable (no limit) |
| Supplier / Permissive Supplier | 0.1% on amount payable (not to exceed $2,000.00 a month) | ||
| Distributor / Importer | 0.5% on amount payable to supplier or Permissive Supplier (no limit) | ||
| Alaska | Yes - Filed Timely | Distributor | 1% of total tax due not to exceed $100.00 per fuel type |
| Arizona | Yes - Filed Timely | Supplier / Permissive Supplier | 0.4% on amount payable (capped $200,000.00 annually) |
| Arkansas | No | ||
| California | No | ||
| Colorado | Yes - Filed Timely | 1st Reciver | 2% per gallon |
| Connecticut | No | ||
| Delaware | No | ||
| District of Columbia | No | ||
| Florida | Yes - Filed Timely | Terminal Supplier / Importer | .2% of the tax due |
| Terminal Supplier / Wholesaler | 1.1% tax imposed and the first 6 cents | ||
| Georgia | Yes - Filed Timely | Distributor | 1% state excise |
| Distributor | 3% prepaid local tax | ||
| Hawaii | Service Station level | ||
| Idaho | No | ||
| Illinois | Yes - Filed Timely | Distributor | 1.75% |
| Indiana | Yes - Filed Timely | Gasoline | Billed gallons 1.6% per gallon |
| Diesel | Tax due multiplied by 1.6% | ||
| Iowa | Yes - Filed Timely | See FTA Guide Section 8 page 234 | |
| Kansas | Yes - Filed Timely | Distributor | 2.5% of all taxable fuels |
| Kentucky | Yes - Filed Timely | Dealers | 2.25% |
| Louisiana | Yes - Filed Timely | See FTA Guide Section 8 page 276 | Must meet certain conditions |
| Maine | No | ||
| Maryland | Yes - Filed Timely | See FTA Guide Section 8 page 297 | TG 9-315 for specific authorizations |
| Massachusetts | No | ||
| Michigan | Yes - Filed Timely | 1.5% on Gasoline | |
| Minnesota | Yes - Filed Timely | See FTA Guide Section 8 page 329 | |
| Mississippi | No | ||
| Missouri | Yes - Filed Timely | 1.3% on all gasoline, CNG and Propane | |
| 2.2% Diesel and LNG | |||
| Montana | Yes - Filed Timely | Distributor | 1% Gas and Special Fuel |
| Nebraska | Yes - Filed Timely | See FTA Guide Section 8 page 373 and 374 | |
| Nevada | Yes - Filed Timely | Licensed Suppliers | 2% |
| New Hampshire | No | ||
| New Jersy | No | ||
| New Mexico | No | ||
| New York | No | ||
| North Carolina | Yes - Filed Timely | See FTA Guide Section 8 page 440 and 441 | Multiple layers |
| North Dakota | Yes - Filed Timely | Motor vehicle fuel | 2% tax due unlimited |
| Special Fuel Aviation fuel | 1% tax due limited to $300 per month | ||
| Ohio | No | ||
| Oklahoma | Yes - Filed Timely | Supplier / Permissive Supplier | .1% collected and remitted |
| Oregon | Retail locations | Use Fuel Sellers | 4% |
| Pennsylvania | Yes - Filed Timely | See FTA Guide Section 8 page 511 | |
| Rhode Island | No | ||
| South Carolina | Yes - Filed Timely | Supplier / Permissive Supplier | 0.1% of the tax collected and remitted |
| South Dakota | Yes - Filed Timely | See FTA Guide Section 8 page 545 | Various rates and licensed types |
| Tennessee | Yes - Filed Timely | 0.1% of the tax collected and remitted | |
| Texas | Yes - Filed Timely | See FTA Guide Section 8 page 570 | Various rates and licensed types |
| Utah | Yes - Filed Timely | Distributor | 2% gross taxable amount due the state |
| Vermont | No | ||
| Virginia | Yes - Filed Timely | See FTA Guide Section 8 page 601 | Various rates and license types |
| Washington | No | ||
| West Virginia | Yes - Filed Timely | Supplier / Permissive Supplier | 0.1% of total tax due not to exceed $5,000.00 per month |
| Wisconsin | Yes - Filed Timely | See FTA Guide Section 8 page 636 | Various conditions must be met |
Download this guide and the table above here!
It’s crucial to note accuracy. Some states, like Pennsylvania, will entirely revoke your collection allowance if there is an assessment, or it was filed incorrectly.
This collection allowance table shows how paying your excise taxes correctly and timely impacts a company’s P&L.
TARE Allowance & Shrinkage Allowance
Have you and your tax team been overlooking tare and shrinkage allowances? These are other benefits for filing timely and accurately that can bring cash back to the business. Keep in mind, these differ depending on state statute.
The state of South Carolina describes their tare allowance as:
A tare allowance is allowed to each eligible purchaser, licensee importer, and supplier who lawfully is engaged in the distribution of user fee-paid motor fuel within this State to offset thermal shrinkage and measurement differences occurring after removal of the motor fuel subject to the user fee from the terminal.
Below is a list of states that currently offer a TARE or Shrink Allowance according to the FTA Uniformity Book.
| ID | 2% of tax due |
| MN | 2.5% of gasoline quantity; 1% of special fuel quantity |
| MS | 2% on gasoline |
| NC | licensed distributor receives 1% discount of tax amount if tax is paid to a supplier on time |
| OH | 1% of gross taxable gallons |
| SC | 2.65% of tax not to exceed $2,000 per month |
| TN | 1.5415% of tax imposed |
| WY | distributors who own a bulk plant in WY or distribute only to retail locations they own are allowed a 1% allowance on gross gallons of bulk fuel purchased directly from a terminal and delivered in this state for use, sale, or distribution |
Relinquishing Bonds
Do you know how much your tax team annually pays for a bond? The tax team is responsible for more money than you may think. This bond is collateral for the states if companies can’t pay their taxes.
You may see this as an expense, which it is. However, having an accurate and efficient tax compliance process can sometimes relinquish this bond. Poof. Gone. The business sees a nice increase in funds.
In some specific jurisdictions, this is accomplished by filing taxes on time, correctly, and concurrently for a certain amount of time. This could be anywhere from six months to a year. After this, the jurisdiction will send documentation to fill out that will no longer require you to have a bond to do business.
This is why ensuring your tax team has the tools to help them succeed with data preparation, reconciliation, form generation, and other compliance processes is vital to maintaining financial health throughout the business.
Counterparty License Status
License maintenance often falls through the cracks. This happens when tax teams are understaffed and overworked doing manual, repetitive work without the opportunity to focus on analysis or other business initiatives outside of data prep and filing.
Proper vendor and customer license management involves keeping track of the licenses and certificates required for a business to operate legally. Failure to maintain these licenses can result in fines and penalties. In addition, having an expired or revoked license for yourself or for a counterparty can damage a company's reputation and credibility, leading to lost business opportunities.
Imagine if you have been billing your customer for months (or even years) without them having a valid license. This means one of two things for you:
-
You would have to pay the taxes that the customer was supposed to pay for the sale of fuel
-
You request payment for the missed taxes from the customer, which they may or may not pay
Both options are not ideal. There are solutions to make license verification and maintenance attainable in your compliance process. This could be investigated during your next excise tax strategy planning session.
License Validation and Maintenance Software
There is license management software that helps you sell to licensed customers without duplicated efforts & avoidable errors while also giving updates before a vendor license expires. This eliminates the time-consuming task of having to look up a license and re-lookup that license month after month. Keeping all your licenses organized and up-to-date is also just a good business best practice.
Utilize Due Date Tracking Software
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Penalties and fines can take a significant blow to your bottom line when you are dealing with a large amount of missed dollars, multiple errors, and untimely filings.
For example in Iowa, If a return is not filed by the due date and at least 90% of the correct tax is not paid, an additional 10% penalty of the unpaid tax is due.
The investment in a dynamic tax calendar can ensure you never miss an important deadline. This software pays for itself when you can effectively avoid the financial and legal risks associated with late filings.
Unlike your traditional spreadsheet, due date tracking software:
- Delivers escalating alerts to your inbox for near-term deadlines based on your risk tolerance
- Tracks critical stats such as timeliness of completion, amount paid, and more
- Gives complete visibility into your team's workload and your compliance activity status and health.
Motor Fuel Tax Subject Matter Expert