Fuel Tax Credit

The fuel tax credit is a federal refundable tax credit for taxes paid on fuel purchased for off road use. Every gallon of fuel sold at the pump has an 18.3 cent tax assessed by the federal government designated to highway construction and maintenance. When that gallon of fuel is purchased for non-transportation purposes, the purchaser is allowed to receive a refund for the tax paid.

One of my marine operations client purchases over 1500 gallons of fuel per year from the local gas mart.  Each year they receive a refund credit in excess of $275.00

Examples of businesses entitled to the refund include: 

  • Marine based operations
  • Farming
  • Landscaping businesses
  • Site development contractors
  • Carpet Cleaners

Each of the businesses identified above use equipment fueled by gasoline or diesel and customarily purchased at the local gas/convenience mart. Each gallon purchased is entitled to a refund of the federal tax paid at the point of purchase.

The most common small business that does not take advantage of this credit is the landscaper. He typically doesn’t either know about the credit or does not take the time and effort to track the gallons consumed. Simple math will open his eyes. If he uses two large tractor based lawnmowers and each consumes 8 gallons per day, 3 days a week for a 25 week season, then he will have purchased 1,200 gallons of fuel (2 machines * 8 gallons * 3/days/week * 25 week season). This doesn’t count the fuel consumed by the regular lawnmower or the weed eaters. The credit refund equals 1,200 gallons times 18.3 cents or $220. That is a half day of work in savings alone.

Form 4136 is attached to your income tax return (business or personal) and the credit is recorded on the front page of the business return and on page 2 of the personal tax return. The form is simple, you identify the number of gallons purchased for off road use and multiply by the 18.3 cents rate per gallon. The form is four pages long, but the average small business only needs to fill out the top section of page one for gasoline purchases and do the math.  It is that simple.

The hardest aspect of this is tracking the fuel. The most common error made by the small business owner is fueling up the equipment at the pump and then continuing to fill the tank of the vehicle used in the business. The key is to separate the two purchases at the pump. One purchase is for the vehicle whereby the tax is applied and then a separate ticket is generated for the equipment fuel. This is simpler if the business used a large tank system in the back of the bed of the truck. This tank is dedicated to the fuel for the equipment used in off road activities.

Keep your tickets separated and in a shoe box for storage. Add up the gallons at year end and you will be surprised at how much savings you can generate. The form takes 6 minutes to fill out and you’ll have a nice refund check coming to you. Act on Knowledge.

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