Nontaxable Uses of Fuels that May Qualify for a Credit or Refund
Several specific types of nontaxable uses of fuels are defined in the tax regulations for claiming credits or refunds for the federal excise tax paid. These nontaxable uses correspond to the types of fuel identified above, as they are used in particular types of vehicles and for specific types of uses.
Some of the more common types of nontaxable uses of the different types of fuels include: use on a farm for farming purposes, off-highway business use, in a boat for commercial fishing, in certain intercity and local buses or school buses, and exclusive use by a non-profit educational organization. A table of these nontaxable uses and their corresponding codes can be found in Internal Revenue Service (IRS) Publication 378, Fuel Tax Credits and Refunds, and in the instructions for Form 4136, Credit for Federal Tax Paid on Fuels, and Form 8849, Claim for Refund of Excise Taxes. There are certain lines on these tax forms where the code number associated with a certain specific nontaxable use will need to be entered.
Who Can Claim a Refund or Credit
Generally, the ultimate purchaser of the fuel can claim a refund or credit for nontaxable use of the fuel. But there are cases where certain registered ultimate vendors may be able to apply for the credit or refund if it has been waived by the ultimate purchaser. And there are certain cases in which only the registered ultimate vendor is allowed to claim a refund or credit.
Sales by Registered Ultimate Vendor
For example, in the case of undyed diesel fuel or kerosene sold for use on a farm for farming purposes, or for exclusive use by a state or local government, only the registered ultimate vendor can claim a tax refund or credit. This is also the case for undyed kerosene sold from a blocked pump, undyed kerosene sold for blending, and undyed diesel fuel or kerosene used in intercity and local buses. For other types of fuels used on a farm, or used exclusively by a state or local government, the final purchaser may be able to claim a refund or credit.
A blocked pump is a fuel pump that has a sign indicating that it is for undyed and untaxed kerosene for nontaxable use only, that is locked after each sale, and that cannot be used to dispense fuel into the tank of a diesel-powered highway vehicle or train. The registered ultimate vendor must be registered by the IRS. To register, you have to complete and file Form 637, Application for Registration (For Certain Excise Tax Activities).
A registered ultimate vendor may claim a tax refund or credit when it sells a cold weather blend, which is a blend of kerosene and diesel fuel for heating purposes in an area that the IRS has designated as an area of extreme cold.
In the case of sales of undyed diesel fuel or kerosene to intercity and local buses, the registered ultimate vendor can claim the refund or credit if the purchaser waives its right to claim it. Sample waiver forms are included in the Appendix to IRS Publication 378.