If you claim a credit or refund for the excise tax on fuel that you used for a nontaxable use, and you also deducted the total cost of the fuel as an expense on your tax return, you should include the excise tax in your gross income. By doing this, you are effectively deducting as an expense the net amount of the fuel cost, (total cost less excise tax) and taking the credit for the excise tax. The credit will directly reduce your taxes, dollar for dollar, and the deduction for the net cost of the fuel will reduce your tax by your effective tax rate times the net cost of the fuel.