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Business Taxes Law Guide—Revision 2024
Diesel Fuel Tax Annotations
Bus Operations
Local Public Transit System Operated by a County. A local public transit system operated by a county does not qualify as an exempt bus operation under section 60039(a)(1), because it is a county, not a transit district, transit authority, or city. Likewise, a local public transit system operated by a county does not qualify as an exempt bus operation under section 60039(a)(2), because it is a public entity providing transportation services, not a private entity providing such services. In other words, a local public transit system operated by a county does not clearly fall within the terms of the exemptions. 9/05/06.
Private Entity Bus Operator Under Contract to Broker. Transportation services provided by a bus operator, a private entity, under contract with a broker that is wholly responsible for the manner in which the bus operator performs the services and work requested by the municipality, with which the broker has contracted, do not qualify as an "exempt bus operation" under section 60039(a). Section 60039(a)(2) specifies that, to qualify as an "exempt bus operation," a "private entity" must provide transportation services "under contract or agreement … with a public agency." California courts have consistently held that "statutes granting exemption from taxation are strictly construed to the end that such concession will be neither enlarged nor extended beyond the plain meaning of the language employed." Under the agreement, the bus operator does not have contractual privity with a "public agency," the municipality. To conclude that the bus operator qualifies for an exemption as an "exempt bus operation," because it provides transportation services pursuant to a contract with a broker that has entered into a contract with the municipality, a public agency, to provide transportation services, would enlarge or extend the exemption "beyond the meaning of the language employed." 8/21/06.
Private Entity Bus Operator Under Contract to Regional Center. Where a private entity bus operator is providing transportation services for the transportation of developmentally disabled persons and their support persons under contract with a regional center, which is deemed to be a public agency authorized to provide public transportation services, the bus operator is operating an exempt bus operation pursuant to section 60039(a)(2) of the Diesel Fuel Tax Law and is, accordingly, exempt from paying the diesel fuel tax imposed under section 60050 on diesel fuel consumed while providing such transportation. (See also sections 60141, 60205, and 60502.2 for exempt bus operator license, return, and tax requirements.) 2/25/09.
Private Entity Rendering Service as Contract Carriage. Under an agreement with a city, a bus operator is providing shuttle service between local train stations and specific locations in the city, pursuant to a shuttle schedule and route map that are incorporated as part of the agreement. Under the terms of the agreement, shuttle service is provided only for persons employed by a designated group of employers that have executed a consortium agreement with the city to financially and otherwise support the employer-based shuttle program. Thus, under this agreement, the bus operator is providing services as a "charter-party carrier of passengers." The shuttle service being provided under this agreement does not qualify as an "exempt bus operation" under section 60039(a) because it is a "charter-party carrier of passengers" rendering service as contract carriage and not as common carriage, pursuant to section 60039(b). 8/21/06.
Private Entity Under Contract to Public Agency. Where a private entity has contracted with a public agency authorized to provide public transportation services for the transportation of people, the private entity qualifies as an Exempt Bus Operation under section 60039(a)(2). However, the exemption is applicable only to the diesel fuel consumed while providing services under such contract. 9/05/06.
Private Entity Under Contract to School District. Transportation services provided by a bus operator under contract with a school district qualify as an "exempt bus operation" pursuant to section 60039(a)(6). The bus operator is a "private entity providing transportation services"; it provides these services under agreement with a school district, pursuant to the terms and conditions set out in a purchase order issued by the school district. Pursuant to section 60039(a)(5), the purpose of the services provided, in this instance, is to provide transportation for special education students to and from home and school (i.e., "door-to-door"). This exemption is applicable only to the "diesel fuel consumed while providing services under" this agreement. 8/21/06.
Private Entity Under Contract to Transit District. Transportation services provided by a bus operator under contract with a transit district qualify as an "exempt bus operation" pursuant to section 60039(a)(2). The bus operator is a "private entity" that is "providing transportation services for the transportation of people" under a contract with the transit district. The transit district is a "public agency" which is "authorized to provide public transportation services." This exemption is applicable only to the "diesel fuel consumed while providing services under" this contract. 8/21/06.
School Bus. Under Revenue and Taxation Code section 60039, a public school district is entitled to a partial tax exemption on fuel used to transport students to and from school or for school trips. A private entity which provides such transportation services under contract with a school district is also exempt. However, the partial exemption does not extend to a private school's transportation services. A private school which does not operate under contract with the school district but only provides transportation for its own students is not entitled to the exemption. 2/17/94.
Claim for Refund
Claim for Refund By Third Party. If authorized by a taxpayer, a third party may file a claim for refund on behalf of the taxpayer. However, any amount refunded must be made payable to the taxpayer, and the taxpayer may not assign the refund to a third party. 3/04/96.
Exempt Entities
U.S. Postal Service. The U.S. Postal Service is an unincorporated instrumentality of the federal government and as such is exempt from the Diesel Fuel Tax. A company which leases trucks to the U.S. Postal Service may apply for a refund of tax paid on diesel fuel used by such trucks where the fuel cost is included in the lease agreement. 3/07/96.
Federal Instrumentalities
Sales of Diesel Fuel to the Army and Air Force Exchange Service. The Army and Air Force Exchange Service (AAFES) is a federal instrumentality under Revenue and Taxation Code (R&TC) sections 60100, subdivision (a)(8), and 60501, subdivision (a)(4)(H), of the Diesel Fuel Tax Law and is, therefore, exempt from paying the diesel fuel tax, whether it uses the fuel in its own vehicles or resells the fuel to others. Suppliers and persons who sell diesel fuel to the AAFES may claim an exemption from the tax on such fuel or a credit or refund of the tax paid on such fuel. 4/24/09.
The Army and Air Force Exchange Service is Not a "Highway Vehicle Fueler." The AAFES is not a "highway vehicle fueler" pursuant to Revenue and Taxation Code (R&TC) section 60034, subdivision (b), when it delivers diesel fuel into the fuel tank of a diesel-powered highway vehicle, because the AAFES is a federal instrumentality of the United States, and the "United States" is not included in the definition of a "person" on whom the diesel fuel tax is imposed, pursuant to R&TC section 60008. Accordingly, with respect to fuel on which the diesel fuel tax has not been paid, AAFES is exempt from collecting the diesel fuel backup tax from operators of diesel-powered highway vehicles and paying the tax to the Board, pursuant to R&TC section 60057. 4/24/09.
IFTA
Relief From Interest Due to Natural Disaster. The Board does not have the authority to grant to California IFTA licensees blanket relief from interest for late payment of taxes due to natural disaster, even when requested to do so by another IFTA member jurisdiction. Each taxpayer is required to individually seek relief from interest under section 60211 by filing with the board a statement under penalty of perjury which supports a finding that failure to timely make a return or payment was due to a disaster and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect. 2/10/98. (M99–1).
Non-Exempt Entities
Contract Carrier for the U.S. Postal Service. A carrier who contracts with the U.S. Postal Service to haul mail is not exempt from the Diesel Fuel Tax. If the U.S. Postal Service provides extax fuel to the contract carrier, the contract carrier would be subject to the "backup tax" under Revenue and Taxation Code section 60058 concerning such extax fuel. 9/08/97.
Head Start. A Head Start program is not exempt from the Diesel Fuel Tax either as an instrumentality of the federal government or as an exempt bus operator. 8/14/96.
Penalties
No Daily Limit on Penalty For Unlicensed Interstate Users Entering California (Section 60361(b)). When a person becomes a supplier, exempt bus operator, government entity, qualified highway vehicle operator or interstate user without first obtaining a license, in those instances where the board does not determine an amount of tax due, the board must assess a penalty of $100. The penalty increases by $100 for each subsequent violation up to a maximum of $500. If an unlicensed interstate user, such as a bus company with more than one bus carrying passengers from Las Vegas to Los Angeles, were to enter California multiple times on a single day, the bus company would be assessed a penalty of $100 and would be required to purchase a California Fuel Trip Permit for each bus entering the state. (The California Fuel Trip Permit is valid for four days.) For each company bus that subsequently entered the state without a valid California Fuel Trip Permit, the unlicensed company would be required to purchase a California Fuel Trip Permit, and the initial $100 penalty would be increased by $100 for each such entry up to the maximum penalty of $500, irrespective of the fact that the violations occurred on a single day. 9/09/03.
Refund of Tax Based on Use
Diesel Fuel Used In Manufacture Of Fuel Additives. Diesel fuel purchased for use in the manufacture of fuel additives, which additives are not used to propel motor vehicles but instead to improve fuel combustion, clean valves, and reduce emissions, is used for purposes other than operation of motor vehicles upon the public highways of this state. A person purchasing diesel fuel for this use is entitled to a refund of the Diesel Fuel Tax paid on the fuel. 2/23/96.
Fuel Included in Rental. A business sells taxpaid diesel fuel in conjunction with off-highway diesel equipment the business rents to customers. Since the business sold the fuel to its customers, it cannot claim a refund of the tax under section 60501. 1/22/98. (M99–1, Am. 2001–1).
Off-Highway Use—Airport Roads. Roads within an airport which are not maintained by a public agency are not considered publicly maintained highways as defined in Revenue and Taxation Code section 60016. Therefore, Diesel Fuel Tax paid for diesel fuel used in motor vehicle on such roads within an airport is refundable as off-highway usage. 2/18/98. (M99–1).
Taxable Measure
Taxable Measure Based on Total Gallons of Fuel (Including Fractional Gallons). The taxable measure under the Diesel Fuel Tax Law is total gallons of fuel removed from the rack, sold or entered (including fractional gallons) during the reporting period, not the sum of truncated partial gallons billed to individual purchasers. 8/15/03. (M05-1)
Transactions Involving Indians
Backup Tax; Imposition of Tax on Indian Retailer and Indian Customer. If an Indian or Indian tribe that operates as an on-reservation retail seller purchases or otherwise obtains diesel fuel on which the fuel tax has not been paid, the obligation to collect the backup tax is imposed when such fuel is sold and delivered into the fuel tank of a diesel-powered highway vehicle. Pursuant to section 60058, liability for the backup tax is imposed on both the retail seller (as end seller or fueler) and the customer (as a highway vehicle operator). However, liability for the backup tax may not be imposed on either the Indian or Indian tribe, as end seller/fueler, or on an Indian who resides on a reservation, as highway vehicle operator, if the diesel fuel is purchased and delivered into the fuel tank of the highway vehicle on the reservation. 9/01/06.
Backup Tax; Imposition of Tax on Indian Retailer and Non-Indian Customer. If an Indian or Indian tribe that operates as an on-reservation retail seller purchases or otherwise obtains diesel fuel on which the fuel tax has not been paid, the obligation to collect the backup tax is imposed when such fuel is sold and delivered into the fuel tank of a diesel-powered highway vehicle. Pursuant to section 60058, liability for the backup tax is imposed on both the retail seller (as end seller or fueler) and the customer (as a highway vehicle operator). Although liability for the backup tax may not be imposed on the Indian or Indian tribe, as an end seller/fueler, if the highway vehicle operator is a non-Indian or an Indian who does not reside on a reservation, the Indian or Indian tribe is required to collect the backup tax from the non-Indian highway vehicle operator, and remit the tax to the Board, when the untaxed diesel fuel is sold and delivered into the fuel tank of the highway vehicle on the reservation. 9/01/06.
Incidence of Tax; Refunds for Off-Highway Use. Under the Diesel Fuel Tax Law, liability for the tax is imposed on the supplier when the fuel is removed from the rack, imported, or sold. An Indian or Indian Tribe operating as an on-reservation retail seller of fuel only pays the tax indirectly, as a part of the cost of the diesel fuel it buys. However, the end user of the fuel, whether Indian or non-Indian, may claim a refund of diesel fuel tax that was included in the price of the fuel when the fuel was purchased, if the fuel was pumped into the fuel tank of a diesel-powered motor vehicle that was not operated on a California public highway. If applicable, a claim for refund of the diesel fuel tax may be directed to the Board, pursuant to section 60501(a)(4)(A). 9/01/06.
Legal Incidence of Tax; Fuel Purchased Directly from Supplier. The legal incidence of the diesel fuel tax is imposed on the supplier of the fuel, when, for example, the fuel is removed from the rack or when the fuel enters the state. If an Indian or Indian tribe elects to purchase the fuel directly from a supplier and, upon authorization from the supplier, the fuel is removed from the rack off the reservation, the supplier is still liable for the diesel fuel tax. The tax may be included in the cost of the fuel when the Indian or Indian tribe purchases the fuel from the supplier. 9/01/06.
Legal Incidence of Tax; Fuel Imported by Indian. The legal incidence of the motor vehicle fuel tax is imposed on the supplier of the fuel, when, for example, the fuel is removed from the rack or when the fuel enters the state. If an Indian or Indian tribe elects to import diesel fuel into the state, the Indian or Indian tribe itself becomes liable to the state for the diesel fuel taxes, where entry into the state occurs off the reservation and is, therefore, a taxable activity and subject to imposition of the diesel fuel tax. The legal incidence of the tax is imposed when and where the fuel enters California. 9/01/06.
Ultimate Vendor
Credit Card Company. A credit card company contracts with a fuel distributor and independent dealers that sell the distributor's products to allow the credit card company's fleet customers to purchase fuel at the distributor's and independent dealers' retail locations. The contracts specifically state that title to the fuel will pass from the distributor and independent dealers to the credit card company when the fuel is delivered into the vehicle of the fleet customer. Since title to the fuel passes to the credit card company, the distributor or independent dealer is selling the fuel for resale and the credit card company is the retail seller of the fuel to the fleet customers. Therefore the credit card company is the ultimate vendor, as defined under Revenue Taxation Code section 60036, when the fuel is sold using the credit card for use in a farm for farming purposes or in an exempt bus operation; and the credit card company may file claims for refund as provided in section 60502. 6/30/98. (M99–1).