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Business Taxes Law Guide—Revision 2024

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Motor Vehicle Fuel Tax Annotations

Aircraft Jet Fuel Tax—Regulation 1137

All-Cargo Air Transportation Certificate. An all-cargo air transportation certificate issued to an air carrier by the U.S. Department of Transportation is sufficient to satisfy the certificate of public convenience and necessity requirement under section 7389(a). The language of section 7389(a) and its history indicate that the exemption was meant to apply to air common carriers engaged in the air transportation of only property or only mail, or both. 9/05/06.

Certificate of Public Convenience and Necessity. In order to be excluded from the definition of an aircraft jet fuel user under Revenue and Taxation Code Section 7389(a), an air common carrier must hold a certificate of public convenience and necessity issued by the United States or a foreign government. The certificate of public convenience and necessity issued by the U.S. Department of Transportation qualifies, but the Air Carrier Certificate issued by the Federal Aviation Administration does not qualify as a certificate of public convenience and necessity issued by the United States. 4/03/03.

Engine Overhaulers. Pursuant to section 7389(b), a company that is engaged in the overhaul and repair of jet aircraft engines is excluded from the definition of "aircraft jet fuel user," even though the overhaul and repair work is performed on only a part of the aircraft, such as the engine. Further, the exclusion applies whether the engine that is being overhauled or repaired is attached to an aircraft or not. 10/12/06.

Foreign Government Sales Exempt. Since foreign governments are not included in the definition of "person" under the Motor Vehicle Fuel Tax Law, foreign governments are not "aircraft jet fuel users." Therefore, aircraft jet fuel dealers are not liable for the tax on sales of aircraft jet fuel to foreign governments. 10/12/06.

Fueling Aircraft Does Not Exempt. Activities that involve merely the sale and delivery of aircraft jet fuel into the fuel tanks of aircraft are not considered to be the "servicing of aircraft" for purposes of the aircraft jet fuel tax. Otherwise, the fundamental basis for the imposition of the tax would be defeated. To avoid this absurdity, sections 7389 and 7392 cannot reasonably be interpreted to mean that an aircraft jet fuel dealer is excluded from the definition of "aircraft jet fuel user," and is not liable for tax because the dealer delivers that aircraft jet fuel into the fuel tanks of the subject aircraft. 10/12/06.

Good Faith Acceptance of Exemption Certificate. If an aircraft jet fuel dealer accepts an exemption certificate from a purchaser in good faith, it is reasonable to conclude that the dealer is relieved from liability for the tax due on that sale. If the purchaser subsequently uses the fuel as an "aircraft jet fuel user," the purchaser "is liable for the tax" on such fuel "at the time of such use" and "shall report and pay the tax to the board as though he were an aircraft jet fuel dealer."

However, if the aircraft jet fuel dealer accepts an exemption certificate from a purchaser who, based on the dealer's experience or knowledge, would likely use the fuel in a nonexempt activity, the dealer's good faith acceptance may be questioned. In such a situation, the dealer should not accept the exemption certificate and may collect tax reimbursement on that sale from the purchaser. 10/12/06.

Refund of Aircraft Jet Fuel Tax From Dealer. None of the aircraft jet fuel tax provisions or the Motor Vehicle Fuel Tax Law in general permit a purchaser of aircraft jet fuel who is excluded from the definition of "aircraft jet fuel user" pursuant to section 7389(a), (b), or (c), to claim directly a refund from either the Controller or the Board for excess tax reimbursement that the purchaser erroneously paid when it purchased fuel. However, if a purchaser erroneously pays aircraft jet fuel tax reimbursement on fuel sales that are not taxable due to an exemption, the purchaser may obtain a refund of the excess tax reimbursement paid from the aircraft jet fuel dealer to whom the excess tax reimbursement was paid. Upon a showing that the excess tax reimbursement has or will be refunded to the purchaser, the aircraft jet fuel dealer may obtain a refund from the state of excess tax reimbursement that was remitted to the state in error. 10/12/06.

State and Local Government Sales Not Exempt. Since state and local governmental agencies are included in the definition of "person" under the Motor Vehicle Fuel Tax Law, state and local governmental agencies are "aircraft jet fuel users." Therefore, an aircraft jet fuel dealer is liable for the tax on sales of aircraft jet fuel to state and local governmental agencies. 10/12/06.

Supplemental Air Carriers. A charter air carrier (or supplemental air carrier) holding a certificate of public convenience and necessity issued by the U.S. Department of Transportation under 49 U.S.C.A. section 41102(a)(3) is among the entities excluded from the definition of "aircraft jet fuel user" under section 7389(a). 10/12/06.

United States Government Sales Generally Not Exempt. Although sales of aircraft jet fuel to the armed forces of the United States are exempt from the aircraft jet fuel tax, an aircraft jet fuel dealer is liable for the tax on sales of aircraft jet fuel to other departments, agencies, and instrumentalities of the United States. 10/12/06.

Sales to the United States—Regulation 1134

Taxability of Aero Club. Aviation gasoline sold to the United States Government for use by an aero club, located on a military base in California and governed by AFI 34-217 and AFMAN 34-232, is exempt from motor vehicle fuel tax pursuant to Revenue and Taxation Code section 7401, subdivision (a)(5). 10/29/03.

Taxable Measure

Taxable Measure Based on Total Gallons of Fuel (Including Fractional Gallons). The taxable measure under the Motor Vehicle 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.

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 motor vehicle 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 motor vehicle fuel-powered highway vehicle. Pursuant to section 7364, 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 motor vehicle 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 motor vehicle 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 motor vehicle fuel-powered highway vehicle. Pursuant to section 7364, 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 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 motor vehicle 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 Motor Vehicle 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 motor vehicle fuel it buys. However, the end user of the fuel, whether Indian or non-Indian, may claim a refund of motor vehicle 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 motor vehicle was not operated on a California public highway. If applicable, a claim for refund of the motor vehicle fuel tax may be directed to the State Controller's Office, pursuant to section 8102. 9/01/06

Legal Incidence of Tax; Fuel Purchased Directly from Supplier. 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 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 motor vehicle 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 motor vehicle fuel into the state, the Indian or Indian tribe itself becomes liable to the state for the motor vehicle fuel taxes, where entry into the state occurs off the reservation and is, therefore, a taxable activity and subject to imposition of the tax. The legal incidence of the tax is imposed when and where the fuel enters California. 9/01/06.