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Business Taxes Law Guide—Revision 2024

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Use Fuel Tax Law

Chapter 2. Imposition of Tax.



8651. Levy of tax. [Repealed by Stats. 1989, Ch. 106, operative August 1, 1990.]

8651. Levy of tax. (a) An excise tax is hereby imposed for the use of fuel at the following rate per gallon:

(1) Fourteen cents ($0.14) during 1990, on and after August 1.

(2) Fifteen cents ($0.15) during 1991.

(3) Sixteen cents ($0.16) during 1992.

(4) Seventeen cents ($0.17) during 1993.

(5) Eighteen cents ($0.18) on and after January 1, 1994.

(b) If the federal fuel tax is reduced below the rate of fifteen cents ($0.15) per gallon and federal financial allocations to this state for highway and exclusive public mass transit guideway purposes are reduced or eliminated correspondingly, the tax rate imposed by this section, on and after the date of the reduction, shall be increased by an amount so that the combined state and federal tax rate per gallon equals the following:

(1) Twenty-nine cents ($0.29) during 1990, on and after August 1.

(2) Thirty cents ($0.30) during 1991.

(3) Thirty-one cents ($0.31) during 1992.

(4) Thirty-two cents ($0.32) during 1993.

(5) Thirty-three cents ($0.33) on and after January 1, 1994.

(c) If any person or entity is exempt or partially exempt from the federal fuel tax at the time of a reduction, the person or entity shall continue to be exempt under this section.

History—Added by Stats. 1989, Ch. 106, in effect July 10, 1989, operative August 1, 1990, after voter approval of Senate Constitutional Amendment 1 at the June 5, 1990, direct primary election. Stats. 1990, Ch. 627, in effect September 10, 1990, substituted "on and after January 1," for "during" in paragraph (5) of subdivision (a) and substituted "Thirty-three cents ($0.33)" for "Thirty-four cents ($0.34)" in paragraph (5) of subdivision (b).

8651.4. Reversion of rate upon Governor's proclamation. [Repealed by Stats. 1981, Ch. 541, in effect September 17, 1981.]

8651.4. Rate; dimethyl ether-liquefied petroleum gas fuel blend. (a) Notwithstanding the provisions of Section 8651, on or after July 1, 2021, the excise tax imposed upon a dimethyl ether-liquefied petroleum gas fuel blend shall be at the rate of six cents ($0.06) for each gallon used.

(b) (1) All references in this code to Section 8651 shall be deemed, with respect to the rate imposed upon a dimethyl ether-liquefied petroleum gas fuel blend on or after July 1, 2021, to also refer to this section.

(2) (A) Neither the tax imposed by this section nor the tax imposed by Section 8651 shall apply to the use of dimethyl ether-liquefied petroleum gas fuel blend in a vehicle during any period of time for which the owner or operator of the vehicle has paid the annual flat rate fuel tax as provided in Section 8651.7.

(B) To the extent that an owner or operator has provided written representation to a fuel seller that the owner or operator has prepaid the annual flat rate fuel tax as provided in Section 8651.7, the owner or operator shall be solely responsible for the taxes due under this part, and the fuel seller shall not be liable for collecting and remitting those taxes.

History—History.—Added by Stats. 2020, Ch. 117 (AB 2663), in effect January 1, 2021.

8651.5. Rate. Notwithstanding the provisions of Section 8651, on or after January 1, 1966 the excise tax imposed upon liquefied petroleum gas shall be at the rate of six cents ($0.06) for each gallon of fuel used. All references in this code to Section 8651 shall be deemed, with respect to the rate imposed upon liquefied petroleum gas on or after January 1, 1966, to also refer to this section. Neither the tax imposed by this section nor the tax imposed by Section 8651 shall apply to the use of liquefied petroleum gas in a vehicle during any period of time for which the owner or operator of the vehicle has paid the annual flat rate fuel tax as provided in Section 8651.7.

History—Added by Stats. 1965, p. 2166, in effect June 29, 1965. Stats. 1975, Ch. 807, operative January 1, 1976, added sentence referring to Section 8651.7.

8651.6. Rate; natural gas. (a) (1) Notwithstanding the provisions of Sections 8651 and 8651.5, on or after January 1, 1971, and before January 1, 2015, the excise tax imposed upon natural gas shall be at the rate of seven cents ($0.07) for each 100 cubic feet of compressed natural gas used, measured at standard pressure and temperature, and at a rate of six cents ($0.06) for each gallon of liquid natural gas used.

(2) Notwithstanding the provisions of Sections 8651 and 8651.5, on or after January 1, 2015, an excise tax imposed upon natural gas shall be imposed as follows:

(A) The rate of eight and eighty-seven hundredths cents ($0.0887) for each 126.67 cubic feet, or 5.66 pounds, of compressed natural gas used, measured at standard pressure and temperature.

(B) The rate of ten and seventeen hundredth cents ($0.1017) for each 6.06 pounds of liquid natural gas used.

(b) (1) All references in this code to Section 8651 shall, with respect to the rate imposed upon natural gas on or after January 1, 1971, also refer to this section.

(2) (A) Neither the tax imposed by this section nor the tax imposed by Section 8651 shall apply to the use of compressed natural gas or liquid natural gas used in a vehicle during any period of time for which the owner or operator of the vehicle has paid the annual flat rate fuel tax as provided in Section 8651.7.

(B) To the extent that an owner or operator has provided written representation to a fuel seller that the owner or operator has prepaid the annual flat rate fuel tax as provided in Section 8651.7, the owner or operator shall be solely responsible for the taxes due under this part and the fuel seller shall not be liable for collecting and remitting those taxes.

History—Added by Stats. 1970, p. 2997, in effect November 23, 1970. Stats. 1975, Ch. 807, operative January 1, 1976, added sentence referring to Section 8651.7. Amended by Stats. 2014, Ch. 805 (AB 1907), effective January 1, 2015, added subdivision letter (a)(1) to, and deleted the last two sentences of, the former sole paragraph; added paragraph (2), to subdivision (a); and added subdivision (b).

Amended by Stats. 2014, Ch. 805 (AB 1907), effective January 1, 2015, added subdivision letter (a)(1) to, and deleted the last two sentences of, the former sole paragraph; added paragraph (2), to subdivision (a); and added subdivision (b).

8651.7. Flat rate. (a) The owner or operator, except an interstate user, of a vehicle propelled by a system using liquefied petroleum gas, dimethyl ether-liquefied petroleum gas fuel blend, liquid natural gas, compressed natural gas, or dimethyl ether may pay the fuel tax for the use of those fuels by paying an annual flat rate fuel tax according to the following schedule:

Value of timberland Table
Unladen weight Fee
All passenger cars and other vehicles 4,000 lbs. or less$36
More than 4,000 lbs. but less than 8,001 lbs.72
More than 8,000 lbs. but less than 12,001 lbs.120
12,001 lbs. or more168

(b) The annual flat rate fuel tax described in subdivision (a) shall be an annual tax. The annual period shall be that period from the end of the month in which the tax was paid to the end of the month prior in the following calendar year. When an owner or operator elects to pay the annual flat rate fuel tax on more than one vehicle, the owner or operator may request that the department prorate the tax due on a vehicle added during the annual period, so that all vehicles have the same annual period. In the year a vehicle is added, the annual flat rate fuel tax for that vehicle shall be calculated by dividing the fee set forth in subdivision (a) by 12 and multiplying the resulting amount by the number of months remaining before the beginning of the next annual period.

(c) The department shall adopt an identification procedure for vehicles with respect to which the annual flat rate tax described in subdivision (a) of this section has been paid.

(d) Subdivision (a) shall not apply to dimethyl ether-liquefied petroleum gas fuel blend or dimethyl ether until July 1, 2021.

History—Added by Stats. 1975, Ch. 807, operative January 1, 1976. Stats 1987, Ch. 38, in effect January 1, 1988, in paragraph (a) changed "his fuel tax" to "the fuel tax", in paragraph (b), deleted "for a calendar year. If the annual flat rate tax is paid after the end of January of any year the amount of the tax under this section shall be reduced by one-twelfth for each month which shall have elapsed since the beginning of each year.", and added the second sentence. Stats. 1995, Ch. 555, in effect January 1, 1996, added ", except an interstate user," after "owner or operator" and substituted "those" for "such" after "the use of" in subdivision (a). Stats. 1997, Ch. 620 (SB 1102), in effect January 1, 1998, added the last two sentences to subdivision (b). Stats. 2020, Ch. 117 (AB 2663), in effect January 1, 2021, added "dimethyl ether-liquefied petroleum gas fuel blend" after "liquefied petroleum gas", deleted "or" after "liquid natural gas,", and added "or dimethyl ether" after "compressed natural gas," in subdivision (a); substituted "department" for "board" in subdivision (b) and subdivision (c); and added subdivision (d).

8651.8. Rate; ethanol or methanol. (a) Notwithstanding Section 8651, the excise tax imposed upon ethanol or methanol containing not more than 15 percent gasoline or diesel fuels shall be one-half the rate prescribed by Section 8651 for each gallon of fuel used.

(b) All references in this code to Section 8651 shall be deemed, with respect to the rate imposed upon ethanol or methanol, to also refer to this section.

History—Added by Stats. 1981, Ch. 950, in effect September 29, 1981. Stats. 1988, Ch. 774, in effect September 9, 1988, deleted "the provisions of" following "Notwithstanding" in subdivision (a), substituted "1994" for "1989" following "January 1," and substituted "enacted" for "chaptered" following "which is" in subdivision (c). Stats. 1993, Ch. 875, in effect October 6, 1993, deleted subdivision (c) which stated, "This section shall remain in effect only until January 1, 1994, and as of that date is repealed, unless a later enacted statute, which is enacted before January 1, 1994, deletes or extends that date."

8651.9. Rate; dimethyl ether. (a) Notwithstanding the provisions of Sections 8651, 8651.5, and 8651.6, on or after July 1, 2021, the excise tax imposed upon dimethyl ether shall be at the rate of six cents ($0.06) for each gallon of dimethyl ether used.

(b) (1) All references in this code to Section 8651 shall, with respect to the rate imposed upon dimethyl ether on or after July 1, 2021, also refer to this section.

(2) (A) Neither the tax imposed by this section nor the tax imposed by Section 8651 shall apply to the use of dimethyl ether used in a vehicle during any period of time for which the owner or operator of the vehicle has paid the annual flat rate fuel tax as provided in Section 8651.7.

(B) To the extent that an owner or operator has provided written representation to a fuel seller that the owner or operator has prepaid the annual flat rate fuel tax as provided in Section 8651.7, the owner or operator shall be solely responsible for the taxes due under this part and the fuel seller shall not be liable for collecting and remitting those taxes.

History—Added by Stats. 2020, Ch. 117 (AB 2663), in effect January 1, 2021.

8652. Exemptions; agricultural and construction operations. No tax shall be imposed upon any user with respect to that fuel which the user establishes to the satisfaction of the board is used:

(a) To propel an implement of husbandry, truck, or farm tractor used in agricultural operations off the highway and only incidentally operated upon a highway, for the purpose of moving between farms or parts of farms, which farms or parts of farms are in close proximity, and which implement of husbandry, truck or farm tractor is exempt from registration under the Vehicle Code;

(b) To propel any construction equipment while operated within the confines and limits of a construction project and only incidentally operated upon the highway and which construction equipment is exempt from vehicle registration pursuant to the Vehicle Code; or

(c) For a purpose other than the generation of power to propel a motor vehicle in this state.

History—Stats. 1968, p. 2297, in effect November 13, 1968, added the subparagraph letters, reworded the first sentence and (a), and added (b).

8653. Exemptions; operations off the highway. No tax shall be imposed upon any user with respect to that fuel which the user establishes to the satisfaction of the board is used in the operation of a motor vehicle off the highway.

History—Added by Stats. 1943, p. 2460, in effect August 4, 1943. Stats. 1957, p. 2490, in effect September 11, 1957, substituted "off the highway" for "on private property." Stats. 1961, p. 1952, in effect September 15, 1961, added the proviso. Stats. 1968, p. 2297, in effect November 13, 1968, reworded the section and deleted the proviso clause which imposed a one mile requirement on off-highway travel.

8653.1. Exemptions; operations on United States Department of Agriculture roads. No tax shall be imposed on any user with respect to fuel used in the operation of a motor vehicle on any highway which is under the jurisdiction of the United States Department of Agriculture and with respect to the use of such highway the user pays, or contributes to, the cost of construction or maintenance thereof pursuant to an agreement with, or permission of, the United States Department of Agriculture.

History—Added by Stats. 1967, p. 4216, in effect November 8, 1967.

8654. Exemptions; public agency operating on military reservation. No tax shall be imposed as to any fuel used in any motor vehicle owned by any county, city and county, city, district, or other political subdivision or public agency when operated by it over any highway constructed and maintained by the United States or any department or agency thereof within a military reservation in this State. If any such motor vehicle is operated both over such highway and over a public highway outside the military reservation in a continuous trip the tax shall be imposed only as to that portion of the fuel used to operate the vehicle over the public highway outside the military reservation.

Nothing contained in this section shall be construed as an exemption from the tax of the use of fuel in any motor vehicle operated upon a public highway within a military reservation, which highway is constructed and or maintained by this State or any political subdivision thereof.

As used in this section, "military reservation" includes any establishment of the United States Government or any agency thereof used by the armed forces of the United States for military, air, or naval operations, including research projects.

History—Added by Stats. 1957, p. 1267, in effect September 11, 1957.

8655. Exemptions; transit district, passenger stage corporation, and common carrier. (a) This section shall be known and may be cited as the Mills-Hayes Act.

(b) No tax shall be imposed upon fuel used by:

(1) Any transit district, transit authority, or city owning and operating a local transit system itself or through a wholly owned nonprofit corporation.

(2) Any private entity providing transportation services for the transportation of people under contract or agreement, except general franchise agreements, with a public agency authorized to provide public transportation services, only for fuels consumed while providing services under such contracts or agreements entered into subsequent to the effective date of this act.

(3) Any passenger stage corporation subject to the jurisdiction of the Public Utilities Commission when the motor vehicles of such passenger stage corporation are exclusively operated in urban or suburban areas or between cities in close proximity for the transportation of persons for hire, compensation, or profit; provided, however, that the exemption is not extended to any line or lines operated by such passenger stage corporation which shall exceed 50 miles of one-way route mileage.

(4) Any common carrier of passengers operating exclusively on any line or lines within the limits of a single city between fixed termini or over a regular route, 98 percent of whose operations, as measured by total route mileage operated, are exclusively within the limits of a single city, and who by reason thereof is not a passenger stage corporation subject to the jurisdiction of the Public Utilities Commission.

(5) Any school district, community college district, or county superintendent of schools owning, leasing, or operating buses for the purpose of transporting pupils to and from school and for other school or college activities involving pupils, including, but not limited to, field trips and athletic contests.

(6) Any private entity providing transportation services for the purposes specified in paragraph (5) under contract or agreement with a school district, community college district, or county superintendent of schools, only for fuels consumed while providing services under those contacts or agreements entered into subsequent to the effective date of the act adding this paragraph.

(c) Notwithstanding the exemption provided for by subdivision (b), any system, corporation, or carrier using fuel exempt under the provisions of subdivision (b) shall, for the privilege of operating vehicles on state highways and freeways, make a payment equal to one cent ($0.01) for each gallon of such exempt fuel used. The payments required by this subdivision shall be paid to the State Board of Equalization in the manner prescribed by the board, and such payments shall be treated as a tax for all purposes of this part.

(d) The exemption provided for in subdivision (b) and the payments provided for in subdivision (c) shall not be applicable to fuel used by a charter-party carrier of passengers. The term "charter-party carrier of passengers" has the same meaning as that specified in Section 5360 of the Public Utilities Code and shall further include those transportation services described in subdivisions (a) and (e) of Section 5353 of the Public Utilities Code, if such transportation service is rendered as contract carriage and not as common carriage of passengers.

(e) There are in the State of California many local bus transit operators in need of financial assistance from sources other than the local property tax. These operators are performing essential public transit service as a vital counterpart of the streets and highways. It is the purpose of this section to provide relief from the payment of use fuel tax for local transit operators and it is the intent of the Legislature that the funds accruing to such operators shall be used for the improvement of their transit operations and to aid in providing better transit service to and from places of employment.

There are also in the State of California many private entities providing public transportation services for the transportation of people in vehicles other than buses under contract or agreement with local government, transit districts or local bus transit operators. It is the purpose of this section to provide relief from the payment of use fuel taxes for diesel fuel for those private entities only for fuel consumed while providing these services.

History—Added by Stats. 1968, p. 690, in effect June 19, 1968, operative July 1, 1968. Stats. 1971, p. 714, in effect March 4, 1972, substitutes "contract carriage and not as common carriage of passengers" for "charter-party carrier of passengers" in last sentence of (d). Stats. 1973, Ch. 458, effective September 11, 1973, deleted the language ", as defined in section 9651.5 of this code." from part (b)(2) and inserted in its place the language commencing with "or between cities … ." Stats. 1978, Ch. 1140, operative January 1, 1979, in subdivision (b) renumbered (2) and (3) and added new (2). Stats. 1982, Ch. 1500, in effect September 28, 1982, added "for the transportation of people" before "under" in subsection (2) of subdivision (b) and added the second paragraph in subdivision (e). Stats. 1984, Ch. 1663, effective September 30, 1984, operative October 1, 1984, added (b)(5) and (b)(6) and all text therein.

Note.—Stats. 1971, p. 715, provides that the amendment to Section 8655 of the Revenue and Taxation Code, effective March 4, 1972, does not constitute a change in, but is declaratory of, existing law.

Note.—Sec. 3 of Stats. 1984, Ch. 1663, effective September 30, 1984, operative October 1, 1984, provided the Legislature finds and declares that there presently is uncertainty in the application of diesel fuel taxes with respect to school districts and community college districts which this act is intended to clarify.

For the public purpose of assuring equity in the payment of diesel fuel taxes among school districts and community college districts, the Legislature, in enacting this act, intends to clarify existing law and to affect all applicable pending proceedings which come within the provisions of paragraph (5) of subdivision (b) of Section 8655 of the Revenue and Taxation Code, as follows:

(a) Notwithstanding Section 8782 of the Revenue and Taxation Code, for reporting periods prior to July 1, 1984, the notice of determination to a school district, community college district, or county superintendent of schools shall be given within three years after the last day of the month following the period for which the return was due. Any unpaid liability determined for periods beyond a three-year statute of limitations is hereby canceled.

(b) No interest pursuant to Sections 8803 or 8876, or penalties imposed pursuant to Section 8801, 8804, or 8876, of the Revenue and Taxation Code shall apply to unpaid tax liabilities for any periods prior to July 1, 1984.

(c) With respect to unpaid tax liabilities determined for the period between July 1, 1981, and July 1, 1984, pursuant to Section 8801 or 8876, the taxes may, at the option of the taxpayer, be paid over a period of up to 10 years. No penalties shall be assessed so long as the installment payments are made timely, but interest on the unpaid balance shall be paid as prescribed by Section 8876 of the Revenue and Taxation Code.

(d) If the State Board of Equalization finds that the failure to make a timely payment pursuant to subdivision (c) is due to reasonable cause and circumstances beyond the taxpayer's control, and occurred, notwithstanding the exercise of ordinary care and the absence of willful neglect, the taxpayer may be relieved of the penalty.

Note.—Stats. 1986, Ch. 216, effective June 30, 1986 amended Section 3 of Stats. 1984. Ch. 1663 to reference Section 8876 for interest, and Sections 8801, 8804 or 8876 related to penalties. It also replaced "tax liabilities" for "determinations issued" in (b) and "unpaid tax liabilities determined" for "determinations issued" in (c).

8655.5. Exemptions; transfers to the Highway Users Tax Account. (a) Commencing with the 1984–85 fiscal year, the Controller shall annually transfer from the General Fund to the Highway Users Tax Account in the Transportation Tax Fund, the amount, as determined by the State Board of Equalization, necessary to fully reimburse the account for any revenue loss caused by the exemptions provided by paragraphs (5) and (6) of subdivision (b) of Section 8655.

(b) In addition, the Controller shall transfer, on January 1, 1985, the sum of four hundred thirty-five thousand dollars ($435,000) from the General Fund to the account to fully reimburse the account for the revenue loss caused by Section 3 of the act enacting this section.

History—Added by Stats. 1984, Ch. 1663, effective September 30, 1984, operative October 1, 1984.

Note.—See note following Section 8655.

8656. Charter-party carrier. [Repealed by Stats. 1986, Ch. 308, effective January 1, 1987.]

8657. Exemptions; systems meeting emission standards. [Expired December 31, 1975, Stats. 1970, p. 2997. Repealed by Stats. 1979, Ch. 373, effective January 1, 1980.]

8657. Alcohol used in or as fuel to propel a motor vehicle. (a) Notwithstanding any provision of the Alcoholic Beverage Control Act (Division 9 (commencing with Section 23000) of the Business and Professions Code) any alcohol produced for use in or as a fuel to propel a motor vehicle shall be taxed as fuel under this part and shall not be subject to taxes under the Alcoholic Beverage Tax Law (Part 14 (commencing with Section 32001)).

(b) The state requirements for determining whether alcohol is produced for use in or as a fuel to propel a motor vehicle and not for use as an alcoholic beverage shall be the same as the requirements of the Bureau of Alcohol, Tobacco and Firearms of the United States Department of Treasury under federal law.

History—Added by Stats. 1980, Ch. 228, effective June 25, 1980. Stats. 1982, Ch. 1589, in effect January 1, 1983, renumbered "Section 7360" as "Section 8657," substituted "fuel to propel a motor vehicle" for "motor vehicle fuel" before "shall be" in subdivision (a) and before "and not" in subdivision (b), and deleted "motor vehicle" after "taxed as" in subdivision (a).