Industry Topics for Use Fuel

Alcohol Fuel

Pure alcohol, with no denaturant, is not subject to any of the use fuel taxes. However, once denatured, it becomes alcohol fuel when used in a motor vehicle for use fuel tax purposes.

Alcohol fuels are taxed as a use fuel (alternative fuel), a motor vehicle fuel (MVF), or a diesel fuel, depending on the volume of alcohol in the fuel blend and the type of fuel that is blended with the alcohol.

  • Alcohol fuel containing no more than 15 percent gasoline or diesel fuel is subject to the use fuel tax.
  • Fuel blends containing more than 15 percent gasoline or diesel fuel are subject to the MVF tax or diesel fuel tax, respectively.

The amount of the denaturant in the alcohol is not included when calculating the percentage of gasoline contained in the blend.

If the alcohol fuel meets the criteria to be a use fuel, there would not be any MVF or diesel fuel tax applicable. If you use tax-paid gasoline for the purpose of producing a blended alcohol fuel that is taxed as a use fuel and is used to operate a motor vehicle on the state's highways, you may be able to obtain a refund or credit of the tax paid when filing your Supplier of MVF or Diesel Fuel Tax Return. The blended fuel should be invoiced as the blended fuel, such as E85, and not by its component products. The invoice must not include any charge for the MVF tax and must reflect a charge for the use fuel tax for the full volume of the blended alcohol fuel.

Hydrogen Used in Hydrogen Fuel Cell Vehicles

Hydrogen used in hydrogen fuel cell vehicles, which use electrochemical conversion of hydrogen rather than combustion, is not currently subject to any fuel excise tax.

However, the use fuel tax rate of 18 cents ($0.18) per gallon applies when hydrogen is used in a hydrogen internal combustion engine vehicle (HICEV).

Exemptions

Exemptions are provided in the Use Fuel Tax Law under Revenue and Taxation Code section 8655.

Private Entity Under Contract to School District

Transportation services provided by a private entity bus operator under contract with a school district qualify for an exemption on the fuels consumed while providing these services, according to the terms and conditions set out in the purchase order issued by the school district. For example, the purpose of the services provided is to provide transportation for special education students to and from home and school (that is, door-to-door).

Private Entity Bus Operator

Private Entity Bus Operator Under Contract to Regional Center

A private entity bus operator is exempt from paying the use fuel tax on use fuel consumed while providing transportation services to 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.

Private Entity Bus Operator Under Contract to Public Agency

A private entity bus operator is exempt from paying the use fuel tax on use fuel consumed while providing public transportation services of people under contract with a public agency authorized to provide public transportation services.

Private Entity Bus Operator Under Contract to Transit District

A private entity bus operator is exempt from paying the use fuel tax on use fuel consumed while providing transportation services for the transportation of people under a contract with the transit district. The transit district is a public agency authorized to provide public transportation services.

Entities That Do Not Qualify for an Exemption

Private Entity Rendering Service as Contract Carriage

Bus operators provide “charter-party carrier of passengers” when shuttle service is provided only for persons employed by a designated group of employers that have executed a consortium agreement with the city to support the employer-based shuttle program financially and otherwise. Charter-party carriers of passengers do not qualify for an exemption because they render service as a contract carriage and not as a common carriage.

Private Entity Bus Operator Under Contract to Broker

To qualify for an exemption, a private entity must provide transportation services under contract or agreement with a public agency. Transportation services provided by a private entity under contract with a broker that is wholly responsible for the way the bus operator performs the services and work requested by the municipality with which the broker has contracted, does not qualify for an exemption.

Local Public Transit System Operated by a County

A local public transit system operated by a county does not qualify for an exemption because it is:

  • Operated by a county, not a transit district, transit authority, or city; and
  • A public entity providing transportation services, not a private entity providing such services.

Fines and Penalties

If you are required to hold a Use Fuel Tax Permit and do not obtain one, you are subject to fines and penalties, including possible imprisonment. These fines and penalties apply whether you are in California or are driving into California from another state.