Diesel Excise Tax Collections Increased Significantly

Moving the point at which taxes are collected to the terminal level and dyeing diesel fuel on which the full excise taxes have not been paid, together with concerted enforcement on the highways, appear to have increased diesel excise tax collections. IRS’ data for calendar year 1994 show that the excise tax collected on diesel fuel increased about $1.2 billion, or about 22.5 percent, as compared with 1993, while total highway usage increased only about 2.2 percent in the same period, according to preliminary data. This increase does not include amounts collected as a result of the 4.3 cent per gallon increase in the tax rate itself. Concerns Over Additives to Diesel Fuel

According to IRS officials, the most complex diesel fuel excise tax regulatory problem is the definition and collection of excise taxes on products—primarily kerosene—that are added to diesel fuel for use on the highway. The retailer now has three gallons of cocktailed diesel fuel, but has only paid tax on two gallons of the product. In its June 30, 1994, final regulations, IRS did not reduce the concentration of dye. The requirement does not differentiate between high and low sulfur fuels. Internal Audit believes that only about $3 million of the scheme-related refunds were issued to the taxpayers.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the collection of diesel fuel excise taxes, focusing on: (1) changes in diesel fuel tax collections in 1994; (2) concerns about Internal Revenue Service (IRS) changes to diesel fuel taxation requirements; and (3) fraudulent claims involving excise tax refunds.

What GAO Found

GAO found that: (1) IRS determined that diesel excise tax collections increased about $1.2 billion from 1993 to 1994; (2) this increase did not include amounts collected as a result of the Omnibus Budget Reconciliation Act 1993 fuel tax rate increase; (3) increased tax compliance accounted for between $600 million and $700 million of the increase; (4) IRS has addressed the two major concerns regarding the Environmental Protection Agency's dyeing requirements, but has not addressed concerns about the concentration of dye required and the impact of the requirements on fuel availability at marinas; (5) IRS has not addressed concerns about tax collection on products added to diesel fuel after leaving the terminal; and (6) the new diesel fuel taxation approach remains vulnerable to fraudulent excise tax refund claims, but IRS has not determined the extent of such fraud.