Fuel tax refund: what is it?

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Gasoline prices are affected by crude oil costs and taxes imposed by federal and state governments. Federal gasoline taxes are up to 18.5 cents per gallon, while all states have excise taxes on motor fuels. Fuel tax refunds are available for specific purposes, and rates and eligibility vary by state.

While the biggest factor in the price of gasoline is the cost of crude oil, the second biggest factor is the tax levied on gas by the federal and state governments. Federal gasoline taxes top out at 18.5 cents per gallon and are used to pay for transportation services. All states have excise taxes on motor fuels, although there is wide variation in rates. In 2009, New York had the highest state tax on gasoline, adding 44.5 cents per gallon, while Alaska’s tax ranks the lowest at eight cents per gallon. In addition to excise taxes, eleven states have a gas sales tax or other form of gasoline tax. Diesel is taxed separately and is especially high in California. Gas tax revenues help pay for many state services, such as road and bridge maintenance. Because fuel is heavily taxed, the federal government and many states have a fuel tax refund available.

The federal government provides a fuel tax refund for gasoline, diesel, kerosene, and alternative fuels. To qualify for the refund, taxpayers must use the fuel for specific purposes that are considered exempt under the tax code. According to the IRS, non-taxable uses of fuel include fuel used on a farm for agriculture, fuel used in commercial aviation, fuel used in foreign operations, and fuel used in military aircraft. Other exceptions to the federal fuel tax are listed on the IRS website. Another interesting initiative that the federal government has taken in relation to fuel costs is the tax credit program for fuel-efficient vehicles, started in 2006, which will continue until December 31, 2010.

Who can claim refunds and which fuels are eligible differ by state, but all share similarities with federal tax refund guidelines. For example, some states may allow a fuel tax refund for dyed diesels, while others may not. Some states have environmental taxes, which are non-refundable, while others do not. In some states, it is even possible to receive a tax refund on fuel purchased but not used. Not surprisingly, fuel tax refund rates also vary by state. Due to all the variations, it is important to check the website for the state in which the fuel tax refund is being requested. The website must contain the eligibility guidelines as well as the necessary application forms. Many state tax refunds are available through the end of the year and are not tied to income tax deadlines.

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