By: The Business Services Team
Do you sell fuel to other agencies?
UPDATE: As of the publication on this newsletter, the Office of Chief Counsel for the IRS has released a memorandum confirming that tax exempt jurisdictions MAY sell fuel to another with no tax liability.
There is a ruling from the Internal Revenue Service (IRS) regarding Federal Tax Exempt government agencies registered under one Tax ID# may not sell fuel to other agencies registered with the IRS under a separate tax ID#.
Internal Revenue Service, Publication 510 (Rev. April 2009), Cat. No. 150141, Excise Taxes, Definition of Nontaxable Uses, No. 14, reads, “Exclusive use by a state, political subdivision of a state, or the District of Columbia means fuel purchased by the state or local government for its exclusive use. A state or local government is any state, any political subdivision thereof, or the District of Columbia. An Indian tribal government is treated as a state only if the fuel is used in an activity that involves the exercise of an essential tribal government function. Gasoline, diesel fuel, and kerosene used by the American Red Cross is considered to be the use of these fuels by a state.”
Assistant Greensboro Attorney, Tom Carruthers said the IRS has taken a no-exception interpretation of the regulation. In a letter to Guilford County Attorney, Mark Payne earlier this year, Carruthers wrote “they (Brunswick County) informed us (Guilford County) that the IRS has taken a hard line on all sales of fuel that are not the ‘exclusive use’ of the purchasing entity”.
According to an article in the on-line publication, Rhinotimes.com, “County No Longer Getting Gas From City” , the City of Greensboro, NC sold gas to Guilford County for 15 years. The IRS didn’t notify the City of Greensboro that it had to cease this practice. However, after the IRS conducted an audit of Brunswick County, NC they sent notifications to other North Carolina counties and cities, making officials aware that the IRS now considered the practice of selling gas to other entities against regulations. Brunswick County received a penalty from the IRS of up to three years in back taxes.
We at RMFMA, as well as other Fleet organizations, are concerned about the impact of this interpretation of the ruling and will continue to monitor what the outcome is and report it to our membership. Many of you may not have heard of this discussion, so we thought we would share it with you. You may want your legal department to look into this as well.
We appreciate our fellow Fleet professionals monitoring this working to get a clear understanding for everyone. Christopher D. Amos, CAFM wrote a letter to the U.S. Internal Revenue Service Commissioner, Douglas Shulman. Here is an excerpt from his letter stating “In 26 USC 6416(b)(2), federal law defines specified uses of fuel where the excise tax will not apply, including fuel sold ‘to a State or local government for the exclusive use of a State or local government.’ (Emphasis added) The statue does not require that the fuel be for the exclusive use of the local government that purchased the fuel, but must be for the exclusive use of a State or local government.” He has also requested a meeting with the Commissioner and his staff.
The FleetPros Blog is written and moderated by the Business Manager with contributions from the membership and Business Services Team.