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Mixture Credit Exclusion from Income Update

Sunoco Seeks Relief From Supreme Court; American Fuel and Petrochemical Manufacturers File a Brief in Support

On May 24, 2019, Sunoco, Inc. (Sunoco) sought to appeal the decision of the United States Court of Appeals for the Federal Circuit in Sunoco, Inc. v. The United States (2017-1402) which denied Sunoco’s claim for a refund of federal income taxes paid on the alcohol fuel mixture credit claimed pursuant to 26 U.S.C. § 6426(b). Like the Federal Court of Claims before it, the Court of Appeals found that the mixture credit is a reduction in excise tax liability and nothing more. The appeal – known as a  petition or writ of certiorari – is filed with the Supreme Court and asks the Court to consider whether, in its opinion, the legal principles at the heart of the case are sufficiently important to grant review. If the Court considers the legal principles sufficiently important to grant review, the Court will grant the writ of certiorari and a hearing date will be set.

The question presented in the writ of certiorari is, very simply, whether the “Federal Circuit properly held that tax credits operate as a reduction of tax liability rather than as a payment of taxes owed.” The writ points out that the answer is critical because if a credit operates as a payment of taxes, the taxpayer may typically exclude that payment from gross income, whereas if the a credit operates as a reduction of tax liability it increases the taxable income. The writ argues that the Supreme Court should grant review because the correct treatment of tax credits is a recurring question impacting many tax programs and, in the instant case, the decision of the Federal Circuit results in disparate treatment between two taxpayers that both created a biofuel mixture for no clearly articulated reason.

In an amicus brief, filed in support of Sunoco on June 24, 2019, the American Fuel and Petrochemical Manufacturers trade association stated that the decision of the Federal Circuit adversely affects its members and subjects “some producers of ethanol-gasoline blends to income tax” on the alcohol mixtures credits while allowing other taxpayers to “claim the subsidy tax-free with no apparent reason for making that distinction.” The brief argues that all claimants of the credit – who engaged in activity Congress sought to encourage – should be entitled to the full benefits of the credit. It further argues that where the tax credit and tax are calculated independently of one another, the credit is a payment of the tax and not a reduction of tax liability, unless Congress explicitly states otherwise.

Once the government has filed its Brief in Opposition (or waived its right to do so) and Sunoco has filed a Reply Brief if it chooses, the Court will confer on whether to consider moving the case forward or deny the petition. At least four justices must vote to grant review for the case to move forward.

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Oscar L. Garza & Associates, P.C. is a Houston-based boutique law firm specializing in transactional tax and trade matters surrounding all aspects of the oil and petroleum industry.  With over 20 years of experience counseling clients operating in all aspects of the oil and petroleum sector our lawyers have an in-depth knowledge of the industry, enabling us to provide quality service and creative solutions to our clients.  Please visit our website at www.olgarza.com.  For more information please contact:

Oscar L. Garza             713.893.0693                 olgarza@olgarza.com

Leanne Sobel               720.282.9165                  lsobel@olgarza.com

Kelly Grace                  302.528.5784                  kgrace@olgarza.com

STATE TAX CHANGES – JULY 2019*

* This list contains key State updates taking effect in July 2019.  This is not intended to be an exhaustive list.  Please confirm all tax rates and license and reporting requirements with the particular State or your tax consultants.

ALABAMA

Effective September 1, 2019 the tax on gasoline will increase to $0.24 per gallon and the tax on undyed diesel will increase to $0.25 per gallon. These taxes will increase again in October 2020, 2021 and 2023 and will then increase annually thereafter in July. There will be a floor stocks tax imposed on any motor fuel held in non-bulk inventory at the time of the tax increase; the floor stocks tax return will be due on or before December 31, 2019 for the September 2019 increase. Additionally, the due date for the motor fuel tax return is changing from the 22^nd of the month to the 20^th of the month.

CALIFORNIA

The prepaid sales tax rates effective July 1, 2019 are $0.06 per gallon for gasoline, $0.32 per gallon for diesel and $0.106 per gallon for jet fuel.

The gasoline tax will increase to $0.473 per gallon effective July 1, 2019. There are no changes to the diesel or jet fuel tax rates. The notice announcing the increase can be found at: https://www.cdtfa.ca.gov/formspubs/l633.pdf

CONNECTICUT

Effective July 1, 2019, Connecticut’s tax on diesel will be increased to $0.465 per gallon.

FLORIDA

Effective July 1, 2019, air carriers engaged in commercial aviation are entitled to receive a refund of $0.0142 per gallon of the taxes imposed on aviation fuel purchased by such air carrier, provided that the total refund including that under Fl. Stat. 206.9855 (a refund of up to 0.6% of wages paid by an air carrier to employees in Florida) does not exceed the total aviation fuel tax rate of $0.0427.

The tax rate used by contractors who manufacture and use asphalt during fiscal year July 1, 2019 through June 30, 2020 will increase from 77 cents per ton to 81 cents per ton.

GEORGIA

The average retail prices for the prepaid local tax for the period July 1, 2019 through December 31, 2019 have been set as follows:

https://dor.georgia.gov/sites/dor.georgia.gov/files/related_files/document/LATP/Policy%20Bulletin/Bulletin%20-%20Prepaid%20Local%20Tax%20-%20July%201%202019.pdf

ILLINOIS

Subject to signature by the governor, Illinois’s fuel tax is set to increase on July 1 to $0.38 per gallon with the rate adjusted annually. The tax rate for diesel will be an additional $0.075 per gallon for a total of $0.455 per gallon.

Illinois has set its prepaid sales tax on motor fuel at $0.15 per gallon for gasoline, gasohol and other motor fuels such as diesel and at $0.12 per gallons for biodiesel (blends between 1% and 10%).  These rates are for the period July 1, 2019 – December 31, 2019.

INDIANA

The Gasoline Use Tax Rate for the month of July 2019 has been set at $0.156 per gallon. This rate is adjusted monthly.

Effective July 1, the Indiana excise tax will increase to $0.30 per gallon for gasoline and $0.49 per gallon for diesel.

IOWA

Iowa is changing its tax rates effective July 1, 2019 as follows:

MARYLAND

Maryland has announced that its fuel tax rates for the period July 1, 2019 – June 30, 2020 will be as follows (the rate below is the combined motor fuel and sales and use tax equivalent rates):

The full list of tax rates can be found at: https://taxes.marylandtaxes.gov/Business_Taxes/Business_Tax_Types/Motor_Fuel_Tax/Tax_Information/Motor_Fuel_Tax_Rates/MFT_RatesPerGallon_052119.pdf

MASSACHUSETTS

Massachusetts has set its tax rates for the period July 1, 2019 – September 30, 2019 as follows:

MICHIGAN

Michigan has set its prepaid sales tax on fuel for the month of July 2019 at $0.148 per gallon for gasoline and $0.16 per gallon for diesel.  The rate is adjusted monthly.

MINNESOTA 

The Minnesota Petroleum Tank Cleanup Fee will be reinstituted for the months of July, August, September and October 2019. The rate is $0.02 per gallon.

MONTANA

Effective July 1, 2019, Montana’s fuel tax on gasoline is unchanged at $0.315 per gallon and the fuel tax on special fuel is also unchanged at $0.2925 per gallon.  These rates are adjusted annually through 2022.

NEBRASKA

Effective July 1, 2019 Nebraska’s motor fuel tax will increase from $0.296 per gallon to $0.297 per gallon.

NEVADA

The Washoe County Producer Price Index gross tax rate for FY 2020 for gasoline will be $0.3322060 and the gross tax rate for diesel will be $0.3157421. The Clark County Producer Price Index gross tax rate for FY 2020 for gasoline will be $0.1345617 and the gross tax rate for diesel will be $0.1344199.

NEW JERSEY

New Jersey’s petroleum products gross receipts tax rates for the period July 1, 2019 – September 30, 2019 have been set at $0.309 per gallon for gasoline and LPG, $0.35 per gallon for diesel, $0.124 per gallon for fuel oil and $0.04 per gallon for aviation fuel.  Full details can be found at: http://www.state.nj.us/treasury/taxation/pdf/other_forms/petroleum/Petroleumgrosstax.pdf

OHIO

Effective July 1, 2019, the Ohio motor fuel tax will increase to $0.385 per gallon for gasoline and to $0.47 per gallon for other motor fuels. In addition, a tax on compressed natural gas will be phased in from 10¢ per gallon equivalent starting July 1, 2019 to 47¢ per gallon equivalent on and after July 1, 2023 as follows:

• 10¢ per gallon equivalent on and after July 1, 2019, and before July 1, 2020;
• 20¢ per gallon equivalent on and after July 1, 2020, and before July 1, 2021;
• 30¢ per gallon equivalent on and after July 1, 2021, and before July 1, 2022;
• 40¢ per gallon equivalent on and after July 1, 2022, and before July 1, 2023; and
• 47¢ per gallon equivalent on and after July 1, 2023.

A “gallon equivalent” is defined as 139.30 cubic feet or 6.38 pounds.

From July 1, 2019 through June 30, 2021, the temporary reduction in motor fuel tax credits is continued, in which a temporary motor fuel tax evaporation allowance is set for motor fuel distributors at 1% (less 0.5% of the gallonage sold to retail dealers) and at 0.5% for retail dealers.

The Ohio Department of Taxation has issued the average wholesale price of fuel to be used when determining the gross receipts of a supplier subject to the petroleum activity tax (“PAT”) for the period July 1, 2019 – September 30, 2019.  The average wholesale prices are $1.526 per gallon for gasoline, $1.878 per gallon for diesel and $0.767 per gallon for propane.  With the PAT rate set at $0.0065, this makes the PAT for the third quarter of 2019 $0.009919 per gallon for gasoline, $0.012207 per gallon for diesel and $0.0049855 per gallon for propane.

RHODE ISLAND

Effective July 1, the tax rate on gasoline will increase to $0.34 per gallon. The tax will increase in accordance with the consumer price index every two years.

SOUTH CAROLINA

Effective July 1, 2019 South Carolina’s fuel tax will increase to $0.22 per gallon.  The rate will be adjusted annually through 2022.

TENNESSEE

Effective July 1, 2019, Tennessee’s fuel tax rates will increase as follows:

VERMONT

Vermont has set the Motor Fuel Transportation Infrastructure Assessment (MFTIA) for the third quarter at $0.0451 per gallon and the Gasoline and Motor Fuel Tax Assessment (MFTA) for the third quarter at $0.134 per gallon.

VIRGINIA

Virginia has announced that its tax rates will be unchanged for the period July 1, 2019 – December 31, 2019 and will be as follows:

The motor vehicle fuel sales tax rate for the period July 1, 2019 – December 31, 2019 is $0.076 per gallon for gasoline and alternative fuels and $0.077 per gallon for diesel.

WASHINGTON

Effective July 1, 2019, the Hazardous Substance Tax will shift to be measured as a volumetric excise tax for petroleum products. The rate will be set at $1.09 per barrel to be adjusted annually. Petroleum products that are not easily capable of being measured on a per barrel basis will continue to be taxed at the current 0.7% ad valorem rate. Petroleum products subject to the per barrel rate include: gasoline, diesel and aviation fuel. Petroleum products subject to the ad valorem rate include: ethane, propane and butane. More information can be found at: https://dor.wa.gov/find-taxes-rates/other-taxes/hazardous-substance-tax

Reminder ‐ Pennsylvania Fuel Tax License Renewals Due April 19

Pennsylvania’s fuel tax law requires that new motor fuel permits be issued on an annual basis to all registered distributors. The Department of Revenue contacted all registered distributors earlier this year to let them know the deadline for submitting a new application and surety. For any distributor that has not submitted the renewal application, it is due April 19th.

Crude Oil Exporter Files Suit Claiming Refund of Federal Oil Spill Tax Paid on Exports of CrudeOil

A crude oil exporter recently filed suit in the United States Court for the Southern District of Texas claiming a refund of federal oil spill taxes paid on domestically produced crude oil that was exported from the United States. The suit stems from a refund claim that the Taxpayer filed with the IRS claiming that the tax as imposed on exported crude oil was unconstitutional. The IRS had denied that refund
claim and the IRS Office of Appeals had refused to consider the case, saying that the proper forum was to filed suit in court.

The applicable statute at 26 U.S.C. 4611(b)(1)(A) imposes the federal oil spill tax on “any domestic crude oil that is exported from the United States.” However, the Export Clause of the U.S. Constitution states that “No Tax or Duty shall be laid on Articles exported from any State.” (U.S. Const. Art. I, para 9, cl. 5). This clause has been cited by the Courts of several prior occasions as the basis for declaring a tax on exports unconstitutional, such as the Harbor Maintenance Tax (United States v. U.S. Shoe Corp., 523 U.S. 360 (1998)) and the excise tax on coal (Ranger Fuel Corp. v. U.S. 33 F. Supp.2d 466 (E.D. Va. 1998)). With considerable precedent, it seems logical that the oil spill tax as imposed on exports is also unconstitutional. The IRS disagreed and denied the Taxpayer’s timely refund claim, saying that the Export Clause does not address exports of crude oil from the United States and that the intent of the clause was to prevent taxes on trade between states, not trade between the U.S. and other countries. To be clear, the Export Clause also does not address the export of coal, yet the IRS refused to follow that precedent as well as related IRS guidance such as Notice 2000-28 and IRS Chief Counsel Advice Memo 200211043, both of which discuss the Export Clause in the context of the excise tax on coal.

The Taxpayer sought review of the IRS decision from the IRS Appeals Division, however the IRS Appeals Division said it would not consider a constitutional issue and instructed the Taxpayer to file suit in a court of law.

Export Clause on Crude Oil Exports – Trafigura Trading LLC v. IRS

Trafigura Trading LLC filed suit against the IRS on January 16, 2019. The complaint seeks a refund of federal oil spill tax on crude oil exported from the United States. According to the complaint, “the Export Clause renders IRC § 4611(b)’s export tax unconstitutional.”

The IRS position, per the complaint, is that the Export Clause of the U.S. Constitution does not address exporting crude oil from the U.S., and that the intent of the clause was to prevent taxes from being levied on trade between “states.” Trafigura argued that the IRS position is contrary to Supreme Court precedent.

IRS Notice 2000-28 appears to agree with Trafigura’s position. The document cites the export clause of the United States Constitution, art. I, section 9, cl.5, exempting excise tax on a coal producer’s sale where the coal is in the stream of export and actually exported. IRS Chief Counsel Advice memo (200211043) affirms the unconstitutional aspects described in Notice 2000-28 stating: “The coal tax itself was held unconstitutional as applied to exports in Ranger Fuel Corp. v. United States, 33 F. Supp. 2d 466 (E.D. Va. 1998), amended, 1999 U.S. Dist. LEXIS 2141 (E.D. Va. Feb. 10, 1999). Notice 2000-28, 2000-21 I.R.B. 1116, acquiesces, in effect, to Ranger.”

OH House Bill 62 Increases Fuel Tax

Effective July 1, 2019, OH motor fuels tax increases from 28¢ per gallon to 47¢ per gallon and increases the tax on compressed natural gas as follows:

(1) Ten cents on and after July 1, 2019, and before July 1, 2020;
(2) Twenty cents on and after July 1, 2020, and before July 1, 2021;
(3) Thirty cents on and after July 1, 2021, and before July 1, 2022;
(4) Forty cents on and after July 1, 2022, and before July 1, 2023;
(5) Forty-seven cents on and after July 1, 2023.

The bill also allows a township to levy an additional $5 annual license tax per motor vehicle.

Alabama Gasoline and Undyed Diesel Fuel Excise Tax Law Changes

On March 12, 2019, Governor Kay Ivey signed into law Act 2019-2 also known as the Rebuild Alabama Act which levies an additional excise tax on gasoline and undyed diesel effective September 1, 2019. The changes made regarding the Rebuild Alabama Act are summarized
below.

Tax Increase
Effective September 1, 2019, the gasoline and undyed diesel excise taxes will increase by $.06 per gallon to $.24 per gallon for gasoline and to $.25 per gallon for undyed diesel.

Additional Tax Increases/Indexing
Act 2019-2 also provides for the following additional excise tax rate increases/indexing:
o Effective October 1, 2020 (bringing Act 2019-2 total additional tax to $0.08)
▪ Additional $0.02 gasoline tax
▪ Additional $0.02 diesel tax
o Effective October 1, 2021 (bringing Act 2019-2 total additional tax to $0.10)
▪ Additional $0.02 gasoline tax
▪ Additional $0.02 diesel tax
o Effective October 1, 2023 and on July 1 of every other year thereafter
▪ The gasoline and undyed diesel excise tax rate will be adjusted by the percentage change in the yearly average of the
National Highway Construction Cost Index and rounded to the nearest whole cent with the increase or decrease of the excise
tax rate not exceeding $.01 per gallon.

Tax Return Due Date
The due date of the return and payment for all motor fuel taxes, other than the 3-day voucher and payment as required in Section 40-17-340(d), Code of Alabama, has been changed from the 22nd to the 20th day of the month following the month in which the tax accrues. This change applies to the Blender, Exporter, Importer, and Supplier returns and payments (Alabama Terminal Excise Tax Act 2011-565 and amendments). The due date for the September 2019 period returns and payments is October 21, 2019 (Oct. 20th is on a Sunday).

Floor-Stocks Tax
Any wholesale distributor holding motor fuel in inventory outside of the bulk transfer/terminal system on the effective date of each tax increase levied by this Act shall be liable for the additional excise tax. A floor-stocks tax return shall be filed and the tax paid on or before the last day of the third month following the tax increase. The floor-stocks tax return and payment for the tax increase effective September 1, 2019 shall be due on or before December 31, 2019.

Questions
If you have any questions pertaining to this notice, please contact this office at the address or telephone number shown below or via email at mft@revenue.alabama.gov.

BUSINESS & LICENSE TAX DIVISION
MOTOR FUELS SECTION
P. O. BOX 327540
MONTGOMERY, ALABAMA 36132-7540
(334) 242-9608
(334) 242-1199 (Fax)

Texas Crude Oil & Natural Gas Electronic Tax Filing Software and Petro Imports

Texas EDI News, March 2019

New Crude Oil & Natural Gas Electronic Tax Filing Software

Effective April 28, 2019, we will release a new version of the Texas Comptroller’s filing software that allows you to enter crude oil producer and purchaser reports for crude oil leases claiming multiple oil exemptions on the same lease.

New Petro Import and Preload Templates
The new software download will include updates to the import and preload templates for taxpayers who elect to use them. The new templates will be used for both crude oil and natural gas severance tax filers even though only crude oil taxpayers will have new capabilities. Our software installer program automatically saves the templates to C:\ProgramData\TexasCPA\Petro50.

Third-party or Proprietary Software
If you create or use third-party or proprietary software to create the EDI files, please review the new EDI maps. When you are ready to test your EDI files, please email them to us.
More Information

For EDI questions, please email us or call 800-442-3453.

For Crude Oil or Natural Gas tax questions, you can also email us or call 800-531-5441, ext. 3-4455.