Retroactive Biodiesel/Alternative Fuel Claim Status

TASG has received numerous calls regarding the retroactive claims asking if we know if there were any processing delays for these refunds. We contacted the IRS and learned that IRS personnel are processing claims and issuing refunds. If you haven’t received a refund let’s remember that the IRS has 60 days from receipt of a claim to pay it before interest is applied to the claim amount. Since the IRS only began accepting claims on February 14, 2020, they have until April 14, 2020 at a minimum to pay a claim before interest starts. So be patient as the processing window is still open and they are working.

Below is a summary of the key IRS points:

• IRS personnel are processing retroactive claims and issuing refunds – status could change due to COVID-19.
• Phone lines are currently down so IRS claim status inquiries are not available.
• Potential delay reasons:
  • Claims referred to field for exam – letter will be issued indicating the transfer.
  • IRS could pay a little late with interest.
  • Claim returned to claimant for additional information.
  • All correspondences may be delayed due to COVID-19

In conclusion, the good news is that IRS staff are working diligently. The bad news the status could understandably change and that patience is required. We know it is tough out there so hang in there. Best wishes to everyone.

IRS Guidance on Electronic Signatures and Filings

The IRS Deputy Commissioner for Services and Enforcement on Friday, March 27, 2020, issued guidance to all IRS Service and Enforcement employees advising that – for the time being – electronic and digital signatures and emailed documents are to be accepted in lieu of original signatures and documents that would require submission via mail. The guidance has immediate effect and though is only temporary in nature does not have a firm end date.

The guidance memorandum – issued to assist IRS employees who work remotely – states that electronic images of signatures (scans or photos) and digital signatures may be accepted on documents received from taxpayers. With respect to the digital signatures, the IRS does not provide a list of what will and will not be accepted but does say that the program must use encryption techniques. In the case of both electronic and digital signatures, the format must be one of the following: tiff, jpg, jpeg, pdf, Microsoft Office Suite or Zip.

With respect to receipt of documents electronically, the guidance memorandum states that eFax and secured electronic transmission are the preferred methods of receiving documents from taxpayers. However, if a taxpayer is not able to use one of these methods, regular e-mail may be used provided that IRS personnel advise taxpayers that this method is not secure and that as little identifying information as possible should be used. The guidance also states that taxpayers must include a statement saying that the document includes the taxpayer’s signature and is intended to be transmitted to the IRS. When the IRS sends documents it should be done via eFax or secured Zip.

The guidance does not apply to every type of document that may be filed with the IRS. The guidance memorandum states that it applies to the following categories of documents: “extensions of statute of limitations on assessment or collection, waivers of statutory notices of deficiency and consents to assessment, agreements to specific tax matters or tax liabilities (closing agreements), and any other statement or form needing the signature of a taxpayer or representative traditionally collected by IRS personnel outside of standard filing procedures (for example, a case specific Power of Attorney).” Note that the guidance does not apply to “standard filing procedures” which would suggest that there is no change to the rules with respect to signatures and filing of tax returns.

Coronavirus Stimulus Bill Includes Jet Fuel Excise Tax Holiday

The $2 trillion stimulus bill passed on Friday by Congress in the wake of the Coronavirus pandemic includes a provision enacting an “excise tax holiday” for federal excise taxes on sales of jet fuel (kerosene) for use in commercial aviation. Under the provision (below), as of the date of enactment (the bill was signed on Friday, March 27, 2020) – and through December 31, 2020 – it seems sales of jet fuel sold directly into the fuel tank of an aircraft for use in commercial aviation are subject only to the $0.01 per gallon LUST Tax. The federal excise tax would not be in effect for those sales. Under the language of the bill, it seems sales of jet fuel at the terminal rack into a refueler truck at an non-secured airport terminal will not be exempt from tax. To the extent that the federal excise tax is charged, it seems the ultimate purchaser (airline) can file for an exempt use refund. Note that per a footnote in the Joint Committee on Taxation Report on the estimated revenue effects of the bill, it seems that any tax paid jet fuel currently in inventory would not be not eligible for a refund of the tax paid prior to enactment of the legislation. This provision (which also provides an “excise tax holiday” for airfare ticket taxes) is designed to provide relief to the airline industry. We understand that there are currently discussions ongoing with the IRS seeking guidance as to the actual application of the bill’s language.

The bill is H.R. 748, the “Coronavirus Aid, Relief and Economic Security Act.” The text of the relevant provision is below. Note that to date, no states have enacted similar legislation.  We understand that there are currently discussions ongoing with the IRS seeking guidance as to the actual application of the bill’s language.

SEC. 4007. SUSPENSION OF CERTAIN AVIATION EXCISE TAXES.

(a) TRANSPORTATION BY AIR.—In the case of any amount paid for transportation by air (including any amount treated as paid for transportation by air by reason of section 4261(e)(3) of the Internal Revenue Code of 1986) during the excise tax holiday period, no tax shall be imposed under section 4261 or 4271 of such Code. The preceding sentence shall not apply to amounts paid on or before the date of the enactment of this Act.

(b) USE OF KEROSENE IN COMMERCIAL AVIATION.—In the case of kerosene used in commercial aviation (as defined in section 4083 of the Internal Revenue Code of 1986) during the excise tax holiday period—

(1) no tax shall be imposed on such kerosene under— (A) section 4041(c) of the Internal Revenue Code of 1986, or (B) section 4081 of such Code (other than at the rate provided in subsection (a)(2)(B) thereof), and

(2) section 6427(l) of such Code shall be applied— (A) by treating such use as a nontaxable use, and (B) without regard to paragraph (4)(A)(ii) thereof.

(c) EXCISE TAX HOLIDAY PERIOD.—For purposes of this section, the term ‘‘excise tax holiday period’’ means the period beginning after the date of the enactment of this section and ending before January 1, 2021.

Nebraska Provides Electronic Submissions of Redetermination (Protest) Petitions

Butane Alternative Fuel Mixture Credit Cases; Another District Court Determines Butane is a Taxable Fuel

Following the District Court for the Southern District of Texas in Vitol Inc. v. United States of America, (No. 4:18-cv-2275), the District Court for the Eastern District of Wisconsin in U.S. Venture, Inc. v. United States of America (Nos. 18-C-1757 & 19-C-595) has issued a decision stating that butane is not an alternative fuel, but rather is a taxable fuel. Like in the prior decision, this means that blends of butane and gasoline would not be eligible for the alternative fuel mixture credit. This is the second decision regarding the status of butane in any of the pending cases.

In this case, Plaintiff U.S. Venture, Inc. filed a Motion for Partial Summary Judgment seeking a ruling on whether the term “liquefied petroleum gas” in 26 U.S.C. § 6426 includes butane. Much like Vitol, the plaintiff in this case argued that the term “liquefied petroleum gas” included butane; in support of this the plaintiff relied on dictionary definitions and various state regulations that reached such a conclusion. The plaintiff further argued that a fuel could be both an alternative fuel and a taxable fuel. The United States filed its own Motion for Summary Judgment countering that butane is clearly a taxable fuel; the Court granted this motion.

In denying U.S. Ventures’ motion, the Court concluded that butane is not both a taxable fuel and an alternative fuel and given the entire statutory scheme is could not be concluded that Congress intended for a mixture of butane and gasoline to receive the alternative fuel mixture credit. An argument that butane should be treated similarly to renewable fuel – a taxable biofuel-based diesel that is both eligible for the renewable diesel mixture credit and subject to federal excise tax – was rejected on the basis that Congress specifically allowed for renewable diesel to be eligible for the credit but did not do the same for butane with the alternative fuel mixture credit.

This is the second decision in short order where the Courts have agreed with the United States and denied a summary judgment claim on the question of whether butane is a taxable or alternative fuel (or both). Like Vitol in the Southern District of Texas, the plaintiff in this case has the option to appeal the decision and there are still other cases pending.

***

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 UPDATES – APRIL 2020

STATE TAX UPDATES – APRIL 2020*

INDIANA

 Indiana has set the gasoline use tax rate for the period April 1 – April 30, 2020 at $0.118 per gallon. The rate is adjusted monthly.

MASSACHUSETTS

 Massachusetts has announced tax rates for 2Q 2020. There are changes to the rates for Liquefied Petroleum Gases, Aviation Gasoline and Jet Fuel.

MICHIGAN

 Effective April 1, 2020 Michigan’s prepaid sales tax on gasoline will be $0.122 per gallon and the prepaid sales tax on diesel will be $0.149 per gallon. These rates are adjusted monthly and typically announced at the beginning of the prior month.

NEW JERSEY

 New Jersey has set the petroleum products gross receipts tax for the second quarter of 2020 at $0.309 per gallon for gasoline and LPG, $0.35 per gallon for diesel, $0.124 per gallon for fuel oil, $0.04 per gallon for aviation fuel and 7% of gross receipts for all other products.

* This list contains key State updates taking effect in April 2020. 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.

 OHIO

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 April 1, 2020 – June 30, 2020. The average wholesale prices are $1.670 per gallon for gasoline, $1.975 per gallon for diesel and $0.609 per gallon for propane. With the PAT rate set at $0.0065, this makes the PAT for the second quarter of 2019 $0.010855 per gallon for gasoline, $0.0128375 per gallon for diesel and $0.0039585 per gallon for propane.

VERMONT

 Vermont has set the Motor Fuel Transportation Infrastructure Assessment (MFTIA) for the first quarter 2020 at $0.0423 per gallon and the Gasoline and Motor Fuel Tax Assessment (MFTA) for the third quarter at $0.134 per gallon.

NYS Abatement of Penalties and Interest for Sales and Use Tax due to the Novel Coronavirus, COVID-19

On March 7, 2020, Governor Andrew M. Cuomo declared a State Disaster Emergency for all of New York State due to the impact of the novel coronavirus, COVID-19 (virus) outbreak.

The Governor has subsequently issued an executive order expanding the Tax Commissioner’s authority to abate late filing and payment penalties to also allow the Commissioner to abate interest on quarterly sales and use tax filings and remittances with a due date of March 20, 2020 for those who were unable to timely file and pay as result of the COVID-19 virus, such as:

• taxpayers who were unable to meet tax filing, payment, or other deadlines because key employees were treated or suspected to have COVID-19;
• taxpayers whose records necessary to meet tax filing, payment, or other deadlines are not available due to the outbreak;
• taxpayers who have difficulty in meeting tax filing, payment, or other deadlines because of closure orders or similar business disruptions directly resulting from the outbreak; and
• taxpayers whose tax practitioners were unable to complete work to meet tax filing, payment, and other deadlines on behalf of their clients due to the outbreak.

Returns must be filed and the amount due must be paid within 60 days of the due date for this relief to apply.

Exception

Sales Tax Vendors who are required to file returns on a monthly basis and participants in the Promptax program for sales and use tax or prepaid sales tax on fuel are not eligible for this relief.

How to obtain relief

Taxpayers seeking interest and penalty abatements for COVID-related filing and payment delays may request relief by visiting the Department’s website at www.tax.ny.gov. From the Department homepage, taxpayers can click on Tax Department response to novel coronavirus (COVID-19) to find instructions on how to apply for relief.

Alternatively, taxpayers that receive a penalty notice from the Tax Department for failure to file returns or make payments due March 20, 2020, should follow the instructions on the notice to request abatement of interest and late filing or late payment penalties that would otherwise apply.

Abatements of penalties and rate of interest on late payments not made by the date required by law or not covered by this announcement will be handled on a case-by-case basis.

Note: An N-Notice is generally issued to announce a singular event, such as an update to a previously issued tax form or instruction, or to announce a new due date for filing returns and making payments of tax because of a natural disaster. The department does not revise previously issued N-Notices.