A Deferral, Not a Holiday

President Trump signed an executive order on Monday, at a campaign event in Nebraska, meant to cut the cost of diesel for truckers and farmers through the end of the year. Emergency Tax Relief on Diesel Fuel does two things. It directs the Treasury Secretary, if he finds the disaster-relief statute applies, to defer certain federal diesel taxes incurred from 5 October to 31 December, without penalties or interest, and it has the Treasury direct the Internal Revenue Service to announce that it will not penalise the sale or use of dyed diesel on the highway during the same period. “The typical trucker will save over $100 every time they fill up,” Trump said, according to CQ-Roll Call.

The order’s own words set the limits of that promise. Section 2 provides for deferring the tax. Section 4 says the Secretary “shall explore avenues, including legislation, to eliminate the obligation to pay the amounts deferred.” Until something of that kind happens, the tax is still owed.

Which tax, and on which fuel

Ordinary highway diesel is taxed before it reaches the pump. Section 4081 of the Internal Revenue Code sets the rate at 24.3 cents a gallon, plus a tenth of a cent for the Leaking Underground Storage Tank Trust Fund. Dyed diesel, the red fuel sold for farm machinery, generators and other off-road use, does not pay that tax, because it is not meant for the road.

The order does not touch section 4081. It defers taxes imposed by section 4041(a)(1)(A) and 4041(b)(1)(B). The first taxes fuel sold for use, or used, in a diesel-powered highway vehicle, but under 4041(a)(1)(B) not fuel on which the section 4081 tax was already paid. The second imposes tax when a liquid that went untaxed because it was for off-highway business use is used some other way. Read together, by this publication’s reading of the statute, the deferral reaches fuel that never paid the federal tax on its way to the pump, which is dyed fuel put into a road vehicle. A trucker filling up with clear diesel at a truck stop has already borne the tax in the price, and the order defers nothing for him.

A disaster statute

The authority the order invokes is section 7508A, which Congress wrote for disasters. It applies to a taxpayer the Secretary determines to be affected by “a federally declared disaster,” “a significant fire,” or “a terroristic or military action,” and it lets the Secretary specify a period of up to one year to be disregarded in deciding whether tax acts were done on time and in computing interest and penalties. It postpones. It does not cancel.

The order asks the Secretary, within five days and in consultation with the Secretary of War as appropriate, to determine whether that relief is authorised, “including whether a qualifying event has occurred and which taxpayers have been affected by that event.” CQ-Roll Call reported that the third category is the one most applicable, on account of the war with Iran. The order names no event itself. The guidance it requires must state the legal basis, the taxpayers covered and “the date by which postponed taxes must be paid.”

The penalty relief is narrower than the tax relief. Section 6715 fines anyone who sells dyed fuel for a taxable use, or uses it in one, the greater of $1,000 or $10 a gallon, rising for repeat violations. The order asks the IRS to announce that it will not impose the penalty under paragraphs (a)(1) and (a)(2), the sale and use provisions. It is an announcement of how the agency will enforce, not a change in the law.

What the industry says

Fuel retailers read the order the same way. SIGMA, which represents fuel distributors and retailers, told its members that it expects “the current elevated price environment to persist,” CQ-Roll Call reported. “Ultimately, for most marketers, the liability and customer risk outweigh any temporary, uncertain benefit,” the group said. “It’s a lot of risk for compliance departments to absorb over the potential for a $0.24 deferral on diesel that is retailing for more than $6.00 per gallon in many parts of the country.” Tiffany Wlazlowski Neuman of NATSO, which represents truck stops, said: “Although it won’t be collected from the customer, the fuel tax would still be an obligation.” Todd Spencer, who leads the Owner-Operator Independent Drivers Association, saw only “minimal relief.”

The administration’s figures assume more than the federal deferral. Agriculture Secretary Brooke Rollins said farmers would save $640 million in federal and state taxes in the last quarter of the year, CQ-Roll Call reported. State diesel taxes average about 35.5 cents a gallon, according to the Energy Information Administration as cited there, and the order can only “encourage” states to follow; several states had already relaxed their own dyed-diesel rules. The federal diesel tax brings in around $10 billion a year for the Highway Trust Fund, CQ-Roll Call reported, which is why forgiving the deferred amounts would fall to Congress.

Sources

The order was read in full on whitehouse.gov. Sections 4041, 4081, 6715 and 7508A of the Internal Revenue Code were read on the Legal Information Institute’s site; the reading of which fuel the deferral reaches is this publication’s. Trump’s remark, the signing at a Nebraska event, the Iran-war reading of section 7508A, Rollins’s estimate, the statements of SIGMA, NATSO and OOIDA, the state tax average and the trust fund figure are as reported by Kelly Livingston and David Jordan of CQ-Roll Call, as published by the Walla Walla Union-Bulletin through Tribune News Service. The Treasury guidance the order requires had not been published when this was written.