AlanB said:
Is it a legal requirement to add the dye? Or can it just be done on a paperwork drill for the taxes?
I know I can get the tax back on my fuels that were used "offroad" such as my gasolines, and they are not marked when used as such.
Just was not sure that dying it was actually a legal requirement, or a best management practice.
DIESEL FUEL DYEING
The magnitude of tax evasion losses for diesel fuel taxes, estimated by the FHWA to be between 15 and 25 percent of the taxable gallons, prompted growing interest in diesel fuel dyeing to differentiate taxed from untaxed diesel fuel. At the direction of Congress, funds authorized for the Joint Project were used for a study of the feasibility and desirability of using motor fuel dyes and markers for reducing consumer fraud and tax evasion. The study was completed in August 1993, after a fuel coloring requirement for diesel fuel had already been enacted by Congress in the Omnibus Budget Reconciliation Act of 1993 (Pub.L. 103-66). The final report from the study (5) documented the widespread use of motor fuel dyes for tax enforcement purposes throughout the world, and identified the enforcement strategies that would be needed to accompany implementation of a Federal diesel fuel dyeing program.
Diesel fuel dyeing as an enforcement tool actually began in the United States in 1993 under Environmental Protection Agency (EPA) regulations and was expanded for tax enforcement purposes, beginning January 1, 1994. The fuel dyeing programs were implemented for two distinct purposes: to identify diesel fuel that does not meet the sulfur content and cetane specifications of the EPA for use in highway vehicles, and to identify fuel sold tax-exempt from the Federal excise tax on diesel fuel and available only for non-taxable uses specified in the tax code.
The EPA fuel dyeing program, effective on October 1, 1993, required fuel that did not meet the EPA sulfur content and cetane index specifications to be visibly marked with a blue dye. In accordance with Section 211(g) of the Clean Air Act, such fuel is not be used in motor vehicles designed for highway use. Anyone who knowingly introduces such fuel into a motor vehicle designed for highway use is liable for a penalty of up to $25,000 per day per violation.
The motor fuel dyeing and marking program for tax enforcement purposes was enacted in the Omnibus Budget Reconciliation Act of 1993 (Pub.L. 103-66). Section 13242 of the act moved the point of taxation for diesel fuel up the distribution chain to the point of removal from bulk storage at the terminal rack, effective January 1, 1994, and required that only dyed fuel may be removed from bulk storage after that date without payment of the Federal diesel fuel excise tax. The terminal rack is the facility where fuel from bulk storage tanks is loaded into tanker trucks for delivery to retail stations or to bulk users. In addition to the dye, a non-visible chemical marker may also be specified. Section 13242 prescribes a penalty of $1,000 or $10 for every gallon of fuel involved, whichever is greater, for using dyed or marked fuel for a taxable use. The penalty increases with subsequent violations by multiplying the penalty by the number of previous violations. Although there are differences between the allowed uses of dyed and undyed fuels under the two programs, ultimately a single color (red) was adopted by IRS and EPA regulations to satisfy the dye requirements of both programs.
While the EPA dyeing regulations had been adopted 2 years prior to the effective date, the IRS had only a few months from enactment until the legislated effective date. The IRS was forced to move quickly to implement the dyeing program, and interim regulations were published in the Federal Register on November 30, 1993. The IRS enforcement effort included visits to all bulk storage terminals to explain the new requirements, recruitment and training of 150 dyed diesel compliance officers, and funding of more than $6 million for agreements with the States to conduct roadside sampling of diesel fuel used in highway vehicles.
State enforcement programs also benefit from the Federal dyeing requirements, since generally the same undyed highway use fuel is taxed to support State transportation programs. By the end of 1995, nearly two dozen States had adopted statutory provisions, similar to the Federal changes, on point of taxation or penalty provisions for improper use of dyed fuel in highway vehicles (Table 3). These changes in diesel fuel taxation have contributed to the substantial increase in tax revenues discussed later. The combined magnitude of Federal and State fuel taxes continues to make them an attractive target for evasion. The types of evasion schemes undoubtedly will change as a result of the diesel fuel dyeing program. Types of schemes expected to be more prevalent since the dyed fuel program and imposition of tax at the terminal took effect are listed in Table 4. Most of these were problems before dyeing but are likely to grow in significance as other schemes, such as daisy chains (the multiple transfers of fuel among fictitious companies to conceal the party liable for remitting the tax), and diversion of tax-free fuel to highway use, become more difficult. Many of these schemes, such as illegal blending of untaxed products, bootlegging across State or international boundaries, and efforts to circumvent the terminal rack, will continue to require traditional criminal investigation methods and cooperative effort among enforcement agencies.
