Industry Topics for Diesel Fuel and Motor Vehicle Fuel Tax
In general, the provision requiring the payment of the fuel taxes does not apply to:
- The removal of fuel, if all the following apply:
- The fuel is removed by railroad car from an approved refinery and is received at an approved terminal,
- The refinery and terminal are operated by the same licensed supplier, and
- The refinery is not served by pipeline (other than a pipeline for the receipt of crude oil) or vessel.
- Sales or removals of dyed diesel fuel.
- Exports of fuel by a supplier (pursuant to a contact of sale) required to be shipped by any of the following means:
- Facilities operated by the supplier.
- Delivery by the supplier to a carrier, customs broker, or forwarding agent, whether hired by the purchaser or not, for shipment to the out-of-state point.
- Delivery by the supplier to any vessel clearing from a port of this state for a port outside of this state and actually exported from this state in the vessel.
- Fuel sold by credit card certified by the United States Department of State to a consulate officer or employee of a foreign government who is not engaged in any private occupation for gain within this state, who uses the diesel fuel in a motor vehicle which is registered with the United States Department of State, and whose government has done either of the following:
- Entered into a treaty with the United States providing for the exemption of its representatives from national, state, and municipal taxes.
- Granted a similar exemption to representatives of the United States.
- Diesel fuel sold to a farmer for farming purposes when the supplier has CDTFA 608, Certificate of Farming Use. For more information on diesel fuel sold to farmers, please see the Ultimate Vendor page.
- Diesel fuel sold to an exempt bus operator for use in an exempt bus operation and the supplier has CDTFA-231-DB, Certificate of Exempt Bus Operation, from the exempt bus operator. For more information on exempt bus operations, please see the Exempt Bus Operator & Government Entity page.
- Diesel fuel sold by a supplier to the United States and its agencies and instrumentalities.
- MVF sold to the United States armed forces for use in ships or aircraft, or for use outside California.
- Fuel sold to a train operator for use in a diesel fuel powered train or other off-highway use and the supplier has CDTFA-231-PT, Fuel Tax Exemption Certificate for Diesel Fuel And Motor Vehicle Fuel Train Operators, from the train operator.
- Gasoline blendstocks described below:
Requirements for Exemption Description Industrial User License Gasoline blendstocks removed from a pipeline or vessel, received by a licensed industrial user (someone who received gasoline blendstocks by bulk transfer for its own use in the manufacture of any product other than finished gasoline). (R&TC 7401(a)(6)) MVF Supplier License Any entry or removal from terminal or refinery of gasoline blendstocks that are received at an approved terminal or refinery; enterer is a licensed supplier. (R&TC 7401(a)(7)) MVF Supplier License Any entry (or removal from terminal or refinery) not in connection with a sale, and not used to produce finished gasoline. (R&TC 7401(a)(8)) MVF Supplier License and Exemption Certificate Any entry (or removal from terminal or refinery) in connection with a sale, and not used to produce finished gasoline. (R&TC 7401(a)(9)) Exemption Certificate Any resale of gasoline blendstocks entered or removed from a terminal or refinery not used to produce finished gasoline and seller has an unexpired exemption certificate from buyer. (R&TC 7401(a)(10))
Records to Support an Exemption or Credit
You must maintain complete records of all activities, including exempt dispositions.
Such records include, but are not limited to:
- Pipeline tickets
- Bills of Lading
- Exemption certificates
- Purchase orders
- Tax returns from other states to support export claims
- Cardlock statements
- Calculations or formulas to support off-highway exempt usage
- First Taxpayer's Report
- Support for claimed bad debts
The following exempt sales must be supported by an exemption certificate signed under penalty of perjury:
- Diesel fuel used on a farm for farming purposes
- Diesel fuel used in an exempt bus operation
- Petroleum train operator exemption
- Gasoline blendstock exemption
Exemption certificates other than CDTFA-231-PT, Fuel Tax Exemption Certificate for Diesel Fuel and Motor Vehicle Fuel Train Operators, expire one year after the effective date of the certificate or when a new certificate is provided by the buyer.
Dyed Diesel Fuel
Dyed diesel fuel means diesel fuel that is dyed under the United States Environmental Protection Agency (EPA) or the Internal Revenue Service (IRS) rules for high sulphur diesel fuel or low sulphur diesel fuel or any other requirements subsequently set by EPA or IRS and considered destined for nontaxable, off-highway uses.
No person shall operate or maintain a motor vehicle on any public highway in California with dyed diesel fuel in the fuel supply tank.
Dyed Diesel Fuel Exemption
The only use of dyed diesel fuel allowed on California highways are uses that are lawful under the Internal Revenue Code (IRC) or its regulations, for registered qualified highway vehicle operators, exempt bus operators, or government entities.
Dyed Diesel Fuel Notice
The Diesel Fuel Tax Law requires that sellers provide notice to purchasers of dyed diesel fuel indicating the fuel is for nontaxable use only. If you sell dyed diesel fuel, you are required to provide notice to your buyer stating: “Dyed Diesel Fuel, Nontaxable Use Only, Penalty for Taxable Use.”
The notice must be posted by the seller of dyed diesel fuel on any retail pump where dyed diesel fuel is dispensed. The notice should be affixed on the face of the pump within easy sight of the person dispensing the dyed diesel fuel.
The notice must be included on all shipping papers, bills of lading, and invoices accompanying the sale or removal of dyed diesel by:
- Any terminal operator to any person receiving dyed diesel fuel at the operator's terminal rack.
- Any seller of dyed diesel fuel to its buyer if the diesel fuel is located outside the bulk transfer/terminal system.
Any seller that fails to provide the required notice is presumed to know that the dyed diesel fuel will be used for a taxable use and may be subject to a penalty of ten dollars for every gallon of dyed diesel fuel sold without the proper notice or one thousand dollars multiplied by the total number of violations, whichever is greater.
In addition, sellers of dyed diesel fuel are also subject to the same penalty provisions for every gallon of dyed diesel fuel held for sale at the time of the violation if the sale is made from a retail pump. For additional information on penalties see, Dyed Diesel Fuel Penalties.
Dyed Diesel Fuel Penalties
Dyed diesel fuel penalties apply to any person who:
- Sells or holds for sale dyed diesel fuel for any use that the person knows or has reason to know is a taxable use of the diesel fuel.
- Holds for use or uses dyed diesel fuel for a use other than a nontaxable use and that the person knew, or had reason to know, that the diesel fuel was dyed.
- Knowingly alters, or attempts to alter, the strength or composition of any dye or marker in any dyed diesel fuel.
- Fails to provide or post the required notice with respect to any dyed diesel fuel. The failure to provide or post the required notice creates a presumption that the person so failing knows the diesel fuel will be used for a taxable use.
The amount of the penalty for each violation is the greater of ten dollars ($10) for every gallon of diesel fuel involved or the product of one thousand dollars ($1,000) and the total number of penalties, including the penalty currently being determined, imposed by this section on the person (or a related person or any predecessor of that person or related person).
The IRS has similar notice requirements and may assess additional penalties under federal law.
Prepayment of Sales Tax on Dyed Diesel Fuel
The prepayment of sales tax amount is the same for all diesel fuel regardless of whether it is clear or dyed. This is because dyed diesel fuel may be used on the highway in both exempt and nonexempt manners.
No Refund for Tax Paid on Diesel Fuel Converted to Dyed Diesel Fuel
Dyed diesel fuel must meet the marking requirements of the IRS. The law does not allow for refunds of tax paid on diesel fuel converted to dyed diesel fuel, except for the following exceptions:
- Tax that was paid on biodiesel fuel that was placed into an approved terminal and removed as dyed blended biodiesel fuel,
- Tax-paid diesel fuel lost through the accidental conversion of undyed diesel fuel to dyed diesel fuel; or
- Tax-Paid diesel fuel was lost through the intentional conversion of undyed diesel fuel to dyed diesel fuel in the ordinary course of handling (such as purging hoses).
See Tax-Paid Biodiesel Blended with Diesel Fuel and Removed as Dyed Blended Biodiesel for further information.
If you voluntarily convert tax-paid diesel fuel, including biodiesel, below the rack, to dyed diesel fuel, you may not claim a credit or refund of the taxes paid on the undyed diesel fuel and you may not charge your customer the diesel fuel tax on any dyed diesel fuel sales.
Tax-Paid Diesel Fuel Removed from an Approved Terminal
Diesel Fuel Tax Regulation 1435, Tax Paid Twice on the Amount of Diesel Fuel Removed from an Approved Terminal, was amended effective February 03, 2022. The regulation clarifies that a supplier who has an adequate amount of tax-paid diesel fuel inventory at an approved terminal is allowed a credit or refund for a tax-paid twice credit when it makes taxable removals of its diesel fuel inventory at the approved terminal at the rack, if all the conditions listed in Regulation 1435 are met, but in general, a supplier must:
- Place tax-paid diesel fuel into inventory at an approved terminal,
- Remove diesel fuel from the same approved terminal at the rack,
- Report the removal of diesel fuel on their Supplier of Diesel Fuel Tax Return as a taxable transaction, and
- Prepare and retain a reconciliation by transaction of the number of tax-paid gallons of diesel fuel it placed into inventory at the approved terminal and had available for a credit or refund during the reporting period for the tax return on which the credit is taken or each reporting period for which a claim for refund is filed. See Regulation 1435 for the reconciliation requirement details.
If you fail to take a credit on a tax return filed within three months after the close of the calendar month in which the diesel fuel was removed from the approved terminal at the rack, you must file a timely claim for refund to recover the second tax imposed on the removal of diesel fuel. See Regulation 1435 and R&TC section 60501(c) for requirements on filing a timely claim for refund.
Sales Tax on Diesel Fuel and MVF Sales
Retail sales of fuel are generally subject to sales tax.
For information related to retail sales of fuel, including information on fuel signage requirements and calculation of tax-included selling price, please see publication 25, Auto Repair Garages and Services Stations.
Calculation of Sales Tax—Diesel Fuel
Generally, the price per gallon of diesel includes the cost of the diesel, the state and federal excise taxes, and the sales tax. (Some prices may include the state Underground Storage Tank Maintenance Fee.) The sales tax rate for diesel fuel (October 1, 2022, through September 30, 2023) is 9.0625 percent plus applicable district taxes. This rate includes the additional 4.00 percent sales tax rate applicable on retail sales of diesel fuel and the temporary partial sales and use tax exemption of 3.9375 percent.
Federal and state excise taxes. The federal excise tax on diesel is currently 24.4 cents ($0.244) per gallon. The state diesel fuel excise tax (July 1, 2023, through June 30, 2024) is 44.1 cents ($0.441) per gallon. For current rates, please see Tax Rates—Special Taxes and Fees on our website.
California sales tax. When determining the sales tax rate you must also include any applicable district taxes that are in effect at the location where the diesel fuel is sold. For current sales tax rates, please see California City & County Sales & Use Tax Rates.
Do not include the diesel fuel tax amount in the calculation of your gross receipts for the calculation of sales tax. As shown in the following example, the sales tax rate is applied to the price of the fuel after the federal excise tax has been added, but before the state diesel fuel tax is added.
A tax-included price for diesel fuel is computed as follows:
Calculation of Sales Tax—Motor Vehicle Fuel
Generally, the price per-gallon of gasoline includes the cost of the gasoline, the federal and state excise taxes, and the sales tax. (Some prices may also include the state Underground Storage Tank Fee.)
Federal and state excise taxes. The federal fuel tax on gasoline is currently 18.4 cents ($0.184) per gallon. The state motor vehicle fuel tax (July 1, 2023 through June 30, 2023) is 57.9 cents ($0.579) per gallon. For more fuel tax and fee rates, please see Tax Rates—Special Taxes and Fees.
California sales tax. The applicable sales and use tax rate imposed on sales of motor vehicle fuel is 2.25 percent, plus any applicable district taxes. If you have any questions regarding the imposition of district taxes, please see publication 105, District Taxes and Sales Delivered in California.
Motor vehicle fuel includes gasoline and aviation gasoline; however, sales of aviation gasoline are exempt from sales tax.
Include the motor vehicle fuel tax amount in the calculation of your gross receipts for the calculation of sales tax. As shown in the following example, the sales tax rate is applied to the price of the motor vehicle fuel after the federal and state excise taxes have been added.
A tax-included price for gasoline is computed as follows:
Higher Statewide Sales and Use Tax Rate on Retail Sales of Diesel Fuel
Under the Fuel Tax Swap, retail sales of diesel fuel are taxed at a higher sales and use tax rate. Therefore, sales of diesel fuel are subject to the statewide sales and use tax rate plus the additional sales and use tax rate applicable to diesel fuel. See our Sales Tax Rates for Fuels webpage for current sales tax rates on fuels.
Partial Exemptions from Sales and Use Tax on Retail Sales of Diesel Fuel
There are two types of partial exemptions from the sales and use tax on retails sales of diesel fuel.
- Purchasers that qualify as exempt bus operators and train operators and other users who use diesel fuel off-highway or in any other exempt manner are exempt from the additional sales and use tax imposed under R&TC sections 6051.8 and 6201.8 on purchases of diesel fuel for use in these exempt activities. Qualified purchasers must provide the seller with a completed CDTFA-230-R-1, Exemption Certificate Train Operators, Off-Highway Use, or Bus Operation.
- Qualified individuals who use diesel fuel in qualified farming activities or qualified food processing are exempt from the increased sales and use tax rate on diesel fuel purchases for use in the qualified activity. The purchaser must provide the seller with a CDTFA-230-D, Partial Exemption Certificate Qualified Sales and Purchases of Farm Equipment and Machinery in accordance with Sales and Use Tax Regulation 1533.2.
Prepaid Sales Tax Rate on Diesel Fuel
The current and historical prepaid sales tax rates on diesel fuel, motor vehicle fuel, and aircraft jet fuel are available on our webpage, Sales Tax Rates for Fuels.
Suppliers, wholesalers, and retailers of diesel fuel, motor vehicle fuel, and aircraft jet fuel are notified of the new rates by Special Notice after the rates are determined. The rates will generally remain in effect from July 1 through June 30 of the following year. For example, the rates set in 2023 would be in effect from July 1, 2023, through June 30, 2024. However, we may adjust the prepaid sale tax rates if the prices of these fuels increase or decrease after the rates have been set for the year to prevent prepayments that exceed or are significantly lower than the fuel retailers' sales tax liability.
Cap and Trade Compliance Costs
Transportation fuels are subject to California's Cap-and-Trade Program (“Program”). Fuel suppliers covered under the Program may incur compliance costs, which will vary depending on the type of fuel and the fuel supplier's costs of compliance. Fuel suppliers may include the compliance costs into the prices for the fuels they sell. When these regulatory compliance costs are passed on to the consumer as part of the sales price of fuel, they are subject to sales and use tax.
If you are a fuel wholesaler or retailer, your supplier may include compliance costs as either a separate line item or within the total fuel price you pay. Generally, sales to retailers are considered nontaxable sales for resale. However, if you sell fuel directly to consumers, compliance costs (either included in your fuel selling price or separately stated as a line item) are subject to sales and use tax.
For more information on this Program, please visit the California Air Resources Board's webpage at Cap-and-Trade Program, or you may contact the Cap-and-Trade Hotline at 1-916-322-2037.
The United States is not included in the definition of a person on whom the diesel fuel tax is imposed. The following are some examples of federal entities that are exempt from the diesel fuel tax.
- U.S. Postal Service
- Army and Air Force Exchange Service
The United States is included in the definition of a person on whom the motor vehicle fuel tax is imposed, except when the motor vehicle fuel is sold to the United States armed forces for use in ships or aircraft, or for use outside California.
State and Local Entities
California and its political subdivisions, for example school districts and city municipalities, are not exempt from the California fuel excise tax. However, these entities can purchase dyed diesel fuel for on-highway use. To do so, they must register with us to report and pay the excise tax on dyed diesel fuel used on public highways. For more information on government entities, see the Exempt Bus Operator & Government Entity page.
The following penalties are applicable to diesel fuel and motor vehicle fuel, as stated, in addition to late filing, payment, and other penalties covered in publication 75, Interest, Penalties, and Collection Cost Recovery.
If you become a diesel fuel supplier without first securing a license, the penalty for an unlicensed person is twenty-five percent (25%) of the amount of tax or $500, whichever is greater. This is in addition to the ten percent (10%) penalty for failure to file a return by its due date.
If you become a motor vehicle fuel supplier without first securing a license, we will determine as best we can the amount of motor vehicle fuel removed, sold, or entered and immediately assess the tax on the amount. In addition to the tax, we will add a penalty of twenty-five percent (25%) of the amount of the tax.
Dyed Diesel Fuel Penalty
Using dyed diesel fuel to power vehicles on California roads and highways is not permitted unless you are authorized to do so by federal and state law and are licensed by us. The penalty for each violation of unauthorized use of dyed diesel fuel on California roads and highways is the greater of $10 for every gallon of dyed diesel fuel involved or the product of $1,000, and the total number of penalties, including the penalty currently being determined, previously imposed on the person. The penalty is generally imposed against the vehicle owner.
Backup Tax Penalty
In California, the diesel fuel tax is due when diesel fuel is removed from the rack (terminal) or imported into California. A backup tax is owed on diesel fuel that is placed into the fuel tank of a motor vehicle when the diesel fuel tax was not imposed or was refunded. In addition to the backup tax, a penalty of twenty-five percent (25%) of the amount of tax or $500, whichever is greater, will be imposed.
The backup tax is assessed on:
- The sale or delivery of motor vehicle fuel into the tank of a motor-vehicle-fuel-powered vehicle or any other liquid on which tax has not been imposed, or
- On the sale of motor vehicle fuel for which a claim for refund has been allowed.
Misuse of Exemption Certificate
If you present an exemption certificate to purchase diesel fuel or motor vehicle fuel without tax and know at the time of purchase you will not use the fuel in an exempt manner, you will be liable for the tax. In addition to the tax, a penalty of twenty-five percent (25%) of the tax or $1,000, whichever is greater per certificate issued, and interest will be imposed.
Reporting Suspected Fuel Tax Evasion
We have an investigations team who identify tax evasion and new fraud schemes, and investigate and assist in the prosecution of crimes.
Visit our Report Suspected Tax Fraud Activity webpage for more information and examples of fuel tax evasion.
You can report a Tax Evasion Complaint online, by mail or by calling 1-888-334-3300.
Annual Excise Tax Adjustments
We are required to adjust the excise tax rates on Motor Vehicle Fuel and Diesel Fuel beginning July 1, 2020, and every July 1 thereafter, by increasing the taxes by a percentage amount equal to the increase in the California Consumer Price Index, as calculated by the Department of Finance, with the resulting taxes for each component of the respective fuel rate rounded to the nearest one-tenth of one cent ($0.01). (Senate Bill 1) [Chapter 5, Statutes of 2017]