Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 79-96

1979-1 C.B. 334

Section 4041 -- Special Fuels Tax

IRS Headnote

Diesel fuel; liability for tax under coded meter system. Three situations illustrate the consequences of the tax imposed by section 4041(a) of the Code and determine the liability of the distributor or producer on certain sales and uses of diesel fuel where the distributor sells the fuel at an unattended, self service, remote location through a system in which purchaser uses a coded key to obtain the fuel through meters designated as "taxable" and "nontaxable", and the purchaser either signs a statement of taxable use or does not provide a written statement.

Full Text

Rev. Rul. 79-96

ISSUE

Is the purchaser or the distributor of diesel fuel liable for the tax imposed by section 4041(a) of the Internal Revenue Code of 1954 on certain sales and uses of the fuel if the distributor sells the fuel under a keyed meter system and certain meters in the system are designated as "taxable," and others are designated as "nontaxable"?

FACTS

Situation (1). A distributor of petroleum products installed self service diesel fuel pumps and an underground storage facility at an unattended lot that is remote from its place of business. The facility is for the accommodation of customers who require the availability of diesel fuel day and night.

The pumps have panels of meters that record the amount of diesel fuel that is withdrawn by each customer. Each panel has a totalizer meter that records the sum of all the meters on the panel. The pumps and meters have locks that can only be opened by a key.

Each customer is assigned a meter and given a key for that meter. The key turns on that meter, the totalizer meter, and a pump. The customer draws the fuel, and once a month the distributor reads the meter and bills the customer for the fuel that it withdrew for the past month.

In general, the customers purchase fuel only for a taxable use and are each assigned one meter that is designated as "taxable." However, if a customer also purchases fuel for a nontaxable use the customer is assigned two meters. One meter is designated as "taxable," and the other is designated as "nontaxable." The distributor bills customers separately on any fuel that is purchased through the use of "nontaxable" meters.

Situation (2). The facts are the same as in Situation (1) except that the distributor provides at the location a supply of preprinted forms containing spaces for the customer to describe a particular purchase, such as date, quantity, and customer signature, and a statement that the entire quantity of the liquid covered by the sale is for use by the customer for a taxable purpose as fuel in a diesel-powered highway vehicle. Instructions posted at the location indicate that customers using taxable meters shall complete a form and deposit it in a locked receptacle at the location. The distributor periodically removes the forms from the receptacle and retains them.

Situation (3). The facts are the same as in Situation (1) except that purchasers furnish the distributor in advance, once every four calendar quarters, a written statement that all the fuel to be pumped through the taxable meter during that period will be used by the purchaser for a taxable purpose as a fuel in a highway vehicle.

LAW AND ANALYSIS

The applicable sections of the Code and the Manufacturers and Retailers Excise Tax Regulations are 4041(a), imposing a tax on the sale or use of diesel fuel, and 48.4041-4(a), relating to the taxability of liquid delivered into purchasers' tanks. Under section 48.4041-4(a) of the regulations, the sale of diesel fuel to an owner, lessee or other operator of a diesel-powered highway vehicle is a taxable sale of such liquid for which the seller is seller into the fuel supply tank of the liable if the liquid is delivered by the vehicle or where not so delivered, the purchaser indicates in writing to the seller prior to or at the time of the sale that the entire quantity of the liquid covered by the sale is for use by the purchaser for a taxable purpose as a fuel in such a vehicle. If such a written statement is not furnished, the purchaser will be liable for the tax at the applicable rate on that quantity of the liquid which is used by it as fuel in such a vehicle, or which is sold by it in a taxable transaction.

Rev. Proc. 73-20, 1973-2 C.B. 470, provides that a purchaser of diesel fuel who maintains a storage facility from which the fuel is drawn exclusively for use as fuel for a taxable purpose may indicate to a seller in writing once every four calendar quarters that the entire quantity of the liquid to be purchased by it during that period and delivered to that particular facility is for use as fuel for a taxable purpose.

In the above situations, the distributor does not deliver the fuel into the fuel tank of the vehicle. The distributor is not present and does not have visual knowledge of how the fuel is delivered.

In Situation (1), a purchaser does not make a written statement, as a result of purchasing fuel through such a system, to the effect that the entire amount of the fuel will be used for a taxable purpose. The meter records the amount of fuel that is withdrawn by a purchaser, but this is not a written statement made by the customer. The customer does not actually write anything in connection with a particular purchase. Thus the requirements of section 48.4041-4(a) of the regulations for imposing tax on the distributor are not satisfied.

On the other hand, under the procedure in Situation (2) the written statement requirement of the regulation is met for a particular sale when a purchaser completes one of the distributor's forms in connection with that sale and deposits it in the receptacle provided by the distributor.

In Situation (3), consistent with Rev. Proc. 73-20, the written statement requirement of the regulation is met for all sales of fuel to a particular purchaser through the taxable meter during the specified period when the purchaser furnishes the distributor in advance the statement described in that situation.

HOLDINGS

In Situation (1), the distributor of the fuel is not liable for the tax imposed by section 4041(a) of the Code as a result of distributing fuel through the keyed meter system. In the absence of the written statement, the purchaser of the fuel is liable for the tax imposed by section 4041(a) on fuel that is purchased through the use of either a "taxable" or a "nontaxable" meter and that is used by the purchaser in a highway vehicle or that is sold by the purchaser in a taxable transaction.

In Situations (2) and (3), the distributor is liable for the tax imposed by section 4041(a) of the Code on the fuel sold as recorded by the taxable meters, and for which it has received completed forms or written statements, respectively, from the purchasers.