Diesel Fuel Excise Tax; Dye Color and Concentration |
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Leslie Samuels
Department of the Treasury
30 June 1994
[Federal Register Volume 59, Number 125 (Thursday, June 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15799]
[[Page Unknown]]
[Federal Register: June 30, 1994]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 48
[TD 8550]
RIN 1545-AP48; 1545-AS32
Diesel Fuel Excise Tax; Dye Color and Concentration
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to dye color
and concentration requirements for tax-exempt diesel fuel. These
regulations implement changes made by the Omnibus Budget Reconciliation
Act of 1993 and affect refiners, importers, terminal operators, and
throughputters.
EFFECTIVE DATE: These regulations are effective January 1, 1994.
FOR FURTHER INFORMATION CONTACT: Frank Boland, (202) 622-3130 (not a
toll-free number.)
SUPPLEMENTARY INFORMATION:
Background
Section 4081 was amended to apply to diesel fuel by the Omnibus
Budget Reconciliation Act of 1993. Temporary regulations relating to
the diesel fuel excise tax imposed by section 4081 were published in
the Federal Register on November 30, 1993, (58 FR 63069) along with a
notice of proposed rulemaking (PS-52-93) cross-referencing the
temporary regulations (58 FR 63131). Amendments to these temporary
regulations (relating to dye color and concentration) were published in
the Federal Register on December 27, 1993, (58 FR 68304) along with a
notice of proposed rulemaking (PS-76-93) cross-referencing those
amendments (58 FR 68338).
Written comments responding to these notices were received and a
public hearing was held on March 22, 1994. After consideration of the
comments relating to the exemption from the diesel fuel tax imposed by
section 4081, Sec. 48.4082-1 (as proposed in PS-52-93 and PS-76-93) is
adopted as revised by this Treasury decision and the corresponding
temporary regulations are removed. The comments and revisions are
discussed below. Other sections of the proposed and temporary
regulations remain in force until final regulations on those topics are
issued.
Existing IRS and EPA Regulations
Effective October 1, 1993, Environmental Protection Agency (EPA)
regulations (40 CFR 80.29) make it unlawful for any person to
manufacture, sell, supply, offer for sale or supply, dispense,
transport, or introduce into commerce diesel fuel that contains a
concentration of sulfur in excess of 0.05 percent (by weight) (high-
sulfur diesel fuel) unless the fuel contains visible evidence of the
blue dye 1,4 dialkylamino-anthraquinone. A substantial penalty applies
to the use of high-sulfur diesel fuel in motor vehicles.
Effective January 1, 1994, the Federal excise tax on diesel fuel
imposed by section 4081 does not apply to removals of diesel fuel that
is indelibly dyed (or dyed and marked) in accordance with IRS
regulations. Section 48.4082-1T(b) of the Manufacturers and Retailers
Excise Tax Regulations and a transitional rule in Notice 94-21, 1994-11
Internal Revenue Bulletin 32, provide that diesel fuel that is required
to be dyed blue pursuant to EPA's high-sulfur diesel fuel program
satisfies the IRS dyeing requirement only if it contains blue dye of
the prescribed concentration level. Diesel fuel that is not required to
be dyed blue pursuant to EPA's high-sulfur diesel fuel program
satisfies the IRS dyeing requirement only if it contains a red dye of a
prescribed type and concentration. In addition, the Commissioner is
given authority to modify the dyeing requirements by approving the use
of other dyes.
Safety Issues Regarding Aviation Gasoline
No Federal regulations require the dyeing of aviation gasoline
(avgas). However, avgas is dyed by refiners to differentiate various
grades of the fuel and to distinguish avgas from clear, kerosene-based
jet fuel. As a result of this practice, more than 90 percent of
domestic avgas is dyed blue or green. Extensive training has been
conducted within the aviation community to assure that pilots,
mechanics, fuel service personnel, and vendors are thoroughly familiar
with the meaning and use of color in fuels. This training is important
because contamination of avgas by even small amounts of other fuel can
cause an engine failure.
The Federal Aviation Administration, EPA, and IRS are concerned
that blue-dyed diesel fuel might be mistaken for blue or green avgas.
Of particular concern is the possibility of misfuelings in remote
locations where fuels are dispensed into nonstandard containers or
where different fuels are stored in similar containers in close
proximity to each other.
Public Comments
The IRS received comments from refiners, pipeline and terminal
operators, and others in the diesel fuel distribution system concerning
the dye color and concentration requirements of the temporary and
proposed regulations. In general, these comments suggested that the
blue dye concentration level should be lower than that scheduled to go
into effect on July 1, 1994, and the red dye concentration should be
lower than the current requirement (3.9 pounds per thousand barrels
(ptb) when expressed as a solid dye standard). The comments expressed
concern that the required concentration level might cause sedimentation
in pipelines and engines and make the petroleum industry's tests for
cloud point and haze more difficult to conduct. A comment from a dye
manufacturer indicated, however, that the required red dye is
completely soluble in fuel and noted that an independent laboratory had
no difficulty in conducting the cloud point and haze test. The IRS
carefully considered these public comments in developing the final
regulations.
IRS Concerns
In addition to its concerns about aviation safety, the IRS believes
that enforcement of the diesel fuel excise tax will be impaired unless
the dye in fuel is visible when that fuel is diluted as part of any
practicable plan of large-scale tax evasion. In determining the
appropriate dye color and concentration requirements to address this
concern, the IRS inspected numerous samples of diesel fuel containing
various colors and concentrations of dye. Many of these samples were
independently produced by the IRS and others were provided by the
petroleum industry and dye manufacturers.
Explanation of Final Regulations
In order to avoid any possible confusion with blue or green avgas,
these final regulations provide that beginning October 1, 1994, diesel
fuel can no longer be dyed blue for tax exemption purposes. Rather, red
dye will be used to identify all tax-exempt diesel fuel, regardless of
the sulfur content of that fuel. The Commissioner will retain the
authority to modify this requirement by approving the use of other
dyes, but will not permit the use of dyes that could cause diesel fuel
to be mistaken for avgas. In addition, a transitional rule will permit
tax-free removals of high-sulfur diesel fuel that was dyed blue before
October 1, 1994.
The red dye concentration required by the final regulations is the
equivalent of the red dye concentration currently required by IRS for
tax-exempt low-sulfur diesel fuel. In the final regulations, however,
the required red dye concentration is expressed in terms of a solid dye
standard, which is uniform among dye manufacturers, rather than in
terms of the dye's active ingredient. This change does not impose any
additional requirements on diesel fuel that was dyed red under the
rules in effect before the issuance of the final regulations. Thus,
diesel fuel that was dyed red in accordance with those rules will
satisfy the solid dye standard in the final regulations.
Based on its inspection of dyed diesel fuel samples, the IRS
believes the 3.9 ptb concentration required by the final regulations is
necessary to address its concerns regarding dilution. In many cases
involving the diesel fuel dyed with less than 3.9 ptb, the dye was not
visible when the fuel was diluted. Thus, a required concentration level
of less than 3.9 ptb could result in considerable diesel fuel tax
evasion.
The IRS understands the petroleum industry's concerns on the
concentration issue and will continue to monitor the effectiveness of
the 3.9 ptb standard.
Action by EPA
In conjunction with these IRS final regulations, EPA is issuing
regulations in a future issue of the Federal Register that require
high-sulfur diesel fuel to be dyed red rather than blue. The EPA rule
and the IRS rule have the same effective dates.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notices of proposed rulemaking preceding these regulations were
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Frank Boland, Office
of Assistant Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects in 26 CFR Part 48
Excise taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 48 is amended as follows:
PART 48--MANUFACTURERS AND RETAILERS EXCISE TAXES
Paragraph 1. The authority citation for part 48 is amended by
removing the entry for ``Sections 48.4082-1T and 48.4082-2T'' and
adding the following entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 48.4082-1 and 48.4082-2T also issued under 26 U.S.C.
4082(c). * * *
Par. 2. Section 48.4082-1T is removed and Sec. 48.4082-1 is added
to read as follows:
Sec. 48.4082-1 Diesel fuel tax; exemption.
(a) Exemption. Tax is not imposed by section 4081 on the removal,
entry, or sale of any diesel fuel if--
(1) The person otherwise liable for tax is a taxable fuel
registrant;
(2) In the case of a removal from a terminal, the terminal is an
approved terminal; and
(3) The diesel fuel satisfies the dyeing and marking requirements
of paragraph (b) of this section.
(b) Dyeing and marking requirements--(1) Dyeing; high sulfur fuel
before June 28, 1994. Diesel fuel that is required to be dyed blue
pursuant to the Environmental Protection Agency's high sulfur diesel
fuel requirement (40 CFR 80.29) satisfies the dyeing requirement of
this paragraph (b) only if it contains--
(i) For periods before April 1, 1994, the blue dye 1,4
dialkylamino-anthraquinone in a concentration of at least 1.2 pounds of
active ingredient (exclusive of the solvent) per thousand barrels of
diesel fuel;
(ii) For periods after March 31, 1994, and before June 28, 1994,
the blue dye 1,4 dialkylamino-anthraquinone (Color Index Solvent Blue
98) in a concentration of at least 4 pounds of active ingredient
(exclusive of the solvent) per thousand barrels of diesel fuel; or
(iii) Any dye of a type and in a concentration that has been
approved by the Commissioner.
(2) Dyeing; low sulfur fuel before June 28, 1994. Before June 28,
1994, diesel fuel that is not described in paragraph (b)(1) of this
section satisfies the dyeing requirement of this paragraph (b) only if
it contains--
(i) The dye Solvent Red 164 at a concentration spectrally
equivalent to 3.9 pounds per thousand barrels of the solid dye standard
Solvent Red 26; or
(ii) Any dye of a type and in a concentration that has been
approved by the Commissioner.
(3) Dyeing; all diesel fuel after June 27, 1994.
(i) After June 27, 1994, and before October 1, 1994, diesel fuel
satisfies the dyeing requirement of this paragraph (b) only if it--
(A) Is required to be dyed pursuant to the Environmental Protection
Agency's high-sulfur diesel fuel program (40 CFR 80.29) and contains
the blue dye 1,4 dialkylamino-anthraquinone (Color Index Solvent Blue
98) in a concentration of at least 4 pounds of active ingredient
(exclusive of the solvent) per thousand barrels of diesel fuel;
(B) Contains the dye Solvent Red 164 at a concentration spectrally
equivalent to 3.9 pounds per thousand barrels of the solid dye standard
Solvent Red 26;
(C) Is a mixture of diesel fuels each of which satisfies the dyeing
requirement described in paragraph (b)(3)(i)(A), (B), or (D) of this
section; or
(D) Contains any dye of a type and in a concentration that has been
approved by the Commissioner.
(ii) After September 30, 1994, diesel fuel (regardless of sulfur
content) satisfies the dyeing requirement of this paragraph (b) only if
it--
(A) Contains the dye Solvent Red 164 at a concentration spectrally
equivalent to 3.9 pounds per thousand barrels of the solid dye standard
Solvent Red 26;
(B) Is required to be dyed pursuant to the Environmental Protection
Agency's high-sulfur diesel fuel program (40 CFR 80.29) and contains
the blue dye 1,4 dialkylamino-anthraquinone (Color Index Solvent Blue
98) that was added to the fuel, in a concentration of at least 4 pounds
of active ingredient (exclusive of the solvent) per thousand barrels of
diesel fuel, before October 1, 1994;
(C) Is a mixture of diesel fuels each of which satisfies the dyeing
requirement described in paragraph (b)(3)(ii) (A), (B), or (D) of this
section; or
(D) Contains any dye of a type and in a concentration that has been
approved by the Commissioner.
(4) Marking. [Reserved]
(c) Effective date. This section is effective January 1, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: June 17, 1994.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-15799 Filed 6-28-94; 2:29 am]
BILLING CODE 4830-01-U