President Biden announced he wants of the federal excise tax on gasoline and diesel fuel. The 18.4 CPG tax on gasoline and 24.4 CPG tax on diesel supplies a majority of federal funding used to build and maintain highways. President Biden’s proposal to stop collecting the federal motor fuel taxes would cost roughly $10 billion.
The Energy Marketers of America (EMA) has raised concerns that a federal gas tax holiday would lead to a logistical nightmare for gasoline marketers.
The IRS imposes the 18.3 cpg excise tax on gasoline and the 0.1 cpg tax for the Leaking Underground Storage Tank Trust Fund (LUST) at the terminal rack. Downstream marketers purchase gasoline from terminals at the 18.4 cpg tax included rate then deliver it to their retail sites for sale to consumers. Should a gas tax holiday be enacted, retailers must recoup the 18.4 cpg tax paid on the amount of gasoline remaining in their underground tanks (floor stocks) at the time of enactment.
1. Lengthy Claim Processing Delays
Before retailers can file for a credit or refund on floor stock inventory, the IRS must create procedures for filing claims, draft a new claim form, issue guidance on how claims are filed and create internal procedures to process and pay the claims. Not only will the time required for setting up the claim procedure be lengthy, but the length of time to process and pay claims could take a year or more given the current processing delays at the IRS. This means retailers must float the tax for a lengthy period of time until their claim is paid. Claims will likely amount to hundreds of thousands of dollars. Small business retailers do not have the resources to tie up capital for this length of time.
2. Increased Risk for Overreporting and Underreporting Claims
Another challenge for retailers is how to accurately determine the amount of floor stocks on hand at the precise moment the gas tax holiday becomes effective. Taking inventory at multiple sites simultaneously is an impossible task. Retailers lack the staffing to take inventory readings. Even if it were possible, retailers would be forced to shut down pumps to get accurate readings resulting in lost sales revenue. The difficulty of determining inventory across multiple sites simultaneously not only exposes retailers to a higher risk of liability for overreporting claims on floor stock inventory, but also run the risk of losing money if they underreport.
3. Exposure to Aggressive State Anti- Gouging Laws
Finally, a gas tax holiday would unfairly expose retailers to aggressive state anti-gouging laws. The price of gasoline is largely determined by parties upstream in the distribution chain from retailers. A wide array of factors, largely beyond the control of retailers, determine the cost per gallon for gasoline at the pump. Prices often vary from retailer to retailer due to differences in branded supply agreements or discounts available to some retailers but not others. Retail margins are measured in pennies per gallon. Unfortunately, as the last link in the distribution chain, retailers are often blamed if prices rise too high or do not fall fast enough. A gas tax holiday will raise expectations among consumers that prices will fall significantly at the pump. If prices don’t meet consumer expectations, retailers will be unfairly exposed to liability for price gouging and subject to heavy fines and possible criminal penalties.