Motor Fuel Tax
Background
Enacted in 1933, the gasoline tax is imposed on the sale of gasoline and its derivatives.1 The special fuels tax is imposed on the sale of diesel engine fuel and other alternative fuels. The tax is collected from the distributor of the fuel or terminal operator and is due once the fuel is removed from storage for distribution. The tax is calculated on gross gallons acquired and is required to be remitted on all transfers from the previous month by the 26th calendar day of the month. Payments are made via electronic funds transfers to the executive director of the Department of Revenue.2 For filing instructions, visit the Department of Revenue website. Motor fuel tax revenue is subject to the spending and revenue limitations of TABOR.
Tax Rate
The gasoline tax is assessed at a rate of 22¢ per gallon. Gasoline is defined as “any flammable liquid used primarily as a fuel for the propulsion of motor vehicles, motor boats, or aircraft.”3 This includes conventional gasoline and several derivate blends, such as Gasohol or E10, which is a blend of gasoline and ethanol composed of 10 percent or less ethanol.
The special fuels tax is assessed at a rate of 20.5¢ per gallon.4 Special fuels include diesel fuel, kerosene, and ethanol blends of more than 10 percent ethanol, when used for the generation of power to propel a motor vehicle on highways. Beginning in 2014, compressed natural gas (CNG), liquefied natural gas (LNG), and liquefied petroleum gas (LPF) became subject to tax at rates that phased in over time. Beginning in 2019, these rates were fully phased in at 18.3¢ for CNG, 12¢ for LNG, and 13.5¢ for LPF.
Beginning July 1, 2022, gasoline and special fuels are subject to additional road usage fees, and special fuels are subject to additional bridge and tunnel impact fees. Fee schedules phase in over time. Road usage fees are subject to TABOR, while bridge and tunnel impact fees are credited to a TABOR-exempt state enterprise. Because these charges are fees, not taxes, they are omitted from the visualization in this tax handbook.
Tax Exemptions
Fuel that is not used to power vehicles on public roads is exempt from the motor fuel tax. For example, the following fuel uses are exempt:
-
special fuels used for residential heating, lighting, refrigeration, cooking, cooling and power purposes;5
-
special fuels used to operate tractors, trucks, or other farm implements or machinery off-highway when being used for agricultural purposes on farms or ranches;6
-
special fuel used in processing, manufacturing, mining (including oil and gas exploration and production), refining, irrigation, construction, telegraph, telephone and radio communication, street and railroad transportation services, and all industrial uses.7
Distribution
Motor fuel revenue is deposited into the Highway Users Tax Fund (HUTF) and from there it is distributed to the state, counties, and cities based on a statutory formula.8 Motor fuel tax revenue is divided into two “pots” prior to allocation: the first 7¢ of the tax rate and everything else (above 7¢). The first 7¢ is distributed 65 percent to the State Highway Fund, 26 percent to counties, and 9 percent to cities after off-the-top deductions occur. Off-the-top deductions fund the Ports of Entry under the Department of Revenue, the Colorado State Patrol, and the Department of Public Safety. Funds above 7¢ are distributed to the State Highway Fund, counties, and cities at proportions of 60 percent, 22 percent, and 18 percent, respectively.
Federal Taxes
The federal gasoline tax is assessed at 18.3¢ per gallon. The federal special fuels tax is assessed at 24.3¢ per gallon on diesel fuel, and 13.2¢ per gallon on liquefied petroleum gas and gasoline gallon equivalent of compressed natural gas. Several federal tax credits are available, including the alternative fuel credit, alternative fuel mixture credit, and renewable diesel credit. In addition, the federal government administers red dyed diesel, which is diesel fuel used for off-highway uses. The state exempts red dyed diesel from state fuel taxes. For more information, visit the Internal Revenue Service website on fuel taxes.
____________________