Where does the federal excise tax show up on a diesel invoice?
It shows up either as its own line, often labelled “federal excise tax” or “FET”, or folded into the per-gallon price with no line at all. Both are legitimate. Find out which one your supplier uses, because the two make a quote look different when you compare them.
IRS Publication 510 puts the tax on diesel fuel and kerosene at $0.244 per gallon. Say you take 8,000 gallons of taxed diesel. The numbers below are illustrative, except the rate:
| Invoice line | Gallons | Rate per gallon | Amount |
|---|---|---|---|
| Diesel, product and freight (illustrative) | 8,000 | $2.600000 | $20,800.00 |
| Federal excise tax | 8,000 | $0.244000 | $1,952.00 |
| Subtotal | $22,752.00 |
If the supplier folds the tax in, the same invoice reads 8,000 gallons at $2.844000, for the same $22,752.00. A quote that leaves the tax out reads $0.244 lower than the rate you end up paying. State and local taxes, if any, are separate and not covered here.
When is the tax actually charged?
The tax is charged when fuel is removed at the terminal rack, not when you receive it. Section 4081 of the Internal Revenue Code imposes the tax on removal from a refinery, removal from a terminal, entry into the United States, and sale to an unregistered person. Publication 510 says all removals of diesel fuel and kerosene at a terminal rack are taxable. A rack is the point where fuel is loaded into a truck or other transport that is not a pipeline or vessel.
Fuel moving in bulk by pipeline or vessel between registered parties is not taxed at that step, which is why the tax lands at the rack and not earlier. This is also why the tax sits inside the rack price conversation: the rack is where the product, and the tax on it, change hands.
Who pays it, and who ends up bearing it?
The position holder pays it to the government, and everyone downstream pays it through the price. Publication 510 says the position holder for that fuel is liable for the tax. The position holder is the person who holds the inventory position in the fuel at the terminal, as reflected in the terminal operator’s records. That is often the supplier whose fuel is lifted at a carded terminal, but it need not be the company that drives the truck or the company that invoices you.
The rules only assign liability. In practice each seller adds the tax to the price it charges the next buyer, so the end buyer of taxed fuel bears it. Your contract decides how it is shown, and it is worth reading before the first invoice arrives: a delivered price that says “tax included” and a rack-plus price that adds the tax as its own line carry the same tax, shown two ways. Ask your supplier which one you have, and ask again if the pricing basis changes between quotes.
What is the difference between taxed and dyed diesel?
Taxed diesel is undyed fuel sold with the excise tax included; dyed diesel is fuel sold without the tax for uses the law exempts. Publication 510 says the excise tax is not imposed on the removal, entry, or sale of diesel fuel or kerosene that meets its registration, approved-terminal and dyeing conditions, other than the LUST tax. Section 4081 adds 0.1 cent per gallon to the base 24.3 cents for the Leaking Underground Storage Tank Trust Fund, which is how the rate reaches $0.244.
| Taxed (undyed) diesel | Dyed diesel | |
|---|---|---|
| Federal excise tax | Charged, $0.244 per gallon | Not charged, except the $0.001 LUST tax |
| Where it appears | Own line or inside the rate | Often a “tax exempt” or “dyed” notation |
| Who it is for | Fuel that does not qualify for the exemption | Fuel that meets the exemption conditions in Publication 510 |
| If misused | Not applicable | Publication 510 sets a penalty of the greater of $1,000 or $10 per gallon in the situations it lists |
Check the product description on the invoice. If the delivery ticket or invoice says dyed and you did not order dyed fuel, call the supplier before you use it.
What should I check on the invoice?
Check four things:
- Product and tax status match. Dyed fuel only where the exemption conditions are met.
- The tax is on the gallons you received. Tax multiplies by delivered quantity, so a quantity difference moves it. See why your fuel invoice changed after delivery.
- The tax is not counted twice. If the rate already includes it, there should be no separate line.
- Quotes are compared on the same basis. A rate with the tax in it and a rate without it are $0.244 apart before anything else differs. How to compare bulk fuel quotes covers the full list. The delivery ticket guide shows where the product and quantity are recorded.
How Energy Connect handles it
Energy Connect does not decide the federal excise tax rate or who owes it, and it is not a tax adviser. The useful habit is the one above: read the product description, the gallons and the tax treatment on each invoice line before you compare it with another quote or pay it, and check any rate against the IRS and statute sources.