The 20^th Steering Committee Meeting of the Joint Federal/State Motor Fuel Tax Compliance Project was held on April 3 in Washington, DC. Sherri Alston, Director, Office of Transportation Policy Studies brought the meeting to order. She began by welcoming everyone to Washington for the meeting and had each person introduce him/herself and identify his/her organization. The Attendees List is Attachment 1. Ms. Alston then provided some logistical information and then moved on to the first agenda item. The agenda is Attachment 2.

FHWA UPDATE

Funding

Ms. Alston provided an update on the Federal funding for the tax compliance program. She noted that in the fall, the Federal Highway Administration (FHWA) and the Internal Revenue Service (IRS) met. At that time, IRS requested an additional $2 million for the automated fuel tracking system under development. Since FHWA is required by law to provide the funding to the IRS, Ms. Alston explained the State tax compliance funds would be affected. She stated that as a result, and as we get further into the life of the Transportation Equity Act for the 21st Century (TEA-21), that fewer dollars will be available for the States. In fiscal years (FY) 1998 through 2000, the States had obligated just slightly more than $2.8 million. This leaves approximately $1.2 million (of the $4 million available to the States) for fiscal years 2001 through 2003. As the end of TEA-21 nears, more States will be in need tax compliance funds. To provide some funding to each State in need, all States will have to take a cut in funding.

Attachment 3 provides the status of the tax compliance funds. The column labeled “Unpaid Obligations” shows the funds remaining for each state’s use. When this amount falls to $100,000 or less for the lead States, or $50,000 or less for the other States, then funds are allotted to the state for the following fiscal year. In FY 2000, 37 States received funding. FY 2003 projections show 44 States to receive funds. Ms. Alston emphasized that these funds are limited and that States should consider using some of the ¼ of 1 percent of Surface Transportation Program (STP) funds that are available for motor fuel tax evasion projects.

Ms. Alston provided Attachment 4, which shows the STP funds available for each State. She noted that to date, 13 States have obligated STP funds for motor fuel tax evasion projects. States are using these funds for personnel, equipment, enforcement activities and their own automated fuel tracking systems. She told the committee that the Federal Register Notice from October 9, 1998 (Attachment 5) explains the requirements for accessing the STP funds.

Ms. Alston continued with the subject of the President’s budget for FY 2001, which was submitted to Congress on February 7. The budget includes a provision that would give the IRS an additional $20 million for the tax evasion program from funds that become available under the Revenue Aligned Budget Authority (RABA). Ms. Alston briefly explained RABA as adjustments in funding, either up or down, which occurs as a result of changed estimates for Highway Account deposits. Increases would allow more funds to be apportioned to the States, while decreases would require reductions in authorizations. Attachment 6 is a page from the President’s budget showing the language regarding the $20 million. (This portion of the President’s budget did not make it through the House and Senate mark ups. The additional funding mentioned in the proposed budget will not be made available to the IRS.)

Legislation

The next topic Ms. Alston covered was related to the numerous bills proposed in Congress as a result of the high cost of motor fuel. Ms. Alston mentioned the truckers’ rallies that took place in Washington, D.C. that were spurred on by the high cost of diesel fuel. She explained that all of the bills were attempting to ease the burden of the high cost of motor fuel. Some of the measures would provide temporary relief such as a 1-year moratorium on the payment of diesel fuel tax, while others were permanent such as the repeal of 4.3 cents per gallon on motor fuels. To date, there has been no action on any of the bills. Attachment 7 provides a summary of the bills. Ms. Alston also noted that there are several States that are required by law to adjust their tax rates if the Federal tax rate is reduced.

North American Free Trade Agreement

A brief update on the North American Free Trade Agreement (NAFTA) was given next. Ms. Alston mentioned that Susan Gorsky from the Office of the Secretary of Transportation provided an overview of NAFTA to the Steering Committee 2 years ago. Ms. Alston began the update with some general background on NAFTA. She said that in December 1995, the U.S. announced a delay in the NAFTA implementation schedule with Mexico. This delay caused the postponement of the investment provision, which would have permitted Mexican carriers to establish an enterprise in the U.S. for the transportation of international cargo between points in the U.S. On January 1, this year, all restrictions regarding cross-border trucking services were to have been lifted, but this didn’t happen. As a result, Mexico has filed formal complaints against the U.S. under NAFTA’s dispute resolution provisions in hopes of resolving the trucking, bus access, and investment issues. An arbitration panel will hold a hearing in May. The U.S. has filed a counter-suit claiming that Mexico has not provided national treatment to U.S. truck and bus companies wishing to operate in Mexico. The U.S. will not agree to implementation of the NAFTA land transportation access provision until its legitimate safety concerns are fully addressed. Attachment 8 provides the status of implementation.

The U.S. Department of Transportation (DOT) has been involved in safety talks with Canada and Mexico through the Land Transportation Standards Subcommittee (LTSS). The subcommittee was created by NAFTA for the purpose of making the safety standards of the three countries more compatible. Attachment 9 is a joint statement of accomplishments of the LTSS.

Attachment 10 is an article that appeared in the Washington Post on March 26 that discusses some of the political issues that may have something to do with the delay in allowing Mexican trucks to operate in the U.S.

Molecular Tagging Report

Ms. Alston told the group about a study FHWA was directed to do on the viability of using molecular tagging as a deterrent to motor fuel tax evasion. The report identifies two types of molecular tags and compares the use of these markers to the current practice of dyeing diesel fuel. The report examines both tagging methods and motor fuel dyeing as they relate to accuracy of test results; robustness against evasion, including whether or not the test results will stand up in a court of law; cost for the tag and for analyses of samples; ease of use in the field; protection of product quality; potential effects on diesel and jet engines; and issues of competition between technology providers. In addition, the report identifies other potential uses of molecular tagging as it relates to petroleum products. She told the members that the final report would be completed within the next couple of weeks and should be submitted to the House and Senate Appropriations Committees by the middle of May.

Attention Truckers Brochure

Ms. Alston continued, mentioning that the Attention Truckers brochure that had been in the works for the past 2 years had finally been printed. She stated that the Federal Motor Carrier Safety Administration is in charge of distributing copies to the States. Attachment 11 is a copy of the brochure.

Motor Fuel Reporting Re-assessment

At this point, Ms. Alston introduced Ralph Erickson from the FHWA Office of Highway Policy Information. Mr. Erickson provided an update on the work of FHWA’s Motor Fuel Information Reporting Re-assessment. He began his presentation by explaining the appropriations process, saying the IRS provides a total number for the amount of Federal fuel tax revenue collected by tax type (gasoline, gasohol, special fuels, and the tire, retail tractor and trailer excise, and heavy vehicle use taxes). He likened this IRS number to a whole pie. He then noted that IRS and FHWA do not know in which state the fuel is consumed, and therefore FHWA depends on the State reported data on motor fuel gallons by fuel type to estimate the portion of Federal funding that belongs to each State (the special fuel data is used to attribute the non-fuel taxes). This portion represents each State's slice of the pie.

Mr. Erickson went on to say that for the past 18 months, FHWA’s reassessment process has worked on updating Federal motor fuel reporting requirements. He emphasized the fact that State reported motor fuel data is extremely important in the apportionment of Federal funds, particularly since the enactment of the TEA-21. Under TEA-21, in FY 2000 about $11 billion of Federal-aid funds are distributed to States based on motor fuel data.

Mr. Erickson told the Steering Committee that around 1975, FHWA started looking at State contributions to the Highway Trust Fund (HTF) in comparison to the amounts the States got in return. They developed Table FE-221, found in Highway Statistics, which is known as the "donor-donee" table. In 1982, Congress enacted the Surface Transportation Assistance Act, in which appeared the first program that attempted to manage the donor-donee issue. This program, Minimum Allocation, ensured each State received 85 percent of its contribution to the Highway Trust Fund (i.e., 85 percent of its attributed piece of pie). This formula was modified under the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA), and again under TEA-21. ISTEA added a Donor State Bonus program and increased the minimum allocation to 90 percent. TEA-21 implemented the Minimum Guarantee program, which also is based on the State reported motor fuel data.

At this point, Mr. Erickson informed the Steering Committee that FHWA has met twice with a technical assistance group, composed of representatives from FHWA and State revenue and transportation departments, as well as representatives from the American Association of State Highway and Transportation Officials (AASHTO) and the Federation of Tax Administrators (FTA) (see Attachment 12). In addition, FHWA has held three outreach workshops, describing for the attendees the motor fuel data collection and attribution process, responding to questions, and gathering comments. FHWA’s general findings are that the principals and processes of the current methods of attribution are sound, however, improvements in data are needed to improve uniformity, accuracy, and consistency. Specifically, he noted that current reporting of public use of diesel is inadequate and inconsistent. Some States do not collect the public use gallons while some do. FHWA is looking for consistency in this area.

A second barrier that was identified is International Fuel Tax Agreement (IFTA) reporting. Timeliness and accuracy are the issues that need to be addressed. States should be reporting net IFTA gallons. Mr. Erickson said that FHWA plans to develop a process that would provide States with better instructions on how to report this.

Mr. Erickson went on to talk about gasoline and gasohol reporting issues. He noted that there is a mismatch between the Federal and State governments' definitions of gasohol. At the Federal level, there are three types of gasohol, while most States define only one. Since State data does not provide gasohol information consistent with Federal tax rates, FHWA uses a model to estimate gasohol use. He also noted that Native American use of gasoline is under reported.

Mr. Erickson continued with a discussion of loss allowances. He said that States handle loss allowances differently and that there are several different types including actual losses which consist of destruction, leakage, evaporation and temperature losses and gains; allowed losses (reported as a set percent of total fuel reported) in lieu of actual losses; and combinations of the above. For those States that have allowed losses exceeding one percent, FHWA caps losses at one percent.

He identified barriers relating to special fuels. These included the inability of some States to report public use of diesel separately; reporting public use of diesel in gross volume; and unreported Native American use. He also covered inadequate reporting due to unit conversions, methods of taxation and significance of alternative fuels such as the increased use of ethanol as methyl tertiary butyl ether (MTBE) is phased out.

After summarizing the barriers, Mr. Erickson discussed the proposed improvements identified by FHWA. The proposal for addressing the lack of reporting of the public use of diesel involves developing consistent rules for reporting public diesel for all States. For IFTA reporting, he identified improved reporting instructions and allowance of additional time for filing reports. To address the inconsistencies regarding loss allowances, FHWA suggests eliminating the one percent Federal cap, and using the only actual losses identified by the State. FHWA also suggests reporting diesel and other special fuels (liquefied petroleum gases) as one number instead of separating them on the FHWA-551M Monthly Motor Fuel Consumption Report. Native American reporting of motor fuel is dependent on negotiations with the tribes. In addition, States, as well as the Federal government, may need to develop methods for estimating Native American fuel use. Finally, FHWA suggests redesigning the reporting form, to make it simpler, and to incorporate the suggested changes.

Mr. Erickson said the U.S. General Accounting Office (GAO) is preparing a report that looks at the motor fuel reporting issues. The GAO report is scheduled for completion in the summer. In addition, the Office of Highway Policy Information is preparing a Federal Register Notice that will ask for comments on the committee's findings. The notice is also scheduled for publication in the summer. A third open workshop will be held when the Federal Register Notice comment period is open. Attachment 12 is a copy of Mr. Erickson's slides.

At this point, Janet Lake from the Nebraska Department of Revenue asked if a State reports more gasohol, do they get less funding since the tax rate on gasohol is less. Mr. Erickson replied that in the case of Nebraska, a donee State, the State's apportionment is generally not affected because the Minimum Guarantee requirements would take effect, restoring funds that might otherwise have been lost.

A second question was asked of Mr. Erickson. Will the Excise Summary Terminal Activity Reporting System (ExSTARS) help with validation? Mr. Erickson said that his office would look at the data provided by ExSTARS for possible use in validation of the State reported data. Ms. Lake pointed out that ExSTARS provides gallons sold, but not where the gallons were used and reminded the group that the State attribution of funds is based on State usage. Ms. Alston told the group that the IRS would be giving an update on the ExSTARS after lunch.

Ms. Alston thanked Mr. Erickson for his presentation.

TASK FORCE REPORTS

California Task Force

Ms. Alston introduced Allan Stuckey from the California Board of Equalization (BOE) to present the California Task Force Report.

Mr. Stuckey told the group that the last meeting of the California Task Force was held December 2, 1999, in Riverside California. He said that 30 people attended and that all member States were present, except for Hawaii. (Member States include Arizona, California, Colorado, Hawaii, Nevada, New Mexico, Oregon, and Utah.) IRS representatives from California, Nevada and Washington, D.C., were in attendance and Ms. Alston attended from FHWA. The meeting in Riverside began with Ms. Alston providing an FHWA update on funding issues followed by an update by Duane Gillen, chairman of the Excise Files Information Retrieval System (ExFIRS), who provided an update on ExSTARS. Dan Gostage of the California BOE gave an update on the Excise Taxes On Line Exchange (ExTOLE). (Updates on both ExSTARS and ExTOLE were given in the afternoon session of the Steering Committee meeting and are covered later in this document.)

Next, Mr. Stuckey presented the State reports beginning with Nevada. He noted that Mike Albin with the Nevada Department of Motor Vehicles (DMV) gave the Nevada report at the task force meeting. In the legislative arena, the charter bus lines association will be trying to change Nevada law in the next legislative session to allow for the use of red dyed fuel on road. California busses are permitted to use dyed fuel, and the IRS allows the use of dyed fuel. Other legislative issues include the reduction of bond limits from $1000 to $100, and the push for annual fuel testing.

Mr. Stuckey continued, saying that the fuels program in Nevada is moving from the Department of Taxation to the Department of Motor Vehicles and Public Safety. This is for all fuels and goes into effect on January 1, 2002.

The Nevada governor is in favor of the new dyed fuel program. The State has received the necessary equipment and will be working with John Arrlo, the regional IRS Fuel Compliance Officer. The staff held conferences in Reno and Las Vegas to present the particulars of the program. If a violation is found, there will be a 10 percent penalty plus interest, or a penalty of $10 per gallon or size of tank with a minimum of $1000 and maximum of $2500.

Mr. Stuckey noted that the New Mexico report would be given as part of the Texas Task Force Report, and then provided a brief update on issues in Arizona.  Effective July 1, this year, the Arizona diesel fuel tax will be reduced from 27 cents per gallon to 26 cents per gallon. There is currently a bill pending to raise the Arizona underground storage tank fee from one cent to two cents for a period of 3 years. This will provide additional funds for cleanups. Arizona is having problems processing diesel refunds, primarily due to the lack of staff and time limitations for processing all refunds. Mr. Stuckey completed the Arizona report by stating that the Arizona Department of Weights and Measures is testing for dyed fuel and high sulfur as part of the dyed fuel program.

He followed with quick updates on Colorado and Utah. In Colorado, the Department of Revenue staff has been working with the IRS on fuel testing at the various ports of entry. Colorado expects their gas and diesel tracking system to be finished by June 2000, and they are currently working on reporting of tax for clear kerosene.

In Utah, there are no legislative proposals prepared for the next legislative session that is scheduled to begin in January. In addition, no action has been taken regarding the dyed diesel program, and no penalties have been assessed.

Mr. Stuckey completed the State reports with the California update. He started with the proposed legislation for 2000. The first bill, AB 2114, has two parts. First, the bill would provide for an annually adjusted tax rate on gasoline and diesel fuel based on the percentage change in the California Consumer Price Index. Second, the bill would move the point of taxation on gasoline from the distributor level to the terminal rack and would conform to the Federal tax law.

The second bill Mr. Stuckey discussed was AB 2061. This bill would define an experimental fuel as a fuel emulsion that when used in a conventional diesel vehicle reduces ozone emissions by at least 10 percent and particulate matter emissions by at least 15 percent and does not cause other emissions to exceed existing standards.   The California Air Resources Board (ARB) would certify the experimental fuel to the BOE and would be taxed as diesel fuel but at a reduced rate. The rate per gallon would be one cent on and after July 1, 2001 through June 30, 2004; three cents on and after July 1, 2004 through June 30, 2007; six cents on and after July 1, 2007 through June 30, 2010; and nine cents on July 1, 2010 and thereafter. There are three companies sponsoring the bill: Lubrizol, Pure Fuels, and A-55 L.P. Lubrizol is currently selling their product to bus operators in the Los Angeles and Sacramento areas. The Lubrizol product is 20 percent water.

Mr. Stuckey then mentioned bill AB 2894, which is not actually a fuel tax measure, but does impact the fuel industry. This bill, if passed, will require any person whose tax liability averages $20,000 or more per month to remit amounts due by electronic funds transfer (EFT) for all of the Board’s special tax programs including all of the fuel tax program. The effective date would be January 1, 2001; however, the Board is currently working on starting EFT for the special tax programs on a voluntary basis during April.

Mr. Stuckey noted some organizational changes that have taken place at the BOE. These include the consolidation of various criminal enforcement sections into the Investigations Division with Monte Williams as its Chief. He also noted that with the movement of the motor fuel enforcement group, the rest of the Fuel Taxes Division was restructured into two sections: the Fuel Industry Section and the Motor Carrier Section that includes the Motor Carrier Inspection Unit and the IFTA Unit.

With regard to the dyed fuel testing program in California, the BOE has contracted with ARB to assist in the dyed fuel program. ARB will be pulling and testing samples of fuel. Representatives from IRS stated that the BOE and the IRS should work together in getting this information to the IRS so their inspectors can investigate infractions. The IRS has wide authority in their investigations. The possibility of a meeting between BOE, represented by Ed King, and members of the IRS and ARB was discussed to initiate communications between the three organizations.

Mr. Stuckey finished by telling the group that the next task force meeting would be held in conjunction with the FTA Pacific Region Meeting on April 9 in Incline Village, Nevada.

Ms. Alston thanked Mr. Stuckey for his presentation.

Florida Task Force

Ms. Alston introduced David Skinner with the Florida Department of Revenue to present the Florida Task Force Report.

Mr. Skinner began his report by telling the group that the Florida Task Force had met three times since the last Steering Committee meeting. On April 28 and 29, 1999, the State task force which is made up of representatives from the Florida Department of Revenue, Florida offices of the IRS, and the Defense Criminal Investigative Service (DCIS) Orlando Office, held a meeting in Sarasota. Updates were given on:

• ExSTARS
• ExTOLE
• Excise Tax Registration Authentication Subsystem (ExTRAS) – ExTRAS is an automated system for controlling the 637 Registration Program. The system will allow outside stakeholders to dial in and verify that the party they are dealing with has a valid 637 registration. Mike Mueller from the IRS North Florida District said that the project is going well and should be ready for use soon.
• Below the Rack Fuel Fingerprinting Project –Fuel fingerprinting analyzes individual components found in fuel and pictorially depicts them as peaks. The presence of peaks in varying combinations and concentrations provides a unique picture used to identify a fuel. Florida is participating in the project so they will be able to identify Florida sites where products that can be blended are being sold.
• Waste oil project – Task force members have identified locations storing waste oil products by checking the storage facility registration database of the Florida Department of Environmental Regulation. Then they followed up with visits to those locations to find out who is purchasing those products and whether they potentially are being blended into highway fuels. So far, the project has not found any illegal blending.
• Mineral spirits – Task force members discussed the new Federal regulations on mineral spirits to determine any impact on State tax enforcement.
• Russian Organized Crime – The Florida organized crime task force is looking into activities of Russian organized crime.
• DCIS procurement fraud – Department of Defense Criminal Investigative Service employees reported to the group on their investigations of procurement fraud, and the task force considered any tax ramifications from these investigations.

In June, a joint meeting was held with the North Carolina Task Force in Nashville. In this meeting, the two task forces talked about redefining the task force objectives, in addition to the state reports and law changes.

The third meeting was held in Panama City, Florida, on October 13 and 14. Over 30 people including representatives from all of the State revenue offices in the task force, except Alabama; Florida, Arkansas, Mississippi and Louisiana DOTs; and IRS and FHWA attended this regional task force meeting. At this meeting, Curtis Jones from the Mississippi Department of Transportation Enforcement Office showed a video and gave a presentation on the Mississippi River project where helicopters were used to search for illegal off-loading sites for fuel barges. One site was found that had been used recently, however, as of October no tax consequences had been assessed.

An inspector from the Florida Department of Environmental Services also attended the Panama City meeting. He explained to the group the records that are maintained on their inspections of retailers’ tank conversions. Fuel volume information is gathered during these inspections. The group felt this information might be useful for tax investigations.

Next, Mr. Skinner provided a summary of State reports beginning with Arkansas, which has mandated an EDI program. The program is now fully functional, and they have a compliance rate of between 75 to 80 percent. Further information on Arkansas activities is included as part of the Texas Task Force Report.

The Georgia report is included in the North Carolina Task Force Report.

Mr. Skinner also reported that Florida was looking at a way to address the high cost of motor fuel. A proposal was made to allow a month long 10 cent per gallon of motor fuel tax holiday.  The proposal appears to be going nowhere as a result of fuel prices dropping.  

In conclusion, Mr. Skinner said that the next regional task force meeting would take place in Sarasota on May 30 and 31.

Ms. Alston thanked Mr. Skinner for his report.

NETASK Task Force

Ms. Alston introduced Janet Lake from the Nebraska Department of Revenue to present the NETASK Task Force Report. The last NETASK meeting took place in Colorado Springs on October 21 and 22. Seventeen people attended representing nine States and six from IRS and FHWA. The next meeting will be held in Lincoln, Nebraska along with the PUBLICUS Task Force on June 21 and 22.

Ms. Lake started with the State reports.  In Oklahoma, they are trying to determine what will happen if all compacts with the tribes are deemed unconstitutional. The tribes are making a lot of money from the compacts and have hired attorneys to protect their interests. A joint meeting with IRS, States, industry, and Native American tribes was scheduled for November to discuss tribal issues in Oklahoma including the constitutionality of the compact agreements. An update from that meeting was unavailable.

The Oklahoma Tax Commission is still trying to manually cross match fuel movement. They are getting more information from other States that are exporting fuel to Oklahoma. Proposed legislation affecting motor fuel is minimal.  The State requires EFT from all of their suppliers and bonded importers and has changed the due date for reports for all importers and suppliers who are importing fuel.

In Minnesota, there are no major legislative issues on the table. Minnesota’s motor fuel tax rate, 20 cents per gallon, is the lowest of any surrounding States. They have successfully prosecuted a taxpayer reporting exports to another State even though the fuel did not leave the State. He served 6 months in jail. Additional information regarding this case is included in the PUBLICUS Task Force Report.

Ms. Lake said that Deb Hilmer from the South Dakota Department of Revenue reported on a case where fuel is being imported from Nebraska to South Dakota and stops on a reservation. The fuel is sold on the reservation and the importer says he is not charging tax because the fuel is being sold to Native Americans. The charge is not 40 cents per gallon less, so the Attorney General’s office says they are charging the tax.  The importer is reporting the movement of the fuel and is paying the tax, but is requesting a refund. Claims have been denied. Ms. Hilmer told the NETASK group that South Dakota has always maintained that the State has the right to legally collect tax on all fuel sold on reservations based on the Hayden Cartwright Act. The Attorney General is pursuing the case to the Supreme Court.

No new legislation is being introduced this year except cleanup legislation from last year. South Dakota is trying to get started on electronic filing but can see some problems implementing it.

In Colorado, new legislation is being implemented. The State and IRS are working jointly on dyed fuel testing at ports of entry. Penalties are for the first offense, $1,000; second offense is $5,000; and third offense is $10,000.  No penalties have been assesses yet because they are still in the testing phase. This testing period is being use for education of drivers.  Most vehicles found in violation have been semis. One violation was a major fuel hauler.

Legislation has been proposed that would combine Colorado’s gasoline and special fuels statutes into one.  The bill also contains a provision for moving the tax on special fuels from distributions to acquisitions.  The bill was drafted with the support of the Colorado-Wyoming Petroleum Marketers Association, so chances of passing are good.

Colorado motor fuel tax collections were up $30 million last year. They cannot confirm that the entire increase is due to changes in their statutes, however the changes have clearly had an impact.

The State of Iowa has proposed legislation that will make some changes to their definitions and would provide an exemption for racing fuel. In addition, since the point of taxation has been moved to the terminal rack, alcohol suppliers were required to pay the tax, but proposed legislation will allow one pass through for alcohol. Other bills propose mandatory gasohol use and the addition of a local option tax on home heating fuel.

Iowa Department of Revenue and Finance is dealing with several Native American issues. First, a truck stop on a reservation near the Nebraska border was buying fuel from an Iowa terminal, identifying the destination State as Nebraska, but delivering the fuel to Iowa. Iowa performed a joint audit with Nebraska and South Dakota.  The Native American group wanted to meet with Iowa Revenue because they felt the revenue department was “picking on” on their business partners. Iowa Revenue and the Native American group are drawing up a compromise agreement. The revenue department brought up sales and cigarette tax issues. One tribe licensed in Nebraska was willing to discuss these issues, but three others were not.

In North Dakota, several new laws went into effect. The State now has a dyed fuel enforcement program similar to South Dakota’s. An interim study on North Dakota’s motor fuel laws has been done, creating some controversy. In the last legislative session, North Dakota did away with special fuels refunds. If clear diesel was purchased, it was purchased tax-paid and no refund would be allowed. The State has been doing office audits on gasoline refunds on high volume farmers, and so far has made eight assessments out of 12 audits. The State will not have a legislative session next year.

One tribe has approach North Dakota Office of the State Tax Commissioner about arranging an agreement. The State returns 75 percent of taxes collected from sales on tribal lands plus a commission to the tribe, and the State receives about $300,000.

The State of Wyoming reports no new legislation. They have started allowing the shrink credit allowance. A detailed description of the process was presented at the task force meeting in Colorado Springs. Farmers can no longer purchase clear diesel tax-free. Now, farmers must pay tax on the clear fuel they purchase and then apply for a refund. Wyoming Department of Audit is working with Idaho on a joint audit. The State is considering raising fuel taxes.

In Nebraska, proposed legislation may require EFT for all tax programs including motor fuels. EFT would be mandatory for taxpayers filing amounts of $100,000 per year. Nebraska Department of Revenue currently allows EFT, but few taxpayers use the system due to the issue of float. Suppliers are currently required to file electronic data interchange (EDI). If both EFT and EDI are mandated, the due date for tax payment may be moved to five days later to compensate for the float time.

The State is considering mandating gasohol use and is in the process of studying gasohol pricing.

A ban on MTBE has been proposed. A water quality study is being performed to look at the issue of contamination by this additive.

A construction company in Nebraska has been caught repeatedly using dyed diesel in their vehicles. A joint audit was conducted with IFTA on the construction company that ended in a large assessment, which has been challenged. Additionally, the company was assessed $20,000 for using dyed diesel in their pickups. As a result, Nebraska is reviewing their statutes and may increase criminal penalties.

Nebraska is proposing: a $1,000 penalty for not reporting diversions of fuel; removing all outdated interstate motor carrier language from their statutes; and increasing bonds to $10,000 for the first year of operation

Kansas Department of Revenue has been moving forward on their electronic filing project. Approximately 450 filers are using the system at this time. The revenue department is still working on getting their matching program in place. They hope to be able to use the information from ExSTARS to eliminate the need for companies to send manifest information directly to the revenue department. No decision will be made until after the ExSTARS information is available.  

Kansas is also working on the ExTOLE project and will start testing when the computer is delivered from IRS.  

The Kansas Department of Revenue has received $50,000 in STP funds to replace the reduction in tax compliance funds.

The Missouri report is included as part of the PUBLICUS report.

Ms. Lake completed her report by telling the Steering Committee that the next meeting of the task force will be a joint meeting with the PUBLICUS Task Force in Lincoln on June 21 and 22.

Ms. Alston thanked Ms. Lake for her update.

New England Task Force

Ms. Alston introduced Allan Ferullo, Massachusetts Department of Revenue, who gave the New England Task Force Report.

He started by noting that all member States of the New England Task Force attended the National Fuels conference held in South Carolina in November 1999.

In Massachusetts, the Department of Revenue is in the process of trying to obtain STP funds for use by the State Police to resume dyed fuel testing. Revenue’s legal department is reviewing the requirements.

An audit identified a taxpayer that was purchasing fuel in Rhode Island and dropping it in Massachusetts. The Rhode Island tax was paid instead of the Massachusetts tax. A large assessment is expected.

Legislation has been proposed that will change some of the licensing definitions and returns as currently filed. The bill has passed the Massachusetts House and is now being studied by the revenue department for potential impacts.  

Vermont has introduced legislation that would change the point of taxation to the terminal rack for diesel fuel. The bill has passed the House and was in the Senate finance committee. The bill would also eliminate the surcharge on Vermont fuel by raising the tax rate at the pump to 22 cents per gallon and reduce the reported rate from 26 to 22 cents per gallon. In addition, the bill would eliminate tax-free bulk deliveries of clear diesel fuel.

The Vermont Department of Taxes was successful in obtaining STP funds from the DOT. They have used the funds to hire a limited service, full time desk auditor. The person in this position has assessed in excess of $150,000 by contacting delinquent filers.

A motor fuel (gasoline) distributor was recently assessed over $600,000 including penalties and interest.   The taxpayer has appealed the penalty and interest charges.

Mr. Ferullo stated that Connecticut sent three representatives to the Federation of Tax Administrators Annual Meeting held in Myrtle Beach, South Carolina in October.

The Connecticut Department of Revenue has been dealing with the issue of tax-free sales of motor fuel to various governmental agencies. These agencies are then providing the tax-free fuel to private contractors that are doing business with the government agencies. Representatives from various credit card companies want to set up a reporting system that will provide information needed to claim refunds by various State and Federal agencies. No solution has been determined at this time.

A representative from the Connecticut Department of Revenue met with Joe O’Gorman and Barry Holme of the New Jersey Division of Taxation to review several companies’ motor fuel license applications and the activities of various companies within their jurisdictions.

The Department of Revenue is still working with the DOT in attempting to get STP funds for the tax evasion program.  They have added one new staff member to the Excise Field Unit and will be sending this examiner to the Basic Motor Fuel Training that will be held in July in Boise.

In the area of audits and investigations, the Special Investigations unit is working with the Excise Fuel unit on a number of reports of home heating fuel being sold as motor fuel. In addition, from October 1999 through February 2000, the revenue department has closed 108 audits relating to motor fuel and assessed $280,852.06. They have also assessed $866,922.78 in petroleum gross earnings tax with 61 audits completed during the same period.

The State of Rhode Island Department of Administration, Division of Excise Tax, was preparing for the 66^th Annual Northeast Regional Conference of the FTA that was held in April. In addition, the Division of Excise Tax continues to audit several special fuels distributors. The audits have been productive, resulting in several assessments relating to off-road use. They have also started to review the State’s Uniform Oil Response and Prevention Fee returns as possible audit targets.

Two auditors from New Hampshire Department of Safety were sent to Tempe, Arizona for IFTA/International Registration Plan (IRP) training in January.  New Hampshire selected New York software to perform IFTA audits, and the State of Maine sent two auditors familiar with the software to train the New Hampshire auditors.

Clear kerosene has become an issue in the State. If there is no dye in the product, then it is subject to tax. Several large distributors are reporting this as home heating fuel.

New Hampshire has suspended its first commercial drivers’ license. The licensee failed to pay an invoice and ignored all other methods of collection.

The Department of Safety will be updating its website.  They are planning to include forms online along with other pertinent information.

The State of Maine has three pending pieces of legislation. The first would move the point of taxation on propane from the supplier to the retail level. The second would allow for rebates on the diesel fuel tax to be issued on fuel purchased between October 1, 1999 and February 29, 2000. The rebate is designed to provide some relief from the high cost of motor fuel.

Maine’s Special Enforcement Unit performed 299 dyed fuel checks from October 1, 1999 through February 29, 2000. No violations were found.

In conclusion, Mr. Ferullo said the next task force meeting would be a joint meeting with the New Jersey Task Force to be held in Newport, Rhode Island on April 19.

Ms. Alston thanked Mr. Ferullo for his report.

New Jersey Task Force

Ms. Alston introduced Joe O’Gorman from the New Jersey Division of Taxation who gave the New Jersey Task Force Report. The last task force meeting was held on February 16 in Princeton. Twenty-eight attended the last task force meeting. None of the States in this task force are using STP money for tax evasion projects.

In New York, this winter they saw an increase in new license holders due to the higher demand for home heating and motor fuel. Most northeastern States saw the same type of influx.  

New York State Department of Taxation and Finance has named a new Executive Deputy Commissioner, Judith Hard, and new counsel, Barbara Billet.

Pennsylvania Department of Revenue is continuing their dyed fuel enforcement program and is discussing possible legislation that would make permanent the tax refund program for undyed diesel used in truck mounted refrigeration units.  

Maryland Comptroller of the Treasury is eliminating the decal fee for IFTA. The State is encouraging the use of electronic filing and is pushing for legislation to address selling of motor fuel below cost. Their enforcement efforts are being stepped up.

Delaware DOT is instituting a carrier program that will require all carriers to get permits. They are also in the process of developing new applications for all motor fuel licenses. The high cost of fuel has Delaware looking into the issue of selling fuel below cost. Delaware is becoming more active in pursuing bonds and personal assets to cover assessments, penalties and interest when necessary.

Connecticut is changing their law so that kerosene applies to the gross earning tax. They have had an incident where jet fuel from Columbia has shown up in the State. Connecticut plans on reducing its fuel taxes by seven cents per gallon.

The District of Columbia Office of Tax and Revenue is stepping up their audit program.

In New Jersey, they have noticed some compliance problems and are taking actions to combat them. They are also developing a kerosene program. The State is considering pulling the bond of dealers whose payments are delinquent for 2 months.

Ms. Alston thanked Mr. O’Gorman for his update.

North Carolina Task Force

Ms. Alston introduced Julian Fitzgerald, from the North Carolina Department of Revenue who gave the North Carolina Task Force Report. He told the group that the last task force meeting was held last June in Nashville. All States in the task force as well as FHWA and IRS were represented at the meeting.

Mr. Fitzgerald began the State reports with Georgia. The State of Georgia and the IRS are prepared to sign a dyed fuel sampling agreement. Under this agreement, IRS will package, ship and pay for the lab costs associated with testing the samples. Georgia will provide the IRS with the copies of the reports generated, documenting dyed fuel violations. Georgia DOT has 15 law enforcement officers trained and ready to start sampling as soon as the agreement is signed. STP funds were used for training and supplies for dyed fuel testing.

In August, Georgia Department of Revenue and Georgia DOT signed an interagency agreement that provides STP funds for Revenue to use for fuel tax evasion projects.   These funds are being used to hire five motor fuel and motor carrier field auditors to expand the Department’s compliance and enforcement efforts.

A major bill has been proposed that would establish a new Department of Motor Vehicle Safety. The Motor Vehicle Division of the Department of Revenue and the DOT enforcement sections would go to the new safety department. The new department would be responsible for enforcement, public safety, and IRP in addition to other areas. IFTA responsibilities would stay with Revenue.

Revenue’s motor fuel tax and information system development units have prepared a request for proposals (RFP) for a new motor fuel reporting and tracking system. The RFP was scheduled to be available in the early part of April.

In South Carolina, there has been one legislative change. The code section addressing inspection of fuel for the presence of dye has been rewritten to provide greater clarity regarding the range and scope of authority granted to compliance officers.

South Carolina was scheduled to start its dyed fuel program in April this year. The program is the result of the combined efforts of four State agencies. The project is funded by the DOT. The diesel compliance officers are employees of the State Transport Police who work for the Department of Public Safety. Chemists at the Department of Agriculture will be testing the samples, and the Department of Revenue will oversee the entire program and assess all penalties for violations.  

Retail outlet inspections are conducted on a continuing basis.  The inspections focus on inventory reconciliation of all fuel types and scheduling of all fuel purchases for a specific period of time based on bill of lading information. Particular attention is given to destination State designation. Each purchase transaction is ultimately traced to the respective monthly supplier return to verify payment of tax.

The National Fuel Diversion Registry operated by the State of Wisconsin is now the issuing agency for all diversion numbers as requested by taxpayers for diverted product involving South Carolina. The system has greatly improved South Carolina’s ability to track and verify tax payments due on sales involving diverted product.

South Carolina is preparing for the implementation of ExTOLE. Disclosure issues are currently being addressed.

The State of Tennessee has 11 dedicated agents and inspectors actively involved with motor fuel tax enforcement. Additionally, the State has eight auditors plus support staff that were dedicated to both office and field audits.

In Tennessee, three criminal cases were opened last year. The cases are still pending. Auditors in the State closed 992 audits for the year issuing 374 assessments totaling $11,259,267. Most were office audits. Tennessee plans to increase the size of its audit staff.

Tennessee inspectors have conducted 8,297 on-road and off-road inspections, finding 64 violations. Citations were issued accordingly. Two-thirds of the violations were discovered during off-road inspections (off-road inspections account for less that one-fourth of all inspections). One inspection resulted in an assessment of more than $350,000 from a follow-up audit.

Tennessee Department of Revenue worked with the State DOT to acquire funds for a mandatory EDI program. Revenue is working on contract language for this project.

Virginia is awaiting the governor’s signature on the tax at the rack legislation. Virginia worked closely with industry to prepare a bill that would work for all involved. Industry will be working with the DMV to implement the bill. Virginia believes the success of the bill was a result of government and industry working together. The audit and enforcement areas are involved in the implementation to ensure that Virginia has identified the things they need to successfully enforce the fuel tax laws.

West Virginia has purchased two new pickups to replace the two older dyed diesel inspection vehicles currently in use. On-road inspections and motor fuel tax audits continue in the State.

West Virginia has assisted the Ohio Department of Taxation, Criminal Investigations Division Unit, in setting up an on-road dyed diesel inspection program. West Virginia inspectors provided on the job training to Ohio personnel while conducting joint inspections. Additional information is included in the PUBLICUS Task Force report.

Mr. Fitzgerald reported that North Carolina is continuing the monthly Red Alert project, issuing dyed diesel and decal penalties as well as destination State penalties in the applicable cases. In addition, they have started a kerosene project. Investigations are being done at retail locations selling undyed kerosene tax-free that do not have marked, blocked pumps. Numerous locations have been identified and assessments are pending.

North Carolina is adding an Investigator Supervisor position to assume responsibilities for planning and organizing investigative initiatives. They have recently hired four new auditors and plan on hiring five more within the next six months.  In addition to hiring new auditors, five new audit offices have been established throughout the State.

In July, five people will be going to Boise for the FTA sponsored motor fuel tax enforcement basic training course.

The Fuel Tax Compliance System (TACS) project is continuing. The Fuel TACS system performs a crossmatch of information received from sightings by DMV with the motor carrier database. Letters are being generated for potential underreporting of miles based on a statutory formula and accounts are being selected for audit.

The North Carolina legislation will be looking at several items in the session beginning in May. These issues include: third party credit card sales, buy/sell agreements, taxation of alternative fuels, as well as various technical changes to the motor carrier and motor fuels statutes.

The next North Carolina Task Force Meeting will be held in New Orleans in June following the FTA Southern Region Motor Fuel Tax Section Annual Meeting.

Ms. Alston thanked Mr. Fitzgerald for his report.

Northwest Task Force

Ms. Alston introduced Quintin Hess from the Oregon DOT who gave the Northwest Task Force Report. He began by reporting that the last meeting of the task force was held in Myrtle Beach, South Carolina, on October 31, 1999 and that the next meeting would be held on April 9 at Incline Village, Nevada.

He started the State reports with Oregon. Oregon does not have any formal motor fuel tax agreements with Native American tribes. Several tribes have inquired about the State’s motor fuel tax structure and are exploring business opportunities in this area.

The Oregon legislature enacted legislation affecting motor fuel taxes in several areas including use fuel exemptions, bonding, penalty waivers, licensing requirements, and collection powers. In addition, HB 2082 passed by the legislature and signed by the governor, increased fuel tax rates by 5 cents to 29 cents per gallon and replaced Oregon’s weight/mile tax with a diesel fuel tax imposed at the terminal rack. However, HB 2082 was referred to the voters, suspending these changes, and its fate will be determined in Oregon’s May 16, primary election. If the measure passes, motor fuel tax rates will increase from 24 cents to 26 cents per gallon July 1, 2000, and from 26 to 29 cents per gallon September 1, 2000. The diesel fuel tax will replace the weight/mile tax March 1, 2001. (The measure was defeated.)

Oregon offers a limited EFT program and in the area of evasion, they have noticed that it primarily centers on the unlicensed use and sale of use fuel.

In Idaho, there are no new developments in the areas of Native American issues. However, there is a court case pending.

In the area of evasion, border issues continue to be a problem. Oregon has no diesel tax. Wyoming’s tax rate is significantly lower than Idaho’s, and untaxed fuel is crossing the borders from Canada. In addition, dyed fuel is once again a problem since the IRS pulled out of the roadside testing program.

The Idaho State Tax Commissioner does offer EDI, EFT and diskette filing to distributors.

In Montana, the evasion problems center on: unlicensed importers from Canada and other States, alcohol used in blending, high sulfur diesel, unattended cardlocks, and gas stations that offer dyed diesel. Surveillance operations are being conducted at cardlocks and service stations to address the dyed diesel problem. Also, Canada offers an exemption for certain agriculture users to use dyed diesel on the highway, which creates problems in Montana.

In Washington, Native American issues continue to be a problem. The issues may be more of a political nature as opposed to enforcement.

Dyed diesel violations and unreported cross-border fuel deliveries are the current evasion problems. Washington offers EFT.

In Alaska, legislation that would have more than doubled the fuel tax did not pass.

Mr. Hess provided comments from the Northwest Task Force on the future direction of the Joint Project and where the focus should lie. He stated that increased levels of information sharing and possibly base State reporting would be a benefit to the States. He identified total fuel accountability as an integral part of addressing motor fuel tax evasion and of this program’s success. The task force believes the focus need to be on improving communications between the States and the Canadian provinces.

The Northwest Task Force also identified areas that have had a negative effect on the program. The first is the reduction in Federal funding. Mr. Hess stated that the $15,044 that most States received this fiscal year basically covers the cost of attending task force and FTA meetings. The reduced funding allows for only limited joint/out-of-State audits, criminal investigations, and cross checking of imports/exports. In addition, many States have had a difficult time getting the ¼ percent of the STP funds that were made available for motor fuel tax evasion projects. Finally, the task force voiced concerns about the effectiveness of ExSTARS.

Ms. Alston thanked Mr. Hess for his report.

PUBLICUS Task Force

Ms. Alston introduced Suzanne Heidenreich, from the Indiana Department of Revenue, who gave the PUBLICUS Task Force Report. She began with the Indiana State report.  Ms. Heidenreich reported that the Fuel and Environmental Tax Division is still working out the problems in the new Registration and Licensing System. A portion of the STP funds will be used to add new and enhanced reporting features.

Representatives of the Criminal Investigative Division (CID), the Indiana State Police, and the DOT teamed up in Louisville, Kentucky, from March 25 through 27 to provide information and materials on fuel tax laws and motor carrier regulations to an estimated 750,000 attendees of the Mid-America Trucking Show. This is the largest trucking-related show in North America.  

CID personnel are working with the State Police to train the Motor Carrier Inspectors (MCI) to do fuel inspections during their regular safety inspections. There are a number of problems that need to be worked out since only MCIs can enforce infractions. The State’s dyed fuel laws contain felony provisions.

During the last 12 months, 20 fuel investigations have been initiated. Twenty-three investigations have been completed, resulting in 16 convictions.

House Bill 911 was proposed in Kentucky’s legislature this session. The bill proposes dyed diesel fuel legislation. It does not propose a change the point of taxation, which is currently at the receipt/wholesale level.  The Kentucky Revenue Cabinet has been having problems in the area of licensing limited liability corporations but feel the issues have been resolved.

The Ohio Department of Taxation reported that they have had no success in attaining any of the STP funds and that they are still having problems with their dyed fuel law. They have no authority to stop or inspect the vehicles. The CID has done some inspections under different laws using search warrants. Ohio has one criminal case in court involving a company using dyed fuel in all of their vehicles. The trial is expected to start some time in May.

Illinois Department of Revenue is getting ready to start 70 audits on distributors.  They have experienced some problems with the reporting of excessive inventories as well as gains and losses.  They are also having problems with distributors who own their own tanks and pumps and are leasing to another party. Their legal staff is expected to make a ruling on the responsible party.

Illinois Department of Revenue met with their DOT concerning the STP funds. Revenue was told that if the funding were truly intended for additional enforcement, then it would have been given to them to begin with.

Missouri Department of Revenue has seen a significant increase in claims for refunds and is looking into the matter. They are in the process of testing a new State fuel tracking system. In addition, Revenue is trying to work out any disclosure problems with the Federal diesel compliance officers so they would be able to receive the results of Federal dyed fuel samples.

The Minnesota Department of Revenue has completed its first major oil company audit as well as a customer service survey. Revenue reported that dyed fuel violations are about the same as for previous years. They are planning to run border checks in the spring or summer.   Additional information is included in the NETASK Task Force Report.

The State of West Virginia had stopped a pickup truck and cited the driver for having dyed diesel on the highway. The driver did not deny the finding of red fuel, but the defense attorney requested that the evidence be thrown out because it was obtained without a search warrant. The Circuit Court ruled that the inspection did not violate the Fourth Amendment of the Constitution of the United States, upholding the lower court decision. To date, no other appeals have been filed. West Virginia holds the decision to be valid.

Three excise compliance officers will be going to Clinton, North Carolina, to become certified to do the analysis of dyed diesel fuel using the DT 100 analysis machine. In West Virginia, each sample of dyed fuel is analyzed prior to a court hearing for dye concentration and having additional personnel certified will expedite the process.

The West Virginia auditors who comprise the Excise Compliance Unit continue to concentrate on IFTA/IRP audits and fuel distributor audits.

Wisconsin Department of Revenue reports using STP funds for phase 1 development of WiXTRAS, the Wisconsin Excise Tax Reporting and Auditing System.

The PUBLICUS Task Force will hold a joint meeting with the NETASK Task Force in June 2000 in Lincoln. The meeting is being held in conjunction with the FTA Uniformity Meeting.               

Ms. Alston thanked Ms. Heidenreich for her report.

Texas Task Force

Ms. Alston introduced Jimmy Archer, from the Texas Comptroller of Public Accounts, who gave the Texas Task Force Report. He told the Steering Committee that two task force meetings were held since the last Steering Committee meeting. The task force met in St. Louis in July 1999 with 38 members in attendance, and then met again in March 2000 in Scottsdale, Arizona, where 47 attended.

Representatives from IRS reported on dyed diesel fuel compliance activities and problems in Arizona, Arkansas, Nevada, New Mexico, Oklahoma, and Texas. Problems include the sale of dyed diesel fuel from unmanned pumps located in remote, rural areas, and improperly dispensing dyed fuel from a terminal rack using a manual dye injection system.

The Houston District of IRS is increasing its efforts in taxpayer outreach and education, including a fax line that practitioners and others can use to send in questions on excise taxes. The Houston District will also be mailing out an information letter to storage tank owners, terminal operators and others about floor stocks tax on kerosene.

Tim Torri, from the ExFIRS team at IRS, provided an update on the ExSTARS project. Madelyn Henderson and Dave Foyt, both from the Houston District of IRS, gave a status report on the Below the Rack Information System project (BTRIS).

In Arkansas, the diesel fuel tax rate increased by 2 cents per gallon effective April 1, 1999.   The gasoline rate was raised by 1 cent per gallon effective July 1, 1999 and will go up 1 cent per gallon per year on July 1, 2000 and again July 1, 2001, to 21.5 cents per gallon.  

Motor Fuel Tax Section Inspectors of the Arkansas Highway and Transportation Department and the Arkansas Highway Police issued 96 citations for dyed fuel violations in 1999. Since August 1995, they have found 317 violations.  Most of the infractions are pick-up trucks. They have acquired their own spectrophotometer to test for dye in samples taken during highway inspections.

Arkansas Department of Finance and Administration purchased the Lockheed Martin motor fuel tracking system in 1998 and their EDI program is now fully functional. They have collected over $340,000 from 19 companies, primarily due to the detection of missing load receipts.

The Louisiana Department of Revenue and Taxation received $250,000 in STP funds this fiscal year and gave it to the Department of Public Safety to administer their dyed diesel fuel inspection program, which consists of statewide stops for fuel tank checks. The State Police forward citations to the Department of Revenue for assessment of fines.  From the time the program started in December 1999 through the end of February 2000, the State Police issued 80 citations.

There is a bill before the Louisiana legislature to tax all fuel sales on Indian reservations to non-Indians.

The New Mexico legislature met in a special session in May 1999 and passed a bill that redefines the point where gasoline is “received,” that is, becomes taxable. The new definition of “received” makes gasoline taxable when it is imported into New Mexico. This is now the same as it is for diesel fuel. Gasoline that is blended on Indian reservations is received and taxable in New Mexico when it leaves Indian land. Several Indian reservations in New Mexico directly border other States. Gasoline brought directly onto those reservations is not subject to State tax unless it is transported into New Mexico.

Senate Bill 109 was signed into law effective April 1, 2000. This law allows a gasoline distributor who is not a registered Indian Tribal Distributor to deduct retail sales of gasoline on an Indian reservation. Those sales must be subject to a tax of at least 17 cents per gallon imposed by the Indian tribal authority, and the tax must actually be paid.

Effective July 1, 1999, New Mexico Taxation and Revenue Department allows a gasoline tax deduction for gasoline sold at retail on Indian land by a Registered Indian Distributor provided the Indian tribal authority has imposed a tax of at least 17 cents per gallon and that the tax was paid. This affects about eight pueblos and the Navajo Nation.

New Mexico allows two Indian pueblo distributors with non-mobile storage containers a deduction from the New Mexico gasoline tax for the first 30,000,000 gallons of gasoline received and sold per year.  This equals $5,100,000 in lost gasoline tax revenues for each pueblo, or a total of $10,200,000 per year to New Mexico.

A dyed diesel bill was introduced and referred to committee for further study.

The Department is currently working on development of an automated system for gasoline tax. Currently, processing and retrieval of data is done manually.

New Mexico has signed Joint Power Agreements with the Zuni Pueblo and the Navajo Nation. They have had workshops with both taxing agencies and were scheduled to meet in April with the Navajo Nation and the State of Arizona to discuss joint actions.

The Department worked with the Texas Comptroller’s Office and the Federal government on a fuel tax evasion case against a distributor in Gallup. There are five defendants and about $800,000 in taxes involved in this case.  

In Oklahoma, the statutes provide that if the Federal excise tax on gasoline and/or diesel is reduced from the rate imposed on January 1, 1996, the State tax will be raised by an equal amount beginning on the first day following the reduction in the Federal rate. The statutes further impose a tax on motor fuels held in inventory on the date of the increase in the State. The inventory tax rate is equal to the difference between the increased tax rate and the Federal rate.

The Oklahoma Tax Commission has developed a registration and refund database, and they are going to use it to identify motor fuel tax refunds to taxpayers that will owe sales tax on diesel fuel used off-road. They found 139 companies that owed sales tax out of 351 that received motor fuel tax refunds.

The Compact with the Indian tribes for collecting and sharing motor fuel taxes was found to be unconstitutional.  The Compact had provisions to prevent lawsuits against the State by the tribes and their members.  However, on November 15, 1999, the Court of Appeals reversed this decision.

In Texas, the 76^th Legislature passed SB 1547, which amended the Texas motor fuel tax law effective September 1, 2000. While the legislation did not change the point of collection for motor fuel taxes, currently at the wholesale level, it did make significant changes to the tax code. These changes are intended to aid in eliminating fraud and thereby increase fuel tax revenue.  There are additional permitting and registration requirements that allow for the accounting and tracking of motor fuel. The detailed report information will allow the Comptroller’s Office to track transactions among sellers, purchasers, and common carriers to determine that fuel has been properly reported and accounted for and that all tax due is paid to the State.  The primary focus of the legislation is to increase accountability for imports and exports, limit the purchase of tax-free undyed diesel fuel, prohibit the use of dyed diesel fuel in highway motor vehicles, and enhance the ability to prosecute tax evaders.  Civil and criminal penalties for violators have been increased also. The Comptroller has incorporated many of the reporting requirements of States that have moved the point of collection to the terminal rack.

The Comptroller’s Office will use the FTA Uniformity Committee fuels tax reporting forms, to the extent possible, in implementing the new and expanded reporting requirements. We will use the American Petroleum Institute Petroleum Industry Data Exchange (PIDX) product codes. The information by sellers, purchasers, importers, and exporters will be cross-checked to validate the transactions. Common or contract carriers transporting fuel by truck will be required to register with the Comptroller’s Office and file quarterly reports.

The information reported to Texas will include the origin and destination States; the identity of out-of-State sellers or purchasers; and, if transported by truck, the name of the common or contract carrier. The Comptroller’s Office plansto exchange import and export information with other States.  They will work with other States to furnish the information in a format most usable for the other States.  The information exchanged will also include a list of diverted loads.

Because of the massive amounts of data that will be reported, most taxpayers will be required to file their tax reports electronically. Those permit holders that have smaller less sophisticated operations, and others that cannot file electronically will be given waivers and continue to file paper reports.  There will be two options for electronically reporting; a taxpayer may use the uniform EDI format or PC based software that will be provided to permit holders free of charge.

Importers will be required to obtain an Import Verification Number (IVN) from the Comptroller’s Office for each cargo tank (truck) load of gasoline or diesel fuel imported into the State of Texas.  The IVN must be obtained within 72 hours of importation. Failure to obtain an import verification number is a criminal offense and a Class B misdemeanor, which could lead to a $2,000 fine and/or 180 days in jail.

Importers and exporters will also be required to obtain a diversion number from the Comptroller’s Office any time a truckload of fuel is diverted to a different State or country from what is printed on the shipping document issued by the terminal or bulk plant. Failure to obtain a diversion number is a criminal offense and a Class B misdemeanor ($2,000 fine and/or 180 days in jail).

The Comptroller Cargo has always required that manifests accompany motor fuel while being transported. Shipping documents now must also show:

• The name and physical address of the terminal or bulk plant that the fuel was withdrawn,
• The name, FEIN, permit number, and physical address of the purchaser,
• The name of the person responsible for paying the tax if different from the permit holder making the withdrawal, and
• The name and FEIN or social security number of the common or contract carrier transporting the motor fuel.

Civil penalties associated with shipping documents were increased. The civil penalty for transporting or accepting delivery of motor fuel without a properly completed shipping document is $2,000 or five times the amount of tax due and/or a second degree felony criminal penalty of $10,000 fine and/or 2 to 20 years in jail. A terminal or bulk plant that does not issue a properly completed shipping document may be assessed a civil penalty of $2,000 or five times the amount of tax due.

When selling or transporting dyed diesel fuel, the invoice and shipping document must state “DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE.” This is similar to the IRS requirement. This same notice must also be posted at bulk plants and on retail pumps selling dyed diesel fuel.

The sale of undyed diesel fuel to end-users will be limited to agricultural users. This will apply to licensed end-users and non-permitted end-users that are allowed to purchase limited quantities of diesel fuel using a signed statement.  All other nonagricultural off-highway users must purchase tax-free dyed diesel fuel or pay the tax on clear diesel and file a request for refund of the tax. End users that purchase smaller quantities of diesel fuel may purchase tax-free diesel by issuing a signed statement. End users will have to register with the Comptroller’s Office and be assigned a registration number before they may use a signed statement.

It will be illegal to operate a motor vehicle on public roadways in Texas using dyed diesel fuel. Currently, it is not against State law to use dyed diesel fuel in highway motor vehicles, as long as the State tax has been paid, except by a dyed diesel signed statement user. The penalty for using dyed diesel fuel in a highway motor vehicle is $25 to $200 civil fine and/or a Class C misdemeanor criminal offense with fines up to $1,000.

Other provisions of the statute include:

• The Texas Natural Resources and Conservation Commission and the Texas Department of Agriculture will have the authority to take fuel samples
• The criminal penalty for blending fuel in an attempt to evade taxes will be a second degree felony ($10,000 fine and/or 2 to 20 years). Under current law, violators can be charged with not having a permit, a Class C misdemeanor,
• Retail dealers or end users will be required to file monthly reports when taxes are due on gasoline or diesel fuel they have sold or used. Currently, they are required to report and pay the tax if it has not been previously paid, but they were not required to report and pay monthly,
• The import, sale, use, distribution, or storage of motor fuel on which taxes are owed to the State will be a second degree felony ($10,000 fine and/or 2 to 20 years),
• The evasion or attempt to evade the motor fuel tax will be a second degree felony;
• The time period for which for which felony indictments may be presented for criminal offenses is increased to seven years from the date of commission,
• It will be a separate offense for each day for refusing to allow the Comptroller or Texas Attorney General to inspect, examine, or audit the books and records of a dealer, common or contract carrier, or other person required to hold a permit.
• Ms. Alston thanked Mr. Archer and all of the task force leaders for their reports.

BORDER ISSUES

Canadian Border Issues

Ms. Alston introduced Keith Hudson from Revenue Canada to give an update on the Canadian Uniformity Project.

Mr. Hudson began his report by reconfirming the commitment of Revenue Canada and the Canadian Uniformity Project to working with the U.S. in stopping fuel tax evasion. He listed several of the successes of the Canadian Uniformity Project. He noted that the provinces are using generic forms and a common dye standard.

A survey was conducted concerning fuel tax terminology used in the Canadian provinces. The survey pointed out that the terminology was not applied or understood universally. As a result, the Project has successfully developed a definition lexicon and is communicating it to all stakeholders.

The Project is in the process of developing a comprehensive description of the Canadian Fuel Distribution System. The description will put all jurisdictions on the same page in understanding the fuel distribution system, and will solidify common terminology. In addition, it will be useful as an audit tool.

Saskatchewan is considering amending their legislation. It is expected that they will be moving the point of taxation to the terminal rack, effective in January 2001.  Alberta, Manitoba and British Columbia are also considering moving their point of taxation to the rack.

In the area of enforcement, Mr. Hudson discussed their blitz inspection procedures. He noted that they have developed documentation that identifies the steps to be taken for each blitz and provides examples of operational plans for carrying out the different types of blitzes. In addition, the document answers some of the more frequently asked questions regarding blitzes.

Mr. Hudson mentioned that charges were filed in Ontario in a case where charcoal was used to remove the dye from fuel. Four individuals have been charged in this case with buying home heating oil and removing the dye in an attempt to evade the tax. Ontario is concerned not only with the loss of revenue from the evaded taxes, but also about the environmental impacts of the used charcoal.

In the area of Native Canadian issues, tax exempt status for Native use of the product applies only at the provincial level.  At the Federal level, the tax is applied at the manufacturing point thus becoming an indirect tax when Natives purchase the product for personal use; consequently, there is no exemption from the Federal tax for Native Canadians. There is litigation currently underway on this point. The total Canadian Federal revenue from all excise sources is $9 billion, of which $4 billion comes from fuel.

Mexican Border Issues

Ed King from California BOE provided some information on the events occurring along the Mexican border.  He said that California has three ways to regulate Mexican truckers, 1) IFTA, 2) trip permits, and 3) diesel interstate license that allow vehicles to operate between Mexico and California only.  Currently there are 1,100 diesel interstate accounts. In 1998, a pilot program was started that focused on frequent carriers along the border.  California BOE staff housed at the truck inspection facilities used sighting reports, reviews of logbooks and bills of lading, interviews with drivers, and information from customers collected at the customer’s location to monitor the movement of trucks from Mexico.  The data collected by these means were used to determine how many gallons of fuel should have been reported and then the information was compared to the information that was reported by the drivers.  Sixty-four investigations have been completed with $1,020,000 assessed and $829,000 collected. California is continuing to monitor the trucks crossing the border through the diesel interstate program.

Another duty California is performing is tracking fuel tanker trucks, railcars and vessels at ports of entry.   They have assessed $500,000 in the last 12 months. In addition, California reports penalties for operating without a license, either IFTA credentials or other required license, of $40,000.  

Over the last 12 months, California has implemented a Mexican Carrier Education program. The sessions were held in both English and Spanish. The sessions were designed to educate the Mexican carriers in their responsibilities under the State tax laws, to explain what books and records are needed, and how to file the required tax returns.

Ms. Alston thanked Mr. Hudson and Mr. King for their updates.

OTHER PARTICIPATING AGENCIES

FTA-Training

The next agenda item was Other Participating Agency reports. Cindy Anders-Robb from the FTA discussed both training and events occurring in the Motor Fuel Tax Section of FTA. Ms. Anders-Robb started by mentioning that Basic Motor Fuel Tax Training will be taking place in Boise, Idaho in July. The Basic Training course is offered to State and industry representatives that are looking for an understanding of the motor fuel production and distribution processes as well as the general approaches the State and Federal governments use in taxation of motor fuels. The course is designed to:

• Provide an overview of the motor fuel industry practices including an understanding of the motor fuel distribution chain,
• Provide a detailed view of motor fuel taxation at all points in the distribution chain, the movement of fuel through the chain, and source documents to consider in a compliance audit,
• Provide an understanding of the opportunities for motor fuel tax fraud and the different distribution points in the chain and the schemes used by criminals to commit fraud, and
• Provide help on proven methods to identify and document fraudulent activities and tips on available resources for training.

In addition to the basic training that is being offered, FTA will be offering advanced auditor training on November 13 through 17 in Portsmouth, Virginia and on December 4 through 8 in Tucson, Arizona.  The course materials are currently under development and will include identifying financial fraud and advanced investigation procedures needed for the higher tech evasion schemes.  

FTA will also provide training for the ExSTARS and ExTOLE systems currently under development by IRS. Training will be provided to individuals at the State level who are going to be involved in using these systems. The emphasis will be on informing the States of the systems and what they are designed to do; helping the States to apply the information they receive from these systems to their own tax systems, and promoting single point filing. Training is expected to begin after the beginning of the year.

FTA-Motor Fuel Section and Uniformity

Ms. Anders-Robb next discussed the FTA Motor Fuel Tax Section and Uniformity Committee (Attachment 13). The Committee is made up of State revenue and enforcement agencies and representatives from industry.  Their focus is on assisting the States in making the administration of fuel taxes more efficient and more consistent from State to State for total fuel accountability.

The Motor Fuel Tax Section is made up of an Executive Board including the National Chair and Vice Chair, the Current Past Chair, and the Uniformity Chair and Vice Chair. The Executive Board is scheduled to hold a meeting in Lincoln, Nebraska on June 23 prior to the Uniformity meeting that is scheduled for June 23 and 24. Ms. Anders-Robb then mentioned the upcoming Uniformity Committee meetings that will take place in Rochester, New York on September 22 and 23, prior to the Annual Meeting, and in Portland, Oregon on February 2 and 3, 2001.

The schedule for the regional meetings followed. The Pacific Region Conference of the Motor Fuel Tax Section was held in Lake Tahoe, April 9 through 11. The Northeastern Region held their conference in Newport, Rhode Island on April 16 through 18.  The Southern Region Conference will be held in New Orleans, June 18 through 20, and the Midstates Region will hold their conference August 20 through 22 in Rapid City, South Dakota.  She invited all industry persons at the meeting to join the Uniformity Committee.

Ms. Anders-Robb noted that FTA is involved in numerous activities including the Federal ExSTARS and ExTOLE projects, the Canadian Uniformity Project, and the FHWA Motor Fuel Reporting Reassessment. In addition, FTA has completed several surveys including updates on Native American issues relating to motor fuel, electronic filing, State legislative changes, States’ disclosure agreements, and more.

Ms. Anders-Robb ended her presentation by mentioning the FTA website, http://www.taxadmin.org and the listservs that allow individuals to become involved in discussions involving different aspects of motor fuel tax administration. For motor fuels information and discussion, the address is mfuc@lists.taxadmin.org.  For motor fuel EDI information and discussion, the address is mfedi@lists.taxadmin.org, and for ExFIRS information and discussion, the address is Exfirs@taxadmin.org.

FTA-Uniformity Committee

Joe O’Gorman, Chair of the Uniformity Committee, provided more detail on the make up and role of the Uniformity Committee. He explained that the Uniformity Committee is a partnership between the States, the Federal government, industry and interest groups. He followed that with a request for more industry participation. He then went on to identify and briefly discuss the seven subcommittees noting that each subcommittee is co-chaired by a State representative and an industry representative.

The Information Sharing subcommittee is co-chaired by Ed King from the California Board of Equalization and Elton Andrus from Exxon-Mobil. This subcommittee is responsible for publishing the Uniformer, a newsletter that provides current information on what the subcommittees are working on as well as updates on future meetings. The Uniformer also publishes article of interest relating to motor fuel tax cases that have made the news. This subcommittee is currently working on base State reporting.

The Fuel Accountability subcommittee, co-chaired by Rollie Marr from Illinois Department of Revenue and Ann Price from the American Petroleum Institute (API), is responsible for assuring the definitions used are clear and applicable to motor fuel administration. The subcommittee receives request for approval of definitions through set procedures. They discuss potential changes to the submission, and after the subcommittee approves a definition, it is presented to the full Uniformity Committee for final approval.   The goal of this subcommittee is to assure uniformity of terms so when information is shared among the States, there is no misunderstanding regarding the information.

The Enforcement subcommittee is co-chaired by Suzanne Heidenreich from the Indiana Department of Revenue and Al Howard from Al Howard Consultants, Inc. This subcommittee is responsible for keeping up on enforcement issues.   Their goals include encouraging increased communications between tax administrators and law enforcement agencies, review enforcement aspects of other subcommittees’ work to ensure they are realistic, and to develop recommended guidelines for penalties relating to noncompliance. Currently, this subcommittee is looking at dyed fuel inspection of diesel cars and pickups; State use of the ¼ percent of STP funds; actions to prevent fuel tax evasion; and a number of other topics.

The Uniform Forms subcommittee is co-chaired by Eddie McCormack from the Tennessee Department of Revenue and Ron Miller from Marathon Ashland Petroleum LLC. This subcommittee focuses on developing a consistent means of reporting taxpayer information including uniform forms and product codes.   The subcommittee is currently working on ExSTARS forms and summary versus detail codes; uniform license applications; and addressing the issue of products received differing from product sold in addition to other topics.

The Model Legislation subcommittee is co-chaired by Donna Alderman from the North Carolina Department of Revenue and Jerry Moorehead from NECS. This subcommittee develops guidance for States that are contemplating changes to their motor fuel legislation. They are at the forefront of State level dyed fuel legislation, and are currently working on a checklist for legislation to handle refunds and exempt sales.

The Advisory Group subcommittee is co-chaired by Christie Dixon from the Oklahoma Department of Revenue.   The industry co-chair position is vacant at this time. This subcommittee encourages States to create an advisory committee that includes representatives from both State and industry, and works toward implementing the FTA’s 11-Point Plan as a strategy for combating fuel tax evasion.

The Electronic Commerce subcommittee is co-chaired by Tim Blevins from the Kansas Department of Revenue and Bill Gray from Sinclair Oil. This subcommittee has been very involved with the creation of the electronic data interchange map for the ExSTARS project.

The Training subcommittee is co-chaired by Peter Steffens from the Florida Department of Revenue and Doug Burdick from Transmontaigne Product Services. This is the newest subcommittee and is working on the development of the advanced course for motor fuel auditors that will be offered later this year.   The main goal of this subcommittee is education and identification of training needs.

Ms. Alston thanked Ms. Anders-Robb and Mr. O’Gorman for the FTA update.

EMERGING ISSUES

Gasoline Imports

Ms. Alston introduced Al Howard who talked about gasoline imports (Attachment 14). He began by stating that in regards to motor fuel tax evasion, we have done a good job so far, but that the job is not yet complete. He noted all of the positive events that have worked to reduce motor fuel tax evasion including changing to tax at the rack for gasoline and diesel; changing diesel and kerosene to tax or dye; and developing the ExFIRS program. He then posed the question “what’s the next motor fuel tax evasion scheme?”

The next evasion scheme ripe for development focuses on emission changes. In December, two articles appeared in the Washington Post discussing the reduction in emissions and Environmental Protection Agency’s (EPA) requirements for cleaner fuels. By 2004, light trucks and sport utility vehicles (SUV) will have to meet the same emission standards as cars. In addition, sulfur content for gasoline and diesel will have to be greatly reduced in the near future.   Current sulfur content for gasoline is greater than 300 parts per million (ppm). Under the new EPA standards, gasoline’s sulfur content will be reduced to an average of 30 ppm and be no higher than 80 ppm. Phase-in for the gasoline sulfur reduction starts in 2004 and will be completed by 2006.

EPA has proposed reducing the sulfur content of diesel by 97 percent. Currently, diesel sulfur measures at approximately 500 ppm. The phase-in process for diesel sulfur reduction is expected to begin in 2007 and be completed by 2010 when the sulfur content will be 15 ppm.

In order to accommodate these stricter sulfur requirements, refineries in the U.S. will have to make significant investments to insure their ability to comply with the new regulations.

These factors, in addition to the fact that numerous domestic refineries, 85 in the past two years, have shut down will have an impact on imports of fuel into the U.S. Imports of refined fuel are expected to reach 40 percent.

Foreign refineries will not be affected by the sulfur requirements and will continue to produce fuel as they have in the past. The lower sulfur fuel produced by these refineries may be imported into the U.S., but the higher sulfur fuel will likely end up in Mexico, Venezuela, or some other location without the strict sulfur standards.

Compliance concerns focus on two areas related to imports. First, with the increased number of gallons of low sulfur fuel entering this country, the potential for a portion of it to go unreported is a possibility. Second, the ability to purchase high sulfur fuel at a significantly reduced rate creates the potential for fuel to show up in this country illegally. These shipments would likely show up on the east and west coasts, the Gulf coast, and the Mexican border.

Mr. Howard proposed that to address this issue before it becomes a problem, it is necessary to establish an inter-agency plan that would provide adequate compliance enforcement for the increased volumes of fuel imports expected.   Agencies that have an interest include IRS, EPA, U.S. Customs Service, U.S. Coast Guard, harbormasters, States, industry and FHWA. Mr. Howard also proposed that the FHWA take the lead in developing a steering committee made up of these organizations to evaluate interagency enforcement opportunities.

Ms. Alston thanked Mr. Howard and the group broke for lunch.

IRS UPDATE

Reorganization

After lunch, the group reassembled for an update from the IRS. Tom Hull, the Deputy Director for Compliance, Small Business, talked briefly about the restructuring of IRS. He mentioned that a lot is happening with the reorganization.   Mr. Hull specifically mentioned that all personnel at the mid-level and higher would have to compete for his/her position. All jobs are open.   He then gave an overview of the reorganization starting with the four business units. The first is the Large and Mid-size Business Unit that handles large cases and businesses making $5 million and over.   Second is the Small Business Unit that deals with businesses valued at less than $5 million. The third unit deals with Tax Exempt and Government Entities, and the fourth is the Wage and Investment Unit.

Mr. Hull explained that the reorganization is designed to better understand the taxpayer and to understand the taxpayers needs. He said that if IRS understands why the customer does not comply, then IRS should be able to address it. He noted that the largest challenge in taxpayers, both large businesses and small, is that they are “too busy” to comply.

Mr. Hull quoted Charles Rossotti, Commissioner of the IRS, stating, “institutionalize what is being done in Specialty Taxes” because they are working together to solve problems. Mr. Hull then complimented Ricky Stiff and Tom Burger on how they are working to meet the needs of the taxpayer, how their unit has developed an understanding of the market segment, and how they are working together with industry. He continued by noting that the Small Business Unit, where the Excise Tax Unit is housed, must work with the other business units since evasion cases are not limited to small businesses, and said that they are still working out the details on how to address some unresolved issues. He said they would continue with a centralized focus and that no significant changes are expected with regard to the operations relating to excise taxes.   Mr. Hull then introduced Ricky Stiff who gave an update on IRS activities.

Current Issues

Mr. Stiff began his report with an update on Native American issues. He noted that Native American tribes, for the most part, are in compliance regarding motor fuel tax collection. He mentioned that there might be some imports from Canada where the tax has not been paid at the Federal level. He noted that when fuel is sold to a tribal government and used by the tribal government, the wholesaler applies for a refund. If the tribe uses 1,000 gallons of fuel and the wholesaler applies for a refund on 10,000 gallons, IRS sees this as a problem and will not issue a refund.

Relating to border issues, Mr. Stiff noted that there is a problem at the Canadian and Mexican borders with the heavy vehicles. He said there is a 5,000-mile limit on heavy vehicles entering the U.S from either country.   So far, there are 23 taxpayers filing from Canada and Mexico. A project in San Diego identified numerous offenders to this limitation.   More than 200 taxpayers have paid their back taxes in full. IRS is planning a similar project for the borders at Laredo and in Arizona.   Mr. Stiff invited Texas to participate in the project.

He stated that it is easy to say stop the trucks at the border, but the question is what to do with them once they have been stopped. Issues relating to health and safety must be taken into consideration. IRS is working on ways to address these problems.   In fact, Battelle and IRS are working together to develop a “sonic ray gun” device that will be able to identify the type of liquid in a tank truck simply by aiming the gun at the tank and “shooting.” The waves emitted from the gun measure a specific characteristic of the fluid, which can then be used to identify what the fluid is without having to take samples.   Tests were done using this device to measure diesel and kerosene. There was a ten-point difference between the two fuels. When the two were mixed together, the point difference changed to five. While the gun would not be able to detect dye in fuel, it does relieve some of the health and safety issues that border inspectors face when having to retrieve samples from a tank.

Another device in the works would detect dye in the exhaust of a vehicle. The Customs Service uses a similar type of device to test for drugs and illegal immigrants.

Revenue

Larry Hecksher gave an update on revenues collected. He stated that there has been $8 billion in gross receipts for diesel since 1993.   That equals a 49.1 percent increase since the enactment of the Omnibus Budget and Reconciliation Act of 1993, which change the point of taxation for diesel fuel to the terminal rack and implemented dyeing of untaxed diesel fuel as an enforcement tool.   In addition, he mentioned that there has been a 12.8 percent increase in gasoline revenues.

Mr. Hecksher continued with a discussion on the kerosene regulations. On March 31, the final regulations for kerosene were printed in the Federal Register.   The regulations address the issues of blocked pumps, winter blending of kerosene with diesel, registration of government agencies, carrier regulations and monthly reporting of fuel sold.

ExFIRS

Duane Gillen provided a general overview for the ExFIRS project. The highlights include:

• 85 to 90 percent of all equipment to complete software development is in place however, some changes need to be made regarding the new kerosene regulations.
• The virtual private network (VPN) has been tested for approximately three weeks to prove data can be transmitted.
• The modules are getting to a completion point and are ready for testing.
• Final changes to the 720TO and 720CS (terminal operator and carrier reports) are on target and ready for sign off.
• 90 days of data will be accessible by the States on the system.
• Focus is on analyzing the data and getting the information into the system.
• Help Desk is being developed to insure filing is timely.
• The target date for mandatory filing for approved terminals and any carriers delivering to them is September 30.
• Penalties for failure to file are $50 and loss of registration however, there is a 6-month moratorium on failure to file and the associated penalties.
• There will be a 6-month moratorium on kerosene penalties.

IRS is working to educate all terminal operators of the program’s abilities as well as the filing responsibilities of the terminal operators and carriers. The majority of terminal operators are aware of the program, but not all. IRS is developing a checklist that identifies the timeframe for implementation.  

ExSTARS-Industry Perspective

Ron Miller from Marathon Ashland Petroleum LLC, provided the industry perspective on the ExSTARS program (see Attachment 15). He began by saying it was a good idea for industry to be part of the development of a system that they will have to use.

Mr. Miller identified the goal of ExSTARS as being “to build an efficient effective Federal terminal data tracking system which will minimize the leakage of motor fuel taxes.” Under this system, the focus is on IRS defined terminals.   Terminal operators will report all receipts and disbursements as well as closing inventory for all liquids, and bulk carriers will be required to report all bulk shipments into and out of IRS approved terminals. The States will be able to access information prior to the data being passed through the IRS firewall.

The system will include independent verification wherever possible, require total accountability, facilitate joint partnering between government and industry, provide timely data using EDI to identify potential evasion of taxes, and use uniform code and EDI maps developed by the FTA Uniformity Committee.  

Mr. Miller identified the benefits to industry as:

• Helping to reduce tax leakage, which levels the playing field.   In leveling the playing field, legitimate businesses are able to compete for business. Whereas it is difficult to compete with businesses that can undersell fuel because they are not remitting the tax to the appropriate authorities.
• Allowing for single point filing, which eliminates the need for businesses to file in numerous States as well as with the Federal government.   This reduces the reporting burden for industry and enables increased enforcement efforts at the State level.
• Fixing the Federal tax on exchange problems. In general, the States expect the receiving exchange partner to pay the tax and the IRS expects the delivering exchange partner (the position holder) to remit the Federal tax. Once the system is complete, ExSTARS will provide a basis for the IRS to consider changing their position on how two-party exchanges are treated for Federal tax purposes. This change is needed in order to facilitate single point filing.
 

Mr. Miller concluded by noting that terminal operators and bulk carriers are being asked to do more work, but the justification is to better protect Federal revenues. As a result, industry will see increased benefits relating to competition, single point filing requirements, and the goal to eliminate the need to tax truck exchange transactions.

ExSTARS-State Perspective

David Skinner from the Florida Department of Revenue provided the State perspective on the ExSTARS project (see Attachment 16).   He began with some background information starting with the initial meeting of the stakeholder team, which took place in November 1998, early development of the first EDI implementation guide, and the testing of the Florida and the Wisconsin prototypes.

Mr. Skinner explained that IRS has been very cooperative in listening to the wants and needs of the States.   He mentioned that a subteam, the ExSTARS Benefit Analysis Team (ExBAT), was created early for the purpose of identifying important issues, developing options to address the issues, comparing costs and benefits of proposed recommendations, and presenting recommendations to project management for approval. One issue of great concern was reporting summary versus detailed information.   The recommendation for detailed reporting was made and accepted by project management.

Other issues that were identified and addressed by ExBAT include the use of FTA uniform forms, product codes and EDI map; method for reporting product conversions and reclassifications; and method to amend returns and correct records.

Issues the team is currently working on include the IRS penalty structure, and the reporting of two-party exchange transactions. Regarding the penalty issue, the team determined that the current penalty regulations designed for 1099 reporting are not appropriate for ExSTARS reporting and so will be making recommendations to change the structure. To address the two-party exchange issue, the team is working on developing a prototype that will capture the information from both exchange partners. Industry as well as all of the States will benefit from the complete information that would be available with this type of reporting.

Disclosure issues have been a concern, but the IRS has worked out a solution. Mr. Skinner said that section 6103(c) of the Internal Revenue Code allows the information provider to waive disclosure restrictions to certain parties.   Industry most likely will agree to share information so they will not have to file in each State.

States will receive information in the pre-processor area of the system in mailboxes set up specifically for each State (see diagram in Attachment 16). States will not be allowed access to the ExSTARS system within the IRS network firewall.

Mr. Skinner concluded by saying the team is making great progress in all areas and that the ExSTARS system should be ready for implementation in the fall.

ExTOLE

Eugene Williams from the New York State Department of Taxation and Finance gave a brief update on the ExTOLE system.   He explained that the ExTOLE subsystem of ExFIRS is strictly a State project. It contains State information that will be shared among the States only.   IRS will have no access to this information.

The ExTOLE system developed by UNISYS with input from a stakeholder group made up of State and industry representatives, will contain State data including:

• Contacts list, which will provide points of contact for participating States in key areas of fuel tax administration;
• Audit disclosure information;
• Imports, exports and diversions;
• Truck sightings and trip tracking; and
• Licensing information.

The system is currently in the testing phase, and there are still some issues that need to be addressed. Like the ExSTARS system, ExTOLE has concerns regarding disclosure of information. So far, 18 States have not responded to issues relating to the exchange of data via an online system.

Mr. Williams ended his presentation by stating that ExTOLE can benefit the States in several ways. It is a tool that can be used to improve compliance, reduce lost revenue, and increase effectiveness of fuel tax administration. In addition, the system will enhance enforcement capabilities and will reduce costs by speeding up audits and allowing for matching to other reports.

Below the Rack Information System

The next presentation was on the BTRIS (see Attachments 17 and 18). Madelyn Henderson from IRS began by saying that BTRIS is a compliance tool designed to proactively address, capture, and disseminate information minimizing the impact of motor fuel tax evasion schemes. BTRIS is made up of three components: Fuel Fingerprinting Analyst Module, Fuel Fingerprinting End User Module, and Blending and Waste Tracking System.

Fuel fingerprinting uses high-resolution gas chromatography to analyze the components found in fuel and depicts the components as peaks. The unique pattern of the peaks represents the fingerprint of the fuel and is used to identify a fuel. Samples taken by the IRS fuel compliance officers were sent to a lab where chromatograms were created for each sample. The chromatograms are in a fuel fingerprint reference library, which includes baseline samples from all 50 States and the District of Columbia.

At this point, the technology can identify the geographic area from which the fuel came, not the specific terminal.   Validation studies established accuracy ratings in a range of 85 to 100 percent when determining the specific terminal of origination of a fuel sample. The ability to make this determination can provide an indicator to a possible evasion problem. In addition, the optimum BTRIS will generate:

• Leads and other information on businesses and individuals under examination/investigation for fuel related activities;
• Financial information and locating assets for seizure/forfeiture as well as track illegal movement of assets;
• Information on individuals and businesses who are indicted/convicted of motor fuel tax evasion, environmental crimes and other Federal fuel related crimes;
• Locator services to find individuals and businesses involved in fuel and related non-compliant activities.

At the conclusion of Ms. Henderson’s presentation, Mr. Stiff reminded the group that in order to make BTRIS work, IRS needs the States’ help in building the reference library. He specifically said they need more State samples, particularly from retail locations. He noted that the samples should match up with the terminals in the local area.   He volunteered IRS to train fuel compliance officers, to supply sample bottles, pay for shipping of samples, and to test the samples. States would be given access to the data. He requested industry and the Canadian provinces to participate by voluntarily providing samples. He asked volunteers to contact Helen Curtis-Brown or Madelyn Henderson and they would explain the process. Mr. Stiff concluded the presentation by stating that each sample improves and builds the database.

NATIVE AMERICAN ISSUES

The next agenda item was a brief report on Native American issues presented by Janet Lake from the Nebraska Department of Revenue. Ms. Lake said the Uniformity Committee of FTA conducted an updated survey of the States in December 1999 and that the results were in. The survey asked questions about a State’s exemptions and refunds for Native Americans, as well as if agreements between States and tribes are in place, and whether or not the amount of fuel sold to Native Americans is reported. A copy of the survey is included as Attachment 19.

NEXT MEETING

The final item on the agenda addressed the date for the next Steering Committee meeting.  A calendar was included with suggested dates and noted holidays. A survey will be sent to Steering Committee meeting members for input on the date. Following this, the meeting was adjourned.

LIST OF ATTACHMENTS

1. Attendees List
2. Agenda
3. Status of Tax Compliance Funds
4. STP Funds
5. Federal Register Notice, October 8, 1998
6. President’s Budget
7. Summary of Proposed Legislation
8. NAFTA Status of Implementation
9. NAFTA Land Transportation Standards Subcommittee Joint Statement of Accomplishments
10. Washington Post article
11. Attention Truckers
12. Motor Fuel Information Reporting Re-Assessment Slides
13. Federation of Tax Administrators-Motor Fuel Tax Section
14. Motor Fuel Tax Evasion and Anti-Evasion Measures
15. Excise Summary Terminal Activity Reporting System – Marathon Ashland Petroleum LLC
16. ExSTARS Status Report from a State Perspective
17. Below the Rack (BTR) Highlights
18. Fuel Fingerprinting Presentation Slides
19. Survey of Native American Issues