The sixteenth meeting of the Steering Committee for the Joint Federal/State Motor Fuel Tax Compliance Project was held in St. Louis, Missouri, on September 24, 1997, following the Federation of Tax Administrators Motor Fuel Tax Section Annual Meeting. The meeting was attended by approximately 50 participants (see Attachment 1).

Ms. Sherri Alston, Chief of the Transportation Studies Division of the Office of Policy, Federal Highway Administration (FHWA), welcomed participants to the meeting. Ms. Alston began with an update on the impending transportation legislation. She noted an article in the September 24, USA Today discussing the possibility of freezing Federal highway spending at current levels until next year when Congress would again begin the debate on transportation spending (see Attachment 2). The article stated that House Transportation Subcommittee Chairman Bud Shuster (R-Pa.) would ask for approval of a 6-month extension of the current legislation, which expires on September 30. Ms. Alston pointed out that with a 6-month extension, some fiscal year (FY) 1998 funds would become available (with the passages of the FY 1998 appropriations act), and that without the extension or new legislation, there would be no funding.

TRANSITION TO NEW LEGISLATION

Ms. Alston proceeded with the first agenda item which was the transition to National Economic Crossroads Transportation Efficiency Act (NEXTEA) funding (if authorized). Ms. Alston informed the group that there were some concerns relating to the termination of funding under the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA). She explained that for the tax compliance project (TCP) funds, the procedures state that "funds shall remain available until September 30, 1997, at which time any unobligated funds may be withdrawn by the FHWA for other motor fuel tax evasion projects." All but two States obligated the TCP funds by signing a Grant Agreement or Amendment. Once the funds are obligated, they remain available for use until the scheduled completion date entered on the project agreement. Ms. Alston told the committee that if necessary, the completion date may be extended for a reasonable period of time by amending the Grant Agreement to show the new date. Ms. Alston noted that several States are approaching their project completion dates, and some have a significant amount of funds remaining available for use. She also noted that several States are running low on TCP funds. As of August 31, one State has no funds remaining, one State has less than 3 months remaining, and four States have less than 1 year's worth of funding. Ms. Alston reminded the group that those States that are running low on TCP funds should conserve, since it could be well into FY 1998 before additional funds are available.

Ms. Alston notified the group that the final installment of diesel fuel sampling funds from the Internal Revenue Service (IRS) will be made available in FY 1998 to those States that are still participating in the program and have not yet received the full reimbursement amount from the FY 1996 reductions. Several States have negotiated new project agreements in FY 1997 and will also receive funding. Ms. Alston reminded the participants that not all States will be getting funds. She also discussed the administrative changes that have been incorporated into the amended IRS agreements. The IRS/State Amended Diesel Fuel Sampling Agreement will specifically state that the period of performance is limited to 1 year from the date of FHWA approval (signature on Grant Agreement or Motor Carrier Safety Assistance Program (MCSAP) Agreement), and that work performed either prior to or after the period of performance will not be reimbursed. She reminded States that they would have to closely monitor their expenditures of dyed fuel funds and request the FY 1998 project approval within 30 days prior to termination of the current contract.

Mr. Donald Paswater from Maryland raised a question about the IRS and TCP funding and the Grant Agreement date. The Maryland Grant Agreement shows a total dollar amount that included the TCP funds as well as the diesel fuel sampling funds and a completion date of December 1998. This goes against the administrative changes for the IRS funds. Mr. Paswater was told that an amended agreement will have to be signed to separate the funds and change the completion date for the diesel fuel sampling project.

Mr. Paswater then posed the question of whether funds can be "front-loaded" or advanced for a project. He was told that TCP funds may not be front-loaded for any tax evasion project. However, IRS funds may be advanced. If the State chooses to receive advanced funds, they must abide by the accounting requirements for cash advances as discussed in the Uniform Requirements for Grants and Cooperative Agreements, 49 C.F.R. Part 18. In general, the requirements for cash advances are that the cash balances are liquidated expeditiously and interest accrued to balances on-hand are credited to offset project expenses.

Ms. Alston briefly mentioned the handout provided by her office which summarized the principal points relating to Highway Use Tax Evasion Projects from the three legislative proposals: the NEXTEA; the Building Efficient Surface Transportation and Equity Act of 1997 (BESTEA); and the Senate's Intermodal Transportation Act of 1997 (ITA) (since changed to ISTEA II), and ISTEA (see Attachment 3 for an updated summary). She stated that the proposed funding for the Fuel Tax Evasion program would continue at minimum at the current rate of $5 million (contract authority) under each of the new proposals. The Senate ISTEA II bill would include provisions to provide funds (subject to appropriations), for the development, operation, and maintenance of a fuel reporting system. The BESTEA bill would provide funds for the fuel reporting system with contract authority (i.e., no appropriation required). The NEXTEA has no provision for a reporting system. A table showing the comparison of average apportionments for each of the bills and ISTEA was included as part of the handout, as were the general formulas used for calculating the apportionments. (As of September 30, there was no appropriation act for the
U.S. Department of Transportation (DOT) in place for the beginning of the fiscal year on October 1. The DOT is operating on a continuing resolution through October 23, 1997.) Ms. Alston pointed out that the most helpful part of the handout was the acronyms list on the last page.

TASK FORCE REPORTS BY LEAD STATE REPRESENTATIVES

Ms. Alston then proceeded to the task force reports by representatives from each of the lead States. Each representative reported on task force activities since the last Steering Committee meeting which was held March 10 and 11, in Washington, D.C. She introduced Mr. Quintin Hess to begin the Task Force Reports.

Northwest Task Force

The Northwest Task Force report was presented by Mr. Quintin Hess of the Oregon Department of Transportation. Mr. Hess informed the group that the Northwest Task Force has held two meetings since the March Steering Committee meeting, one in Seattle on April 8 and 9, and one in St. Louis on September 21. The April meeting was attended by all members except Wyoming and was very informative. The September meeting was attended by all members except Alaska. The agenda for the September meeting covered sharing of confidential tax information, potential joint audits, as well as other items. The next meeting for the task force will be sometime between late March and early April, 1998, in Montana. Mr. Hess then continued with individual State reports.

Oregon reported that significant legislation was introduced regarding the taxation of diesel fuel; however, nothing passed, and tax rates remain unchanged. As a result of the unchanged tax rates at the State level, local governments, primarily at the county level, are considering enacting local tax ordinances. The vacant auditor positions in Oregon have been filled, and they are targeting use fuel sellers which are (gas stations and truck stops that sell diesel, propane, and other special fuels). The auditors have been successful in identifying and locating unlicensed sellers and users. Oregon is working to implement electronic fund transfer (EFT) for larger tax payers. There was nothing significant to report on Native American issues relating to motor fuel.

Montana reported that as of October 1, it is implementing legislation that will allow seizure of fuel of unlicensed importers. Carrier reporting requirements will start January 1, 1998, as will a per gallon tax for propane to replace the current flat fee. Montana's fuel tracking system is now fully implemented. Montana had nothing new to report in the area of Native American issues. No new agreements have been signed with any tribal nations. They will start another border intercept project in the near future. There have been no significant evasion cases, and the main problems in the dyed fuel area are pickups at cardlocks (unmanned fuel stations where fuel is accessed by the use of a card).

Washington reported that no significant legislation passed in the past session. Native American issues are progressing. Three agreements are in place and six additional tribes have expressed interest. Washington has been working with several other northwest States to improve and increase communications on common problems relating to joint audits. They are working on two evasion cases.

Utah reported that as of July 1, the point of taxation for diesel fuel was moved from the pump to the terminal level. Gasoline remains at the distributor level. The tax rate for gasoline and diesel is now 24.5 cents, up from 19 cents. An evaluation of how the changes in the tax law will affect Native American issues is underway. Utah formed a new criminal investigation unit in early 1997, but they have nothing to report yet. The State is currently working with IRS on diesel inspections. At this time, seven joint audits with other States are in process. The new contact person for compliance issues in Utah is Ms. Julie Jones. She replaces Messrs. Phil Jones and Gary Nuffer.

Alaska reported that new legislation has been implemented that changes the definition of foreign flights to be more consistent with the IRS definition for purposes of taxing jet fuel. Gasohol is now taxable. New tax forms for reporting were implemented on July 1, and due on August 31. They are currently assessing the impact the new forms are having on reporting. In the area of Native American issues, the Alaskan Native Claim Settlement Act of 1971 is being challenged in court. The IRS and Alaska have been meeting quarterly to discuss possible joint Federal/State tax reports.

Idaho reported that there were no significant changes in legislation this session. Deficiencies are being actively issued against suppliers that don't charge the tax to Native Americans. Idaho statutes contain no provisions for agreements with Native American tribes. The Idaho Department of Revenue is working on a border case involving an unlicensed dealer. They hope to prosecute in the future. Idaho does not have a State dyed fuel inspection program, but sends follow-up State notices on IRS violations.

New England Task Force

The New England Task Force report was given by Mr. Allan Ferullo of the Massachusetts Department of Revenue. Mr. Ferullo reported that the last meeting of the New England Task Force took place on May 21, in Bedford, New Hampshire. This was a joint meeting which included the New Jersey Task Force. The meeting was attended by all six New England States and various Federal agencies. The next meeting will be held in Boxborough, Massachusetts, on October 10.

Massachusetts reported that there have been no legislative changes in the area of motor fuel excise tax. The State Police have been actively conducting fuel sampling and have discovered they have better success with random stops. There have been 1,300 inspections which resulted in 50 dyed fuel violations. Violators are being pursued. Six motor fuel auditors are being cross trained for International Fuel Tax Agreement (IFTA) audits. The auditors will continue to perform motor fuel audits while maintaining an IFTA case inventory. The Department of Revenue's Multi-State Auditors will be trained to conduct fuel audits. A member of the in-State audit staff will be visiting a major oil company in Texas for examination with a Multi-State Auditor. The Department of Revenue is compiling data through automated systems of various outside agencies for the purpose of establishing a data base addressing fuel issues. The information compiled will be used to cross-reference tax filing, storage, and other facts related to fuel taxation.

Vermont reported that in January 1998, another attempt will be made to pass a bill to change the point of taxation to the terminal rack. If passed, the bill would also eliminate a surcharge on diesel fuel by raising the price at the pump to 22 cents per gallon and lowering the reporting price from 26 cents to 22 cents per gallon. It would also allow tax free bulk deliveries of undyed diesel fuel. As of August 1, the gasoline tax was increased to 20 cents per gallon. One cent per gallon of the tax will be used as a clean up fee.

Connecticut continues to monitor motor carrier and other transporter reports to check movements across State lines. They have reviewed a list of companies that are doing business in two or more States, and recently, because of this project, denied two applicants that wanted to register in Connecticut. One of the applicants was recently arrested in New York for illegal activity. Connecticut continues to monitor gasoline shipments coming into the State because of its high tax rate in comparison to surrounding States.

Rhode Island reported that a comparison of tax free sales between licensed motor fuel distributors has disclosed discrepancies with several distributors not reporting bulk purchases and sales. Extensive prep work is continuing in the hope of starting audits in this fiscal year. In addition, information was received regarding the importation of tax paid gallons of gasoline and diesel fuel from surrounding States with lower tax rates. One audit on a Massachusetts taxpayer has been started and other future audits are anticipated. Two agents attended the Advanced Motor Fuel Training session held in May in Pennsylvania.

New Hampshire hosted the Northeast Regional FTA Conference in May 1997. The speakers were excellent and the conference was well attended by representatives from all the northeastern States. The New England and New Jersey Task Forces also met at the conference. Since the change in the point of collection of diesel taxes, New Hampshire has realized an increase of 30 to 40 percent in the first 6 months. The new point of collection could have a positive effect on neighboring States since New Hampshire no longer has tax-free diesel at the pump. There have been legislative changes in the refund of taxes on racing fuel. Race track operators (not individuals) can now file for a refund, thereby recognizing racing fuel as an off-road non-taxable fuel. A project comparing International Registration Plan (IRP) accounts to New Hampshire's Road Toll system has been started. For example, if taxpayers have missing reports or unpaid invoices, they are put under cancellation or in some cases suspension and plates are removed from the vehicle until all accounts are back in good standing. A sweep of fuel delivery trucks will be conducted in the near future. Cross checks will be made in hopes of finding any sales tax which was not properly reported and remitted.

Maine reported that an attempt to move the point of taxation from the supplier level to the terminal level was fought and pushed back to the next legislative session. The Maine Oil Dealers Association, who fought the proposal, cites the main reason as the loss of buying power. A law change did occur for propane and other low energy fuels to have a stock loss provision similar to gasoline of up to one percent. Maine reports that in the past 6 months, the Fuel Tax Section has had many personnel changes. Maine continues to work very closely with the Sheriff's Department which does the roadside testing. Additional audit leads have been generated from this area. The Commercial Vehicle Section which handles IFTA and IRP has generated audit leads from the data entry level. A concentration of audit activity has been in the Supplier Fuel area. The State of Maine does not allow for any shrinkage of distillates. Many audits have resulted in additional excise tax due from denial of reported stock losses. Out-of-State audits are being set up on suppliers and gasoline distributors.

North Carolina Task Force

Mr. Bob Beck of the North Carolina Department of Revenue gave the North Carolina Task Force Report. The North Carolina Task Force meeting (with the Florida Task Force) was held in Savannah, Georgia, on June 18. The next meeting of the task force is tentatively set for January 1998.

The South Carolina/North Carolina IRS district reported that North Carolina and South Carolina both have three dyed diesel compliance officers (DCO). They check terminals once a quarter and have found no violations to date. None of the terminals are in violation of the requirements for bills of lading and invoices. Violations that occur as a result of the roadside checks are found most often in the construction, logging, and farming industries. Retail outlets are checked regularly and two violations have been found, one with a 650 gallon storage tank and the other an 8,500 gallon storage tank. The roadside inspections in South Carolina are handled by the State Transport Police and are conducted 1 day each quarter. This is used as an education program for the truckers. The results show no violations at weigh stations and very few elsewhere. Mr. Beck noted that Mr. Jim Stone of the IRS district office said that "by the time we get set up, the truckers get word out through their network." Within the last 6 months, they have been concentrating audits on companies with dyed fuel available. So far three out of three audits have found violations. They have worked one criminal case involving three or four retail outlets with one major wholesaler. The position of the IRS has been no compromise, meaning that if there is a presence of dye, the penalty is sustained. This program supports the highway coffers.

South Carolina reported that the South Carolina Department of Revenue will no longer handle the roadside inspections as a result of governmental restructuring. This type of enforcement will be the responsibility of the State Transport Police with the Department of Revenue participating when needed. Dyed fuel penalties assessed by the IRS are being shared with the Department of Revenue. The Department of Revenue is developing assessment procedures to allow follow-up actions. Retail inspections by the Department of Revenue found compliance high. A motor fuel training school was held in July with 20 auditors attending, along with representatives from Policy, Office of Appeals, and Department of Health and Environmental Control. A "training audit" was planned at one of the major motor fuel suppliers in September. Taxpayers are working with Department of Revenue to develop audit techniques for terminals, and as a part of this, electronic data interchange (EDI) issues are also being addressed. The FTA Southern Region Motor Fuel Conference will be held at the Myrtle Beach Hilton, June 7-10, 1998.

Georgia reported that they are working with the industry to move motor fuel tax to the terminal rack and merge the second motor fuel tax (sales) into an excise rate. They are working with South Carolina on a joint operation/audit. Georgia is also sharing information with Illinois on an investigation. The Georgia Department of Revenue does not have the authority to stop a truck, so they work with the enforcement agencies. They are trained to sample the fuel from a truck, including chain of custody procedures, and if the driver refuses, then a call is made to the IRS. Georgia has made assessments in the millions. The State diesel compliance officer inspector position is open, and they would like to fill it.

Tennessee reported that they are amending their diesel fuel legislation to give them the authority to assess the penalty based on the fuel in the tank as opposed to tank capacity as in the current legislation. Effective October 1, gasoline is taxed at first receipt, and at the terminal withdrawal for diesel. Tennessee is faced with budget cuts and will lose two positions with 20 years of experience. Their assessments are down as well as the assessments of the Department of Safety on the main roads. They worked with the IRS jointly, but the recent transfer of personnel has not allowed them to work as closely as in the past. Tennessee has several appeals currently in process.

West Virginia reported that the West Virginia Department of Tax and Revenue is working with the Public Safety agency to do inspections. The Department of Tax and Revenue has a pick-up truck that has been equipped to collect and handle all samples of diesel fuel to be tested. West Virginia's dyed fuel penalty is based on $10 per gallon with $1,000 minimum and $5,000 for a refusal. The dyed fuel inspection program has been in place since July 7. As of September 9, 1,713 inspections have been performed and 32 violations (1.87 percent rate) found. Approximately $38,000 has been assessed in fines. Most violations are found in the logging industry. Two agents were sent to training in North Carolina.

Virginia reported that their dyed fuel legislation mirrors the Federal legislation. However, their penalty is based on the capacity of the tank, instead of the amount of fuel in the tank, as in the Federal legislation. Other legislation allows farmers to use dyed diesel in unlicensed vehicles as long as they are going from farm to farm. The registration fee is half the standard rate. Virginia has seven field investigators and two pick-ups fully equipped to handle the diesel fuel samples. They have conducted 5,675 vehicle inspections, leading to 6 storage tank inspections. There have been 46 violations based on 14,856 gallons, with assessments amounting to $158,720. Virginia has also made 36 assessments by piggybacking the IRS, with 25 of them being collected for an amount of $355,047. The Investigative Services Administration of the Virginia Department of Motor Vehicles conducts enforcement activities once a month and sometimes work with the State police.

North Carolina reported that the Division of Motor Vehicles enforcement personnel stopped pulling samples for the Federal Government because of paperwork issues. The issues have been addressed and the road program will continue. The Division of Motor Vehicles has chain of custody procedures in place and compliance is up. They have been finding some high sulfur fuel on the road. There has been a governor's proclamation to hold off on violations, and they are working with the logging industry to resolve some issues. North Carolina and South Carolina officials are meeting to conduct border checks. They are discussing joint efforts in the area of dyed fuel violation enforcement. Currently, they work together on joint MCSAP and size and weight enforcement, and are holding discussions on joint dyed fuel violation checks. "Fuel Tracks" tracking program is on target. The program consists of checking for decals, cross matching, destination State checking, as well as other checks made to ensure that tax evasion is not occurring.

Mr. Beck concluded his task force report by expressing how much the States appreciate the Federal funding which has dramatically improved communication and compliance.

Florida Task Force

Mr. David Skinner from Florida Department of Revenue presented the Florida Task Force report. Mr. Skinner began by mentioning that the last meeting of the Florida Task Force took place in Savannah, Georgia, on June 18, and that, as mentioned in the previous task force report, it was a joint meeting with the North Carolina Task Force. The next task force meeting is tentatively scheduled for some time in January or February 1998. Mr. Skinner then moved on to the State reports.

Louisiana reported that the Louisiana State Police Division of the Department of Public Safety will be checking on road for dyed fuel. They will receive Federal funds to pull samples.

Mississippi reported that no new legislation has been signed in Mississippi; however, they are participating in a new joint investigation with Texas which was mentioned in a session of the FTA meeting on the previous day. State and Federal agencies have been pulling samples. The penalty for use of dyed fuel on the highway is $1,000 and, to date, the largest assessment has been $13,000. There have been 13 violations in a 4 to 5 month period. There have been some waivers, but very few. Mississippi has had a high compliance rate on major roads, but the problems appear to be on the back roads.

Alabama reported that there are 15 to 20 revenue officers that have been making assessments for about 1-1/12 years. State and Federal penalties are both $1,000, and they have collected just under $300,000. They have collected just under $10,000 so far by enforcing destination State requirements. Three DCOs do terminal inspections monthly, and are running an effective program. The main problems in Alabama appear to be in the logging industry.

Florida reported that in the first year of tax at the rack, they have seen an 11 percent increase in diesel revenues and a 3 percent increase in gasoline revenues. Florida already requires kerosene to be taxed at the rack or dyed if it is intended for exempt use as home heating fuel. Undyed kerosene is taxed at the aviation fuel rate of 6.9 cents per gallon instead of the diesel fuel rate. Aviation fuel tax reported has increased from 4.5 to 6 million gallons per month since this law took effect. All State taxes and the local tax on diesel fuel are now being reported by 45 terminal suppliers. This amounts to 85 percent of all the fuel taxes. The remaining 15 percent (local tax on gasoline) is reported by 380 wholesale distributors. Previously, the local option tax on gasoline and diesel was reported by 10,000 retail service stations. These changes have dramatically reduced the number of tax liens from an average of 57 per month to only one tax lien since the new law became effective. Florida has developed a Compliance Sampling Program to examine records of retail service stations and verify through the fuel distribution chain that all taxes have been remitted as required. A fuel tracking system prototype has been developed for the new law, but is not yet operational. The tracking system will match summary data instead of individual transactions. Florida law requires transaction details to be submitted by taxpayers and by fuel carriers on electronic media, and EDI reporting is being phased in. New legislation exempts pleasure boats from having to pay diesel tax, bringing Florida in sync with Federal law.

PUBLICUS Task Force

The PUBLICUS Task Force report was given by Mr. John Aikman, from the Indiana Department of Revenue. The last task force meeting was held in Chicago, Illinois, on June 13, and the next is scheduled for Charleston, West Virginia, on November 20. Mr. Aikman began by telling the group that they had sent out questionnaires to other States to get input for this Steering Committee meeting, but received no responses. His report is on Indiana.

Indiana reported that the Indiana Department of Revenue's Criminal Investigation Division is going to begin a program that will match transporters with IFTA. They have seen a few problems in the bills of lading and are beefing up the checks. Several dyed fuel related problems have come to light. Dyed fuel is detected when tankers do not clean out the lines properly before their next pick up. Also, the State is experiencing problems with the prosecutors on dyed fuel cases. It seems the prosecutors are unsure of what dyed fuel is, and need to be educated on the program. The State is also having problems with blending operations, particularly determining the amount of kerosene blended with fuel oil for taxing purposes. However, the State is seeing an increase in compliance, as well as revenues, when they have dyed fuel projects on the roadside. The Department of Weights and Measures is willing to pull samples and may be used to increase inspection capabilities. In addition, the paperwork of importers and exporters is receiving a more careful look in order to catch violators. School buses can burn dyed fuel as long as they pay the tax "next month." The Department of Revenue in conjunction with the Department of Defense is involved in phasing out the use of old/stale fuel from military bases. Indiana has discovered a problem with tax at the rack. There is no downstream reporting, and the lack of paperwork makes it difficult to track fuel. They feel they may need new legislation. From January through July 1997, over 500 roadside inspections have taken place. Twenty arrests on dyed fuel violations have taken place during this time period. They have received a new vehicle for roadside testing. The Indiana State Police and Revenue will be attending a farmer and truck show in Fort Wayne, Indiana, to explain the dyed fuel program.

Texas Task Force

The Texas Task Force report was presented by Mr. Jimmy Archer from the office of the Texas Comptroller of Public Accounts. Mr. Archer began his report by telling the group that the last meeting of the Texas Task Force took place in Oklahoma City on August 20 and 21. About 40 participants, representatives from State and Federal agencies, attended. The next meeting is scheduled for February 4 and 5, 1998, in Baton Rouge, Louisiana.

Texas reported that the legislature passed a bill which transfers responsibility for regulation of motor fuel containing ethanol and methanol from the Comptroller to the Commissioner of Agriculture effective September 1. Also passed was a bill that extends the statute of limitations from 1 year to 4 years for fuel tax refund claims, effective October 1. Bills that did not pass included moving the tax to the rack, and octane testing for ethanol and methanol. Texas currently has working exchange agreements on specific cases with California, Arizona, Mississippi, and New Mexico. In the Mississippi case where a working refinery has been sending fuel to Texas, 14 individuals and businesses have been identified as a result of the sharing of information. The Houston IRS has been receiving information from the Texas Comptroller's Office and the Travis County District Attorney's Office on individuals convicted of fuel tax violations. They are pursuing Federal excise tax liabilities against the defendants. The IRS DCOs have been working livestock auctions and road blocks to check for violations of the dyed diesel statutes. Texas is continuing to help the IRS Below-the-Rack Evasion Project by providing samples for the fuel database. Samples are currently being taken at terminal racks. There are no Native American issues at this time in Texas.

Mr. Archer provided some clarification to a story summarized in the July issue of Fuel Tax Evasion Highlights. "Fat Sal" Iorizzo threatened to reveal security secrets that would affect the U.S., not just Texas, as reported in the July FTE Highlights based on a March 17, story in U.S. Oil Week.

Oklahoma reported that since October 1, 1996, Oklahoma has had tax at the rack for gasoline and diesel. Originally, they had shown a $3 million increase in revenues, but after refunds there was no increase. Refunds are quickly processed since they are receiving about 1,500 claims per month. Some have been returned to the taxpayer without acceptance because of suppliers' formatting. Oklahoma has no provision for electronic filing. Four auditors are working to compare information. Oklahoma has licensed approximately 50 importers, 50 exporters, 100 occasional exporters, and 50 transporters.

New Mexico reported signing a Memorandum of Understanding with California and Arizona to share information across borders on a case being prosecuted in Texas. The first meeting with the IRS on this case is scheduled for some time in October. Six individuals have been indicted.

Mr. Archer closed by stating that the members of the Texas Task Force remain committed to the project.

NETASK Task Force

The NETASK Task Force report was presented by Ms. Janet Stege, of the Nebraska Department of Revenue. The last meeting held by NETASK was May 15 and 16, in Fargo, North Dakota. All 11 States were represented with a total attendance of 2322 State representatives and 1 from IRS. The next meeting is scheduled for October 23 and 24, in Kansas City, Missouri.

Iowa reported that since changing the point of taxation to rack, Iowa has seen an increase in revenues. The estimate is 19 percent, but this number does not include all refunds. Iowa has found that industry is the best enforcement. Currently in Iowa, there are only 20 importers because there is no incentive to be an importer. There was a small legislative change that allows a refund for tax paid on diesel used in boats. Iowa does not have any provision for electronic data filing.

South Dakota reported that since the point of taxation was moved to the rack in January 1996, they have seen an increase in revenues of approximately 18 percent, and are very pleased with the results of the move. They believe the increase is due to an aggressive dyed fuel program. South Dakota is experiencing an 11 percent violation rate on dyed diesel, and are having some trouble collecting from out-of-State suppliers. Ms. Stege noted that while South Dakota has an aggressive dyed fuel enforcement, some surrounding States lack any enforcement provisions. (See North Dakota, Wyoming.) Originally, there was no new legislation this year, but a special session was called to raise the tax rate to pay for road repair. They agreed on a temporary tax increase of 3 cents per gallon on gasoline and diesel that will last from May 1, 1997 through September 30, 1998. Statewide auditor and agent training was held.

Wyoming reported that as of January 1, 1997, the point of taxation is at the rack. It is too soon to tell the financial impact. Wyoming allows tax-free sales between suppliers outside the terminal. There is an issue with out-of-State suppliers. If a supplier has a presence in the State, then Wyoming will require them to collect Wyoming tax out-of-State. They have noticed large increases in sales of dyed fuel. The legislation did not include dyed fuel enforcement. An industry group was developed after the law was passed, and they will have legislation for cleanup, including a shrinkage allowance, and a possible increase in tax. There are 157 importers and 20 suppliers licensed in the State.

Colorado introduced no new legislation and has no plans to move the point of taxation. Several investigations are underway including farmers that are in the trucking business buying undyed fuel tax-free, and a person buying transmix and separating it into diesel and gasoline. Buses are using dyed fuel because of IRS laws. Colorado does not have an industry advisory group.

Kansas is progressing in the area of EDI. Taxpayers reporting 50,000 gallons or more must file EDI. Taxpayers are being phased in at the rate of approximately 30 per month. SupplyTech has developed the software. Kansas tax is at the distributor level, and they have shown a $13 million increase in tax receipts over the last year. Between July 1996 and March 1997, there were 62 dyed fuel violations.

Missouri reported that they have developed a legislative package that includes moving the tax to the rack, and for adopting a dyed fuel program. They are currently investigating some home heating fuel deliveries.

North Dakota reported that legislation passed for dyed fuel and to repeal farmers' ability to buy gasoline at the reduced tax rate. Dyed fuel is all taxed at the reduced rate, but there is no provision for inspection or enforcement. All undyed diesel is taxed and the consumer must file for a refund. They have refined their refund procedures. Some assessments and some criminal activity are going on.

Minnesota reported that a law was passed that eliminated tax-free sales of undyed diesel, but does allow farmers to buy gasoline tax free. Legislation may increase the tax rate, but it is not likely. They are planning audits of major oil companies and are using two auditors to review refund claims. There has been a major increase in refund claims, but the average amount is less than $200.

Nebraska reported a temporary shut down of dyed fuel roadside testing program because of funding problems. There has been no new legislation since the last meeting, and it is unlikely that they will pass any this session. Currently, a study is looking at laws in neighboring States, and they may develop a legislative proposal for next year.

Montana reported that there is legislation in the works to do away with the liquefied petroleum gas (LPG) decal. Instead, the tax will be paid at the pump. They have a reduced rate for LPG and compressed natural gas (CNG). There is still significant dyed diesel activity in Montana. They send reports to each State letting them know of any violations from their State caught in Montana. Montana's tracking system is working well.

California Task Force

Mr. Allan Stuckey, from the California State Board of Equalization, presented the report for the California Task Force. The last meeting of the California Task Force took place in Denver in April 1997. The Task Force Subcommittee met in April and July in Salt Lake City. The next subcommittee meeting will be in October in Reno, Nevada, and the next meeting of the full task force will take place in April 1998, at the FTA Pacific Region Motor Fuel Tax Section Meeting in Idaho. Mr. Stuckey reminded the group that Oregon, Utah, and Colorado are members of the California Task Force, but that he would not include them in his report because they had been mentioned in other reports.

Nevada reported a new fuel called A55 is being tested in Nevada with State vehicles and buses. It is also being used in California by Paratransit, Inc. This is a fuel product that can power diesel vehicles with some conversion effort and is made of naphtha, crude oil, and about 30 percent water. It is purported to be better for the environment. Staff at the California Board of Equalization is looking at the issues to see just how it should be taxed, either as an alternative fuel or the same as diesel and gas.

Arizona reported that as of January 1, 1998, they will be moving the point of taxation for gasoline and diesel to the rack and will be adopting dyed fuel provisions. The rate for gasoline will be 18 cents per gallon and 27 cents per gallon for diesel. There will be a credit of 2 cents per gallon for purchasing diesel in the State. Effective October 1, the 8 cents per gallon use fuel surcharge will be repealed. Also on October 1, the Arizona Weight Distance (Ton Mile) Tax will be repealed and will be replaced by an annual Motor Carrier Fee at the time of registration.

California reported that the Governor signed an Executive Order which provides the State Board of Equalization with the authority to furnish information to State and Federal agencies that investigate motor fuels or criminal laws rather than motor fuel tax laws. Mr. Stuckey then took the opportunity to mention the other agencies involved with fuel tax evasion that are not fuel tax agencies. He mentioned at the State level, the California Air Resource Board (ARB), Division of Measurement Standards of Food and Agriculture (DMS), and Department of Justice; and at the local level the Los Angeles County District Attorneys Office, Welfare Fraud Unit. On the Federal level, he mentioned the IRS, Federal Bureau of Investigation, DOT, Department of Justice, Defense Criminal Investigative Service branch of the IRS, Postal Inspectors, and Immigration and Naturalization Service.

Dyed diesel fuel assessments now total $269,000 comprised of 189 assessments. In the last fiscal year, ARB has performed around 17,000 inspections for 53 penalties. The results of the dyed fuel tests are less than 1 percent. Results, found through testing 873 retail stations, show that 13 percent or 113 had a dye concentration of which 2.5 percent or 33 had concentrations sufficient (1.0 percent or greater) to warrant penalties. These are being worked to determine the location of the problem. Because samples pulled by the DMS are being submitted to the Air Force for fingerprinting, investigations will commence.

In the area of fuel fingerprinting, Mr. Stuckey reported that they have received results from the 89 retail samples tested. Fourteen of these samples indicated 15 to 20 percent jet or kerosene. Discussions are on-going to determine a course of action, either looking toward the retailer for the tax or beginning an investigation. As it stands now, they may be asking for secondary samples from both the retailer and the supplier simultaneously. The group also started nationwide tier reviews with which BOE is assisting. The first effort was contacting refineries to determine their sales of jet fuel and transmix. The next step is contacting other distributors/
racks and identify other products suitable for blending. The idea is to evaluate off-spec fuel products to determine if the product is suitable for blending, and institute tracking requirements. Additionally, off-spec products may be tracked down to the end user. All States are experiencing an increased movement of transmix either from or into their States, which supports the need to track products suitable for blending. Native American fuel tax issues were not a concern in previous reports, but there was some concern about the potential land being taken into tribal trust. Since California has had an application for a motor vehicle fuel license and a supplier license, and fuel will be imported into California, concern is increasing.

Mr. Stuckey gave an update on the Gas Gangsters case. He told the group that there have now been 32 guilty pleas, and 5 are still awaiting trial as part of the July/August 1995 "Operations Gas Gangsters." Twenty-four of the defendants have been sentenced for a total of 518 months in jail with varying years of probation. Restitution is now at approximately $5.7 million (last report was $2 million) for evaded California fuel taxes.

New Jersey Task Force

The New Jersey Task Force Report was given by Mr. Harvey Brooks of the New Jersey Division of Taxation. New York, New Jersey, Connecticut, and Pennsylvania have held numerous audit meetings. Exchanges of auditors, returns, and information have taken place. The last full task force meeting was held May 18, 1997, and the next is scheduled for May 1998 in Maine.

New Jersey reported that the New Jersey State Police, acting as lead agency, recently signed an agreement with the IRS to perform dyed fuel sampling. Most of New Jersey's problems with fuel tax evasion are related to reverse bootlegging from New Jersey. Some of the parties involved with this may be using their ill-gotten gains to lower their prices which hurts the legal competitors. Cocktailing is also a suspected practice. Investigators are on the look-out, but haven't found any yet. New Jersey field audit is expected to report, when they can, the names of "disposal companies." Once the companies are identified, they hope to be able to trace the waste. New Jersey is doing "cash audits" looking at the economic viability of gas stations. New Jersey, New York, Connecticut, and Pennsylvania have held numerous auditor meetings to exchange information. The States are also sharing returns and information when requested. New Jersey officials are meeting with the industry to work on a rewrite of the law on special fuel, including point of taxation, and dye provisions.

Mr. Brooks mentioned that Mr. Paul Sload made a presentation about events in Pennsylvania, as did Mr. Bob Shepherd concerning New York, during the FTA meeting, so he was not going to repeat what they had covered. Connecticut's report was given during the Northeast Task Force Report. He also mentioned that he did not have report information from Delaware or Washington, D.C.

Maryland reported that in the past fiscal year, the Maryland dyed diesel program had taken 3,511 samples finding 4 suspected violations. These violations resulted in $44,900 in Federal assessment. Inspections are looking at the cargo tanks of vehicles since the law was changed to allow for these types of inspections. In one case, three trucks were seized from the same person. One of the trucks was seized in D.C. with expired Pennsylvania plates, and no motor fuel license. The driver failed a driving under the influence (DUI) test and had no commercial driver's license. The truck was pulled over because it was leaking fuel. The owner has since bought back one of the trucks.

TRAINING UPDATE

The New Jersey report wrapped up the task force reports, and Ms. Alston asked for reports from other participating agencies. There were none. Ms. Alston then asked Mr. Ron Alt to update the group on Motor Fuel Tax Training Courses, agenda item four.

Mr. Alt stated that there is one course left to be presented and that FTA is unsure, as of this time, whether the course will be the beginning or advanced level course. He asked for feedback on this. Mr. Bob Beck, from the North Carolina Department of Revenue suggested a hands-on type of training where trainees would actually get on top of the tanks and take samples. Someone responded that the DCO training instructors got this type of training, but the DCOs did not. No decision was made on the type of training to be held. Mr. Alt also mentioned that they needed to ask for an extension of the training contract with the FHWA so they would be able to hold the course some time next Spring.

INTERNAL REVENUE SERVICE REPORT

Ms. Alston then asked Mr. Ron Linden who is with the Excise Taxes Division of the IRS to give their report. Mr. Linden began by introducing Mr. David Stewart who discussed the IRS training.

Mr. Stewart began by telling the group that the IRS Advanced Fuel Training II course has been give six times in the past, and he wanted to thank management from the various States and the IRS for their support, and all the individuals involved with developing, teaching and helping out in making the classes a success. He provided a handout that showed the student evaluations of four of the six courses (see Attachment 4). He then commented that the students' enthusiasm and devotion to the project was "incredible." He spoke of how some of the groups taking the course would show up early and then stay after class hours to get the assignments done. Mr. Stewart said that IRS is planning up to four additional classes next year, possibly developing an Advanced Fuel Training III that would be based on other skills needed for effective investigations. He specifically mentioned interview skills, fingerprinting (identification of fuels), and other techniques necessary to match the sophistication of the taxpayer.

After Mr. Stewart's presentation, Mr. Linden presented the report of the Criminal Investigation Division results. He stated that in FY 1997, legislative actions and enforcement have eliminated massive evasion schemes, but noted that in the future, enforcement will be focusing on smaller schemes. As of August 31, 62 investigations have been initiated, mostly in areas of blending schemes using waste oil and kerosene, tire taxes, and retail truck taxes. Investigation efforts are being expanded in these areas. In the same time period, there have been 46 convictions (see Attachment 5), mostly in the Gas Gangsters and Red Daisy cases.

The Gas Gangsters is a California case involving conspiracy, tax evasion, mail, wire and cellular phone fraud, extortion, prostitution, and trafficking in heroin and cocaine as well as other charges. Mr. Hovsep Mikaelian, the godfather of the Mikaelian ring, was given 14 years in prison and ordered to pay $2.2 million to the State of California and $170,000 to the IRS. The Red Daisy case took place in the New York/New Jersey area where $140 million in Federal and State taxes were evaded in a daisy chain scheme and where Federal records were falsified. To date, there have been 16 guilty pleas.

Mr. Linden then recognized Mr. Larry Hecksher, the IRS Motor Fuel Coordinator, and Ms. Holly Apke, of the IRS Dyed Diesel Program for their efforts in the excise compliance program. He updated the committee on the staff hours for FY 1997. At the last Steering Committee meeting, Mr. Linden noted that because of the change to tax at the terminal rack, and the resultant fewer audits and higher compliance rate, staff hours were reduced, under advisement from the IRS field offices, from 28,000 to 21,600. (Lost hours were reassigned to other motor fuel tax activities.) He reported that overall hours were 129 percent of the direct examination hours allotted. Mr. Linden provided Attachment 6 that shows the breakdown of hours by region. He noted that while they have used 129 percent of the allotted hours, the payoff has been worth it. Attachment 7 shows the yield to cost for each fiscal year throughout the program and for the first ten months of FY 1997. Mr. Linden pointed out that in the first 10 months of FY 1997, the yield is $197 to $1 (based on $78/hour cost). The results are because of the Northeast Region closing $140 million in deficiencies. Attachment 8 provides a more detailed summary of the FY 1997 statistical accomplishments.

After Mr. Linden's presentation, he introduced Mr. John Love who has been working on the Excise Fuel Information Reporting System (ExFIRS) program since its inception. Mr. Love began his presentation by putting in his vote for Mr. Shuster's bill which would provide funding for ExFIRS. He then provided a brief history of ExFIRS beginning with the $6.5 million authorized in 1991 for the development of a prototype that would track fuel into and out of the terminal. In conjunction with IRS funds for the hardware necessary to run the program, a demonstration was performed in 1995, using a limited amount of actual data from Michigan. The program ran successfully through numerous manipulations of the data. Mr. Love pointed out that if the new highway funding legislation provides funds for ExFIRS, the next steps would include a test run using data from the State of Nebraska, and the creation of an industry/Federal/State steering committee whose purpose would be to provide strategic direction and coordination between all of the interested parties. Mr. Love stated that the work could begin as soon as the funding is available.

FUTURE MEETING DATES AND AGENDA ITEMS

Ms. Alston moved to the last agenda item, scheduling the next Steering Committee meeting and possible agenda items for that meeting. The group agreed to set a date after the new legislation was signed, and that potential agenda items would be discussed at that time. Ms. Alston thanked all who attended, and then adjourned the meeting.