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U.S. Department
of Transportation
Federal Highway Administration
FINAL (1/21/99)
Minutes of the Eighteenth Steering Committee Meeting
Joint Federal/State Motor Fuel Tax Compliance Project
November 4, 1998, Denver, Colorado
Ms. Sherri Alston, Chief of the Transportation Studies Division, Federal Highway Administration (FHWA), convened the meeting at 1:30 p.m. and welcomed everyone to the 18th meeting of the Joint Federal/State Motor Fuel Tax Compliance Project Steering Committee. The list of attendees is provided as Attachment 1.
Ms. Alston invited Mr. Allan Ferullo and Mr. Joe O'Gorman to give their task force reports first, since they needed to leave early. The reports are included below with the remaining task force summaries. Ms. Alston then introduced Mr. Stephen Baluch, FHWA, to lead the discussion of agenda items 1 and 2.
Item 1--Report on Actions Recommended at Previous Meeting
Mr. Baluch reported the status of the seven decision items from the last Steering Committee meeting of March 16, 1998.
#1. The lead States should circulate the summary of Steering Committee decisions at future task force meetings and invite suggestions for changes and improvements to any of these items, and specifically address the following:
a. the role of the Steering Committee;
b. future motor fuel tax training needs and funding options, e.g. pooled-fund effort
administered by FHWA, task force developed courses, additional Advanced Fuel Training Courses, or other; and
c. recommended changes to the Joint Project 6-month report.
Status:
Steering Committee--Based on the discussions at task force meetings this past year, FHWA
is proposing continuation of the Steering Committee with at least one meeting per year.
Training--The final training course funded by FHWA under contract with the Federation of
Tax Administrators (FTA) was completed in October 1998 with very good attendance. No
future training courses, either the FTA basic course or the Advanced Fuel Training Course
developed by the Publicus Task Force, are currently funded or scheduled. At the annual Motor
Fuel Section meeting just completed, Mr. Harley Duncan, FTA, and Ms.Bush, American
Petroleum Institute (API), mentioned the need to continue and coordinate motor fuel tax
training opportunities both for industry and government agencies. No official proposal has yet
been presented, so this item should be deferred until the next Steering Committee meeting in Washington, D.C.
Reporting--With respect to reporting requirements, FHWA has proposed that the reporting
requirements be simplified to an annual narrative and expenditure report. The former 6-month
data reports would be optional. Therefore, the final required data reports are due
December 1, 1998, for the period ending September 30, 1998. Thereafter, the data
reports may be used at the option of the State revenue agency. An additional optional report
has been developed to summarize Dyed Fuel Inspections. To the extent that any State revenue
agencies, or State highway agencies that agree to fund projects with Surface Transportation
Program (STP) funds, wish to continue data reporting, FHWA recommends use of the
optional forms for consistency among the States and comparability with the prior data reported.
#2. An organization representing the Native American viewpoint should be included as a
regular participant on the Steering Committee. FHWA will identify an appropriate
organization based on suggestions from the Department of Justice and from the Bureau of Indian Affairs.
#3. A representative of the Canadian provinces should be included on the Steering
Committee. FHWA will try to identify a Canadian provincial representative for the next meeting.
Status:
INVITED NEW MEMBERS
JOINT PROJECT STEERING COMMITTEE
Bureau of Indian Affairs
Canadian Fuel Tax Uniformity Project
International Fuel Tax Agreement, Inc.
Intertribal Transportation Association
National Congress of American Indians
U.S. Customs Service
Exhibit 1. Invited New Members for Joint Project Steering Committee.FHWA extended
invitations to six organizations (Exhibit 1) to join the Steering Committee as ad-hoc advisory
members. So far, the Canadian Fuel Tax Uniformity Project and the International Fuel Tax
Agreement (IFTA), Inc., have agreed to join the Steering Committee. Mr. Ken Duggan,
Project Manager, and Mr. Keith Hudson, Revenue Canada, attended the meeting on behalf of
the Canadian Uniformity Project, and a designated representative will be named after
discussion with the project members. Ms. Lonette Turner participated in the meeting on
behalf of IFTA, Inc. Mr.welcomed both organizations. No response has been received from
the other invited organizations. FHWA will follow up with them prior to the next Steering Committee meeting.
#4. For the November FTA annual motor fuel conference in Denver the Steering Committee meeting time slot of Wednesday afternoon, November 4, will be retained, but in the future we will try to find a time slot that will not extend the length of the motor fuel conference.
Status:
FHWA has proposed that the Steering Committee meet at least once a year. Mr. Baluch
suggested that only one meeting be scheduled in 1999 for a couple of reasons. The traditional
second meeting following the FTA Motor Fuel Tax Section Annual Meeting has become
difficult for the committee members now that the Motor Fuel Section meeting has been
extended into a third day. With the Steering Committee meeting now on the afternoon of the
third day, some members have to extend an already long trip into the next day. Dispensing
with the second meeting would also free up that time slot for an Excise Files Information
Retrieval System (ExFIRS) advisory group meeting, if needed. Some members agreed that the
afternoon of the third day is not a good time for the Steering Committee meeting, but noted
that it would be unfortunate to discontinue this meeting since it is the only one that States
other than lead States have the opportunity to attend. A suggestion was made that the Steering
Committee meeting be held on Sunday afternoon instead of Wednesday afternoon. Ms. Cindy
Anders-Robb indicated that Sunday afternoon is already reserved for a Uniformity Committee
meeting. Since other time slots earlier in the week were also spoken for, the consensus was
that the Steering Committee would dispense with the second meeting for the time being. The
organizers of the next FTA Motor Fuel Tax Section Annual Meeting in South Carolina will be
advised NOT to reserve facilities for a Steering Committee meeting. Mr. Baluch noted that the
Steering Committee could revisit this issue at any time in the future and schedule additional meetings as needed.
#5. It was agreed that the revised "Attention Truckers" draft produced by Ms. Janes would be attached to these minutes for comment by any Joint Project participants, and that a final draft would be circulated for formal agency concurrence and distribution.
Status:
Based on suggestions from Mr. David Gottfried, Environmental Protection Agency (EPA), the
draft brochure distributed with the previous minutes was modified to include a discussion of
EPA requirements for the dyed diesel program. The revised draft has now been distributed for
concurrence to the three agencies whose logos will appear on the brochure--FHWA, Internal
Revenue Service (IRS), and EPA. When concurrence is received, copies will be distributed to
all participating agencies. Mr. Baluch noted that the brochure will not be produced in color as
before. Only a black-and-white version, which can easily be reproduced by any agency, will be distributed.
#6. FHWA and Indiana agreed to work together on a format for the States to report dyed diesel roadside inspections and penalties not included in the IRS data. This could be discussed at the MayPUBLICUS Task Force meeting and presented at the next Steering Committee meeting in Denver.
Status:
As recommended, Mr. Baluch and Ms. Suzanne Heidenreich met at the May 14 Publicus
meeting to draft a format for reporting dyed diesel fuel inspections. The proposed form,
"PART 3 - Dyed Fuel Inspections", will be distributed and discussed later in the Steering Committee meeting.
#7. It was recommended that the travel policy be revised to allow State participants to charge costs for the annual and regional motor fuel conferences to the FHWA project. FHWA will notify finance and counsel's office of the proposed change, and if no objections are expressed, the modified policy will be effective from the date of FHWA approval of the minutes of this meeting.
Status:
The FHWA travel policy was revised as recommended, effective April 24, 1998. Mr. noted
that a summary of the eligible travel expenses for FHWA project funds, whether allocated
funds or STP funds, is summarized in the revised project funding procedures to be discussed next.
Item 2--Revised FHWA Funding Procedures under the Transportation Equity Act for the 21st Century (TEA-21)
Mr. Baluch advised the participants that a substantial amount of time was reserved for this item so that States would have the opportunity to thoroughly discuss the changes in funding procedures since TEA-21 was signed into law on June 9, 1998. He cautioned the States that the revised procedures have evolved over the last 4 months, based on the feedback received from the various task forces, and that earlier versions discussed with the States prior to October may have changed. It is therefore important that all the States refer to the procedures published in the Federal Register on October 9, 1998. A copy of the tax compliance program provisions of TEA-21 is provided as Attachment 2 and the October 9 Federal Register notice is provided as Attachment 3. Mr. Baluch reminded attendees that the procedures described in the October 9 notice are now in effect, but comments may be submitted until November 23. He urged everyone to review the procedures and provide any comments by the deadline. Any changes that may be adopted as a result of the comments will be addressed in a future notice.
TAX EVASION PROJECTS
UNDER TEA-21 (As amended)
Added to 23 USC Section 143.
Funding: $10.0 million, FY 1998,
$ 5.0 million per year FY 1999-FY 2003.
ExFIRS funded first, remainder to States/other IRS.
And, up to 1/4 of 1% STP funds may be used:
"to halt evasion of...motor fuel taxes",
Per State transportation agency request,
At 100% Federal share,
Average $13.9 million available per year,
For FY's 1998-2003. Exhibit 2. Tax Evasion Projects under TEA-21.As Ms. Alston discussed
in her presentation at the Motor Fuel Tax Section meeting earlier today, there have been major
changes to the Highway Use Tax Evasion Project funding under TEA-21, Exhibit 2. Under
Section 1114, most of the funding ($5 million per year), previously divided among the States
and IRS to foster participation in regional motor fuel task forces, will now be dedicated to IRS
for development of an automated motor fuel reporting system. Remaining evasion project
funds will be available to the States and IRS to continue the cooperative efforts of the regional
task forces, but at a much lower funding level than previously.
Since TEA-21 was enacted, IRS and FHWA have moved quickly to implement its provisions, Exhibit 3. The Memorandum of Understanding (MOU) between FHWA and IRS was approved September 10. FHWA program implementation procedures were published in the Federal Register October 9. The initial meeting of the ExFIRS advisory group was held October 27. Allocations of fiscal year (FY) 1998 project funds to State revenue agencies were made on December 27, 1997 (based on the Surface Transportation Extension Act of 1997) and on September 3, 1998. Subsequent FY allocations will be made annually to the States shortly after the beginning of each FY, usually by November or December.
IMPLEMENTATION SCHEDULE
FHWA/IRS ExFIRS MOU Due
8/01/98
Determination of "sufficient funds"
Signed: IRS 7/28/98; resigned
9/10/98
FHWA
9/03/98
FHWA funding procedures published
10/09/98
Fund dist. to States FY 98
12/22/97 9/03/98
FYs 1999-2003
11/ __/__
First ExFIRS Advisory Group Meeting
10/27/98
Exhibit 3. Implementation Schedule. Under the MOU between FHWA and IRS, a total of $5 million is available for distribution to the States for FY 1999- 2003, Exhibit 4. A small amount of these funds ($125,000) was used in FY for allocation to States that had nearly exhausted all prior project funds. As recommended by the States at recent task force meetings, FHWA has proposed making reduced annual allocations to all State revenue agencies so that all States will have a minimum amount of funds to continue participation in the regional task forces. To further stretch the limited funds available, allocations will only be made to States that have nearly expended all prior allocations. FHWA will be using the "Unpaid Obligations" as shown in the FHWA project records to determine when States need additional allocations, so States should keep current (with least quarterly vouchers) on bills submitted to FHWA.
JOINT PROJECT FUNDING (in $Million)
Fiscal To IRS To Cumulative
Year ExFIRS Ex./CID States Total
1998 $8.375 $1.625 $10.00
1999 3.625 1.375 15.00
2000 3.75 1.25 20.00
2001 4.00 1.00 25.00
2002 4.25 .75 30.00
2003 4.50 .50 35.00
Total 28.50 6.50 35.00 Exhibit 4. Joint Project Funding. States may request extensions of
current projects as long as possible using unexpended funds already obligated. Once prior
funds are expended, FHWA is estimating that States would receive half the prior annual
amounts, that is, $50,000 a year for lead States and $25,000 a year for other States (including
D.C.) Attachment 4 is the FHWA projection of when States will need additional allocations
based on the "Unpaid Obligations" in column 3. This is only an estimate. Adjustments will be
made regularly based on actual expenditures and approved project extensions. Note that the
grant total exceeds the amount available by about $500,000. If necessary, FHWA may have to
further reduce the allocations in the later years. This could be done by capping State
allocations at 50% of the 6-year total (as shown in the "Possible Reduction" in the last
column), or by further reducing the annual allocations below $25,000 and $50,000.
In summary, State revenue agencies can be relatively assured of receiving at least a floor level of FHWA funding to continue participation in the regional task forces. The procedures for receiving these funds are basically the same as before (Exhibit 5). The "maintenance of effort certification" is still required under TEA-21. The agreement form (FHWA-1548) has been modified to reflect the changes in the source of funds and project reporting requirements, that is, an annual report with use of the data report forms optional.
TAX EVASION PROJECTS
Allocated Funds
Current projects may be extended as needed.
Distribution target after current funds spent:
$50,000 lead States/$25,000 other States.
Federal share: 100%.
Eligible items include enforcement of motor fuel and other highway user taxes.
Required items:
Maintenance of effort certification.
Task Force participation.
Budget based on A-87 (Revised 8/29/97).
Intergovernmental review.
New project agreement (FHWA-1548 Rev.7/7/98).
Annual narrative/exp. report--data forms optional .Exhibit 5. Tax Evasion Projects--Allocated
Funds. Mr. Baluch responded to several questions at this point.
Is FHWA approval required to extend projects using the unexpended prior year funds?
Yes, the State should request approval from the FHWA Division Office in the State to extend
the project completion date. This can be done by resubmitting an Amended Grant Agreement
form (FHWA-1549) showing the new completion date, but just a simple letter request is
recommended. The Division Office will either stamp the request letter "Approved" or will
respond with an approval letter. Ms. Linda Morris in the FHWA headquarters keeps track of
project termination dates, and usually alerts the State or the Division Office when extensions are needed.
Will a new project number be used for TEA-21 funds?
Yes, since the Project Agreement (FHWA-1548) has been changed to reflect the funding authorized in TEA-21, a new project number will be used when the new form is used for the first time. The States and Division Offices may use any number they wish beginning with the prefix TCP. For example, States that have all the prior funds on project number TCP 0001(001) may use TCP 0001(002), but any other number different from prior project numbers is acceptable. (The first 4 digits may be letters or numbers; the 3 digits in parentheses are numeric.) All States will be on different schedules for the transition from Intermodal Surface Transportation Efficiency Act (ISTEA) funds to TEA-21 funds. All expenses should be charged to the old projects first, so that these can be completed and closed. Once a State has started the new project using TEA-21 funds, then subsequent FY allocations may be added by signing annual amendments.
What is "Intergovernmental Review" and how do you know what is required?
"Intergovernmental Review" is a process designed to coordinate the many sources of Federal
funds to prevent duplication and inefficiency. Under current Federal requirements,
"Intergovernmental Review" is optional according to the State's wishes. If the State has
retained the process, then the process must be followed prior to FHWA approval of new State
project requests. If you are not sure whether intergovernmental review is still required in your
State, check your files for your initial TCP grant request to see how it was handled at that
time, or check with your FHWA Division Office or your State transportation agency contact.
When will the State revenue agencies be advised that funds have been allocated?
As in the past, allocations will be made by FHWA Notice signed by the Federal Highway
Administrator. At that time the FHWA Division Offices will distribute copies to the State
revenue agency contacts, along with appropriate agreement or amendment documents. Note
that contrary to prior years, not all States will receive allocations each year. States must pay
attention to the remaining balances of prior funds, and notify the FHWA Division Office if
funds are running low and additional funds have not yet been allocated. Attachment 4 should
give each State revenue agency an idea of when to expect funding allocations.
Will allocated funds, if not obligated by the end of the FY, be restored in future years as
was done under ISTEA?
No, the shortage of funds available for distribution to the States dictates that allocations be
made only to States as current funds are used up. Any funds allocated to a State that are not
committed to a Project Agreement by the end of the FY will not be restored in future years.
The State would, however, continue to receive its regular annual allocation in future years as
long as prior balances continue to be spent.
It should be clear from this discussion that funds allocated to State revenue agencies will
provide only a bare minimum needed to continue participation in the regional task forces. The
proposed allocation of half the former annual funding is only a target level that could go up or
down depending on many factors, such as, ExFIRS funding needs, possible increased
authorizations as provided in TEA-21 if Highway Trust Fund revenues exceed projections,
and the rate of expenditure of existing balances by the States. Fortunately, Section 1114 of
TEA-21 authorized another source of funding for efforts to stem motor fuel tax evasion. State
transportation agencies may now use up to 1/4 of 1% of apportioned STP funds for such
projects. Nationwide, the 1/4 of 1% of STP apportionments could provide from $13 to $15
million a year for motor fuel tax compliance efforts.
TAX EVASION PROJECTS
1/4% STP Projects
Maximum amount as published in Supplementary Tables.
Selected by State transportation agency.
Federal share: 100%.
Eligible items include initiatives to halt evasion of "motor fuel taxes".
Required items:
Work plan and budget based on A-87 (Revised
8/29/97).
Included in Statewide transportation improvement
program (STIP).
Intergovernmental review.
Project agreement (PR-2) signed by FHWA and
State transportation agency.
Annual narrative report to State transportation
Agency (data forms optional). Exhibit 6. Tax Evasion Projects--1/4% STP Funds. The
procedures for using these funds are also covered in the October 9 Federal Register notice
(Attachment 3). Although some of the terminology governing the use of these funds will be
foreign to State revenue agencies, the implementation procedures in the notice cover all of the
issues that a State transportation agency will need to address in determining how to use these funds (Exhibit 6).
FHWA believes that State transportation agencies would be well rewarded for devoting a
portion of STP funds to fuel tax compliance initiatives, since funds invested in enforcement
programs have been shown to yield at least $10 of additional revenue for each $1 spent. Not
only would the State fuel tax revenues increase directly, but the return to the State from the
Highway Trust Fund would increase as well for two reasons:
1) Congress has provided for automatic increases in highway program authorizations and
obligation limitation during the TEA-21 years when Highway Trust Fund receipts increase beyond current projections, and
2) the State's share of the apportioned Federal funds will increase since apportionment formulas have been changed to include motor fuel use (as reported by the States) and estimated Highway Trust Fund contributions (which are based on reported motor fuel use) directly in the computations.
Every additional gallon of fuel taxed will therefore add State revenue and additional Federal apportionment to increase the funds available for State transportation programs. This message is being aggressively promoted among State transportation agencies by FHWA and by the American Association of State Highway and Transportation Officials (AASHTO). One of the technical sessions at the AASHTO annual meeting next week in Boston will include presentations on the importance of the fuel tax compliance program.
Some of the procedures for using the STP funds are different from those the revenue agencies have been accustomed to for the allocated funds. First and foremost, the funds are available to the State transportation agency. It is the State transportation agency that must request funds for a tax compliance project and sign the project agreement with FHWA. The ultimate recipient of the project funds could be any State agency with a role in motor fuel tax enforcement, including the revenue agency, the IFTA agency, the motor carrier agency (e.g. for roadside dyed fuel inspections), a weights and measures agency (e.g. for retail station inspections), or a State's attorney for prosecuting motor fuel tax cases. The project must be included in the Statewide transportation improvement program, referred to as the STIP, which is the State's list of all projects proposed for Federal highway funding. A difference is that the use of the funds for motor fuel projects is optional, not mandatory. The 1/4 of 1% is the limiting amount that may be used, and is published in an FHWA Notice of supplementary tables for each FY. The FY 1998 amount available for fuel tax compliance projects is provided in Attachment 5. A third distinction is that the STP funds are available to halt evasion of "motor fuel taxes", while allocated funds may also be used to enhance collection of other highway user taxes and fees such as vehicle registration, driver licensing, etc. Finally, the "maintenance of effort certification" and mandatory task force participation are not required for STP-funded projects. The State transportation agency may, however, impose these requirements on other State agencies, as a condition of funding the project with STP funds.
Some other project procedures for STP funds are the same as for allocated funds. For example, projects are funded at 100% Federal share, that is, no State match required. This will be an important selling point to State transportation agencies in some States, that may have difficulty matching the increased Federal highway authorizations in TEA-21. The requirements for a work plan/budget, intergovernmental review (if retained by the State), and annual progress reports are the same as for allocated funds. The State transportation agency may impose other requirements to monitor progress.
SUGGESTED ELIGIBLE ITEMS FOR 1/4 of 1% STP
Revenue agency audits and investigations.
Dyed fuel inspections (motor carrier agency, State police, Agriculture, Weights and Measures, other).
IFTA audits, roadside enforcement.
Motor fuel tax fraud prosecutions.
Coordination, advisory group, etc.
Computer applications to enhance collections . Exhibit 7. Suggested Eligible Items for 1/4% STP Some suggested eligible project activities are listed in Exhibit 7. These are listed as examples just to demonstrate the extent of projects that might be included under "initiatives to halt the evasion of payment of motor fuel taxes." Suggested projects for funding include: additional fuel tax audit and criminal investigation resources, roadside inspections to look for abuses of dyed (untaxed) fuel, formation of State advisory groups to improve motor fuel tax laws and strengthen penalties, enforcement efforts to improve motor carrier compliance under IFTA, and improved computer applications to enhance collections.
To secure some of the STP funds to support the motor fuel tax compliance effort, it is essential to establish channels of communication between the State transportation and revenue agencies. In a few States, the State transportation agency is the motor fuel tax revenue agency, so certainly these motor fuel tax programs have a built in advantage in the hunt for some STP funds. For the other States, the first move may be initiated by either agency, by the State transportation agency where the impact on the State's Federal funds under TEA-21 is beginning to sink in, or by the revenue agency that has identified important compliance initiatives that require funding. Don't forget that Mr. Ray Barnhart has already written to all the chief executive officers of the State transportation agencies to point out the importance of motor fuel tax compliance to every transportation agency's State and Federal highway funds. The attendance of State transportation agencies from Mississippi, Kentucky, and Nebraska, at the FTA Motor Fuel Section Annual Meeting, and commitments by other State Departments of Transportation (DOT) to fund tax compliance projects (e.g. Minnesota, Arkansas, Kansas, and Vermont) demonstrate that State transportation agencies are getting the message.
At this point, additional comments and questions were discussed.
If the funds are available to the State transportation agency, how does the revenue agency get access to the funds?
After the State transportation agency and the FHWA sign the project agreement (usually on Form PR-2), the State transportation agency would enter an interagency State agreement with the State revenue agency, or any other State agency, such as a motor carrier inspection agency, that may require the funding for some motor fuel tax enforcement activity. State interagency agreements with FHWA funds are common in many States. The agencies that are parties to the agreement are free to negotiate any conditions and requirements acceptable to both agencies. Vouchers for reimbursement by the subrecipient agencies would be submitted to the State transportation agency, which would ultimately bill FHWA as part of the established current billing process.
What happens if the funds are not used for fuel tax compliance projects?
The limiting amount, once published in the Supplementary Tables notice, remains available for motor fuel tax compliance projects for a period of 4 years. Subsequent year amounts will be added to the available funds. Actually right now 2 years funding is available, FY 1998 and FY 1999, but the Supplementary Tables for FY 1999 have not yet been published. If none of the funds are ever used, ultimately the available amount will diminish down to zero, as the 4-year expiration date of the each year's funds is reached. It is important to note that if the funds are not used for tax compliance projects, they are available to the State for other highway and transportation improvements. Many States have substantial highway funding needs and may have made commitments to use all available STP funds for these projects. Furthermore, other suballocations of STP funds are made to urban areas, safety projects, and other optional categories. Where STP funding is in great demand, it will be necessary to "sell" a tax compliance project on the basis of its ability to bring even more money, State and Federal, to the State for transportation purposes.
Mr. Dar Walters, Idaho State Tax Commission, asked what can be done in States where the State transportation agency has not been very receptive to using STP funds for motor fuel tax compliance projects?
Frankly, there is little the State revenue agency can do to force the DOT to be forthcoming with the STP funds. There are States where demands and competition for STP funds are so great, that securing funds for tax compliance efforts in preference to highway projects will be very difficult. Nonetheless, the channels of communication between the agencies need to be constantly strengthened for several reasons: 1) the DOT's are also getting the message on tax compliance from AASHTO, other States, and FHWA, and may ultimately be persuaded to provide funding; 2) State DOT's can provide other avenues of support, e.g. for legislative changes, for roadside IFTA and dyed fuel inspections, for assuring that State construction contractors abide by dyed fuel requirements, etc.; and 3) constant attention to the additional revenue generated may ultimately bring greater support. Just among the States present for the Steering Committee meeting, the level of State DOT support runs the gamut from enthusiastic supporter, to "likely to consider favorably", to "willing to discuss", to "no interest". It must be remembered that it has been less than 5 months since enactment of TEA-21, so the process of "selling" the program to State DOT's has really just begun. State DOT's that are supportive will be instrumental in bringing other DOT's on board.
Are the allocated tax compliance funds also available to do roadside dyed fuel inspections?
Yes, the unexpended tax compliance funds from ISTEA, as well as the funds allocated under TEA-21 can be used to supplement, or replace, the IRS roadside inspection program funds which will end this year for the last few remaining States. At the reduced funding levels of $25,000 a year for most States, sufficient allocated funds are not available for the roadside testing program that will be needed in most States. That is why STP funds must also be considered.
As was discussed earlier, the policy on using FHWA project funds for travel to FTA regional and national motor fuel conferences was changed following the last Steering Committee meeting. Since questions on travel costs are the most common administrative questions, the October 9 Federal Register notice includes a list of all of the types of travel that can be funded under FHWA tax compliance projects whether funded with allocated funds or STP funds. These are summarized in Exhibit 8. Mr. Baluch invited any comments or suggestions on other types of travel items not listed. None were offered.
NEW TRAVEL POLICY (Effective 4/24/98)
ELIGIBLE TRAVEL ITEMS
Training (audit, investigation, dyed fuel, IFTA audit).
Regional task force meetings.
Joint audits and investigations.
IFTA audit and enforcement committees.
ExFIRS Working Group.
Uniformity Committee, Below-the-Rack, etc.
FTA Regional and Annual Motor Fuel Conferences.
Steering Committee (lead States or other invited
States). Exhibit 8. New Travel Policy Eligible Travel Items.
Finally, Mr. Baluch summarized the changes in project reporting, Exhibit 9. The final
required data reports (Parts 1 and 2) are due in December 1998 for the period ending
September 30, 1998. Thereafter, only an annual narrative and expenditure report is required.
The data forms, Parts 1, 2 and a new Part 3
(Attachment 6), are optional.
The new Part 3 was developed as recommended at the last Steering Committee meeting
PROJECT REPORTING
Final required data reports due 12/98.
Beginning 1999:
-Annual narrative/expenditure report due Dec. 1,
-Optional data forms:
Part 1 - Examination/Audit.
Part 2 - Criminal Investigations.
Part 3 - Dyed Fuel Inspections. Exhibit 9. Project Reporting. to provide a common format
for the States to report results of dyed fuel inspections. The proposed form follows very
closely the IRS summary report for dyed fuel inspections. In addition to the "Industry Type"
breakdown of violations, two additional breakdowns were added for "Vehicle Type" and
"IFTA Status", since these are of interest in developing enforcement strategies and
coordinating with IFTA enforcement. There was some discussion about the proposed form.
First, there was some concern about how officers in the field determine the selections for the three columns of categorizations for violations. All three would be based on visual observation. An "Other, unknown" is included for each column in case another choice is not readily apparent.
Second, there was a question about the States reporting this data if the information had already been reported to IRS and included in the IRS summary. The same data would be counted twice if the State and IRS data summaries were combined. Mr. Baluch suggested that the "Violations", "Penalties Assessed" and "Tax Assessed" be reported on Part 3 only for violations cited under State law. The IRS report includes only the violations cited under Federal law. If the State were only doing inspections for IRS, then there would be no Part 3 report for the State. For States that did assess their own penalty, as well as forward violations to IRS, Mr. Baluch suggested that the "Vehicles Checked" be shown in both reports. The reasoning was that even though one vehicle was checked, it was checked for two purposes--to check for possible violation of State law and for possible violation of Federal law--and therefore, it could be counted twice if the Federal and State reports were added together. This also would assure the vehicle was counted at least once, since it was noted that some IRS Fuel Compliance Officers are not always entering the non-violating vehicles into ExFON. Several States were uncomfortable with showing the same vehicle on both reports, since it would greatly overstate the total number of vehicles actually stopped and checked when the Federal and State reports are added together. This would give a false indicator of the coverage of the roadside inspection effort. Rather than try to resolve this issue in the limited time available, Mr. Baluch suggested that States experiment with the new form, and just indicate by footnote for "Vehicles Checked" which approach they are using, either including or excluding the number checked reported to IRS. The preferred method can then be discussed and clarified at future task force or Steering Committee meetings.
Item 3--Task Force Reports
Ms. Alston then invited the task force representatives to provide an update on activities in their respective regions.
New England Task Force
The New England Task Force report was given by Mr. Ferullo of the Massachusetts Department of Revenue. The task force met twice this year. The group first met in York, Maine, on May 20, along with the New Jersey Task Force, following the FTA Northeast Regional Motor Fuel Conference. All six States were represented by both State and Federal representatives. A special meeting was held July 24 in Boxborough, Massachusetts, to discuss the changes in FHWA funding under TEA-21. The meeting will be held in Baltimore on May 26, 1999.
Massachusetts had proposed legislation to change the point of taxation to the rack, but the proposal died in committee. The proposal is likely to be reintroduced this year. The Department of Revenue recently started looking at fuel use at Logan Airport, particularly fuel used in ground equipment.
In Vermont, the bill to change the point of taxation to the terminal rack, which did not pass this past session, will likely be reintroduced this year. The bill would also eliminate a surcharge on diesel fuel by raising the tax at the pump. This would eliminate over 2,000 quarterly user returns with resulting paperwork reduction for the trucking industry and the State.
In Connecticut, audits of school bus companies resulted in assessments of tax on fuel used in private contract work not exempt from tax. The school bus interests subsequently were successful in getting legislation enacted to exempt all fuel used in "yellow school buses" from the tax. The Connecticut Department of Revenue will be meeting with the Connecticut Department of Transportation in the near future to discuss possible STP funding for fuel tax compliance activities.
Rhode Island reported that several audits of special fuel distributors in recent months had resulted in some substantial assessments. One case involved use of a marine diesel exemption certificate to obtain untaxed fuel subsequently sold for highway use. Another case involved sales to an unlicensed distributor for resale in another State. Several auditors received training this year for basic motor fuel tax and for IFTA audits.
New Hampshire reported an 80% increase in diesel fuel tax collections since changing the point of collection from the user to collection at the pump. The barge project is still active and continues to generate revenue from unreported barge loads of petroleum products. During August and September 1998, the State billed distributors about $44,000. The project was initiated last year to clarify liability and improve collection of various environmental fees on petroleum products imported into New Hampshire by barge.
Mr. Ferullo reported that Mr. Mike Ptak, Fuels Tax Audit Manager, left the office of Maine Revenue Services this July for private industry. The position is expected to be filled again soon.
New Jersey Task Force
Mr. O'Gorman presented the report for the New Jersey Task Force. The task force also met
twice this year--in York, Maine, on May 20, along with the New England Task Force, and on
Octoberin Harrisburg, Pennsylvania, to discuss the changes in FHWA funding under TEA-21.
Thefull task force meeting will likely be held in Baltimore on May 26, 1999, following the
FTA Northeast Motor Fuel Section Conference.
In addition, an audit subgroup including the four States of Connecticut, New York, New Jersey, and Pennsylvania, has been meeting on a regular basis to exchange information on problem taxpayers, new registration applications, and interstate fuel shipments. These meetings have been a very productive source of leads for subsequent audit or investigation. This group will meet next on December 8. The success of the audit subgroup has generated interest in forming a southern audit subgroup including the States of New York, Pennsylvania, New Jersey, Delaware, and Maryland. Virginia, from the North Carolina Task Force, will also be invited to participate. The first meeting of this subgroup is planned for January 1999. Mr. John Mahon, IRS New Jersey District, redrafted the Memorandum of Understanding for the New Jersey Task Force. The revised document is being circulated to the States and IRS Districts for signature.
In New Jersey, legislation addressing dyed diesel fuel and moving the point of taxation to the rack is under review in the Attorney General's office. Former fuel marketer Mr. Daniel Enright, found guilty of conspiracy, tax evasion, wire fraud, and money laundering, is scheduled for sentencing in December. The last trial resulting from the "red daisy" investigation will begin shortly.
Pennsylvania reports that new refund categories have been approved--for fuel used in refrigeration units and for certain buses. A software package will be made available to taxpayers in November for use in implementing electronic filing.
Delaware reports that new licensing and reporting requirements for special fuels have been adopted.
The New York situation with respect to taxation of Native American fuel sales has been quiet in the past year since the State enforcement efforts were curtailed.
The District of Columbia reports substantial progress in implementing a motor fuel tax audit program. Office audits and reconciliations have been completed for most taxpayers, and an expanded field audit program will continue in the coming year.
Maryland reports a great deal of effort underway to prepare for a new State Comptroller after the November 3 elections. Long time State Comptroller Louis Goldstein passed away in 1998. Roadside dyed fuel inspections using the last of the IRS funding will continue into the spring of 1999.
North Carolina Task Force
The North Carolina Task Force report was given by Mr. Julian Fitzgerald from the North
Carolina Department of Revenue. The task force met this year on January 28-29 in Raleigh,
and on June 10 in Myrtle Beach, South Carolina, after the FTA Southern Region Motor Fuel
Conference. For the coming year, meetings are planned in Raleigh in February or March and
at the FTA Southern Region Conference in Nashville on June 9.
In North Carolina, fuel tax revenues continue to increase in the three years since moving the point of taxation to the rack. For the latest FY ending June 1998, revenues were up 2.5%. Current enforcement efforts include a survey of retail outlets to verify that all fuel sold is tax-paid, continuation of monthly "red alert" roadside diesel fuel inspections, coordination of roadside inspections with border States, and participation on the Below-the-Rack Tax Evasion Project chaired by Ms. Helen Curtis Brown, IRS. As of July 1, 1998, kerosene in North Carolina is treated for tax purposes the same as under the Federal rules. End users can apply for refund of the North Carolina tax for non-taxable uses of undyed kerosene. The Department of Revenue has worked very closely for years with the North Carolina DOT, so it is anticipated that STP funds could be made available for needed compliance projects.
In West Virginia, the Department of Tax and Revenue is acquiring a second truck to be used for roadside diesel fuel inspections. Inspections continue on a daily basis, with 5,000 vehicles inspected last year. Since the program started 2 years ago, the violation rate has declined from 10% to 1%, and diesel fuel tax revenue is up 6% for the same period. IFTA and International
Registration Plan (IRP) processing is being converted to software operating in a Windows environment.
The Georgia Department of Revenue now has on-board a trained diesel fuel compliance officer/motor fuel investigator. The IFTA audit program continues to improve with 9 trained auditors working primarily on this program. Several instances of overstated Georgia miles have been found. The Department of Revenue has provided a series of seminars to explain recent changes in State and Federal requirements for motor fuel taxpayers, such as the new kerosene rules effective July 1, 1998.
The South Carolina Department of Taxation and Revenue is conducting a retail outlet project to verify that all fuel sales are tax-paid. Ms. Carol Player has just completed a terminal audit module that will be used for conducting supplier audits. An audit training manual is expected to be available by December. Several auditors were trained at the FTA Basic Motor Fuel Training Seminar in October. A total of 65 dyed diesel violations were shared with IRS under the dyed diesel inspection program. The Department hosted the Southern Region Motor Fuel Conference in June, and will host the FTA Motor Fuel Section Annual Meeting at the same location September 19-22, 1999.
The Tennessee Department of Revenue is developing a registry for keeping track of motor fuel shipments diverted from the destination State on the bill of lading. Motor fuel tax processing has now been integrated in the State's automated records system. Preparations are underway for motor fuel tax filing and reporting by electronic data interchange (EDI). No changes in the State's treatment of kerosene have been adopted. The Department will host the FTA Southern Region Motor Fuel Conference June 6-9, 1999, in Nashville.
The Virginia Department of Motor Vehicles reports several employees attended the recent IFTA audit workshop and the IFTA Enforcement Symposium (October 1998). The Department has participated in several joint border checks with North Carolina. Both States require destination State on bill of lading for motor fuel shipments. Under Virginia statutes, violations of the destination State provisions can result in seizure of the vehicle and cargo.
Florida Task Force
Mr. David Skinner, from the Florida Department of Revenue, gave the Florida Task Force report. Since the last Steering Committee meeting, the group has held two full task force meetings and two Florida group meetings. The full task force meetings wereJune 10, a joint meeting with the NorthTask Force in Myrtle Beach, and October 13-15 in Mobile, hosted by the Alabama Department of Revenue. A total of 42 persons attended the Mobile meeting, including several State DOT representatives and other enforcement personnel. Speakers included Mr. Baluch who discussed the FHWA funding changes under TEA-21, Mr.Stiff who explained the ExFIRS project, and Mr. Clint Espinoza who discussed fuel fingerprinting under the Below-the-Rack Project.
The Florida group meetings, which include Department of Revenue and both Florida IRS Districts, were held May 6-8 in Orlando, and September 23-34 in Tampa (South Florida team not present due to Hurricane Georges). The May meeting included discussion of Florida's participation in the Below-the-Rack Project with Ms. Brown, IRS Project Coordinator. Schedules for collecting fingerprinting samples were established. Four review teams were formed and were assigned responsibility to examine the products stored and used at selected locations where storage tank records indicated that possible petroleum blend stocks could be available. The September meeting included reports from the examination teams, exchange of reports from the information referral database, and selection of additional sites for review.
Tentative meetings scheduled for 1999 include regional task force meetings in Jackson, Mississippi, March 4-5, and a possible joint meeting with the North Carolina Task Force in Nashville, June 9. The next Florida group meeting is scheduled for April 27-29.
Alabama has an active roadside dyed fuel inspection program with 13 law enforcement officers conducting inspections. Since October 1995, $550,000 in dyed fuel penalties have been collected. A joint border operation with Mississippi is being planned. One case near Birmingham involving an estimated $500,000 State tax and $1 million in Federal tax was prosecuted. Another case was investigated involving the owner of retail stations operating in Alabama, Georgia, and Florida. The Georgia sales were overstated and the Alabama sales were understated to take advantage of the tax rate differential.
Arkansas reported no new legislation. The Arkansas Highway and Transportation Department has contracted with Lockheed-Martin for a motor fuel tracking system, partially funded with 1/41% STP funds, however, implementation of EDI tax filing, required for the tracking system, is on hold pending resolution of a delivery method for electronic data submissions. The roadside dyed fuel inspections are continuing with 10 to 12 violations per month. The State has purchased Petrospec equipment to test for presence of dye. This allows the State to issue its own penalties without waiting for IRS laboratory results. Mr. Stiff noted in this regard that IRS had changed some operating procedures to expedite delivery of testing results, and agreed to work with any States/IRS Districts to assure timely information sharing. Arkansas has one of the most stringent statutes to monitor fuel imports. The carrier is required to have a permit for every load imported into the State by truck. The State issues a book of permits, and the driver is required to fill out and send in a permit coupon for each load.
Mississippi reported no new legislation. Several auditors were sent to the latest FTA Basic Motor Fuel Training. Several Mississippi DOT representatives also attended the Mobile meeting and expressed very strong support for further efforts to reduce motor fuel tax evasion. The DOT is developing several compliance measures in cooperation with the Department of Revenue, and has committed to provide the 1/4 of 1% STP funds where needed to implement these efforts.
Louisiana reported no new legislation. The State Police are continuing to perform roadside dyed fuel inspections under the second and final year of the IRS-funded agreement.
In addition to the items noted above in the North Carolina report, Georgia does not anticipate another attempt to move the point of taxation to the rack this year. Legislation combining the excise and sales tax rate may be considered this year which would bring the rate to about 10 cents per gallon. Recently enacted legislation provides for an automatic tax exemption for 90% of the fuel used in certain agricultural vehicles. It is interesting to note that EPA air quality requirements may impose restrictions on new highway construction in the Atlanta area. As a result, more funding and projects may be shifted to other areas of the State.
Finally, Florida has no new legislation to report. Florida law already requires kerosene to be dyed, or to pay the aviation tax rate. EDI software, to be distributed free to motor fuel taxpayers, is in the final stages of development. The Department of Revenue has recently conducted several compliance reviews to determine the extent of tax evasion that may still be occurring in the distribution chain. Based on random samples tested to date, in which the volumes of fuel sold at retail were traced all the way back up the distribution chain to the source of supply, no instances of evasion were detected.
PUBLICUS Task Force
Mr. John Aikman from the Indiana Department of Revenue provided the PUBLICUS Task
Force report. The next meeting of the task force will probably be scheduled in January or February 1999.
The Indiana Department of Revenue had an initial meeting with the Indiana DOT to discuss the possible use of STP funds to support the fuel tax compliance program. A project to review shipping papers on motor fuel transports is scheduled to take place in northeast Indiana later in November. This year, the State accepted a plea agreement in a kerosene blending case charging 25 felony counts. The individual was sentenced to 2 years probation and 200 hours community service and ordered to pay court fees, restitution, and interest. The Indiana State Police continue to perform roadside diesel fuel inspections. The Department of Revenue is issuing subpoenas and conducting fuel accountability examinations on companies caught with dyed fuel in highway vehicles. An IFTA investigation of a trucking company was also initiated when the company produced a forged letter from the State indicating a delay in issuing credentials.
Illinois reported a successful IFTA prosecution, with court ordered restitution, for a company that did not have valid IFTA decals and was under reporting mileage.
Ohio reported efforts to clean up processing and reporting issues from the last law change in 1996. The audit program continues to focus on high inventory losses reported by some major suppliers. Another issue is the lack of enforcement authority to accompany the dyed fuel penalty provisions of the 1996 law change.
Minnesota's roadside dyed fuel inspection program is continuing. The State continues to work closely with IRS, even though the IRS funding for the program concluded this year.
Missouri enacted tax at the rack and dyed fuel penalties effective January 1, 1999. Under the new law, the supplier at the terminal will remit motor fuel taxes to the State based on removals at the terminal rack. The law includes penalties for improper shipping papers and provisions for kerosene.
Wisconsin reported 99% success rate on ability to monitor diverted loads under their diversion registry system. Information on the diverted loads is being provided to other affected States.
Michigan and Kentucky did not provide a report at the last meeting.
Texas Task Force
The Texas Task Force report was presented by Mr.Archer of the Texas Comptroller's Office.
At the last task force meeting in Little Rock, Arkansas, August 4, it was agreed that an
information exchange committee should be formed so that detailed case information can
beamong task force participants. Representatives from IRS and each State will be selected for
this committee, which will meet the day following the full task force meeting. The next
meeting is set for February 17-18, 1999, in San Antonio, Texas.
New Mexico reports no new legislation this year. Two report form changes have been implemented: 1) to allow a deduction for dyed gasoline sold and used for off-road purposes, and 2) to allow for reporting and deducting dyed diesel fuel. The opportunity exists under current State law for motor fuel sales by Native American businesses without payment of State fuel taxes. The volume of such sales continues to increase. The operation of State port-of-entry stations was recently transferred to the Department of Public Safety.
Oklahoma reports two recent legislative changes: House Bill 2426 which changed the due date of the occasional and bonded importer reports to the 27th of each month, effective November 1, and House Bill 2669 which requires interest be paid on refunds not issued within 20 days of the date of filing, also effective November 1. The increased revenue since tax-at-the-rack went into effect on October 1, 1996, continues to hold. The State is currently evaluating information from Lockheed about implementing a fuel tracking system.
Texas currently has two large investigations underway. One involves an import/export scheme where fuel declared for export to avoid paying the State tax, never actually leaves Texas. The operation may involve fuel transactions and shipments in as many as five southwestern States. The other case involves shipments of petroleum waste products from Oklahoma to a Texas truck stop where it was blended with diesel fuel. Several million gallons may have been blended from 1995 through 1998. The case has been referred to the Travis County District Attorney's office in Austin for prosecution, and several indictments have been issued so far.
NETASK Task Force
Ms. Janet Stege, Nebraska Department of Revenue, gave the NETASK report. Ten of the
eleven member States were present at the last meeting October 8-9 in Lincoln, Nebraska. The
next meeting will be hosted by the Minnesota Department of Revenue, May 13-14,
1999. For the next meeting, the agenda will focus on audit issues and one or two motor fuel
tax auditors from each State will be invited. For the fall 1999 meeting, the focus will be on
processing, and representatives of the processing staff from each State will be invited to
participate. The issue of training motor carrier enforcement officers on fuel tax issues, such as
proper IFTA credentials and dyed fuel restrictions, is also gaining interest among the States.
The October 1998 motor carrier enforcement seminar sponsored by IFTA, Inc. provided an
excellent opportunity for States to share information.
North Dakota reported that legislation may be proposed next year for moving the point of taxation on gasoline to the rack. Diesel is likely to remain at the distributor level because of the 2% sales tax on non-highway diesel fuel.
Kansas is continuing an active and innovative dyed fuel inspection program. For example, dyed fuel inspections of vehicles used by Commercial Driver License applicants in their driving tests resulted in at least one recent penalty.
It was reported at the last meeting that Mr. Thomas Quintin and his wife, fugitives involved in the Max Oil case that operated in Nebraska, Colorado, and Wyoming, had been apprehended in Canada. Extradition to the U.S. will be sought. Ms. Jennifer Hastings from Wyoming indicated she had obtained a copy of their identification photographs taken at the time of apprehension.
Iowa, Colorado, Nebraska, and Kansas report continuing unresolved issues regarding fuel sales by Native Americans. In Nebraska, one tribe is not registered with the State and is receiving untaxed fuel. In Kansas, the State is in litigation with four tribes. Recently, one tribe in Iowa has been obtaining unreported motor fuel for sale. In Colorado, Native American fuel sales on two small reservations are increasing, with the possibility of some untaxed sources of supply from neighboring States.
Most of the task force States reported that kerosene is taxed as diesel fuel only when it has been blended into diesel fuel. Minnesota follows the new Federal rules on kerosene, that is, taxed as diesel fuel unless dyed. In North Dakota, kerosene is treated the same as diesel fuel.
States also reported progress on implementing EDI. Nebraska allows EDI filing via the Internet in various data formats. Under recent legislative changes, EDI filing is required for terminal operators and suppliers. Kansas allows an $8,000 credit to companies which start filing electronically by July 1, 1999. Missouri is exploring various processing and filing systems to implement the new law which is effective January 1, 1999.
California Task Force
The report was presented by Mr. Allan Stuckey, California State Board of Equalization.
The full task force and the enforcement subcommittee last met in La Jolla, California,
June 19-20. Representatives from six states attended as well as IRS staff from
northern and southern California. Items discussed at the meeting included the
provisions of TEA-21, State fuel tax updates, new fuels in the marketplace,
and new types of evasion schemes. The subcommittee met the second day to discuss specific cases.
The next meeting of the task force subcommittee is scheduled for December 14-15 in Nevada. The next meeting of the full task force will be held in conjunction with the Pacific Region Motor Fuel Tax Section Conference which is scheduled for Helena, Montana on April 26-27, 1999.
Mr. Stuckey covered two other items of interest.
DI Pilot: California registers Mexican motor carriers in what is called the "DI program" for fuel taxes. There are about 1,200 accounts in this program. Several months ago, the State became aware that some of the Mexican trucks might be traveling more in California than they were reporting, so the State initiated a pilot program. Currently the State is monitoring about 30coming into California through the truck scales. Some under reporting has been confirmed and assessments were issued against 4 different carriers totaling about $200,000.
California Air Resources Board (ARB)/Imperial County Indictments: On October 14, the ARB and the Imperial County District Attorney announced indictments of nine oil companies for allegedly violating California tax and consumer fraud laws by selling over 300,000 gallons of non-complying gasoline. Those indicted include:
National Petroleum Marketing, Inc. Miller Distributing, Inc. La Paz Products, Inc. CYA, Inc. Polmex Oil Company, Inc. Sunshine Western, Inc. Petro Source, Inc. |
Camin Cargo, Inc. USA Petroleum John B. Knight, Jr. John B. Knight, III John Lyndon Dr. Neil Boone |
The grand jury indictment is the result of a two-year investigation resulting in 31,000 counts of theft, failing to pay fuel taxes, and conspiracy related to selling fuel that violated California regulations. Specifically, the indictment alleges that gasoline was imported from Arizona that contained oxygenate additives greater than the 2.2 percent limit set in ARB regulations. If convicted, the defendants face up to eight years in prison and a fine of $37 million. Both Knights have already been indicted by a Utah federal grand jury for money laundering and conspiracy to sell bad diesel fuel.
One of the meeting participants asked if Mr. Stuckey had any information about the alleged pump cheating in southern California that was reported on NBC Nightly News several weeks ago. According to the report, the State had found that some computer controlled motor fuel retail pumps had been rigged to short the consumer on fuel sales, except for quantities of exactly 5 and 10 gallons which are the amounts used by the State to test pump accuracy. Mr. Stuckey had no information beyond that reported in the news. Mr. Baluch asked that if anyone knew of any contacts with more information about this situation to please contact Ms. Chris Poston, Defense Energy Support Center (DESC). She is interested in following up to see if any sales to the Department of Defense may have been affected by this scheme.
Northwest Task Force
Mr. Stuckey also presented the Northwest Task Force report on behalf of Mr. Quintin Hess,
who could not attend. The task force has held two meetings since the last Steering Committee
meeting: April 3-4 in Whitefish, Montana, (with all States present except Alaska), and
November 1 here in Denver (with all States present including Alaska). The next meeting of
the Northwest Task Force will be held in conjunction with the Pacific Region Motor Fuel Tax
Section Conference in Helena, Montana, which is scheduled for April 26-27, 1999.
Alaska reports that the State will soon be recruiting for a new motor fuels tax position to focus on motor fuel issues, including office and field audits.
Montana continues to participate in border projects with Idaho. The State has developed
radio and television ads regarding dyed fuel usage and is continuing the roadside inspection program.
The State has attended some of the Electronic Commerce Committee meetings regarding EDI
motor fuel tax filings, and has purchased a software package from Sterling Commerce which
will be useful in matching imports/exports between States.
Legislation was enacted in Washington in 1998 which included tax-at-the-rack and dyed
diesel fuel provisions effective January 1, 1999. The legislation affects every facet of the
motor fuel tax program and the State has been extremely busy preparing for implementation.
During the last few months of 1998, taxpayer training and education seminars are being
offered throughout the State.
In 1998, the legislature also funded three Washington State Patrol detectives to investigate
fuel tax evasion. The positions became available July 1, 1998 and are assigned to the fuel tax
section in the Department of Licensing. The emphasis this year has been to train the detectives
on Washington, neighboring State, and Federal tax requirements and typical evasion schemes.
The detectives are investigating several active cases ranging from end user dyed diesel
violations to cross border bootlegging.
The 1999 Oregon legislature will once again consider legislation that replaces the weight/mile tax (applicable to vehicles weighing over 26,000 lbs.) with a diesel fuel tax. Other legislative concepts are under review that would increase bonding requirements, strengthen the State's ability to deny licenses, increase penalties for evasion of the "Use Fuel Tax", and strengthen the State's ability to collect assessments. These are likely to be introduced as well.
Idaho had two bills enacted this year: a technical corrections bill which redefined motor fuel so that the $0.01 transfer fee could be collected along with the motor fuel tax upon first receipt in the State, and a bill authorizing payment of interest on consumer fuels tax refunds effective July 1, 1998. The State just completed an investigation of an unlicensed fuel distributor that was not remitting the Idaho fuels tax and transfer fee. The case was settled by an agreement with the distributor to become licensed and to pay delinquent taxes and interest. The total recovery to the State Highway Trust Fund was $200,390. The State continues to aggressively pursue compliance problems with fuel shipments across the Washington, Oregon, and Wyoming borders.
TASK FORCE MEETING SCHEDULES
*Steering Committee Washington, DC March 8, 1999
*New England Task Force Baltimore, MD May 26, 1999
*New Jersey Task Force Baltimore, MD May 26, 1999
North Audit Committee Hartford, CT December 8, 1998
South Audit Committee TBA January 1999
*North Carolina Task Force Raleigh, NC February or March 1999
Nashville, TN June 9, 1999
*Florida Task Force Jackson, MS March 4-5, 1999
Nashville, TN June 9, 1999 (tentative)
Florida State Group TBA April 27-29, 1999
*PUBLICUS Task Force TBA January or February 1999
*Texas Task Force San Antonio, TX February 17, 1999
Info. Exchange Committee San Antonio, TX February 18, 1999
*NETASK Task Force St. Paul, MN May 13-14, 1999
*Northwest Task Force Helena, MT April 23-24, 1999 (tent.)
*California Task Force Helena, MT April 25 or 28, 1999
Subcommittee Las Vegas, NV December 14-15, 1998
TBA-To be announced.Exhibit 10. Task Force Meeting Schedules.The schedule of upcoming task force meetings, based on the above reports, is summarized in Exhibit 10.
At the conclusion of the task force reports, Ms. Alston invited any of the other meeting participants to provide any additional updates. There were none, so Ms. Alston introduced Mr. Larry Hecksher for the IRS update.
Item 3--IRS Update
Mr. Hecksher emphasized that even though most of the FHWA funds provided to IRS in the TEA-21 years would be used for the development of ExFIRS, IRS was committed to the continued participation of the District Offices in the regional task forces.
The dyed diesel enforcement program, which includes the efforts of the approximately 150 Fuel Compliance Officers (FCO's) working out of the IRS District Offices,s focusing on a couple of key initiatives. Over 12,000 motor fuel samples have been collected by the FCO's and the States as part of the fuel fingerprinting element of the Below-the-Rack Tax Evasion Project. These samples will be instrumental in building a database to help determine whether, and with what products, motor fuels available to the consumer may have been adulterated. In addition, FCO's are visiting all registered terminals in preparation for implementation of ExFIRS. As reported earlier in the week, these visits are designed to develop a benchmark for terminal operations, storage capacities, and products handled that will feed into the development of the Excise Summary Terminal Activity Reporting System (ExSTARS).
Federal diesel fuel tax revenue continues to reflect a substantial increase since the dyed diesel program and moving the point of collection to the rack took effect January 1, 1994. Annual revenue increases since 1994 show normal expected growth, and there does not appear to be any erosion of the $600 to $700 million annual compliance benefit attributed to the change in the law. As part of the restructuring now underway, IRS is moving away from data driven indicators of agency performance. As a result, some of the data series previously reported may no longer be available. Ultimately, performance measures, appropriate to the new IRS mission statement, will become available.
Mr. Hecksher introduced Mr. Ron Linden for an update on the motor fuel examination and criminal investigation results. Mr. Linden read the new IRS mission statement as adopted by the Commissioner:
The mission of the IRS is to provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.
Beginning in FY 1998, all 33 IRS District Offices were encouraged to identify "Joint Compliance Project" cases, based on their cooperative enforcement efforts with the State motor fuel enforcement counterparts. All District Excise Tax Group Managers are encouraged to participate in the regional enforcement task forces. Out of 33 Districts, 30 reported closed examinations under the Joint Project in the year just ended. These are cases initiated from State leads or from the Below-the-Rack Evasion Project. Some 600 cases were closed in FY 1998. This compares with 956 closed in FY 1997 and 1,400 closed in FY 1996. Even though the case numbers were down from previous years, the yield to cost ratio was the second best, $99 assessed per $1 spent.
The FY 1999 guidance to excise group managers, yet to be issued, will likely be similar to this past year. Mr. Linden urged all the States to work with the group managers on taxpayer outreach, coordinated compliance strategies, and exchange of audit leads. Under TEA-21, all additional revenue generated for the Highway Trust Fund by these efforts will flow back to the States in increased Federal highway funding authorizations.
Finally, Mr. Linden discussed the criminal investigation results on behalf of Mr. Gary James, who could not be present. The criminal investigation results are summarized in Attachment 7. As mentioned; by Mr. O'Gorman, Mr. Enright and others, indicted as a result of operation "Red Daisy", were convicted this year and are awaiting sentencing. Another tire tax evasion case was also completed this year with a guilty plea. According to Mr. James, the typical cases investigated in the past year involve much smaller dollar losses than the cases of the mid-1990's, typically $1 million; or less and often involve blending untaxed products into gasoline and diesel fuel.
Item 4--Next Steering Committee Meeting
Mr. Baluch invited any comments or discussion on the agenda for the next Steering Committee meeting. With respect to the proposed meeting date of Monday, March 8, 1999, Mr. Skinner asked if a later date in March or April were possible. The Steering Committee had previously been meeting in April, but it proved very difficult to schedule because of holidays and other meetings regularly scheduled that month. The early March date has proven to be less likely to interfere with holidays and other meetings. For 1999, Easter is April 4, and Passover begins April 1. It was the consensus that March 8, 1999, be confirmed for the next meeting.
Concerning the draft agenda, Mr. Baluch noted that no decision on developing future training programs had been made, so some time should be reserved for that topic. Mr. Gene Williams asked that time be allotted for presentation of the State perspective on ExFIRS to accompany the IRS report. Mr. Baluch noted that the Steering Committee meeting would not be the primary opportunity to debate ExFIRS progress, since a separate series of advisory groups and meetings would be solely devoted to that work. Nonetheless, most States present agreed that the Steering Committee should have the opportunity to discuss State issues and concerns regarding ExFIRS, so the agenda will be modified to include a presentation and discussion on the State perspective. Mr. Stuckey asked whether the afternoon session on international border enforcement projects included Mexican as well as Canadian border activities. Mr. Baluch said that until Mr. Stuckey's earlier report, he was unaware of any fuel tax related border enforcement efforts on the Mexican border. He suggested that the agenda include both. He asked that California plan to discuss the "DI Pilot Program", and he invited the other task forces with States bordering Canada to suggest a speaker to discuss one of the Canadian border enforcement programs. The revised agenda is included as Attachment 8.
Mr. Baluch invited any other comments or discussion. Mr. Barnhart emphasized the importance of getting the State DOT's more involved, in particular to encourage financial support using the 1/4 of 1% STP funds. He noted that the AASHTO annual meeting next week in Boston included a session on motor fuel tax compliance. He also urged the participants to be vigilant concerning efforts to overturn the dyed kerosene provisions, which will be instrumental in reducing tax evasion from below the rack blending of one of the most widely available blend stocks.
Mr. Baluch asked to make one final statement. He announced that after more than 8 years in the FHWA fuel tax compliance program, first as assistant to Mr. Jim Link and then as the Program Manager, this would be his final meeting. His request for early retirement from FHWA was approved the week prior to the FTA Motor Fuel Section Annual Meeting. The States can expect to see many changes in FHWA staffing as a result of the agency reorganization now underway. He thanked all the Joint Project participants for the hard work and determination that made the program such a great success.
Ms. Alston adjourned the meeting at 4:00 p.m.
Summary of Steering Committee Decisions
The next meeting will be held March 8, 1999, at the FHWA headquarters in Washington, D.C., from 8:30 a.m. to 4:00 p.m. The proposed agenda will be modified to include discussion of the State perspective on ExFIRS, and Mexican, as well as Canadian, border enforcement efforts. The revised agenda is provided as Attachment 8 to these minutes.
Approved:
________________________________ _________________________________
Thomas R. Hull Madeleine S. Bloom National Director Director, Office of Policy
Specialty Taxes Development
Internal Revenue Service Federal Highway Administration
Attachments:
1) Attendance List, Eighteeth Steering Committee Meeting, Denver, Colorado
November 4, 1998 .......................................................................................................
27
2) Excerpt from Transportation Equity Act for the 21st Century ......................................
33
3) TEA-21 Implementation Procedures, Federal Register, October 9, 1998 ......................
36
4) Status of Funds Provided for Highway Use Tax Evasion ..............................................
40
5) Limiting Amounts...for 1/4 of 1% Surface Transportation Program Funds to Halt Evasion Payment of Motor Fuel Taxes ....................................................................
41
6) Optional Data Report Forms ........................................................................................
42
7) IRS Criminal Investigations FY 1998 Annual Report--Excise Tax ................................
49
8) Nineteenth Steering Committee Meeting Proposed Agenda ..........................................
52
Approved:
__________________________________ ______________________________
Thomas R. Hull Date Madeleine S. Bloom Date
National Director Director, Office of Policy
Specialty Taxes Development
Internal Revenue Service Federal Highway Administration
