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FINAL (11/01/99)

NINETEENTH STEERING COMMITTEE MEETING

JOINT FEDERAL/STATE MOTOR FUEL TAX COMPLIANCE PROJECT

MONDAY, MARCH 8, 1999

Ms. Sherri Alston, Director of the Office of Transportation Policy Studies at the Federal Highway Administration (FHWA) convened the meeting at 8:30 a.m. and welcomed everyone to the 19th Steering Committee Meeting of the Joint Federal/State Motor Fuel Tax Compliance Project. Ms. Alston acknowledged several new members and their organizations that were present at the Denver meeting or had sent a representative from the organization to today's meeting. Ms. Lonette Turner from the International Fuel Tax Administration, Inc. (IFTA) attended the Denver meeting. While Ms. Turner was unable to make it to today's meeting, Mr. Al Howard of Al Howard Consultants agreed to talk about IFTA. Other new members include Mr. Ken Duggan, from the Canadian Fuel Tax Uniformity Project and Mr. Keith Hudson from Revenue Canada. Mr. Duggan was unable to be at the meeting however, Mr. Hudson was present to discuss the Canadian Uniformity Project. In addition, Mr. Brad Lawrance from the Ontario Ministry of Finance, was present to talk about the international border enforcement efforts along the U.S.-Canadian border. Ms. Alston indicated that the National Congress of American Indians had expressed an interest in joining the Steering Committee as a member organization but were unable to send a representative to this meeting. Finally, Ms. Alston welcomed Ms. Priscilla Frink from U.S. Customs.

After Ms. Alston completed these acknowledgments, she asked each person to stand and introduce him/herself and identify his/her organization. The Attendees List is Attachment 1. At the completion of the introductions, Ms. Alston turned to the first agenda item which was the FHWA Update. The agenda is included as Attachment 2.

FHWA UPDATE

The FHWA Update began with Ms. Alston discussing funding under the program. Ms. Alston pointed out that under the Transportation Equity Act for the 21st Century (TEA-21), (Attachment 3), the majority of the tax compliance funds will be used by the Internal Revenue Service (IRS) for the development and maintenance of the Excise Files Information Retrieval System (ExFIRS), an automated fuel tracking system, with any remaining funds going to the States for their continued enforcement efforts. She then referred to the Tax Compliance Funding Chart (Attachment 4) that showed how the remaining funds will be distributed to the States. Ms. Alston emphasized that the proposed allocations were not written in stone and may change depending on a State's use of the funds. Ms. Alston explained that a State would receive funds in the next fiscal year (FY) once their "Unpaid Obligations" (column three on the chart), are at a level equal to 1-year's funding which is $100,000 for lead States and $50,000 for the others. The proposed allocations on the current chart were based on balances as of December 27, 1998. Ms. Alston noted that the projected funding for the out years is based on past spending trends, and she reiterated that the proposed allocations for the out years may change.

She reminded the group that the tax compliance funds are limited and that because of this, FHWA is encouraging the States to use the other source of Federal funds that are available, the Surface Transportation Program (STP) funds. These funds can be used specifically to "halt the evasion of motor fuel taxes."

Ms. Alston referred the group to the STP Funding Charts (Attachment 5) which shows the 1/4 of 1 percent of STP funds that are available to each State for FY 1998 and 1999. Ms. Alston noted that the STP funds are good for the FY in which they are authorized plus three additional years. Ms. Alston then told the group that five States have actually obligated STP funds and at least two more are actively involved in securing them.

Ms. Alston then discussed the Federal Register Notice that was published on October 9, 1998, regarding the implementation procedures for the approval and administration of tax evasion projects (Attachment 6). The Notice provided an opportunity for comments and suggestions to be made. The FHWA received two comments, one relating to the States' needs in the ExFIRS project from the Washington State Department of Transportation, and the second, from the Wisconsin Department of Transportation concerning payment of travel to IFTA agreement procedures and annual meetings.

Ms. Alston said she would refer the first set of comments to Mr. Duane Gillen of the IRS and Mr. Dave Skinner of the Florida Department of Revenue, both who are working on the development of ExFIRS. Concerning the second comment about travel, Ms. Alston said that she believed that the travel would be covered, but would have Ms. Linda Morris contact the FHWA Chief Counsel's Office to confirm this.

Ms. Morris contacted the legal office and found out that travel to the IFTA agreement procedures and annual meeting would be covered under the grant agreement terms, since attending these meetings is "in furtherance of the grant activity."

Ms. Alston informed the group that the new Attention Truckers brochure was attached to the handout package (Attachment 7). She told the committee that the brochure would not be printed in color this time and would look just like the handout. She mentioned that FHWA has gotten approval for the wording and layout of the brochure from the Environmental Protection Agency (EPA), IRS, and FHWA. The brochure has been sent to the FHWA Motor Carrier and Highway Safety Office for distribution through the State motor carrier agencies.

Ms. Alston announced that the Fuel Tax Evasion Highlights will no longer be published due to a lack of personnel in the fuel tax evasion program at the FHWA headquarters. Ms. Alston stated that any articles that would have been passed along to FHWA should now be sent to Ed King at the California Board of Equalization (BOE). He will include them in the Uniformer, a newsletter put out by the Uniformity Committee of the Federation of Tax Administrators (FTA). Mr. King's address and fax number can be found in the Attendees List (refer to Attachment 2).

Ms. Alston stated that last December, the FHWA Office of Highway Policy Information had held a 2-day working group committee meeting to discuss Federal motor fuel reporting. She introduced Mr. Ralph Erickson from the FHWA Office of Highway Policy Information who gave a presentation on motor fuel reporting and the findings of the Motor Fuel Reporting Information Committee.

Mr. Erickson told the group that on December 10 and 11, 1998, FHWA held the first Motor Fuel Reporting Information Committee Meeting to identify and discuss areas in need of improvement in the motor fuel reporting system (see Attachment 8). Attendees included representatives from State revenue and transportation agencies, FHWA headquarters and field staff, and representatives from American Association of State Highway and Transportation Officials (AASHTO) and the Federation of Tax Administrators (FTA). Mr. Erickson stated that since the signing of TEA-21 with the new apportionment formulas, the importance of accurate motor fuel data has increased. He noted that State motor fuel data are critical input for three reasons: 1) it directly affects apportionments to States in three large Federal programs; 2) it determines the results of the Minimum Guarantee analysis, and 3) it affects attribution of motor fuel use to the States.

Mr. Erickson summarized the current FHWA procedures for collecting and reporting motor fuel data. He acknowledged that improvements are needed in the reporting guidelines to better explain to State agency representatives how to report motor fuel data to FHWA. One particular problem that is apparent is the lack of uniformity of definitions among the States, IRS and FHWA. Other issues of concern included IFTA reporting requirements; timing of reports; data reporting capabilities or level of detail; reporting fuel losses, assessments, and alternative fuels; diesel fuel issues, and others.

Next, Mr. Erickson discussed how FHWA uses motor fuel data to attribute each State's share of payments into the Federal Highway Trust Fund (HTF) and how these attributions are used in formulas to apportion funds to each State. In 1999, motor fuel-related apportionments in three of the largest highway programs were:

In addition to these three programs, Congress has authorized additional funds for the States under the Minimum Guarantee program where States receive 90.5 percent of their percent contribution to the HTF. For example, if California contributes 10 percent to the Federal HTF, they get back at least 90.5 percent of that 10 percent.

State data are critical input to the attribution methodology, because state-by-state contributions to the HTF are not available from the IRS. Federal fuel taxes are imposed at the terminal rack, and the tax is paid by the seller. Thus, the typical taxpayer is an oil company or oil wholesaler. The IRS reports tax receipts for each tax type, but IRS does not know where the fuel is consumed. The FHWA estimates HTF contributions from highway users in each State using State motor fuel data. The FHWA knows the size of the "pie" from which motor fuel and other highway-related excise taxes are collected by the IRS, so using State motor fuel data, they attribute a proportional "slice" of the Federal tax revenue to each State.

Mr. Erickson concluded his presentation by saying that the next meeting of the committee would be held in Washington, D.C. on September 23 and 24.

Ms. Alston reminded the group that there would not be a Steering Committee Meeting in conjunction with the FTA Annual Motor Fuel Meeting, which is being held in Myrtle Beach this year, but there will be one next year around this time. Ms. Alston presented March 6, 2000, as the tentative date.

TASK FORCE REPORTS

Ms. Alston began the Task Force Reports session by asking the task force reporters to let the group know if any of the States in their task force are currently using STP funds or have plans to use the funds. She then introduced Mr. Quintin Hess from the Oregon Department of Transportation who gave the following report.

Northwest Task Force

Mr. Hess began by telling the group that Montana is using STP funds. He then said that the last meeting of the Northwest Task Force was held in Denver, November 1, 1998, and that the next meeting will be held in Helena, Montana, April 23 and 24, 1999. He presented the following State reports:

Alaska is considering raising their motor fuel tax rate from 9 cents per gallon to 17 cents per gallon. Most efforts are being directed to possible implementation of an income tax.

Idaho has had a change in law. The State now pays interest on consumer fuel tax refunds effective July l, 1998. It is not retroactive. In addition, Idaho is working with Washington, Oregon, Montana, Utah, and Wyoming on projects to identify export/import issues and to tax loads of fuel that have avoided State taxation or loads that are tax-paid in Wyoming, but being delivered to a higher tax State, such as Montana, Idaho, or Utah.

Idaho is having a problem with fuel being delivered to an Indian reservation by a fuel distributor who refuses to report the deliveries made to the tribe or remit the Idaho fuel tax and transfer fee, because Native Americans do not have to pay State fuel tax. Idaho has made assessments against the fuel distributor, and the distributor has filed a compliant in District Court. The trial is scheduled for May 1999. Idaho's fuel tax is imposed on the fuel distributor.

Montana Department of Transportation (DOT) is focusing on electronic data reporting; cross matching of transfers of fuel within Montana; and imports/exports with neighboring States and Canada. They are reviewing the potential for more automated interfaces with U.S. Customs reports. The DOT has used grant money to fund a project with an electronic commerce software vendor for electronic data interchange (EDI) exchange within the standards established by the FTA Uniformity Committee Electronic Commerce subcommittee.

Montana has conducted audits of distributors and retailers to verify full accountability within the motor fuel distribution chain. In addition, Montana continues to aggressively test on-road vehicles for dyed fuel violations, and for motor fuel imports from Canada by unlicensed importers of mislabeled fuel.

Washington has implemented a dyed diesel program effective January 1, 1999, that is very similar to the Federal program. They have been trying to negotiate an agreement with the IRS to process dyed fuel samples, but to date, have been unsuccessful. The IRS has concerns about releasing the test results to the Washington State Patrol (WSP), which is the entity that conducts the tests and, therefore, must be a party to the results. Washington is currently exploring alternatives to using the IRS-approved laboratory for testing sample results. The WSP is currently active in several dyed diesel cases involving wholesalers and end users. The cases involve in-State companies with no border issues. They anticipate resolution within the next 1 to 2 months.

Progress is being made with tribal issues. Several meetings have been held with a certain tribe regarding a joint compliance effort.

Tax at the rack has been implemented effective January 1, 1999, with only a few minor technical difficulties. Overall, the change in tax structure has gone smoothly. Most industry comments have been positive in that they appreciate having just one set of tax laws to follow.

The new Administrator for Prorate and Fuels Tax is Mr. Tom Brewer.

Oregon's legislature is once again considering legislation that would eliminate the weight-distance tax for vehicles weighing over 26,000 pounds, and replace it with a diesel tax that would be imposed at the rack. The legislation includes a dyed diesel program similar to that of the Federal government.

The Fuels Tax Group is nearing completion of a system replacement project to enhance the ability to track compliance with Oregon's motor fuel laws. The project is being partially funded with grant money. Oregon will be sending three fuel tax auditors to an advanced training session in California next month.

Oregon is currently working with a Native American tribe in southern Oregon on issues concerning the operation of a truck stop along I-5.

New England Task Force Report

Mr. Allan Ferullo from the Massachusetts Department of Revenue gave the New England Task Force Report.

Mr. Ferullo told the group that States are searching for additional funding, and some are considering applying for STP funds. For example, Rhode Island and Massachusetts are working on the issue. Vermont has applied for and received STP funds. Mr. Ferullo told the group that the next task force meeting will be held in Baltimore in May, and that it would be a joint meeting with the New Jersey Task Force. He continued with the State reports.

A Massachusetts representative attended the FTA Annual Motor Fuel Conference in Denver in November 1998.

The IRS funds for the State Police to conduct dyed fuel testing expired in February 1999. A meeting is scheduled with the DOT to secure STP funding for the State Police to continue dyed fuel testing, as well as for other motor fuel tax evasion projects.

One of Massachusetts' auditors has been working with an examiner from Rhode Island researching the activities of a Rhode Island taxpayer who purchased fuel from Massachusetts, tax-paid, and brought it back into Rhode Island. The exchange of information has been helpful to both parties.

Vermont will reintroduce legislation to change the point of taxation on diesel fuel. Testimony was given before the transportation committee on February 17, 1999, with witnesses and letters of support from industry. The bill would eliminate the surcharge on Vermont fuel by raising the price at the pump to 22 cents per gallon and lowering the reporting price from 26 to 22 cents per gallon. It would also eliminate tax-free bulk deliveries of clear diesel fuel.

Vermont was successful in receiving STP funds to continue their fuel tax evasion program and has received approval to hire a limited service, full-time desk audit examiner effective July 1, 1999.

Connecticut had nothing new to report.

Rhode Island reports that a comparison of tax-free sales among licensed motor fuels distributors has disclosed discrepancies with several distributors not reporting bulk purchases and sales. This comparison has also been extended to tracking rack sales among licensed distributors. Extensive preparation work has been undertaken and audits have begun.

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 has been assigned that resulted from an informant's complaint of Massachusetts tax-paid fuel being brought into Rhode Island. This distributor is licensed in both States. The information is being researched, and the audit is scheduled to begin shortly.

As a result of legislation enacted by the 1998 session of the Rhode Island General Assembly, effective July 1, 1998, Rhode Island motor fuels distributors are required to file monthly returns. A review of returns for the months of July and August of 1998 revealed tax-free gallons to an unlicensed distributor totaling approximately 617,000 gallons of gasoline and diesel fuel. An assessment was prepared against the distributors making the sales.

New Hampshire sent two auditors to Tempe, Arizona, for IFTA/International Registration Plan (IRP) training in January 1999. Plans have been made to have the auditors who attended training in Tempe and Minneapolis, Minnesota, perform a training class for the other auditors in the unit sometime in April. This will help to fulfill the requirements to be in compliance with New Hampshire's audit plans since the focus is on IFTA/IRP audits.

New Hampshire continues to receive dock reports from the Port Authority and is verifying information from U.S. Customs.

Maine had no report.

New Jersey Task Force Report

Mr. Joe O'Gorman from the New Jersey Division of Taxation gave the New Jersey Task Force Report.

Mr. O'Gorman told the group that the last task force meeting was held in Harrisburg, in October 1998, and that the next will be held in Baltimore with the New England Task Force after the FTA Northeastern Regional Motor Fuel Conference. Mr. O'Gorman then gave the State reports.

New York is involved in several joint audits performed with the IRS and other States. New York is also in the process of conducting joint field inspections at the terminal level with the IRS. At this time, there is no pending motor fuel legislation.

Pennsylvania reports that March 1 is the deadline to petition for refunds under the refer fuel provision. The claim form is on the Internet at http://www.revenue.state.pa.us. Pennsylvania is entertaining refund claims for qualified bus companies on which the fuel tax has been paid directly or indirectly (through IFTA). Carriers using alternative fuels should be aware of new rates that are based on BTU equivalency.

Pennsylvania is actively pursuing participants for filing Liquid Fuels and Fuels Tax returns via EDI.

Maryland reported that their on-road inspections program is going smoothly. The Comptroller is still pushing legislation that would require EDI filing.

New Jersey has pending legislation to move to tax at the rack; the legislation also includes dyed fuel penalties. New Jersey is beginning to look into legislation to combat some problems of below cost selling of fuel at the retail level.

New Jersey Division of Taxation has reorganized the motor fuels office. Motor fuels will now fall under the Office Audit branch.

New Jersey is working jointly with New York and Pennsylvania on ongoing criminal matters.

Delaware is certifying 8 to 10 more Diesel Fuel Compliance Officers (DCO), most of which are presently Motor Fuel Tax staff. The diesel fuel compliance program has been fully integrated into the fuel tax audit program.

Delaware has several ongoing matters with the Delaware State Police, Delaware Department of Natural Resources, and Environmental Control. Delaware is continuing to establish and cultivate contacts with neighboring states.

Delaware's motor fuel agency is currently designing an automated fuel tax information system which will capture license data and perform calculations and comparisons to identify revenues and ensure proper tax is paid.

District of Columbia has new audit manager and is in the process of reorganizing the audit staff. Everything else is going smoothly.

Mr. O'Gorman told the group that the task force committee received an IRS update on kerosene matters.

North Carolina Task Force Report

Mr. Julian Fitzgerald from the North Carolina Department of Revenue presented the North Carolina Task Force Report.

Mr. Fitzgerald reported that the last task force meeting was held February 24 and 25 in Raleigh, in which six of seven States attended. The next meeting will be a joint meeting with the Florida Task Force and will be held on June 9 in Nashville after the FTA Southeast Regional Motor Fuel Conference.

Mr. Fitzgerald gave the following State reports:

Virginia failed to pass tax-at-the-rack legislation. It was fiercely opposed at the last General Assembly session. Virginia's consolidated laboratory will begin testing dyed fuel samples July 1, 1999.

Virginia has met with adjoining States to enhance cooperation. They have worked on a joint case with Maryland, which has resulted in a conviction, as well as with the Naval Intelligence Office. They have developed some good leads. Virginia is also working on developing a hotline for motor fuel tax evasion. Virginia has hired a new office manager and an auditor for its enforcement office. The Department of Motor Vehicles has a new Director of Motor Carrier Services: Mr. Linwood Butner, 804-367-9157.

West Virginia has acquired another truck for roving inspections for dyed fuel. West Virginia has new program to issue sightings: if a vehicle is stopped, but a citation is not written, West Virginia will still keep a record. West Virginia will be requesting that the Public Service Commission handle this process in the future. West Virginia is developing procedures to address dyed kerosene.

Tennessee has shown a nine percent increase in collections for the first year with tax at the rack for diesel. In addition, they have implemented a new database and are developing a motor fuels cross matching system. Tennessee is involved in two major cases of fuel being imported from Georgia. Tennessee plans to increase the audit staff by 10 employees, and is planning for EDI in the near future.

Georgia will use STP funds for more auditors and investigators. Georgia is combining the 7.5 cent road tax and the 3 percent sales tax for fuel, and it appears the IFTA tax rate will decrease to 9.5 percent from 9.96 percent. Georgia Department of Revenue has hired a special investigator for its Motor Fuel Division, and has received approval and funding of $1 million to develop a computer system for motor fuel investigations. The State is also considering transferring the IRP responsibilities from the Department of Motor Vehicles (DMV) to the Motor Fuels Division at the Department of Revenue.

Investigations are being conducted in southern Georgia by DCOs. No leads have been reported.

South Carolina is in the process of completing major supplier audits, and is continuing road enforcement efforts. South Carolina has a representative on the Excise Tax Online Exchange (ExTOLE), the Excise Summary Terminal Activity Reporting System (ExSTARS), and Uniformity committees.

Issues with exports of kerosene from South Carolina to North Carolina have arisen based on destination State tax laws.

North Carolina plans to use STP funds. North Carolina is working on a FuelTACS system, which allows enforcement staff to issue sightings that can eventually be crossmatched to determine if a carrier has tax liability to North Carolina.

The State is continuing on-road enforcement efforts by working with the DMV and IRS.

North Carolina is continuing the development of the electronic version of the motor fuels applications on the Integrated Tax System. The State is developing an integrated system with the intent of receiving returns via EDI.

North Carolina continues its road enforcement activities and joint border checks. The DMV officers completed a DCO school in January.

Florida Task Force Report

Mr. Dave Skinner from the Florida Department of Revenue gave the Florida Task Force Report.

Mr. Skinner informed the group that the last task force meeting was held the previous week, March 4 and 5, in Jackson, Mississippi. All States and IRS districts were represented. Many DOT people from Mississippi and Alabama, as well as IRS personnel attended. Mr. Skinner gave the following State reports:

Mississippi DOT investigators reported on a joint dyed fuel project with Alabama, checking compliance at the border. They found 10 violations in one week. They had another project involving checking all fuel imported into the State. They entered that information into a database, then plotted it on a map of Mississippi to see where the fuel was being imported from, and then compared the information with fuel tax returns. So far 451 of 671 imports have matched; the others are still being checked. In other enforcement projects, the DOT will be conducting surveillance using helicopters on the Mississippi River.

Mississippi has legislation pending, but won't move to tax at the rack due to refunds and float problems. They have two different diesel taxes and are trying to consolidate these along with increasing enforcement and penalties.

Ergon, Inc. and Lion Oil, two local companies, explained internal controls in a small company with five terminals.

Arkansas now has EDI in place. Approximately 25 percent of taxpayers are online and using EDI to report January tax returns. Arkansas is using STP funds for a contract with Lockheed-Martin for a fuel tracking system. The State has also purchased dyed fuel testing equipment so they will be able to perform the dyed fuel tests instead of waiting for the IRS test results.

Louisiana has no new legislation.

Alabama has no new legislation. The State is involved with Mississippi on a dyed fuel project at the border. The new State tax commissioner has shown an interest in tax at the rack.

Georgia is consolidating per gallon tax with sales tax, which is about 10.3 cents per gallon. Tax at the rack is dead again this year.

Florida has no pending legislation. The motor coach industry is trying to get refunds on diesel fuel. A study has been conducted on diesel fuel refunds. Florida is still working on EDI software.

Mr. Skinner stated that the next task force meeting will be a joint meeting with the North Carolina Task Force on June 9 and that the following task force meeting will be held in October, somewhere in the Florida panhandle.

PUBLICUS Task Force Report

Mr. John Aikman from the Indiana Department of Revenue gave the PUBLICUS Task Force Report. He presented the following State reports.

Indiana is participating on the ExTOLE Committee and the FTA Enforcement Subcommittee. Indiana is considering the Wisconsin diversion program. The State is continuing educational programs with State Police on fuel tax laws and Federal motor carrier regulations at truck shows and county co-ops.

The State has 24 investigations underway. Twelve are sales tax withholding cases that were spin-offs from motor fuel investigations. Five have resulted in plea bargains, and one in a court conviction.

The Indiana State Police and Department of Revenue are continuing dyed fuel inspections. Indiana State Police Motor Carrier Division is considering expanding the dyed fuel program to include training the Motor Carrier Inspectors (112) to conduct dyed fuel inspections as part of their routine duties.

Indiana is pursuing STP funds. They have sent a proposal to the DOT, but to date, there has been no response.

Ohio adopted a dyed fuel law in 1996, however, no inspections have taken place because of concerns with stopping vehicles and illegal searches. Ohio has been conducting successful terminal audits in the past year, and is currently working on a large audit involving a company with 13 terminal locations.

Illinois is interested in the ExTOLE system. They believe it will be very helpful. Mr. Al Howard has been invited to the next regional meeting to discuss ExTOLE and ExSTARS.

Kentucky is cross-training auditors on road taxes. It anticipates a law change next year. Kentucky is still finding their biggest problems with cocktailing of fuel and kerosene.

Kentucky Revenue Cabinet is frustrated with the ¼ of 1 percent of STP funds under TEA-21. They have met with the DOT, but were informed that the additional funds were committed for DOT projects.

Minnesota will host the next NETASK meeting on May 13 and 14.

Mr. Aikman finished his presentation with the information that the next PUBLICUS meeting will be in July 1999, in Lexington, Kentucky.

Texas Task Force Report

Mr. Jimmy Archer from the Texas Comptroller of Public Accounts gave the Texas Task Force report.

Mr. Archer stated that their last task force meeting was held in February in San Antonio and that the next meeting will be in St. Louis in August. At their last task force meeting, Ms. Laura Crain from the IRS, provided an update on IRS issues. Ms. Crain began with kerosene related issues. She said that the IRS is taking an education only stance at this time until their task force can define what are clear, direct actions for violations. She also said that the DCOs were continuing roadside checks for dyed diesel along with the State officials and that this is the best way gain compliance.

The IRS has an internal task force that is analyzing other ways of keeping up with fuel related compliance issues, particularly blending schemes. The task force is debating how to better track fuel at the terminal level by determining who actually owns the fuel, and how the terminal keeps track of their inventory.

Mr. Damaris Pimentel, from the IRS Southwest District, reported that in three States, they are looking at "fractionators" who are processing transmix and blendstocks and breaking them up into naptha and diesel fuel. The concern is that naptha is taxable and the "fractionators" are claiming it is not. He also reported that IRS is trying to define "essential government function." It appears that various wholesalers that are selling gasoline and diesel fuel tax-free to various Native American tribes in the Southwest District are filing refund claims. The wholesalers claim they are selling to Indian tribes for use in an "essential government function."

The IRS representative reported that the DCOs are continuing to work with the fuel fingerprinting and that on the last batch of samples that were sent to the lab, about 80 percent of kerosene is being mixed with diesel fuel, as is toluene and xylene. They are trying to find out where these mixes are coming from. In addition, IRS is working with the New Mexico DMV to expedite the processing of their highway use tax program and Schedule 1 registrations. Mr. Pimentel also stated that they would like to have U.S. Customs, EPA, and the New Mexico Department of Taxation and Revenue participate in this task force.

Ms. Madelyn Henderson from IRS gave a report on the Below the Rack Project including the different subgroup projects. She reported that the aerospace lab has increased resources by adding two contractors and three pieces of equipment to work on the project. The information sharing subgroup met to discuss the designing and building of the Below the Rack information system. The products subgroup did a study of toluene to identify total volume produced in 1997, the end use, and the percentage attributable to each industry. The objective of the study was to identify industries whose waste toluene is being used or blended with motor fuel. The findings show that 1.5 billion gallons were produced and that 90 percent of those gallons went into gasoline. One member attended a bio-diesel meeting to address issues such as the taxability of the product, the code governing it, and whether the product should be sold as diesel or something else. The bio-diesel board agreed to provide all available information as well as samples to the Project. Bio-diesel has been found to harm the rubber components in engines. The fuel fingerprinting subgroup reported that a statistical sampling validation plan was implemented using seven terminals in Florida and one in each Georgia and Alabama to determine the fingerprint variability based on sampling method used by DCOs. The study is expected to take 2 to 3 months. Indiana, Pennsylvania, the Pacific Northwest and the Rocky Mountain District have joined in the fuel fingerprinting effort. In the legislative area, the question of disclosure of "public safety" information has been referred to the National Office of Disclosure at the IRS to provide a definitive position. The Office of the Chief Counsel is still working on issues of "suitable for use," temporary kerosene regulations regarding mineral spirits, and definitions for blended, taxable motor fuel and diesel fuel. They identified an EPA website that contains a database of producers, recyclers, and handlers of hazardous materials. It can be found at: http://www.epa.gov

Arizona - The Arizona report is included as a part of the California Task Force report.

Louisiana - The State of Louisiana was not represented at the last task force meeting, and no report was available.

The Arkansas Motor Fuel Tax Section will begin implementation of EDI for gasoline and diesel fuel accounts with the January 1999 reports (which were due in February). In December 1998, Arkansas acquired Information Network of Arkansas (INA), a new value added network (VAN), to replace Tax Connect, and began mailing INA subscription agreements, electronic signature authorizations, and trading partner profiles. The oil companies are to continue filing paper reports as well until there have been several successful EDI transmittals. The Arkansas Oil Marketers Association have protested the yearly subscription fees and charges for monthly transmittals, and have indicated that they will attempt to introduce legislation which would exempt taxpayers from fees for filing tax returns. Several jobbers have canceled their gasoline and diesel fuel permits to buy and sell tax-free fuel in Arkansas, due to the cost of EDI. They said EDI was too costly to justify selling small amounts of fuel or to remit very little tax. They have elected to buy and sell tax-paid fuel in Arkansas.

The Arkansas Highway and Transportation Department has acquired and is using a spectrophotometer to determine the amount of dye in samples drawn in on-road inspections. Its use has resulted in faster turnaround for State assessments. The FHWA reimbursed the State for the machine and supplies.

Several bills have been introduced in the current legislative session including proposals to:

Missouri January 1, 1999, was the effective date for tax at the rack legislation. The new law includes provisions for dyed diesel fuel, but also allows the purchase of clear fuel from authorized vendors, which complicates the compliance efforts. Distributors in Kansas, Illinois, and Arkansas are not happy about Missouri collecting taxes on fuel they purchase at Missouri terminals and export to their States. New legislative proposals include strengthening the exempt clear fuel provisions, clarifying provisions for exports, and defining the criminal authority sections.

New Mexico There are several bills before the New Mexico legislature including one that would allow gasoline to be received, unloaded, and placed in stationary tanks by an Indian distributor within the boundaries of a reservation. If the Indian distributor was registered and engaged in the wholesale distribution of gasoline to purchasers outside the reservation before January 1, 1998, no tax would be due from any person on sales of gasoline outside of the reservation. For two pueblos, exempt sales would be limited to the first 2,040,000 gallons per month from July 1, 1999 through June 30, 2000; 2,500,000 gallons per month from July 1, 2000 through June 30, 2001; and 3,060,000 gallons per month after that date. The legislation is supported by several pueblos.

The New Mexico Taxation and Revenue Department proposes changing the collection of the gasoline tax to the time and place where it its imported. Currently, the tax is collected at the time and place that it is unloaded from the distributor who owns the place of unloading, which allows Indian distributors to receive gasoline on the pueblo and pay no tax since they are exempt under Federal law. The bill, if passed, would bring the gasoline tax in line with the imposition of the tax on diesel. Immediately after the gasoline is transported off the pueblo and received by the ultimate owner, the tax would be due, unless it is in the fuel supply tank of a motor vehicle.

New Mexico currently has a deduction for dyed gasoline sold for use other that in a motor vehicle or motor boat, and they have a new deduction for gasoline sold at retail by a registered Indian tribal distributor if the sale occurs on Indian land and the gasoline is placed in the fuel supply tank of a vehicle. This legalizes the tax-free sales since the State is unable to tax these transactions.

Another proposed bill would change the definition of "special fuel" to mean undyed diesel engine fuel or kerosene used to propel a motor vehicle, and would add a definition of dyed fuel to mean dyed fuel used in any manner other than for propulsion of a motor vehicle. This bill would eliminate the bulk storage permit requirement, with the assumption that dyed fuel would be used off-road and clear fuel used on-road. There are no plans to provide for penalties for dyed fuel used on-road.

In a recent news report, an investigative reporter videotaped gasoline tank truck drivers stopping their fully loaded trucks on Indian land, getting a cup of coffee, then driving off in their still fully loaded trucks. The Indian distributor considered the gasoline to have been delivered on Indian land and thus exempt from tax. The fuel was eventually unloaded at a retail station outside of Indian land. The law in New Mexico allows the gasoline to be received once and then the point of taxation is passed and no further tax is due. This particular truckload had been imported from Texas, and the tax was due where the fuel was unloaded.

New Mexico's tax rate is 17 cents per gallon for gasoline and 18 cents for diesel fuel. New Mexico and Texas are working on a joint audit. They hope to be able to criminally prosecute after completing the evidence gathering and assessing on the civil audit.

Oklahoma has noted that fuel tax revenues have continued to climb since changing the point of taxation to the terminal rack in October 1996. The State Tax Commission is evaluating the Lockheed fuel tracking system.

The State Senate Finance Committee has approved a plan for a statewide vote in the November 2000, election to increase the gasoline tax by ½ cent per gallon and the diesel tax by 2 cents per gallon. The revenues from the tax increase would be used to help finance passenger rail service in Oklahoma. An additional $1 million would be placed in the State transportation fund.

Texas Two major criminal cases were reported: the Hooks Truck Stop case, and the Texas-New Mexico case. In the Hooks case, two truck stop owners pleaded guilty to failing to remit fuel taxes collected on fuel they had purchased from someone in Oklahoma and sold at their truck stops in Hooks and DeKalb, Texas. They had been doing this over a 3-year period. The audit liability was more than $300,000 which the Texas Comptroller of Public Accounts expects to fully recover through restitution when the two are sentenced. In the same case, two individuals from Oklahoma were indicted, but have yet to plea. The investigation was conducted by the Oklahoma State Bureau of Investigation and the FBI.

In the Texas-New Mexico case, large quantities of motor fuel are being purchased by individuals/corporation from New Mexico and Arizona from refineries and terminals in Texas and being exported to New Mexico, in some cases to Indian reservations. Consequently, no Texas motor fuel tax is being charged. Surveillance indicates the majority of the fuel is staying in Texas and being sold at retail outlets, and that some of the fuel is going to Oklahoma and being sold at retail outlets there. Joint audits with New Mexico indicate that $1 million in Texas fuel taxes have been evaded since 1995. Currently, civil audits are being completed to ascertain the exact amount of motor fuel taxes stolen by these companies. Projected enforcement actions include running search warrants at three of the company's offices in New Mexico, the issuance of jeopardy determinations, and civil seizures of approximately 20 service stations in Texas. Indictments are expected against several individuals. The case is being investigated by the Texas Comptrollers Office, Travis County District Attorney, Texas Rangers, New Mexico Taxation and Revenue Department, New Mexico State Police, Oklahoma Tax Commission, U.S. Attorney's Office in Lubbock, and the FBI.

Legislation is being contemplated that will move the point of taxation for motor fuel to the terminal rack. The Comptroller's Office is working with the bill's sponsors to develop a workable approach and an implementation plan.

NETASK Task Force Report

Mr. John Schulte from the Nebraska Department of Roads presented the NETASK Report.

Mr. Schulte began the NETASK report by saying that there was no new news. The last task force meeting was held in Lincoln, Nebraska, in October 1998, with a report given at the Denver meeting in November. He did report that the next task force meeting will be held in Minneapolis on May 13 and 14.

Mr. Schulte provided a short report on events in Nebraska. He told the group that Nebraska is using STP funds for a motor fuel tax evasion project, and that the State is working with the State Patrol on surveillance efforts. Mr. Schulte noted that Nebraska and Wisconsin are working together on diversion permits. He also announced that Ms. Mary Jane Egr is the new Commissioner.

California Task Force Report

Mr. Ed King of the California BOE gave the California Task Force Report. Mr. King began the California Task Force report by telling the group that none of the States in this task force are using STP funds. He said that the last task force meeting was held in December in Las Vegas. They discussed new products that are showing up and new evasion schemes, as well as covering the State updates and exchanging information on a variety of fuel tax issues. It was a confidential session where six of the seven States were represented, as well as IRS with staff from California and Nevada. The next meeting will be held on April 26 and 27, in conjunction with the FTA Pacific Region Motor Fuel Tax Section Conference that will be held in Helena, Montana. The State reports followed.

Nevada is considering transferring the gasoline tax program, in 2001, from the Department of Revenue to the Motor Carrier Section. They are also proposing to strengthen laws on kerosene and dyed diesel. In addition, AB35 is being considered to eliminate the conversion factor on propane.

Nevada's experiment using A-55, a diesel fuel substitute made of naphtha, crude oil, and approximately 30 percent water, in buses has failed. The fuel did not work as well as manufacturers said, and now the buses are being converted back to diesel.

Oregon is again considering legislation that will replace the weight/distance tax with a diesel fuel tax. Also being considered is: increasing bond requirements; strengthening the State's ability to deny licenses; increasing penalties for evasion; and, strengthening the State's ability to collect assessments.

The New Mexico report was included as part of the Texas Task Force Report.

Colorado reported that fuel sales to Native Americans are increasing, and the State is becoming concerned with the possibility of untaxed sources of fuel from neighboring States.

California reported that staff is evaluating the possibility of moving the motor vehicle fuel tax to the rack to mirror the diesel fuel law. The staff has noted an increase in taxable jet fuel sales of 30 percent in the past 3 years. No significant increases were reported in the prior 8 years. They are investigating the reasons for the increase to determine if any evasion is involved. The BOE has entered into an agreement with the California Air Resource Board to continue the dyed fuel testing in California and has expanded the testing to gasoline. The Board has also identified a number of cases which appear to involve the illegal importation of gasoline and diesel from border States.

MOTOR FUEL TAX TRAINING NEEDS

Ms. Cindy Anders-Robb from FTA, said that the last training session was held in Minnesota in October 1998, and was attended by 150 people. She identified the lessons learned from past training: 1) the need for continued training to assist individuals that are new in motor fuel audit programs, as well as to those who have more advanced audit skills; and, 2) the need to hold training sessions more than once a year. In addition, the instructors at the Minnesota session suggested limiting the class size to between 75 to 100. This allows for more interaction between the trainees and the instructors.

Ms. Anders-Robb told the group that while the funding on the current training contract has run out, there will be training sessions offered. Currently, a basic session is planned in the Western Region in Boise in July, and at a second location in the Eastern Region in October. Since the Steering Committee meeting was held, Federal funding has been made available for the two scheduled training courses. In conclusion, Ms. Anders-Robb told the group she was looking for ideas, materials, instructors, and suggestions for locations for an advanced class.

Ms. Barbara Bush from the American Petroleum Institute (API) discussed the issues in the oil industry. Ms. Bush began by stating that hard times had fallen on the oil industry. The cost of a barrel of crude oil was below $11 and as a result gas prices were low. People are driving more, and tax collections are up. She said that the low prices have caused companies to cut costs, engage in mergers, set retirement plans, and incur layoffs. She mentioned specifically the Exxon-Mobil merger. Ms. Bush said we should expect to see more of these things happening, if oil prices remain at this level.

Ms. Bush noted that in the tax area, there are fewer people working on compliance issues and of those fewer people, many are less experienced. She stated that there is a need for more training, particularly focusing on case studies. Ms. Bush continued, stating that there are several Federal issues that need to be addressed. The first issue mentioned related to kerosene and the need for final regulations which would clarify the definition of kerosene. The proposed definition of kerosene includes mineral solvents, which paint companies and coalitions are working to have excluded from the definition without compromising the legislation. The next issue concerned Federal legislation that required any terminal supplying diesel and kerosene to also supply dyed fuel. The API is trying to get a moratorium on this. Finally, Ms. Bush mentioned the Y2K issue. She suggested that the IRS Commissioner should tell the industry what is a good faith effort of deposit of taxes. The API may also request this on a State level.

At this point, someone in the audience asked about the decrease in price and the increase in gallons purchased and the resulting increase in tax revenues. He mentioned a January 22 Associated Press article that said there would be $1.5 billion more in motor fuel taxes available than was originally estimated and that these funds would be available to the States. Mr. Erickson responded by saying this is the Realigned Budget Amount (RABA) and admitted that the estimates were low. He also noted that TEA-21 has rules for State distribution where some of the funds would go to STP. He acknowledged that the government has proposed using the money differently, but that most likely will not happen. He also informed the group that under TEA-21, the allocations are recalculated every year.

INTERNAL REVENUE SERVICE REPORT

Mr. Ricky Stiff from the IRS, introduced Mr. Gary James who gave the Criminal Investigative Division (CID) report. Mr. James provided a brief history on the CID stating that from 1993 through 1995 there were 300 CID investigators at any one time, and that now there are around 90. He mentioned that, to date, there have been approximately 300 convictions, and that many of those were a result of interagency cooperation. Last year there were two big convictions, Gas Gangsters in California and Operation Red Daisy in the New York/New Jersey metropolitan area. In the Gas Gangsters case, there have been 31 convictions so far with a few more pending. In Operation Red Daisy, a $140 million case, there have been 21 convictions, two have been acquitted, and two are fugitives. The average prison sentence was 21 months in FY 1998.

Mr. James said that there are 90 cases currently open, with 50 cases in the pipeline undergoing judicial review or awaiting indictment. He said the conviction rate is at 90 percent with 82 percent of those convicted receiving prison sentences.

Mr. James identified one of the more typical tax evasion schemes currently as the high/low State tax scheme where fuel is purchased tax-paid in a State with a low tax and illegally sold in a high tax State, with the difference being pocketed. He stated that IRS gets many calls on this, but notes that it is difficult for the Federal government to help because there is no Federal jurisdiction. He mentioned other types of criminal cases including below the rack blending and kerosene schemes which, generally, are smaller evasion cases.

Mr. James was asked, "with these convictions, what is the recovery rate for dollars evaded?" His response was "spotty" and then he explained that if an individual wanted to reduce his time in prison, he would return some of the taxes evaded. He gave the example that in California, $190,000 was given up as part of a sentencing agreement. He then noted that there is a tendency on the part of criminals to shift out of motor fuel tax evasion and a move toward health care and other white collar crimes. He stated that motor fuel tax evasion is decreasing.

He was asked, "how does CID work with the States and do the States get a share of the recovered money?" He replied that there is asset sharing with State enforcement agencies. He gave the example that the State of New Jersey received $300,000 in the Operation Red Daisy case. In addition, he said that States are filing civil suits and are following up on Federal investigations by going after company officers. At times, he admitted, there are no assets left. However, in the Enright case, $4 million that was evaded and hidden in foreign accounts was returned to the government. He concluded by noting that compliance efforts have resulted in billions of dollars going to the HTF.

Mr. Stiff provided a brief update of the IRS restructuring. He noted that because of the restructuring and the lack of clarity on what can and cannot be revealed, he would not be able to provide information on the dollars assessed in IRS audit cases nor would he be able to provide dollars per hour spent on the cases as was provided in the past.

Mr. Stiff discussed the diesel compliance officers border check program which has been concerned with the possibility that fuel from Canada was entering into the U.S., tax unpaid, and not having been reported to U.S. Customs. He told the group that on February 20, this year, the IRS and the U.S. Customs performed coordinated border checks. On that day, inspections of transport trucks, as well as one port in each State, were performed in all of the border States. The results were good. The IRS found no instances of trucks carrying anything other than what they were scheduled to carry. There was only one questionable case which may have been related to an error in blending. The results of these inspections were significantly better that the inspections held in 1994 and 1995. Mr. Stiff gave credit to the aggressive actions of the Canadian provinces and the States. He also mentioned that the IRS will be performing random checks. As a result of the success of the U.S.-Canada effort, the IRS is developing a plan for some type of compliance project to take place at the U.S.-Mexico border.

At this point, someone asked if there were problems in Texas. Mr. Stiff said that it was unknown. He said that records indicate a very low volume of fuel coming into the U.S. from Mexico, but that random border checks will continue.

Mr. Stiff mentioned a device developed by the IRS in conjunction with a national lab that uses ultrasound to determine the type of fuel in tank. He said the device will be used at the San Diego border.

Mr. Stiff said that overall excise receipts are up 13 percent or $57 billion in 1998 over 1997.

Mr. Stiff discussed the importance of the fuel fingerprinting project that is being headed up by Ms. Helen Curtis-Brown of the IRS in Houston. Fuel fingerprinting can be used to determine where a fuel was refined, and can be used to identify adulterated fuel, that is how much of any product has been mixed with the fuel. Fuel fingerprinting, along with ExFIRS, will be used in a pilot project scheduled for June. The project involves tracing fuel from the retail level back to the terminal and will take place in Florida where all refineries are being fingerprinted. Mr. Stiff admitted that doubts have been raised by some who believe that there is so much blending that it will not be possible to identify the specific terminal; however, the initial laboratory results suggest otherwise.

Mr. Stiff then discussed kerosene issues stating that kerosene is taxable right now and that public hearings have been held and comments received.

Mr. Duane Gillen from the IRS gave an update on ExFIRS. He stated that ExFIRS is the "umbrella" or the overall program that includes 10 components that address different facets of the motor fuel production and sales process. One of the components that is currently under rigorous development is ExSTARS, or the Excise Summary Terminal Activity Reporting System. ExSTARS is a reporting system that centers on the terminal where it provides summary terminal reporting on what goes into a terminal and what leaves the terminal. The two must be equal. It provides summary information on fuel movement that can be matched with the terminal's 1099 form. He emphasized that it is not a tax report.

Mr. Gillen also noted that they have run into a problem with the foreign vessels in Florida. Foreign vessels are not required to file carrier reports which are used to verify shipment to or from a terminal.

The ExFIRS/ExSTARS kickoff was in October 1998, in Ogden, Utah, where the development and implementation plan was presented. Mr. Gillen told the group that the first State to test the ExSTARS prototype will be Florida. He said that they have data coming from the State, but have yet to do anything with it. After Florida, Wisconsin will be the next test site. The project will then return to the southeast where information from Alabama, Mississippi, and Georgia will be added to the database. The ExFIRS group hopes to have all States on line by June 2000.

Mr. Ralph Erickson asked Mr. Gillen if he saw any problem with the data collected by ExSTARS being available for FHWA use some time in the future. Mr. Gillen's response was simply "subject to IRS disclosure laws." Mr. Stiff added that summary data will most likely be available, but not data on specific companies. Ms. Cindy Anders-Robb added that the group should know that the data from ExSTARS will not tell them where the fuel is going. The fuel may be exported out of the State and that you would still need the State data for that. Someone else asked if the terminal operators were cooperative. Mr. Gillen said that while there is some reluctance, the leadership of the industry is willing, and the number of volunteers is great.

STATE PERSPECTIVE ON EXFIRS

Mr. David Skinner from the Florida Department of Revenue and a member of the ExSTARS working group, stated ExSTARS is moving along well. He noted that in pulling together the program, the working group realized the system needed to be uniform, and he stressed that industry will demand it. He noted that product codes are the same across the board which will allow for uniform reporting. He also said that a new section of the electronic data interchange map has been adopted that will be used by ExSTARS. This may allow for one place reporting sometime in the future.

Mr. Skinner noted that Florida is the first State to test the prototype and that the Revenue Department has agreed to defer State reporting requirements for those terminals that participate. He said that ExSTARS does not require all of the information that Florida Revenue reporting requires. He stated that Florida does not think this will be a problem.

Mr. Skinner then pointed out two areas of concern to the States. First, he identified the question of whether the data will be in detail or in summary format. The plan has been that the data would be in summary, hence the word "summary" in the acronym. States would prefer to have the data in detail, that is transaction by transaction, while industry is mixed on this question. The IRS said that this becomes a budget issue as detailed data would require a much larger system with much greater capacity for data. The second area of concern has to do with the question of disclosure. What requirements will the States have to meet in order to use the data? Currently, States have to show "need of use" and have to account for the data. There are no clear answers to either of these issues yet.

Mr. Skinner discussed how the States will use the data collected by ExSTARS. He noted that the Federal government will use the data to match terminal disbursements with tax returns (720s), since the Federal excise tax is collected at the terminal. At the State level, some impose their tax at the rack and others on first import or at the wholesale distributor or even retail level. The question is how to use this data picture of the legitimate fuel supply in the State. A State that taxes below the rack can use this as a starting point for a fuel tracking system. Mr. Skinner told the group that currently there are about a dozen States that either have or are in the process of implementing their own tracking system.

Mr. Skinner also mentioned ExTOLE which is another part of ExFIRS. The Excise Tax Online Exchange, or ExTOLE, is a clearinghouse of State information. ExTOLE will simply be for the exchange of State information. It will not contain any IRS tax information. Currently, the ExTOLE working group is trying to determine what will be on the server. They are discussing the inclusion of imports, exports and diversions that are not included in ExSTARS.

Overall, Mr. Skinner is relatively pleased with the progress that is being made on the system. He said that project management by the IRS has been very accommodating. He said that the State representatives have made suggestions and that IRS has listened and has made the suggested changes. He said that the States' money is being very well spent.

In conclusion, Mr. Skinner mentioned a listserv that can provide additional information on ExFIRS and the progress being made on the project. The address for the listserv is EXFIRS@taxadmin.org.

Mr. Skinner noted that if you wish to subscribe to the listserv, send an e-mail with the word "subscribe" in the subject line and nothing in the message box.

NATIVE AMERICAN FUEL TAX ISSUES UPDATE

Ms. Alston reminded the group that last year we had looked at Native American fuel tax issues and discussed proposed legislation and the possible impacts of the legislation on Native American tribes.

Mr. John Huber of the Petroleum Marketers Association of America (PMAA) provided an update on this issue.

He noted that addressing the Native American fuel tax issue has not been easy. He noted that it is a global issue of relations between the Federal government, the tribes and the States. He also commented that States without treaties with Native American tribes are not able to report Indian reservation fuel use. Mr. Huber said that the Federal government often hesitates to enter an arena where they are not compelled to, so he posed the question "why is the Federal government involved in this issue at all?" He answered by saying that Native Americans form a large constituency in New Mexico, Arizona, Washington, and other States.

Mr. Huber discussed the bill proposed by Representative Ernest Istook (R.-Oklahoma) last year. He stated that the bill was not ideal and has essentially fallen apart. He said that those preparing another bill are now focusing on Federal interface with States. He noted that when new lands are brought into trust, there is an approval process between the State and the tribe, and that this appears to be the choke point in the system. Still, retailing groups are trying to pass a bill by the end of this session that would establish a level playing field for all fuel marketers.

Mr. Huber identified several goals of his industry. First, petroleum marketers want the taxes to be collected fairly. This levels the playing field and allows for competition among the fuel marketers. Second, they encourage respect for tribal sovereignty. Third, they would like to see the focus on Indians who are the problem, not all. He noted, at this point, that there is greater emphasis on tobacco, which is the number two product for industry at truck stops.

Mr. Huber said a question was raised about whether the Federal government might step in and collect the State fuel taxes if the tribes didn't want to give the taxes to the States. One major problem with this is the fact that different States have different tax structures.

In the petroleum industry, Mr. Huber noted that how tribes interface with the State is a very complex issue; and that an underlying issue that may affect any attempt at legislative change is gaming. The tribes want no movement toward State control because tribes do not want States to interfere with gaming. Tribes are aggressively resistant to any change relating to gaming restrictions. It is a $10 billion per year industry to Native American tribes.

Mr. Huber stated that the Federal government believes that tax at the terminal rack is the answer, but some States are not convinced that this would solve the tribal issue. For example, bootlegging from other States would not be solved by a tax at the rack system.

Mr. Huber did note that the States have not taken up the fight to the extent that they should. He said that no representatives from any State affected by the Native American fuel tax issues would speak of it before Congress, in either the House or Senate. He concluded by saying that without the States backing, it is close to impossible to fight.

Ms. Alston informed the group the Mr. John Dosset from the National Congress of American Indians was unable to attend the meeting to present his organization's viewpoint.

COORDINATION OF ENFORCEMENT ACTIVITIES

Mr. Al Howard of Al Howard Consultants, discussed the activities of the Enforcement Subcommittee of the FTA Uniformity Committee. Mr. Howard, who is co-chair of the subcommittee with Ms. Janet Stege of the Nebraska Department of Revenue, reported that a feasibility study was done to see if the States were interested in the issue of uniform enforcement. An exploratory meeting was held with 21 in attendance on March 20, 1998 where it was decided that an enforcement subcommittee was needed.

The subcommittee met and developed a list of four objectives which include:

Mr. Howard concluded this presentation by saying that the Enforcement Subcommittee is looking for volunteers to help out.

Ms. Alston asked Mr. Howard to update the group on IFTA Enforcement Committee. Mr. Howard said the group held a 3-day training course Tempe, Arizona, in October. One hundred fifty people attended.

Day one of the course focused on IFTA law, the IFTA clearinghouse, and how law enforcement works at weigh stations. The second day was dedicated to safety, dyed diesel law, penalties, inspections, and the paperwork that should be in the cab of the vehicle. The third day was spent doing hands-on work with three trucks: one with safety violations, one with fraudulent paperwork, and the third with dyed diesel violations. Trainees practiced sampling techniques using Petrospec and filling out paperwork for dyed diesel penalties.

Mr. Howard discussed "sighting" reports explaining that a report is prepared by on-road enforcement officers during the normal course of business. The sighting shows that the truck was present in a particular State on a particular day. This information can be used as a crossmatch for IFTA. Mr. Howard said that North Carolina is leading the way with the sighting reports.

Mr. Keith Hudson, from Revenue Canada, provided an overview of the Canadian Fuel Tax Project and the Enforcement Subcommittee (see Attachment 9). Mr. Hudson thanked FHWA for inviting him, and to Ms. Cindy Anders-Robb and Mr. Bob Beck for suggesting linking up with the Canada Fuel Tax Project efforts. He said that the Canadian project was launched in 1996 with universal commitment from all Canadian taxation jurisdictions in partnership with industry. The Steering Committee is made up of senior government and industry officials who provide guidance and oversee the project. Mr. Hudson said that the Canadian project is very similar to the U.S. Uniformity initiative, and noted that a formal liaison between both groups has been established.

Mr. Hudson said the Canadian project's strategic plan contains a number of sub-projects that are expected to last at least 3 years. He mentioned the development of generic fuel tax returns and schedules. To date this sub-project has: developed returns and schedules that are generic and can be used by any tax agency in Canada; established product groupings for fuel reporting; and, developed common terminology and definitions. They had implemented a pilot project in four provinces in April, 1998, and have made changes based on comments from participants. Cross-Canada implementation began in January 1999.

A common fuel dye standard has been developed and has been recommended for use in all provinces. To date, the dye is in use by ten provinces.

Mr. Hudson told the group that several joint audits have been conducted, but noted limited success in being able to recommend best practices in conducting joint audits. The Steering Committee is reviewing recommendations to enhance their joint audit techniques.

Mr. Hudson identified future projects including the Ideal Model for Fuel Tax Collection, formerly known as Total Fuel Accountability; Fuel Tax Exempt Sales Reporting; and, development of model legislation which would include common definitions of fuel types. In addition, the Project is expected to start work on an information sharing sub-project. This will ensure that the appropriate agreements are in place for any jurisdiction that are required to share information to effectively administer fuel tax programs. In addition, the sub-project will work on identifying common elements and minimum requirements for information sharing as well as identifying and recommending resolution to information sharing issues.

Mr. Hudson concluded by identifying contacts for those who would be interested in further information. The names and addresses are included as part of Attachment 9.

Mr. Jim Nance from the American Association of Motor Vehicle Administrators discussed the Motor Carrier Traffic Law Enforcement Symposium that was held March 27 through 29, 1999 (see Attachment 9 for agenda). Mr. Nance told the group that the American Association of Motor Vehicle Administrators is a non-profit educational association of the U.S. and Canada that is concerned with how to disseminate information on motor carrier issues. Mr. Nance said that the thrust of the symposium is that motor vehicle administration is largely dependent on law enforcement to enforce traffic regulations on credentialing.

He then told the group that the Motor Carrier Traffic Law Enforcement Symposium would include presentations on topics related to Commercial Vehicle Information Systems and Networks (CVISN), safety issues, electronic screening, and electronic credentialing. Electronic credentialing has also been referred to as one-stop shopping for truckers who are interested in getting permits and other paperwork during off-hours and without having to deal with the DMV. Additional topics would include fuel tax evasion, data collection systems, fraudulent documents, and uniformity of records between jurisdictions. Mr. Nance noted that up to 300 guests were expected to attend.

INTERNATIONAL BORDER ISSUES

Mr. Brad Lawrance, from the Ontario Ministry of Finance, was invited to speak to the Steering Committee about international border enforcement projects at the Canada-U.S. border. He told the group that he is the Chief Inspector of the Fuel and Tobacco Taxes section of the Ontario Ministry of Finance, and his background is in use taxes. Mr. Lawrance began his discussion of the Canadian Enforcement Project by saying that they have been working on completing Phase One of the project which focuses on international enforcement. He said that the project deliverables were:

Phase One was divided into four modules. In the first module, an agreement between Ontario and the Canadian Federal government was reached where the Federal government would collect taxes from non-registered carriers. Mr. Lawrance noted that Canadian Customs is also involved with the industry, and that they do not necessarily do fuel inspections. The Provinces have come to terms with the fact that inspections may not occur at the border and as a result are now working on a refreshed agreement. The Provinces do, however, inform the Federal government of who can bring fuel across the border tax-free.

In the second module, quarterly reports from Revenue Canada Customs identify who is bringing in what product. They supply information on petroleum and non-taxed near petroleum products.

Mr. Lawrance said that his office follows up on the non-taxed product.

The third module focused on two 48-hour blitzes along the New York border done in conjunction with the IRS and New York State. The effort was to take samples to determine if the product being carried was as declared. They found compliance to be very good. They are now comparing notes with IRS and discussing disclosure issues.

The fourth module deals with information sharing, particularly with Michigan and New York. They have reciprocal agreements in place, but are unsure if they are getting all of the information they need.

Mr. Lawrance noted that Phase Two will deal with domestic issues, specifically the movement of fuel across provinces. He said it will be more difficult since there are no border checks.

Mr. Ed King talked about enforcement projects taking place at the U.S.-Mexico border. He reported on a pilot program involving carriers from Mexico to California. He said that unlike IFTA or Canada, California has established reporting procedures for highway use tax. This came about as a result of the concern that Mexican carriers were under-reporting their California mileage. He identified two ways for reporting. The first was the Diesel International Program which is based on self reporting, and the second is a sighting program in which the State recorded trucks entering California, then tracked them through the weigh stations and other sources such as where drivers say they are going. Sixteen carriers were monitored, and found to be under-reporting resulting in assessments of $400,000 with $300,000 collected. California is now tracking 100 carriers because of the findings of the pilot program. Mr. King ended his presentation by saying that Mexican truck drivers say they buy fuel only in Mexico because they do not get any tax relief for buying in California.

Mr. Lawrance asked "concerning fingerprinting and ExSTARS, have the terminals in Michigan and New York been fingerprinted?" He then said that Ontario would like that information and that they would share their information with the U.S. The reply from IRS was that they didn't know the specific states that had been fingerprinted, to date.

The final question asked was if the next Steering Committee meeting might be held in April due to weather concerns. Ms. Alston said she would send out a questionnaire with the minutes to determine the date of the next meeting. She thanked everyone for attending and then adjourned the meeting.

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