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08.25.2014

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technical director

For more information, please contact Gary Capps, Technical Director, at cappsgj@ornl.gov or (865) 946-1285.

Supply chain-based solution to minimize fuel tax evasion

Introduction

The goal of this research was to provide a proof-of-concept (POC) system for preventing non-taxable (non-highway diesel use) or low-taxable (jet fuel) petrochemical products from being “blended” with taxable fuel products and preventing taxable fuel products from cross-jurisdiction evasion. The research strived to fill the need to validate the legitimacy of individual loads, offloads, and movements by integrating and validating, on a near-real-time basis, information from global positioning system (GPS), valve sensors, level sensors, and fuel-marker sensors.

There were five innovative aspects to this pilot research:

  1. Instead of relying on a single solution, fuel tax evasion (FTE) will be prevented through the integration of multiple measures.
  2. This research recognized that there is not a “silver bullet” for preventing FTE. As such, solutions will be tailored to address specific scam(s).
  3. Inline sensors were developed and evaluated for their feasibility to authenticate the presence and concentration of fuel markers in the fuel.
  4. This research integrated advances in sensor technology, wireless communications, vehicle tracking, and information analysis. An integrated sensor suite, communications system, and data acquisition platform were developed. The platform allowed the use of various sensor modules and communication methods to fit specific applications. Local data storage was also provided for backup purposes.
  5. The simulated control center was designed to be able to communicate with law enforcement personnel in a timely manner to allow them to investigate potential fuel diversion activities.

Why is this important?

Revenues from motor fuel and other highway use taxes provide the primary source of funding for the United States’ transportation system, and ensuring all of these taxes are collected, remitted, and credited to the Highway Trust Fund is a priority for the U.S. Department of Transportation (DOT) Federal Highway Administration (FHWA). In the past, loss of revenue due to tax evasion has been estimated to range from $1 billion annually to as much as 25% of total revenues. After the point of taxation was changed for both gasoline (1988) and diesel fuel (1994), significant increases in tax revenue were realized which were assumed to be due to decreased evasion. Additionally, diesel fuel that was to be used for off-road (non-taxable use) purposes was marked with a red dye, making it easier for on-road enforcement personnel to identify the propulsion fuel as having had all proper taxes paid prior to its use in the vehicle. However, there are still a number of extensive and convoluted schemes to evade fuel taxes that cannot be addressed by a single solution. Rather, a supply chain–based solution is needed. This research used evidential reasoning techniques, fuel markers, sensor devices, and vehicle tracking devices to monitor, track, and detect the transfer and movements of petroleum products between different locations and determine the “legitimacy” of the movements and fuel loading/unloading (Fig. 1). This fuel tax evasion (FTE) detection system has the potential to reduce or eliminate a number of FTE schemes, resulting in millions of dollars of additional revenue in the Highway Trust Fund.

concept drawing

See Fact Sheet (PDF, .7MB), FTE Project Overview (PDF, 3MB), and Final Report (PDF, 13.2MB)