Executive Summary

 

Federal highway taxes are based on specific tax rates, which differ by type of fuel taxed or by type of user fee (tires, retail sales, or heavy vehicle-use tax). These taxes, which are ultimately paid by final users in specific States, are not paid directly by the final users to the Internal Revenue Service (IRS). Rather, most taxes are collected by the IRS from large corporations (typically large oil companies or distributors with storage facilities) which have no way to measure fuel usage within each State. Since State-by-State tax contributions to the Federal Highway Trust Fund (HTF) cannot be directly measured, other procedures have been developed to attribute on-highway fuel usage, which is then used to apportion Federal funds back to the States. Correct State data and precise attribution procedures are extremely important because apportionments for some highway programs use the percentages of revenues attributed to each State as factors and because the amount of money to be distributed is very large (billions of dollars).

States provide consumption and tax data to the Federal Highway Administration (FHWA) on gallons of gas, gasohol, on-highway diesel, on-highway liquefied petroleum gas, and other alternative fuels that were consumed in the State. Because State tax data are collected and organized to administer State programs, the fuel usage data sets submitted to FHWA from the States differ, sometimes significantly.

To develop a complete and reasonably consistent data set across all States, FHWA must make adjustments to the State motor fuel data. These adjustments are necessary, for example, to account for public use of gasoline and special fuels (e.g., State laws differ for government use of gasoline and government use of diesel fuel), gasoline losses, fuel types (e.g., gasoline, gasohol at various percentages, special fuels), tax rates (e.g., fully taxed fuels, exempt sales, partially exempt sales, full and partial refunds, and fuels taxed at reduced rates), and off-highway fuel use.

Additional Federal non-fuel-based fees are assessed on heavy vehicle use and on the purchase of heavy vehicle trucks, trailers, and tires. These fees are attributed to States based on special fuels usage.

The end result of this process is a set of tables that attribute on-highway motor fuel usage, by fuel type, to States. The Federal-aid highway apportionment process uses revenue and fuel volume data resulting from attribution to distribute HTF program funds in four categories: the Surface Transportation Program, Interstate Maintenance, National Highway System, and the Minimum Guarantee.

The following figures depict an overview of the revenue collection, attribution, and apportionment processes that are part of Federal highway financing. The first figure is a simple view of the flows of revenue and data. The second provides a slightly expanded view of the apportionment process.

 

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