Eliminate the Motor Fuel Tax Exemption for Railroads

The state should eliminate the motor fuel tax exemption for railroads, bringing their tax treatment in line with other modes of transportation.

Currently, motor fuels for railroads are exempt from the state motor fuels tax. Historically, the motor fuels tax has been viewed as a use tax. Following this view, off-road fuel uses are not responsible for highway costs, and they should not be subject to the fuels taxes.

Current law allows railroads to purchase motor fuel on a tax-free basis. This can be done in one of two ways. Either the fuel can be delivered directly from a bonded supplier into the fuel storage tanks of a railway engine, or the rail company can have the fuel delivered on a tax-free basis into its bulk storage facilities by obtaining a bonded user permit.

The state should eliminate the motor fuel tax exemption for railroads.

This would require specific statutory changes by the Legislature. The revenue should be statutorily split evenly between the General Revenue Fund and the Highway Fund. Gains from this change could be realized as early as fiscal 1994.

The historical view of the motor fuels tax as a use tax is outdated. Taxing motor fuels used by railroads would put this mode of transportation on a more even economic footing with trucking. Trucks currently pay motor fuels taxes on diesel and other fuel s used in the state. In addition, in times of economic need the entire tax base must be closely scrutinized for any possible sources of re venue. Currently, this fuel represents an untaxed commodity. Commodities that are currently untaxed should be considered before increasing taxes on already taxed goods and services.

Since the fuel used by railroads is not used to propel motor vehicles on public highways, removing this tax exemption would not require the revenue to be dedicated in a manner similar to the current constitutional dedication of motor fuels revenues.

Fiscal Impact
Eliminating the motor fuel exemption for railroads would result in a net gain to the state of approximately $41 million per year. The estimate of fiscal impact assumes an effective date of September 1, 1993. There would be a positive effect upon the state s cash flow. Administrative costs would be negligible.

Gain to the
Fiscal General Revenue Gain to the Change
Year Fund 001 Highway Fund 006 in FTEs

1994 $18,646,000 $18,646,000 0
1995 20,378,000 20,378,000 0
1996 20,378,000 20,378,000 0
1997 20,378,000 20,378,000 0
1998 20,378,000 20,378,000 0