Taxing gas on the go

Understanding basic fuel tax implications for consumer and fleet fuel delivery companies

If consumers can have groceries and goods delivered to their doorsteps, why not have gas transported directly to their vehicles? And rather than devote valuable time and resources to refueling fleets, wouldn’t it be better for companies to have equipment and vehicles refilled on-site? Many startups (as well as their investors) believe mobile refueling is the latest innovation in this era of ease and convenience.

Under the hood, however, lurks a series of potential complications that could shock unprepared companies come tax time.

This whitepaper serves to help mobile refueling companies understand what’s at stake from a fuel tax perspective, so they can remain productive, profitable, and, most importantly, compliant.

Disrupting an industry to meet demand

When you consider the economics of gas station maintenance, it's easy to understand the success of “Uber for gasoline” startups.

Urban streets are typically crammed with cars, but refueling options are declining. The number of convenience stores that sell gas, which accounts for 80% of motor fuel purchased in the U.S., is approximately 122,000 — a steep decrease from the 202,800 that were still intact a few decades ago.

Mobile refueling services help solve this challenge, and customers have been quick to adopt them. At a time when consumers are accustomed to ordering everything from toilet paper to dinner kits via mobile apps, building a similar fuel-focused business model makes great business sense.

But the innovation doesn’t end there.

Many companies have taken the idea a step further by focusing on fleets. Instead of transporting fuel in tanks small enough to fit on pickup trucks, they’re taking tankers directly to terminals for more sizable supplies that can be delivered to construction sites and other fleets. By integrating directly into the supply chain, these fuel delivery companies can enjoy more margin while giving fleet owners a way to save time and money.

The profit potential is massive, as evidenced by the oil and gas industry's first-ever startup investments. These innovations have generated the most significant changes to the fuel supply chain in nearly three decades — and lawmakers are paying close attention.

The result? While mobile refueling solves numerous challenges, it also comes with complications.

The unforeseen fuel tax complexities in mobile delivery

At a glance, fuel taxes can seem relatively straightforward — particularly when considering consumer vehicles. If a refueler is simply loading up at a convenience store to sell below the rack, there’s a good chance sales and use tax has already been bundled into the cost of gasoline and paid for up front.

But what if that initial transaction does not require taxation since the fuel will be resold? In this scenario, taxes will need to be calculated based on where each fuel delivery takes place. And those determinations will be far from simple, since sales and use tax can vary from one side of the street to another. If the company is using a sales and use tax solution that determines fuel taxes based on ZIP codes alone, the risk of errors can be significant. In many instances, there may be multiple rates within the same single ZIP code.

There are countless other variables to consider as well, such as when a lack of proper fuel licensing might put your company at risk or whether improper invoicing could lead to major penalties and back taxes.

When a business forgoes gas stations to purchase at the rack and deliver directly to fleets or personal vehicles, the tax ramifications become even more intricate. In this setup, the entire burden of tax determination is with the company. Spill fees, environmental fees, and countless other excise fees can come into play.

And then, as the fuel delivery company starts to expand, the challenges become even more acute.

Business expansion can add layers of confusion

There are thousands of different taxing jurisdictions in the U.S., and each one takes its own approach to where, when, and how fuel is taxed. Some states base rates on supply chain origin, while others look at the final destination. Some jurisdictions require a distributor's license to sell below the rack; others do not.

The more state lines a company crosses, the more confusing things get — a particularly important consideration for mobile refueling in regions that span multiple jurisdictions.

For example: A fuel delivery company in the nation’s capital may be accustomed to calculating fuel excise tax in the District of Columbia. But once that fuel is driven to suburban Maryland or Northern Virginia for delivery, it’s subject to new sets of rules, rates, and regulations. The same would be true for fuel delivery trucks as they cross over from Cincinnati, Ohio, into next-door Indiana.

Even without big expansion plans, many businesses are running into issues with special tax jurisdictions.

For example: Consider the refueling company that delivers to a strip mall that’s under construction. If the project creates inconveniences for the local community, lawmakers might put a temporary tax rate in place while the area is under development. But will the refueling company be aware of this new requirement? Without a geospatial solution to identify these physical locations and identify special jurisdictions, the risk of noncompliance runs high.

Even if a company manages to get a handle on these many variations, tax teams will still need to carefully monitor for rule and rate changes. Fuel taxation is changing constantly as lawmakers determine how to legislate in a changing landscape. In response, many companies are starting to turn to automation.

Tips to manage tax compliance

While fuel taxes are arguably among the most complex types of taxation, many companies are discovering new methods for managing and maintaining compliance. Three areas, in particular, are proving to be essential:

1. Fuel tax automation

Even seemingly small errors or changes in rules can create tax liabilities and result in potentially large audit penalties. For this reason, many mobile refueling companies are automating fuel tax calculations and compliance. Rather than manually monitoring legislative actions for new rules, rates, and regulations, businesses are adopting solutions that systematically scan the landscape for changes. Software is automatically updated, without the need for IT and custom coding, to ensure tax teams are always equipped with the latest information.

2. Scalable solutions

For fuel tax automation systems to be effective, they need to do more than simply check for changes to excise tax and sales and use tax. These solutions need to monitor at scale. Any company that wants to be positioned for future growth will need to prepare for compliance across countless coverage areas. This is true even if a business plans to expand to just a handful of new cities or states. Each new market could be riddled with a wide range of rates — simply crossing the street can change the taxation of a single fuel transaction in many jurisdictions — which means the company will need to account for thousands of variations. 

3. Geospatial intelligence

One of the biggest challenges for fuel delivery companies, including those that are already using fuel tax automation, is location accuracy. Because rates and requirements can vary widely from one location to another, geospatial tools have become a critical component of compliance. This is where a GIS-powered platform can be tremendously helpful. These solutions use exact latitude and longitude pairs to determine both sales and use and excise taxes for each transaction. Geospatial intelligence can significantly reduce audit liabilities by identifying special tax jurisdictions and managing a growing number of service areas.

Mobile refueling has opened the door to tremendous growth potential, and there's no reason the complexities of fuel taxation should slow down that progress. With the right automation solutions in place, fuel delivery companies can keep productivity and profits flowing while maintaining compliance across any number of taxing jurisdictions.

Stay ahead of mobile refueling tax complexities with Avalara excise tax compliance solutions

Avalara’s comprehensive cloud-based solution for fuel delivery companies is designed to increase compliance and reduce risk — without having to make manual updates or rely on IT. 

Excise tax and sales and use tax in one solution
Signature-ready return preparation as well as filing and e-filing
Monthly updates based on recent regulations