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Ext. PublicationOff-Highway Fuel Use Credits — Overlooked or Overpaid?
Off-highway business use fuel tax claims are an often-overlooked opportunity for industries such as construction, mining, medical, timber and manufacturing, etc. The federal tax rate, excluding the leaking underground storage tank (LUST) fee on clear diesel is $0.243 and gasoline is $0.183. By multiplying this federal tax rate by the number of gallons used yearly in off-highway use, it can add up to a sizeable refund. All of this must be taken into consideration before accounting for a potential state tax refund.
One of the challenging aspects of an off-highway business use claim is substantiating off-road use. Some jurisdictions require detailed tracking of on-road versus off-road use. The Internal Revenue Service (IRS) requires a vehicle to be designated for off-highway transportation to qualify for the refund/credit. The IRS does not require proof that the fuel was used off-highway. If a vehicle meets the criteria listed below and is designated as off-highway transportation, then proof of off-highway use is not required.
Off-highway business use means fuel used in a trade or business activity other than as a fuel in a highway vehicle which at the time is registered or required to be registered for highway use (IRC Sec. 6421€(2)(A)).
IRS Publication 510 states a vehicle is designated for off-highway transportation if it is:
- Specifically designed mobile machinery for nontransportation functions,
- Specifically designed for off-highway transportation, OR
- Nontransportation trailers and semi-trailers.
Once designated as an off-highway business use vehicle, a federal tax credit may be claimed in multiple ways. If an IRS Form 720 “Quarterly Federal Excise Tax Return” is being filed, then the credit may be used to offset the excise tax liability. If a Form 720 is not filed, then the credit may be claimed using either Form 4136 “Credit for Federal Tax Paid on Fuels” or Form 8849 “Claim for Refund of Excise Taxes.” Form 4136 is filed annually with a federal income tax return. Form 8849 may be filed more frequently, potentially speeding up the refund process. Form 8849 does have a shorter statute of limitations and all transactions need to be included for the period because an amendment cannot be filed. If a transaction is missed, then it would go on Form 4136.
These credits have drawn the ire of the IRS such that the IRS is scrutinizing all refund claims due to the recently released “Dirty Dozen” list of scams. It is important that all aspects of a claim are verified and filed correctly. Weaver can assist with filing the claim to ensure a company is in compliance with these laws. Contact us today to learn more.
Authored by Kelly Grace and Leanne Sobel
©2025
Off-Highway Fuel Credits and Refunds Series
Our upcoming series explores off-highway fuel credits and refunds, covering key topics like navigating IRS rules, how different states handle these credits and tips for substantiating off-road claims. Whether you’re aiming to maximize tax benefits or ensure compliance with regulations, this series will provide the guidance you need.