Using natural gasoline as an ethanol denaturant may trigger liability for a quarterly excise tax to the IRS known as the Oil Spill Tax or the OSLT.
If your ethanol plant is using natural gasoline as a denaturant, you may be required to pay a quarterly excise tax to the IRS on it.
Known as the Oil Spill Liability Tax, the “OSLT” is a tax of $.08 per barrel ($.0019 per gallon) on crude oil under IRC §4611. This became $.09 per barrel in 2017 (or $.00214 per gallon).
Natural gasoline is considered crude oil for the purposes of the tax. And oil refineries are generally responsible for paying this tax. However, there are a number of examples of the IRS pursuing collection of it from ethanol plants. This is based on an interpretation 1990’s era court case titled “Enron Gas Processing Co. v. U.S.”
Navigating through the information affecting the determination of this liability can be confusing. But often a fractionator’s exemption from the tax has become an ethanol plant’s liability.
If you’re looking to learn more about this tax, here are a couple of options you may find helpful:
- Review key resources
- IRC §4611 (26 USC 4611 Oil Spill Liability Trust Fund)
- IRC §4612 (26 USC 4612 Oil Spill Tax Definitions)
- Enron Gas Processing Co. v. U.S.
- IRS Form 720 (Quarterly Federal Excise Tax Return)
- IRS Form 6627 (Environmental Taxes)
- Request a copy of “The Ethanol Producer’s Guide to the Oil Spill Tax.”
- Get immediate assistance by phone or email.
It’s our goal to help you and others in the biofuels industry understand the situation involving the oil spill tax and how best to address it. With these resources, you can start uncovering the details needed to get to the bottom of the oil spill liability tax (OSLT).
Update: The Oil Spill Tax did expire at the end of 2017; however, there is speculation that it will be reauthorized retroactively to 1/1/2018 with a tax extenders package. Stay tuned for additional details.
Update: On February 9, 2018, Congress passed a spending bill that reinstated the OSLT for the period of March 1, 2018 through December 31, 2018.
Note: Our “Ethanol Producer’s Guide to the Oil Spill Tax” presented at the 2016 Fuel Ethanol Workshop is Available by Request.
