A federal law making it easier for Americans to use propane autogas went into effect on January 1, 2016.
This law permanently reduces the tax rate on propane autogas and levels the playing field for all alternative fuels.
Why is this important to the propane industry?
One gallon of propane contains 73 percent of the energy contained in one gallon of gasoline. In other words, it takes 1.37 gallons of propane to equal the energy value of one gallon of gasoline. However, both fuels are taxed at the same rate under current law. Because of this energy disparity, consumers pay more in taxes for propane autogas than for gasoline.
For example, a gasoline-powered truck using 20,000 gallons in a year would pay $3,660 in federal excise taxes. To obtain the equivalent energy content of 20,000 gallons of gasoline, a propane- powered truck would require 27,400 gallons of propane, resulting in $5,014 in federal excise taxes.
Q: What is the excise tax rate for propane used on-road?
A: 18.3 cents per 1.353 gallons of propane
Because propane and gasoline have different energy contents, the adjustment to the excise tax is made on the “gasoline gallon equivalent” of propane. The energy contained in one gallon of gasoline is roughly equivalent to the energy contained in 1.353 gallons of propane. For unofficial purposes, this is approximately 13.5 cents for a single gallon of propane.
For official reporting purposes and to ensure accuracy, the IRS states that the 18.3 cents per 1.353 gallons of propane calculation is to be used.
Q: What changes to the reporting do I need to know about?
The IRS released an updated IRS Form 720, taking into account the updated rate. On line 112 of Form 720, gallons should be calculated using this formula (Total number of propane gallons / 1.353) to ensure the correct calculation.
Q: What gallons can be included in this rate?
A: All gallons sold beginning January 1, 2016 intended for use as a motor fuel or certain bulk sales.
NPGA successfully lobbied in 2015 for this permanent reduction of the propane autogas excise tax.
The IRS states the rate of 18.3 cents per 1.353 gallons should be used. When calculating that rate on a per gallon basis, the actual rate is 13.52549889132525… Informally, the rate can be communicated as 13.5 cents per gallon. The official IRS rate should be used for all formal calculations.
Q: What about the 2016 rate for the Alternative Fuels Tax Credit?
A: 50 cents per 1.353 gallons of propane
Like the excise tax rate, the alternative fuel tax credit has been adjusted to reflect energy content in 2016. The official credit is 50 cents per 1.353 gallons of propane. Unofficially, this can be rounded to 37 cents per gallon. However, the actual credit on a per gallon basis is 36.9549150. The IRS states that 50 cents per 1.353 gallons of propane should be used.