Fuel Tax Swap - Frequently Asked Questions (FAQ)

The following questions and answers pertain to the Fuel Tax Swap provisions enacted by Assembly Bill x8-6 (Chapter 11, Statutes of 2010), Senate Bill 70 (Chapter 9, Statutes of 2010), and Assembly Bill 105 (Chapter 6, Statutes of 2011).

Motor Fuel Taxes are administered by the Fuel Industry Section of the Board of Equalization:

General Information

  1. What is the Fuel Tax Swap?
  2. Is there a summary of the rate changes that occurred as a result of the Fuel Tax Swap?
  3. How does the Fuel Tax Swap apply to motor vehicle fuel?
  4. What is motor vehicle fuel?
  5. Does this mean that the overall retail selling price will be lower for motor vehicle fuel and higher for diesel fuel?
  6. Who is affected by the partial sales and use tax exemption for sales of motor vehicle fuel?
  7. Does the motor vehicle fuel partial sales and use tax exemption apply to sales of diesel fuel or aircraft jet fuel as well?
  8. How does the sales and use tax component of the Fuel Tax Swap apply to diesel fuel?
  9. What is diesel fuel?

Motor Vehicle Fuel Tax

  1. What is the total state excise tax rate applicable to motor vehicle fuel?
  2. Are there any exemptions from the state motor vehicle fuel excise tax rate increase?

Diesel Fuel Tax

  1. What is the total state excise tax rate applicable to diesel fuel?
  2. May I file a claim for refund for exempt uses of excise tax-paid diesel fuel purchased at the prior $0.18 rate but used in an exempt manner on or after July 1, 2011?
  3. What is the interstate user rate as a result of the reduction in the state diesel fuel excise tax?

Sales and Use Tax

  1. What is the sales and use tax rate for retail sales of diesel fuel?
  2. Is the additional diesel fuel sales and use tax a state, local, county, or district tax?
  3. Are there any exemptions from the sales and use tax rate increase on diesel fuel transactions?
  4. Are sales of motor vehicle fuel exempt from sales and use tax?
  5. What is the rate of the partial sales and use tax exemption for sales of motor vehicle fuel?
  6. Since the sales and use tax exemption for sales of motor vehicle fuel is only a partial tax exemption, which sales and use taxes still apply when motor vehicle fuel is sold at retail?
  7. What is the prepaid sales tax on motor vehicle fuel that I pay to my supplier?
  8. What is the prepaid sales tax on diesel fuel that I pay to my supplier?
  9. Can motor vehicle fuel and diesel fuel sold at the pump be sold at a tax-included price?

Sales and Use Tax Reporting

  1. Can I deduct the increased motor vehicle fuel excise tax from the retail selling price at which sales tax is calculated?
  2. Can I deduct the state diesel fuel excise tax from the retail selling price when calculating the sales tax included in my taxable diesel fuel sales?
  3. What form should I use to report my partially exempt sales of motor vehicle fuel and my diesel fuel sales subject to the additional tax?
  4. Do I have to secure a partial exemption certificate from my customer (similar to other partial exemptions) for my sale of motor vehicle fuel to be exempt from sales and use tax?
  5. How do I report the partial exemption for motor vehicle fuel sales when filing a sales tax return?
  6. How do I calculate the net taxable sales subject to the transactions and sales tax included in my motor vehicle fuel sales?
  7. How do I calculate the net taxable sales subject to the transactions and sales tax included in my diesel fuel sales?
  8. How do I claim a bad debt loss for taxable sales of motor vehicle fuel or diesel fuel?
  9. How do I claim a tax-paid purchases resold deduction for motor vehicle fuel or diesel fuel?
  10. How do sales and use tax and motor vehicle fuel excise tax apply to unleaded racing fuel?

General Information

  1. What is the Fuel Tax Swap?

    The Fuel Tax Swap provides for a combination of lowering the sales and use tax rate applicable to sales of motor vehicle fuel, excluding aviation gasoline, and simultaneously raising the state excise motor vehicle fuel tax, effective July 1, 2010.

    Additionally, the Fuel Tax Swap raises the sales tax rate applicable to sales of diesel fuel and simultaneously lowers the state excise tax on diesel fuel, effective July 1, 2011.

    The BOE is required to adjust the excise tax rates for both motor vehicle fuel and diesel fuel annually so that the total amount of tax revenue generated is equal to what would have been generated had the sales and use tax and excise tax rates remained unchanged.

  2. Is there a summary of the rate changes that occurred as a result of the Fuel Tax Swap?

    A summary of the tax rates on fuel can be found on the Sales Tax Rates for Fuels page.

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  3. How does the Fuel Tax Swap apply to motor vehicle fuel?

    Beginning July 1, 2010, the retail sale of motor vehicle fuel is partially exempt from sales and use tax. For the period July 1, 2010, through June 30, 2011, the partial exemption applied to 6 percent of the state sales and use tax rate. Therefore, retail sales of motor vehicle fuel on or after July 1, 2010, are subject to sales and use tax at a rate of 2.25 percent plus applicable district taxes.

    Also, on July 1, 2010, the state excise tax on motor vehicle fuel increased by 17.3 cents ($0.173) per gallon. Therefore, from July 1, 2010, through June 30, 2011, the state motor vehicle fuel excise tax rate is 35.3 cents ($0.353) per gallon. The increased state motor vehicle fuel excise tax does not apply to aviation gasoline. Aviation gasoline will continue to be subject to the original state motor vehicle fuel excise tax rate of 18 cents ($0.18) per gallon. Retail sales of aviation gasoline will continue to be exempt from sales and use tax (Revenue and Taxation Code section 6357).

    Beginning July 1, 2011, the partial exemption applied to 5 percent of the statewide sales and use tax rate. Because the statewide rate decreased by 1 percent on this date, the retail sales on or after July 1, 2011, will still be subject to sales and use tax at the rate of 2.25 percent plus applicable district taxes.

    Additionally, beginning July 1, 2011, the state excise tax on motor vehicle fuel increased by .4 cents ($0.004) per gallon. Therefore from July 1, 2011, to June 30, 2012, the state motor vehicle fuel excise tax is 35.7 cents ($0.357) per gallon. Aviation gasoline will continue to be subject to the original state motor vehicle fuel excise tax of 18 cents ($0.18) per gallon and remains exempt from sales and use tax.

    For a summary of the tax rate changes, see the table Tax Rates Applicable to Motor Vehicle Fuel (MVF) provided in response Question 2.

  4. What is motor vehicle fuel?

    Revenue and Taxation Code section 7326 defines motor vehicle fuel to mean gasoline and aviation gasoline. The term motor vehicle fuel does not include jet fuel, diesel fuel, kerosene, liquefied petroleum gas, natural gas in liquid or gaseous form, alcohol, or racing fuel.

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  5. Does this mean that the overall retail selling price will be lower for motor vehicle fuel and higher for diesel fuel?

    Not necessarily. While the applicable sales and use tax rate for sales of motor vehicle fuel is lower, the additional state excise tax on motor vehicle fuel offsets the lowered sales tax rate.

    Conversely, the applicable sales and use tax rate for sales of diesel fuel will be higher; however, the reduced state excise tax on diesel fuel offsets the increased sales tax rate.

  6. Who is affected by the partial sales and use tax exemption for sales of motor vehicle fuel?

    Any person who sells motor vehicle fuel at wholesale or at retail is affected by the partial tax exemption. Retailers will need to keep track of motor vehicle fuel sales to report the sales at the lower rate. Wholesalers are responsible for collecting the prepaid sales tax on sales of motor vehicle fuel to other wholesalers or to retailers. Wholesalers and retailers of motor vehicle fuel need to make sure they are using the most up-to-date forms when reporting motor vehicle fuel sales.

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  7. Does the motor vehicle fuel partial sales and use tax exemption apply to sales of diesel fuel or aircraft jet fuel as well?

    No. The partial exemption only applies to retail sales of motor vehicle fuel, excluding aviation gasoline, and does not apply to retail sales of diesel fuel or aircraft jet fuel.

  8. How does the sales and use tax component of the Fuel Tax Swap apply to diesel fuel?

    The Fuel Tax Swap provides that the retail sale of diesel fuel is subject to additional sales and use tax. Therefore, sales of diesel fuel are subject to the statewide rate of 7.50%, any applicable district tax rates, plus the additional sales and use tax rate applicable to diesel fuel. The additional sales and use tax rate for diesel is scheduled to change over the next several years. The additional sales and use tax rate for diesel fuel is 1.87% effective July 1, 2011, 2.17% effective July 1, 2012,1.94% effectively July 1, 2013, and 1.75% effective July 1, 2014, and thereafter.

    Additionally, beginning July 1, 2011, the Fuel Tax Swap provides that the state excise tax on diesel fuel decreased by 5 cents ($0.05) per gallon resulting in a state diesel fuel excise tax rate of 13 cents ($0.13) per gallon. Effective July 1, 2012, the state excise tax on diesel fuel will decrease by 3 cents ($0.03) to a rate of 10 cents ($0.10) per gallon.

    For a summary of the tax rate changes see the table Tax Rates Applicable to Motor Vehicle Fuel (MVF) provided in response Question 2.

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  9. What is diesel fuel?

    Revenue and Taxation Code section 60022 defines "diesel fuel" as any liquid that is commonly or commercially known or sold as a fuel that is suitable for use in a diesel-powered highway vehicle. A liquid meets this requirement if, without further processing or blending, the liquid has practical and commercial fitness for use in the engine of a diesel powered highway vehicle. This includes biofuels used as alternatives to petroleum-based diesel fuel. The most common are biodiesel, straight vegetable oil, and waste vegetable oil.

    "Diesel fuel" does not include kerosene, gasoline, liquefied petroleum gas, natural gas in liquid or gaseous form, or alcohol.

    Note: Biodiesel and biofuel, including straight vegetable oil (SVO) and waste vegetable oil (WVO) are administered under the Diesel Fuel Tax Law.

Motor Vehicle Fuel Tax

  1. What is the total state excise tax rate applicable to motor vehicle fuel?

    Effective July 1, 2013, the total state excise tax rate applicable to motor vehicle fuel is $0.395 per gallon.

    However, the state excise tax rate applicable to aviation gasoline is $0.18 per gallon.

    For a summary of the tax rate changes, see the table Tax Rates Applicable to Motor Vehicle Fuel (MVF) provided in response Question 2.

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  2. Are there any exemptions from the state motor vehicle fuel excise tax rate increase?

    Aviation gasoline is not subject to the increase in the state motor vehicle fuel excise tax. Aviation gasoline continues to be subject to the state motor vehicle fuel excise tax at the rate of $0.18 per gallon.

Diesel Fuel Tax

  1. What is the total state excise tax rate applicable to diesel fuel?

    Effective July 1, 2011, the total state excise tax applicable to diesel fuel is $0.13 per gallon. Effective July 1, 2012, the state excise tax on diesel fuel will decrease by 3 cents ($0.03) to a rate of 10 cents ($0.10) per gallon.

    For a summary of the tax rate changes, see the table Tax Rates Applicable to Diesel Fuel provided in response Question 2.

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  2. May I file a claim for refund for exempt uses of excise tax-paid diesel fuel purchased at the prior $0.18 rate but used in an exempt manner on or after July 1, 2011?

    Yes, however, the diesel fuel must have been purchased excise tax-paid prior to July 1, 2011, and you must file the new inventory schedules that will be included with your claim forms. Additional information will be mailed to each diesel fuel registrant regarding the changes to the claim forms and new reporting requirements.

    Additionally, effective July 1, 2012, the state excise tax on diesel fuel will decrease by 3 cents ($0.03) to a rate of 10 cents ($0.10) per gallon.

  3. What is the interstate user rate change as a result of the reduction in the state diesel fuel excise tax?

    Effective July 1, 2013, the interstate user rate is 45.3 cents ($0.453) per gallon.

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Sales and Use Tax

  1. What is the sales and use tax rate for retail sales of diesel fuel?

    Beginning July 1, 2011, the retail sales of diesel fuel is subject to a combined state, local, and county tax rate of 9.12% plus applicable district taxes. Effective July 1, 2012, through December 31, 2012, the retail sales of diesel fuel will be subject to a combined state, local, and county tax rate of 9.42% plus applicable district taxes.

    Effective January 1, 2013, through June 30, 2013, the retail sales of diesel fuel will be subject to a combined state, local and county tax rate of 9.67% plus applicable district taxes.

    For a summary of the tax rate changes, see the table Tax Rates Applicable to Diesel Fuel provided in response Question 2.

  2. Is the additional diesel fuel sales and use tax a state, local, county, or district tax?

    The additional 1.87% tax is a state tax. Effective July 1, 2012, the sales and use tax rate applicable to sales of diesel fuel changes to 2.17 percent.

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  3. Are there any exemptions from the sales and use tax rate increase on diesel fuel transactions?

    Yes. Purchasers that qualify as exempt bus operators and train operators and other users who use diesel fuel off-highway or in any other exempt manner are exempt from the sales and use tax rate increase on purchases of diesel fuel for use in these exempt activities. Qualified purchasers must provide the seller with an exemption certificate completed in accordance with Regulation 1598.

    Qualified persons who use diesel fuel in qualified farming activities or qualified food processing are exempt from the sales and use tax increase on diesel fuel purchases for use in the qualified activity. The purchaser must provide the seller with a partial exemption certificate in accordance with Sales and Use Tax Regulation 1533.2. Please see Regulation 1533.2 for more information regarding this exemption.

  4. Are sales of motor vehicle fuel exempt from sales and use tax?

    Retail sales of motor vehicle fuel are partially exempt from sales and use tax. The sales and use tax exemption for sales of motor vehicle fuel is not a full sales and use tax exemption.

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  5. What is the rate of the partial sales and use tax exemption for sales of motor vehicle fuel?

    Effective July 1, 2011, the statewide rate decreased 1 percent. As a result, sales of motor vehicle fuel on or after July 1, 2011, are subject to a 5 percent partial exemption. A sales and use tax rate of 2.25 percent applies to sales of motor vehicle fuel beginning July 1, 2010.

    For a summary of the tax rate changes see the table Tax Rates Applicable to Motor Vehicle Fuel (MVF) provided in response to Question 2.

  6. Since the sales and use tax exemption for sales of motor vehicle fuel is only a partial tax exemption, which sales and use taxes apply when motor vehicle fuel is sold at retail?

    The following sales and use tax rates still apply to retail sales of motor vehicle fuel:

    • 0.50 percent state tax allocated to the Local Revenue Fund (Revenue and Taxation Code sections 6051.2 and 6201.2)
    • 0.25 percent state tax allocated to the Fiscal Recovery Fund (Revenue and Taxation Code sections 6051.5 and 6201.5)
    • 0.50 percent state tax allocated to the Local Public Safety Fund (Section 35 of Article XIII of the California Constitution)
    • 1.0 percent tax allocated to local cities and/or counties (Part 1.5 of Division 2 of the Revenue and Taxation Code)
    • Any applicable district taxes imposed by a special taxing jurisdiction (Part 1.6 of Division 2 of the Revenue and Taxation Code)

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  7. What is the prepaid sales tax on motor vehicle fuel that I pay to my supplier?

    The current prepaid sales tax rate on motor vehicle fuel paid to suppliers increased to $0.070 (7.0 cents) effective April 1, 2012 and continues through June 30, 2013. You will want to review your purchase invoices to ensure that your supplier is collecting the proper amount of prepaid sales tax.

    Suppliers, wholesalers, and retailers of motor vehicle fuel (gasoline), diesel fuel, and aircraft jet fuel are notified of the new rates by Special Notice, after the rates are determined. As of January 1, 2013 the rates will generally remain in effect from July 1 of the subsequent year to June 30 of the following year. However, the BOE may adjust the rates if the prices of these fuels increase or decrease after the rates have been set for the year, resulting in prepayments that consistently exceed or are significantly lower than the fuel retailer's sales tax liability.

    For a summary of the tax rate changes, see the table Tax Rates Applicable to Motor Vehicle Fuel (MVF) provided in response to Question 2.

  8. What is the prepaid sales tax on diesel fuel that I pay to my supplier?

    The current prepaid sales tax rate on diesel fuel paid to suppliers effective July 1, 2012 through June 30, 2013, is $0.29 (29 cents) per gallon. You will want to review your purchase invoices to ensure that your supplier is collecting the proper amount of prepaid sales tax.

    Suppliers, wholesalers, and retailers of motor vehicle fuel (gasoline), diesel fuel, and aircraft jet fuel are notified of the new rates by Special Notice, after the rates are determined. As of January 1, 2013 the rates generally remain in effect from July 1 of the subsequent year to June 30 of the following year. However, the BOE may adjust the rates if the prices of these fuels increase or decrease after the rates have been set for the year, resulting in prepayments that consistently exceed or are significantly lower than the fuel retailer's sales tax liability.

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  9. Can motor vehicle fuel and diesel fuel sold at the pump be sold at a tax-included price?

    Yes, none of the provisions of the Fuel Tax Swap should prevent a retailer from selling motor vehicle fuel or diesel fuel at a tax-included price. Therefore, retailers may sell motor vehicle fuel and diesel fuel at the retail level for a price that includes sales tax reimbursement. Assuming that the tax-included price at the pump remains the same, the only difference should be that the sales tax-included deduction claimed by a retailer for retail sales on or after July 1, 2011, is at a lower rate than in previous reporting periods for motor vehicle fuel.

    The sales tax-included deduction claimed by a retailer for retail sales of diesel fuel on or after April 1, 2012, will be at a greater rate than in previous reporting periods for diesel fuel.

Sales and Use Tax Reporting

Also see: Motor Fuels Tax Electronic Filing Information – Frequently Asked Questions (FAQ)

  1. Can I deduct motor vehicle fuel excise tax from the retail selling price at which sales tax is calculated?

    No. There is no deduction from the price of motor vehicle fuel for the state excise tax portion when calculating the sales tax included in the selling price.

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  2. Can I deduct the state diesel fuel excise tax from the retail selling price when calculating the sales tax included in my taxable diesel fuel sales?

    Yes. The state excise tax is an allowable deduction when calculating the taxable selling price of diesel fuel and the sales tax included. However, where the previous rate was $0.18 per gallon, the state excise tax that is deductible is $0.13 per gallon through June 30, 2012. Effective, July 1, 2012, the state diesel fuel excise tax decreases 3 cents ($0.03) to 10 cents ($0.10). Please refer to publication 25, Auto Repair Garages and Service Stations, for an example of the computation.

  3. What form should I use to report my partially exempt sales of motor vehicle fuel and my diesel fuel sales subject to the additional tax?

    You should electronically file (e-file) your sales and use tax return. The e-file program is designed to accurately calculate your tax liability by eliminating the possibility for calculation errors. However, if you are not eligible for e-filing, a paper return must be completed. When preparing a paper return to report sales of motor vehicle fuel from July 1, 2010, through June 30, 2011, please ensure that you are using the BOE-401-GS with a revision date of 7-10. If you are reporting sales of motor vehicle fuel or diesel fuel on or after July 1, 2011, you must use the BOE-401-GS with a revision date of 7-11 or later. Earlier versions of the BOE-401-GS will not allow you to compute the proper tax.

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  4. Do I have to secure a partial exemption certificate from my customer (similar to other partial exemptions) for my sale of motor vehicle fuel to be exempt from sales or use tax?

    No. Generally, sales of tangible personal property, other than motor vehicle fuel, that are subject to a partial exemption qualify for the partial exemption due to the purpose and manner in which the property will be used by the purchaser. The partial exemption for sales of motor vehicle fuel applies to all retail sales of motor vehicle fuel. Therefore, the retailer is not required to obtain an exemption certificate at the time of sale.

  5. How do I report the partial exemption for motor vehicle fuel sales when filing a sales tax return?

    Using the BOE's e-file program, you report all motor vehicle fuel sales as gross receipts. You should then claim the net taxable motor vehicle fuel sales subject to the partial exemption on the "exemptions" page. The e-file system will automatically calculate the partial exemption applicable to sales of motor vehicle fuel. It is important to remember that retail sales of motor vehicle fuel are subject to local and district taxes. Therefore, if you are required to allocate local tax or report district tax, you will need to include the motor vehicle fuel sales on the appropriate local tax and district tax schedules.

    When reporting motor vehicle fuel sales on a paper return (BOE-401-GS), motor vehicle fuel sales should be included in the gross receipts reported on line 1. The partial exemption for retail sales of motor vehicle fuel should be claimed under Section C. Partial Exemptions. Net taxable motor vehicle fuel sales subject to the partial exemption should be entered in the appropriate box and multiplied by the factor on the return to calculate the measure of the partial exemption. Please be aware that you must include the motor vehicle fuel sales in the taxable measure when computing the county, local, and district taxes (the instructions on the return indicate how to do this).

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  6. How do I calculate the net taxable sales subject to the transactions and sales tax included in my motor vehicle fuel sales?

    For this calculation, assume the following facts: $10,000 in motor vehicle fuel sales, tax included, at a rate of 2.75 percent (2.25 percent statewide rate plus an additional 0.50 percent district tax). Net motor vehicle fuel sales, rounded to the nearest dollar, are $9,732 (10,000 / 1.0275 = 9,732). The tax included deduction is $268 (10,000 – 9,732 = 268).

  7. How do I calculate the net taxable sales subject to the transactions and sales tax included in my diesel fuel sales?

    For this calculation, assume the following facts: on or after January 1, 2013, $10,000 in tax-included diesel fuel sales, at a rate of 10.17 percent (9.67 percent statewide rate plus an additional 0.50 percent district tax). Also assume that the $10,000 was from the sale of 2,500 gallons of diesel.

    First, compute the amount of state excise tax that may be excluded from sales tax: State excise tax of $0.10 x 2500 gallons = $250

    Next, subtract the total state excise tax from the total gross receipts: $10,000 - $250 = $9,750

    Then, divide the difference by 1.1017 (1.00 plus the tax rate of 0.1017) to compute net taxable transactions: $9,750 / 1.1017 = $8,850 (rounded to the nearest whole dollar)

    To compute the sales tax included, compute the difference of the two amounts in the calculation above: $9,750 - $8,850 = $900

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  8. How do I claim a bad debt loss for taxable sales of motor vehicle fuel or diesel fuel?

    If you have reported taxable retail sales of motor vehicle fuel on or after July 1, 2010, at the partial tax rate or retail sales of diesel fuel on or after July 1, 2011, that you later find to be bad debts, you may claim a bad debt deduction on the return for the period in which the retail sale is found to be uncollectible. Currently, the return (BOE-401-GS) will not allow for calculating the bad debt deduction at the partial tax rate, only at the regular statewide rate. Therefore, if you need to claim a bad debt deduction for sales of motor vehicle fuel originally reported as subject to the partial exemption, a separate schedule will be required to accurately report the bad debt deduction. Similarly, if you need to claim a bad debt deduction for sales of diesel fuel reported at the increased rate, a separate schedule(s) should be created by you and attached to your tax return to accurately report the bad debt deduction for these claims.

    Utilize the Board's e-file program to calculate the bad debt from sales of motor vehicle fuel or diesel fuel at the proper rate. If you are a seller of motor vehicle fuel or diesel fuel and you enter an amount for bad debts, the program will request additional information from you to ensure the bad debt deduction is claimed at the proper rate.

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  9. How do I claim a tax-paid purchases resold deduction for motor vehicle fuel or diesel fuel?

    Often times a taxpayer may sell property that includes motor vehicle fuel or diesel fuel as part of the sale (sale of vehicle with a full tank of gas, wet rental of equipment, etc.). If you purchase fuel tax paid and subsequently sell the fuel at retail along with the sale of other property, you are generally entitled to claim a "cost of tax-paid purchases resold" deduction. The current tax return will not allow for calculating the tax-paid purchases resold deduction at the partial tax rate applicable to motor vehicle fuel, only at the full tax rate. The tax return will also not calculate the tax-paid purchase resold deduction at the increased rate applicable to diesel fuel. Therefore, if you have purchased motor vehicle fuel or diesel fuel tax paid from another retailer and then subsequently sold the fuel at retail and wish to claim a cost of tax-paid purchases resold deduction, a separate schedule(s) should be created by you and attached to your tax return to accurately report the tax-paid purchases resold deduction.

    The BOE's e-file program is set up to calculate the tax-paid purchases resold deduction for motor vehicle fuel or diesel at the proper rate. If you are a seller of motor vehicle fuel or diesel fuel and you enter an amount for tax-paid purchases resold, the program will request additional information from you to ensure the tax-paid purchases resold deduction is claimed at the proper rate.

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  10. How do sales and use tax and motor vehicle fuel excise tax apply to unleaded racing fuel??

    Unleaded racing fuel, which has an octane rating of 100 or higher and does not meet the California Air Resources Board specifications for gasoline, generally is not subject to the motor vehicle fuel tax and would not qualify for the partial sales tax exemption. However, when unleaded racing fuel is sold for use on the highway, it is subject to the motor vehicle fuel tax and would qualify for the sales tax partial exemption.