Pennsylvania Bureau of Motor Fuels Tax

Alternative Fuels IFTA Attorneys Section

Jack Frehafer

Pennsylvania Department of Revenue

Office of Chief Counsel

Topics Alternative Fuels (“Special Fuels”) Overview

CNG

LNG

Propane

Hydrogen

E-85

Biodiesel…Not?

Energy Equivalence

Electricity

Taxation Challenges

IFTA Implications

Top 10 Energy-Producing States, 2016

RANK STATE ENERGY PRODUCED

(trillions BTU)

1 Texas 17,080

2 Pennsylvania 7,888

3 Wyoming 7,518

4 Oklahoma 4,005

5 West Virginia 3,785

6 North Dakota 3,498

7 Colorado 3,078

8 New Mexico 2,582

9 Louisiana 2,555

10 California 2,431

Most familiar liquid alternative fuel

Not used in heavy trucks

85% Ethanol, 15% regular gasoline

Superior emissions performance at the cost of

slightly decreased energy performance

E-85 {Ethanol 85%; Flex Fuel}

E-85

Superior emissions, slightly less power

efficiency compared to Gasoline

Mostly limited to passenger vehicles

Requires bulky and heavy storage tank, which

limits vehicle cargo capacity

CNG – Compressed Natural Gas

CNG – Slow Fill, Fast Fill

CNG – Sold by the GGE

Currently used only in heavy trucks

Requires special handling – fuel exists at

minus 260F

Bulky and heavy propulsion tanks on truck

Lack of long-range refueling infrastructure

LNG – Liquefied Natural Gas

Diesel Gallon Equivalent {DGE}

Concept: Alternative Fuel is sold in measured units that

provide the same energy efficiency as regular clear diesel

fuel.

For example, it takes 1.7 liquid gallons of LNG to equal the

energy efficiency of one gallon of clear diesel fuel.

Accordingly, “1” DGE of LNG contains 1.7 gallons of

LNG.

Pump prices for LNG are displayed in DGE.

Therefore, if the diesel price is $3.50 per gallon and the

LNG price is $2.90 per gallon, then the LNG is a better buy

for the money.

LNG – Sold

by the DGE

Traditionally, the oldest and most common alternative

fuel, until recently overtaken by CNG.

Good emissions performance; average energy/power

performance below gasoline’s performance.

Often used by light and medium weight trucks

Point-of-taxation generally limited to dealer-user

(retail).

Propane {LPG}

Propane

Extremely efficient fuel

Bulky propulsion tanks required

Not generally seen in heavy vehicles

Sales lagging expectations; major automakers

may reduce production of these vehicles

Infrastructure issues

Bulkiest on-board storage tank equipment

High cost of fuel

Hydrogen

Best fuel efficiency and emissions

performance of all fuels.

Costs of electric vehicles are declining

Point of taxation generally limited to dealer-

user (retail)

Presents a huge challenge to the very concept

of “motor carriers road tax.”

Electricity

Electric Cars

Nissan Leaf

BMW i8

Electric Charging Stations

Pennsylvania’s 2019 Fuel Tax Rates

Gasoline Tax Rate: 192.5 Mills x $2.99 AWP = $0.576

Alt Fuel Tax Rate: (BTU Value ÷ 114,500 Gasoline BTU Value) x

0.576 = AFT

Alternative Fuel BTU Value Alternative Fuels Tax Rate

• Propane 84,250 $0.425

• E-85 82,056 $0.413

• LNG (DGE) 128,714 $0.648

• CNG (GGE) 114,500 $0.576

• Electricity (kWh) 3,414 $0.0172

Electric Vehicle Road Fee {EVRF}

(a) Efficiency-based Rate

Fuel Efficiency-based Formula

(FHWA average miles ÷ MPGe) x Gasoline tax rate

Example Efficiency-based Fee Calculation

(11,398 ÷ 100 MPGe) x $0.576 = $65.65 per year

Electric Vehicle Road Fee {EVRF}

(b) Road Use-based Rate

Basic road use formula

(FHWA average miles ÷ Average Vehicle MPG)

x Gasoline tax rate

Example EVRF-RU Calculation

(11,398 ÷ 26 MPG) X $0.576 = $252.51 per year

So, how should we be

imposing tax on the

use of Alternative Fuels

by IFTA QMVs?

Statutory and Constitutional Concerns

• Constitutional limitations: Interstate Commerce

Clause, Uniformity of Taxation on a Class of Subjects

• Double taxation

• Imposition of a “Fee” vs a “Tax”

• IFTA enabling statutes, by Jurisdiction

Road Use Revenues – Collection Options

• Tax on the fuel use or sale

• Vehicle registration fee

• Vehicle Miles Traveled (VMT)

• Hybrid approaches

Option 1: Tax on Fuel Use or Sale

• Familiar concept for all parties involved

• Requires only minor adjustments to current

IFTA reporting process

• Uncertainties involving availability of

purchase and usage data

Option 2: Registration Fees

• Simple solution to guarantee revenues

• How does the jurisdiction apportion fees?

• Likely requires jurisdiction-level statutory

changes

• Possible constitutional and uniformity issues

• Is it consistent with the concept of imposing

and collecting revenues based on road use?

Option 3: Vehicle Miles Traveled {VMT}

• Paradigm-shift required, changes to current

IFTA framework

• Effectively requires 100% buy-in by all

jurisdictions

• Requires advanced monitoring technology, and

reporting

Option 4: Hybrid or other Solutions?

• Combine the most effective and compatible

features of Options #1, #2, and #3

• Other ideas?

IFTA Enabling Legislation Example

75 Pa.C.S. § 9622: Provide for the cooperation and

assistance among jurisdictions in the administration,

collection and enforcement of motor carriers road tax and

similar taxes of other jurisdictions, including, but not limited

to:

(1) Base-state jurisdiction over tax reporting, licensing and

collections.

(3) Provisions for the transfer of funds collected to other

jurisdictions.

(4) Assessment and collection by the base state of tax,

penalties and interest owed to other member jurisdictions.

(9) Issuance of refunds or credits.

JURISDICTION A JURISDICTION B JURISDICTION C

100 Miles 100 Miles 100 Miles

50 Miles 50 Miles 50 Miles

Apportionment Example

Apportionment Conflict ?

“Fuel taxes” are designed to impose a tax on the purchase

of fuel. Purchases of fuel, and the imposition of tax, are

made in direct relation to actual vehicle road use.

Electric vehicles will require adjustments to most

jurisdictions’ fuel tax imposition rules.

Fixed Vehicle-Registration-Fees make apportionment of

road taxes among the jurisdictions complicated at best.

Unless carefully designed incorporating variable factors,

it is possible these fees may not be compatible, practically

or legally, with the imposition of a motor carrier road tax.

Summary of Issues

Constitutional, Uniformity, and IFTA Compatibility

issues must be considered in the design of alternative fuel

taxing schemes.

Flexibility in designing Point-of-Taxation rules for

Electricity and Propane is very limited, i.e., the

dealer/user point-of-taxation is practically mandated.

Solutions may come from:

Tax Administrators

Legislatures

Industry

Summary of Issues

QUESTIONS ?