Motorcoach operators across the U.S. will begin "loaning" the federal government a little money every time they fill up their fuel tanks beginning Jan. 1, and many of them aren't the least bit happy about it.
"Our phones are ringing off the hook," said Norm Littler, vice president of government affairs for the United Motorcoach Association. "Operators are calling saying they don't like what's going on."
Clyde Hart, executive vice president of government affairs for the American Bus Association, said a number of carriers have complained to his office as well, saying they don't like the idea at all.
Worse, perhaps, is the possibility of facing huge fines for running coaches with red-dyed fuel after Jan. 1. The minimum fine is $1,000 per event, or $10 for each gallon of fuel in their tanks, which ever is larger.
The reason for all this upset is federal legislation that takes effect Jan. 1. The new law prohibits operators from using tax-exempt red-dyed fuel in coaches that qualify for tax exemptions. Instead, they are required to use fully-taxed clear fuel in all of their coaches, pay the full tax and then file for refunds of that portion of the tax from which they are exempt.
Red-dyed fuel - colored with red dye so law enforcement officers can easily spot it - is exempt from the 24.4 cents a gallon federal excise tax. Although motorcoach operators are exempt from 17 cents of the tax, they have been allowed under federal law to buy the fuel without paying any taxes and then pay the 7.4 cents a gallon tax when they file their quarterly tax statements.
The current process allows larger carriers to hang on to thousands of dollars of their own money each quarter, while the new system requires them to turn over the cash to the federal government in the form of the higher tax whenever they fill a coach or storage tank and then file for a refund.
Littler said there appears to be at least one way a carrier could avoid paying the full tax when they purchase clear fuel. However, it would require their finding a fuel supplier willing to sell fuel at the lower taxed rate, pay the additional tax themselves and then collect their own refund every quarter.
While a willing supplier might be difficult to find, a large fuel user could be in a position to negotiate such an arrangement.
The 17-cents-a-gallon exemption for motorcoach operators applies to coaches that seat more than 20 passengers and are available for public use. School and buses and off-road farm vehicles are exempt from the entire 24.4 excise tax and their use of the red-dyed fuel was not affected by the legislation, although there is some question about some school usage.
The move to prohibit motorcoach carriers from using the red-dyed fuel was initiated by the Internal Revenue Service, which has maintained there is wide spread illegal use of the fuel throughout the United States. "The IRS went to Congress and convinced them to change it because of those concerns," he said.
The IRS has made surprise inspections and has had state police make traffic stops of highway trucks in efforts to catch violators.
Hart said motorcoach carriers that have been using red-dyed fuel in their coaches should drain and clean their tanks immediately to rid them of any signs of the dye. "I don't expect the IRS to go out on Jan. 1 looking for buses with red-dyed fuel, but they are authorized to do so," he added.
While operators understand Hart's advice, some say it is impractical.
One New York operator said it is both very costly and labor intensive to purge both facility and vehicle tanks on short notice.
And a Massachusetts operator reports he had filled all of his tanks just before receiving notice of the rule change. His supplier won't take the fuel back and the operator is coming into the slowest period of the year with fuel that could last well into the first quarter of the year.
That operator could be in jeopardy even, as Hart suggests, there is some kind of grace period. Whether a grace period will last 90 or 120 days is seen as problematic. Plus, it make take two or three tank fulls to completely purge all traces of red-dyed fuel from a coach fuel system.
That means those $1,000 or $10-a-gallon fines loom large.
While school buses may continue to use red-dyed fuel under the new legislation, there is concern among school districts and motorcoach operators about running school buses for occasional non-school, charter trips, according to Robin Leeds, industry specialist for the National School Transportation Association.
"What if they have a regular school run in the morning, take a group of pre-school children on a charter run to the zoo during the day and then return for a school run later in the afternoon? They can't just switch the fuel that's in their tanks," she said.
Ms. Leeds said the association plans to try to clarify the situation with the IRS, hoping schools and school bus operators will be allowed to use the red-dyed fuel under such circumstances.
Currently, the IRS defines a school bus as a bus that transports school children at least 85 percent of the time. The wording could provide an opening for operators to continue to use red-dyed fuel even for some charter trips.
Meantime, the entire excise tax issue remains confusing to many operators and so far the IRS has offered little help.
Littler said the IRS has yet to update its Publication 510 on excise and fuel taxes, or published any guidelines for schools or motorcoach operators, many of who also operate school buses. "We just haven't heard anything from them at all," he said.
He said carriers can obtain information on current excise tax regulations by going to www.irs.ustreas.gov/publications/p510. For tax questions and other assistance, call the IRS tax help advocate at (877) 777-4778.