Guide · Fuel Taxes

By File720Online Editorial Team · April 17, 2026

Fuel Excise Taxes on Form 720: A Complete Guide

Fuel taxes are the largest category on Form 720. This guide covers every taxable fuel type, current rates, who is liable, how taxable gallons are calculated, and how to claim credits for nontaxable fuel sales.

File Form 720 Schedule C Credits Guide

Quick Answer

Fuel excise taxes on Form 720 are paid by terminal operators, refiners, and importers at the point of removal from the terminal rack. Taxable fuels include gasoline ($0.184/gal), diesel ($0.244/gal), jet fuel ($0.219/gal), and several others. Dyed diesel is exempt from the highway excise tax.

How Fuel Excise Taxes Work

Federal fuel excise taxes are imposed at the terminal rack — the point where fuel is loaded into trucks for delivery. This means the tax is typically paid by terminal operators, refiners, and importers, not by gas stations or end consumers directly.

The tax is embedded in the price of fuel and passed downstream to distributors, retailers, and ultimately consumers. But the legal obligation to report and remit the tax to the IRS via Form 720 rests with the party at the point of removal.

Fuel taxes are reported quarterly on Form 720, Schedule I, Part I. The taxable quantity is the number of gallons removed from the terminal rack during the quarter for taxable highway use.

Current Federal Fuel Excise Tax Rates

Fuel Type	Rate	Who Pays	Notes
Gasoline	$0.184/gallon	Terminal operators, refiners, importers	Rate includes $0.001/gallon Leaking Underground Storage Tank (LUST) tax
Diesel Fuel	$0.244/gallon	Terminal operators, refiners, importers	Rate includes $0.001/gallon LUST tax. Dyed diesel sold for tax-exempt uses is $0
Kerosene (Jet Fuel)	$0.219/gallon	Terminal operators, refiners, importers	Different rates apply for kerosene for use in aviation vs. other uses
Aviation Gasoline (Avgas)	$0.194/gallon	Terminal operators, refiners, importers	Used in piston-engine aircraft. Does not include the $0.001 LUST tax
Liquefied Petroleum Gas (LPG)	$0.183/gallon	Producers, importers, or sellers for highway use	Also called propane when used as a motor fuel
Compressed Natural Gas (CNG)	$0.183/GGE	Producers, importers, or sellers for highway use	Taxed per gasoline gallon equivalent (GGE)
Liquefied Natural Gas (LNG)	$0.243/GGE	Producers, importers, or sellers for highway use	Rate aligns with diesel fuel equivalent energy content

Rates set by statute. Verify current rates in IRS Publication 510 before filing.

Dyed vs. Clear Diesel: Tax Treatment

Diesel sold for off-road use is dyed red to identify it as tax-exempt. Businesses that use dyed diesel for farming, construction, or other off-highway purposes do not pay the highway diesel excise tax.

Penalties for misuse of dyed diesel are severe: $10 per gallon or 10% of the tax, whichever is greater, applied to both the violator and any party who knew of the misuse. The IRS and EPA conduct roadside checks.

Clear (undyed) diesel is subject to the full $0.244/gallon excise tax. Sellers of clear diesel report taxable gallons on Form 720, Schedule I, Part I.

Schedule C Credits Guide

Credits for nontaxable fuel sales

Environmental Excise Taxes

Petroleum and Superfund chemical taxes

All Excise Tax Categories

Complete Form 720 schedule overview

Frequently Asked Questions

Who is liable for fuel excise taxes on Form 720?

Fuel excise taxes are primarily imposed on the person who removes taxable fuel from the terminal rack — typically terminal operators, refiners, and importers. In some cases, blenders or certain sellers may also be liable. The tax is generally passed through in the price of fuel, but the legal obligation to report and pay rests with the party at the point of removal.

What is dyed diesel fuel and is it taxable?

Dyed diesel is diesel fuel treated with a red dye to indicate it has not had the highway excise tax paid. It is sold tax-free for off-road uses: farming, home heating, construction equipment, and state and local government vehicles. Removing dyed diesel from a terminal for taxable highway use, or using it in a highway vehicle, is a violation subject to heavy penalties ($10/gallon or 10% of the tax).

How are fuel excise taxes reported on Form 720?

Fuel taxes are reported on Schedule I, Part I of Form 720. Each fuel type has its own line. You report the total taxable gallons removed or sold during the quarter and multiply by the applicable rate. Credits for nontaxable uses are claimed on Schedule C.

Can I claim a credit for fuel sold for nontaxable uses?

Yes. If you paid excise tax on fuel that was later sold for a nontaxable purpose (off-road use, export, government sale), you can claim a credit on Schedule C of Form 720. Alternatively, if you are not the one who paid the tax, you may be able to claim a credit on Form 4136 (Credit for Federal Tax Paid on Fuels) on your income tax return.

What is the LUST tax on fuel?

The LUST (Leaking Underground Storage Tank) tax is an additional $0.001 per gallon tax added to gasoline and diesel fuel. It funds the LUST Trust Fund used by the EPA to clean up leaking underground storage tank sites. It is included in the standard Form 720 fuel tax rates and reported on the same line as the base fuel tax.

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Disclaimer: The information provided in this article is for general informational purposes only and should not be relied upon as legal, tax, or professional advice. Tax laws and regulations are subject to change, and their application can vary based on individual circumstances. Consult a qualified tax professional or attorney for advice specific to your situation. File720Online is an IRS-authorized e-file provider and does not provide legal or tax advice.