Over the past 34 years, I have dealt with several IRS audits involving the fuel tax credit claimed by our bus company clients. Below are frequently asked questions I hear from bus company owners.
What fuel and what vehicles qualify for the fuel tax credit?
Gasoline and diesel fuel used in school buses and qualified local buses qualify.
What is the definition of a school bus and a qualified local bus for fuel tax credit purposes?
Many states have their own definition for what a school bus is. For example, Minnesota’s definition of a school bus is published under Minnesota statute 169.011 subdivision 71. However, the federal fuel tax credit does not use a state statute for its definition.
The federal statute does not give a specific definition as to what a school bus is. However, over the years, it has become apparent that the bus-looking vehicle with accordion doors is the starting point. The fuel tax credit is available for vehicles registered as a school bus with the state where the vehicle is licensed.
The school bus fuel tax credit is not available for traditional passenger vehicles, such as minivans or other automobiles registered as a van or private automobile. The smaller vehicles must be modified by installing the accordion doors and other safety modifications in order to qualify for the fuel tax credit. For example, a standard Dodge Grand Caravan painted yellow is not a school bus for federal fuel tax purposes.
The publications do not define the fuel credit as available for fuel used in any vehicle used to transport school students; it specifically says "bus (school bus)": “In a school bus means fuel used in a bus engaged in the transportation of students or employees of schools.”
In a qualified local bus means fuel used in a bus meeting all of the following requirements:
• It is engaged in furnishing (for compensation) intra-city passenger land transportation available to the general public.
• It operates along scheduled, regular routes.
• It has a seating capacity of at least 20 adults (excluding the driver).
• It is under contract with (or is receiving more than a nominal subsidy from) any state or local government to furnish the transportation.
We have several clients using traditional automobiles to transport students. We have not taken fuel tax credit for school transportation on traditional automobiles, but we do for school buses and qualified local buses.
What is the difference between a qualified local bus and a school bus?
A qualified local bus is eligible for the fuel tax credit when it is a vehicle other than a traditional school bus and is used to transport people. A school bus is generally the traditional “yellow bus,” which has the distinctive accordion doors and school bus safety features you would recognize, such as a 65- or 77-passenger school bus. A qualified local bus is a bus which does not qualify as a school bus, but has a seating capacity of at least 20 adults, excluding the driver.
What information is needed?
I always start each year by asking our clients about the gasoline gallons and then the diesel gallons used in their school buses during the prior year. Then we ask the same question for their qualified local bus fuel usage.
Why do the gallons and type of fuel matter?
There are different rates of fuel tax credit available based upon whether the vehicle is a school bus or a qualified local bus and the type of fuel used.
Do you need a vehicle fueling log and/or receipts to obtain credit?
As we have gone through the audits over the years, the IRS has asked for a listing of the company vehicles, the fuel type and the seating capacity of each. If there are vehicles other than school buses, or if there are qualified local buses that may have used fuel out of the tanks at the terminal, fuel cards or logs by vehicle have been asked for. The process typically includes providing fuel invoices from bulk deliveries, plus fuel receipts for fuel purchased at the pump to prove that federal fuel taxes have been paid and reconciling the gallons claimed as a fuel tax credit against the total gallons purchased.
How do I claim the fuel tax credit? What is the deadline for filing a claim?
Generally, the filing is done annually along with your company's business income taxes using Form 4136 (for tax credits), but you can also file annually on fuel and any other applicable excise taxes (for rebate payments) using Form 8849 along with the appropriate attachment (Schedule 1, in your case). If you want to file quarterly you can use Form 720.
Kim Mahanna is a certified public accountant with Smith Schafer Associates Ltd. For more information on this topic, or tax and tax-planning questions, contact the Smith Schafer transportation team at (651) 770-8414 or info@smithschafer.com.
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