WTI

Montana Fuel Tax Refunds

Primary Investigator Contact Information

External Project Contact(s)

Report(s)

1. Montana Fuel Tax Refunds
   1. Patrick McGowen, Jaydeep Chaudhari, Brian Church, Janelle Booth,
   2. 4W2968_Final_Report.pdf

Project Objective

This project will investigate Montana’s motor fuel tax refund process to evaluate its current governing policies, the potential for errors, omissions, and evasions (EOE), and the possibility of moving from a paper system to an electronic tracking system.

Project Abstract

Taxes on motor fuels are used primarily to fund the transportation infrastructure. It has been estimated that annually state and federal fuel taxes are under-collected by $1.5 billion to $2.5 billion due to errors, omissions and evasions (Eger et al., 2003). Much of the prior work to reduce errors, omissions and evasions (EOE) has focused on motor carrier enforcement (e.g., monitoring use of dyed fuels) and eliminating EOE where fuel taxes are collected (for Montana, this is at the distributor level). Limited research has focused on EOE with the tax refund process. Refunds are available on the taxes paid for fuels used for agriculture, heating oil, power take-off units, government vehicles and other off-highway use (primarily construction work). The current paper system for fuel tax refunds makes cross checking of refund requests difficult. It is possible for a refund request to have been paid twice. The laws governing the refund system may be outdated and inappropriate. Research is needed into whether Montana’s system of refunding the tax for non-taxable fuel use is functioning as it should.

Task Descriptions

1. Comparative Model for Estimating the Magnitude of EOE
   1. A model will be developed to estimate differences among states regarding the rate of fuel usage for a particular economic segment. Basing the model on estimated fuel usage instead of amount of fuel on which taxes were refunded provides a common comparison.
2. Literature Review
   1. An initial literature review was completed for this proposal. Literature will be further investigated and summarized to determine refund processes of other states—particularly any methods of automation—measured benefits of any changes made to the refund processes in other states, guiding legislation of other states, and innovative methods of identifying EOE, particularly in the refund process.
3. Interviews with Selected States
   1. A formal survey of practices in other states will not be conducted because numerous previous studies have included such surveys (e.g., Weimer, et al. 2008, FHWA, 2008). Phone interviews will be conducted with officials in selected states to further clarify information contained in these previous studies. The states interviewed will include those bordering Montana (ID, WY, SD, and ND), states with similar fuel reimbursement policies (e.g., NV) and others suggested by the Technical Panel.
4. Project Management
   1. Meetings will be held with the Technical Panel, as necessary, to ensure the project meets the needs of MDT. Quarterly detailed progress reports will be delivered, assessing work done on specific tasks and the percent of each task completed to date.
5. Mock Database
   1. Based on information identified in Tasks 2 and 3, and input from the Technical Panel, a test database will be developed. The database will be developed to facilitate (1) potential data mining techniques to identify EOE, (2) standard checks run to determine if a refund request should be approved, and (3) investigate database structure for guidance on moving refunds to an electronic process.
6. Evaluate Current Montana Fuel Tax Legislation
   1. Potential methods of abusing the refund system will be identified through the efforts undertaken in Tasks 2–5. Recommendations for changes in policy in regards to documentation and review of refunds will be compiled and discussed with the Technical Panel to determine the feasibility of implementation.
7. Project Report
   1. This task will consist of the compilation of the Project Report and Project Summary Report. These documents will present the results of the overall research effort. The Project Report will summarize literature and other state practices in regards to fuel tax revenues. The Project Report will provide estimates of EOE within the refund process based on modeling estimates and results for the database sample. The potential benefits of implementing an electronic database will be provided as well as recommendations for the design and structure of the database. These recommendations will be based on lessons learned from the mock database experiment and information collected about other state databases. Finally recommended changes to Montana fuel tax refund policy (including state statutes) will be made.

Milestones, Dates, Schedule

Student Involvement

True

Relationship to Other Research Projects

False

Technology Transfer Activities

True

Transportation Research Board Keywords

Fuel tax, Funding, Policy

Partners

Montana Department of Transportation.