Montana Fuel Tax Refunds

As described in the final report, the final outcome of this project was the development of 13 recommendations for revising Montana’s motor fuel tax refund process. The recommendations have the potential to impact EOE (errors, omissions and evasions), the application effort for the claimant, the administrative effort for MDT, the dollars refunded by MDT and/or the equity of the tax burden across affected fuel users.

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.

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 The laws governing the refund system may be outdated and inappropriate.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.