[Code of Federal Regulations]

[Title 26, Volume 16]

[Revised as of April 1, 2006]

From the U.S. Government Printing Office via GPO Access

[CITE: 26CFR48.4042-2]



[Page 75-76]

 

                       TITLE 26--INTERNAL REVENUE

 

    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 

                               (CONTINUED)

 

PART 48_MANUFACTURERS AND RETAILERS EXCISE TAXES--Table of Contents

 

                 Subpart G_Fuel Used on Inland Waterways

 

Sec.  48.4042-2  Special rules.



    (a) Dual use of liquid fuels--(1) Dual use by the propulsion engine. 

The tax imposed by section 4042(a) applies to all taxable liquid used as 

a fuel in the propulsion system of the vessel, regardless of whether the 

engine (or other propulsion system) is used for a purpose other than 

propulsion of the vessel. For purposes of this section, any engines 

generating movement of a vessel (including bow thrusters used for 

steering) are part of the propulsion system. The tax does not apply to 

fuel consumed in engines which are not used to generate movement of a 

vessel. When the propulsion engine operates special equipment by means 

of a power take-off or power transfer, the tax applies to all liquid 

fuel consumed by that engine. For example, the tax applies to all fuel 

used in the engine operating an alternator, a generator, or pumps, if 

that engine is used to generate movement of a vessel.

    (2) Common tank. If the liquid fuel consumed by a nonpropulsion 

engine is drawn from the same tank as fuel consumed by a propulsion 

engine, a reasonable determination of the quantity of fuel used in such 

a separate engine will be acceptable for purposes of excluding from 

taxation a portion of the fuel consumed by the vessel. The determination 

of the amount of fuel consumed by the nonpropulsion engine may be based 

primarily on the operating experience of the person using the fuel; 

however, in order to exclude fuel from taxation under the rule set out 

in this paragraph (a)(2), the taxpayer must maintain records which will 

support the allocation used.

    (b) Voyages crossing boundaries of the specified waterways. Fuel 

consumed by a vessel traveling along the specified waterways is taxable 

only to the extent of fuel consumed for propulsion while on the 

specified waterways. Generally, the operator may calculate the amount of 

fuel consumed while on the



[[Page 76]]



specified waterways during a particular voyage by mulitplying total fuel 

consumed in the propulsion engine by a fraction. The numerator of the 

fraction is the time spent operating on the specified waterways; the 

denominator is the total time spent operating on the specified and 

nonspecified waterways during the voyage. This calculation may not be 

used when it is unreasonable. It may be determined to be unreasonable 

by:

    (1) Better evidence of fuel consumed (e.g., readings from an 

accurate fuel gauge or records from similar voyages); or

    (2) The existence of factors causing a substantial discrepancy 

between the rate of fuel consumption on the specified and nonspecified 

waterways.

    (c) Records required. (1) All operators of vessels used in 

commercial waterway transportation must maintain records sufficient to 

establish to the satisfaction of the district director the amount of 

fuel used for taxable purposes. Those records may include, when relevant 

to establish liability:

    (i) Quantity of fuel and date of acquisition of all liquid fuels 

acquired for both taxable and nontaxable purposes, whether delivered to 

storage tanks or tanks on a vessel;

    (ii) Date and quantity of fuel pumped into tanks on each vessel;

    (iii) Identification number or name of each vessel using fuel; and

    (iv) Departure time, departure point, route traveled, destination, 

and arrival time for each vessel.

    (2) Vessel operators seeking a tax exemption provided by section 

4042(c) must maintain records which will support any exemption claimed. 

Where applicable, the records shall contain:

    (i) The draft of the vessel on each voyage (for exemption under 

section 4042(c)(1));

    (ii) The type of vessel in which fuel is consumed and the type of 

vessel in which cargo is transported (for exemption under section 

4042(c) (1), (2) or (4); and

    (iii) The ultimate use of cargo transported (for exemption under 

section 4042(c)(3)).



[T.D. 7727, 45 FR 70862, Oct. 27, 1980, as amended by T.D. 8442, 57 FR 

48186, Oct. 22, 1992]