Motor Fuel & Highway Trust Fund
|FHWA > Policy Information > MF & HTF > Fuel Tax Attribution Process Review and Documentatio > Appendix A|
Ralph Erickson, FHWA
CAVEAT: One of the primary purposes of this paper is to assist the FHWA staff who manage the attribution process to understand all the issues under the topic. Several of the issues addressed are outside the box of traditional attribution practices. An understanding of what those issues are, and why they have been handled as they have, is essential knowledge for those who deal with attribution in great depth. This document does not stand as a description of the current attribution process, and is not advocating any changes to the current procedures.
Since FY 1984, motor fuel data has been used in the apportionment of Federal-aid highway funds. State-reported highway use of motor fuel is used to attribute Highway Trust Fund tax payments to highway users and commercial vehicle contributions to highway users in each state.
Think of a pie as a simple analogy to illustrate the attribution procedure. Highway Trust Fund tax payments, as reported by the Department of Treasury, determine the size of the pie of each motor fuel type (gasoline, gasohol, special fuels -- meaning diesel and special fuels), and the gallons on-highway use of each motor fuel type consumed in a state determine that state's slice of the appropriate pie. As special cases, the Federal tire tax, truck tractor and trailer retail excise tax, and the heavy vehicle use tax revenues are also reported by Treasury, which determines the size of those pies, and each state's slice of those pies is based on gallons of special fuels.
Internal Revenue Service (IRS) data provides the tax payment amounts, but IRS does not track where or how the fuel is consumed. The Federal tax collection is too high up the distribution chain to identify ultimate place or type of use. Therefore, the attribution process uses state reported motor fuel tax revenue data to determine highway use of motor fuels. FHWA also uses statistical methods to estimate missing or not-reported state data.
Under the Transportation Equity Act for the 21st Century (Public Law 105-178) (TEA-21), motor fuel data are used in the apportionment of Federal Surface Transportation Program (STP) funds, National Highway System (NHS) funds, Interstate Maintenance (IM) funds, and the Minimum Guarantee. The following shows the use of these factors in FY 1999.
Since the Surface Transportation Assistance Act of 1982 (STAA), Congress has expressed desires to manage the cross-subsidy between states (the donor-donee problem). With certain states (called donee states) receiving more in highway Federal-aid than they contributed in payments to the Highway Trust Fund (HTF), pressure from the states who contribute more than they receive (donor states) has culminated in congressional mandates to limit the Federal cross subsidy. Some of the programs to implement this policy include:
Recognizing the increasing importance of accurate, timely reporting of motor fuel and related attribution data in determining state-funding shares, FHWA is reviewing the motor fuel data reporting system used to collect this information. As part of the review process, FHWA is evaluating the attribution process to determine the continued quality of its attribution methodology and to identify areas where improvements can be made.
While FHWA believes it is identifying and appropriately dealing with the vast majority of attribution issues, the primary purpose of this paper is to identify those issues that need to be better addressed, and possibly streamline the attribution process by eliminating issues that have been addressed, but do not warrant the continued effort involved in collecting and analyzing the data for attribution purposes.
It is a surprise to many that the state-by-state contributions to the HTF are not available from the IRS. The Federal fuel taxes, which make up more than 80 percent of the HTF's receipts, are imposed when the fuel is first removed from bulk storage and the tax is paid by the seller. Thus, the typical Federal fuel taxpayer is an oil company. While paid initially by a company, the costs of these taxes become part of the purchase price of the products and are ultimately paid by the highway user. The heavy vehicle-use tax is the only Federal highway-user tax paid directly to the IRS by the vehicle owner, and even then, the return captures only the business address of the owner, not the state or states where the vehicle is operated. Using oil company tax data would only cause problems in attribution because the state in which the motor fuel tax is paid does not reflect where it will be shipped, stored, or - of particular interest in the attribution process - used.
As Federal tax records do not yield the desired information, FHWA estimates the HTF contributions from highway users by looking at tax revenue data in each state. The method for attributing Trust Fund receipts to each state has changed over time, with the last changes made in 1985. A data series, collected from the states by Federal government, on motor fuel use on and off the highway goes all the way back to 1919. FHWA first started making the state HTF payment estimates based on motor fuel data in the early 1970's, in response to general interest in donor-donee issues. With the passage of the Surface Transportation Assistance Act of 1982, the attribution of HTF receipts became a factor in calculating the 85-percent minimum allocation. FHWA solicited comments from the states on its attribution methodology, and modified the methodology to reflect the concerns of the states and the Congress that the attribution employ use-based factors. The resulting methodology, first used to attribute fiscal year 1984 Trust Fund receipts, was published in the Federal Register on June 21, 1985 . These procedures have been in use since that time.
The Department of the Treasury reports the tax receipts deposited in the HTF for each tax type. The net receipts, after refunds and transfers, are the contributions to the HTF that are attributed to the highway users in each state. The basic premise is that the Federal motor fuel tax receipts (by fuel type) to the Highway Account are received from each state in proportion to the highway use of that fuel type in each state compared to the total use in all states.
Commercial vehicle contributions -- the diesel fuel tax, truck tire tax, truck and trailer retail sales tax, and the heavy vehicle use tax -- are attributed to the states using highway use of diesel and special fuels (special fuels are very small amounts). This method is considered to be the best available proxy for truck use in each state, and was formalized in the Federal Register Notice of June 21, 1985 .
The attribution analysis is basically a process of determining a state's on-highway motor fuel use from state tax data by looking at any given set (in the mathematical sense of set) of motor fuel data, and determining if it is an on-highway use. Typically, state revenue departments have data on motor fuels that are exempted, refunded, or taxed at other rates. From this kind of data, FHWA may be able to identify the use of the fuel and therefore its place in attribution. In many cases, this data does not exist at the state level and FHWA estimates usage from other sources. When FHWA estimates and state's data are both available, a choice must be made about the relative quality of the data, and one or the other is selected.
Historically, there have been two basic methodologies or approaches which have been considered as attribution options. One approach is based on gallons of motor fuel, and the other is based on vehicles miles traveled (VMT). Truck registration data was once used to attribute truck taxes, but was found to inaccurately reflect truck on-highway usage. The June 21, 1985, FHWA Federal Register Notice last examined attribution policy, and determined that motor fuel should be the attribution measure. In the time context of the 1985 Notice, the emphasis was on attributing the newly imposed and increased truck taxes, and therefore the VMT method received significant consideration. While FHWA continues to pursue improving both motor fuel and VMT reporting, the VMT methodology does not provide the accuracy and veracity that the motor fuel methodology does. It is worthwhile, however, to briefly review both methods.
Advantages and disadvantages of these approaches for attribution purposes
Interstate motor-carrier fuel use is treated differently from other fuel categories. The intent is to tax major interstate fuel users (typically motor carriers), on the basis of the quantity of fuel used within the state rather than on the basis of fuel purchased in the state. While most of the motor fuel is diesel, gasoline and special fuels are reported. Almost all states and Canadian provinces now use IFTA provisions for taxing motor fuel used by interstate motor carriers in place of Interstate Motor Carrier (IMC) taxation. At least on the interstate level (leaving out intra-state diesel fuel usage, which is captured under normal state reporting,) state use of the IFTA taxation procedure addresses the place of use instead of place of purchase. A problem with IFTA data however, is the reporting lag. IFTA processing takes place on a quarterly basis and a state does not know its IFTA net tax revenue until five to six months after tax liability occurs. Current FHWA guidance asked for state data within sixty days of the end of the reporting month.
FHWA concludes that highway use based on motor fuel data and identified by state tax data or estimated by FHWA continues to be the better approach to attribution. This conclusion is based on three primary facts:
The existing attribution process is not in precise agreement with the language of the TEA-21 legislation. On close inspection, the following discrepancies are revealed:
TEA-21 directs that the Surface Transportation Program (STP) be apportioned with "35 percent of the apportionment in the ratio that the estimated tax payments attributable to highway users in all states paid into the Highway Trust Fund (other than the Mass Transit Account) in the fiscal year for which data are available." Note that it is based on the state's share of tax payments by highway users, which should exclude Federally tax exempt public vehicles using either gas or diesel motor fuels, as these vehicles do not pay a Federal highway tax. Under current motor fuel reporting procedures, gallons of diesel fuel powering public vehicles should not be included, but in reality many states cannot report this use separately. In contrast, gallons of gasoline used to power public vehicle is also not Federally taxed, but it is either reported by the state or is estimated by FHWA models and is subtracted from total gasoline volume reported, and therefore is treated appropriately in attribution methodology.
TEA-21 directs that 33.3 percent of the Interstate Maintenance Program be apportioned "in the ratio that the of each state's annual contributions to the Highway Trust Fund (other than the Mass Transit Account) attributable to commercial vehicles." Note that commercial vehicles do not include public vehicles. Therefore, in Interstate Maintenance apportionments, gallons of motor fuel used in public vehicles should be excluded from attribution. As above, gallons of diesel fuel may not be reported properly, but gallons of gasoline are either reported or estimated.
TEA-21 directs that the National Highway System component should be apportioned as follows: "30 percent in the ratio that total diesel fuel used on highways in each state bears to the total diesel fuel used on highways in all states." Note that this language does include Federal, state, county and municipal diesel, and that it does not include LPG. Current motor fuel reporting procedures do not ask for public use of diesel (but it is included in some state's data), and attribution procedures therefore do not currently distribute public diesel correctly. Attribution procedures also currently include LPG fuels. Furthermore, notice that the apportionment depends on each state's share of gallons of diesel fuel directly, not Federal tax dollars as apportioned by each state's share of diesel motor fuel. This last point is taken into account in the current attribution process.
Internal FHWA discussion only: how important is it that FHWA follow the letter of the law in this situation, or how important is it that FHWA not change attribution procedures to maintain a continuous data series, or to avoid criticism from states hurt by the changes. Is there any reason that the information provided is more accurate under existing procedures than by procedures that could be developed to meet Congressional language.
Ideally, the FHWA should be asking the following questions in connection with determining attribution of motor fuel:
The astute reader will immediately begin to ask questions. What about electric vehicles and motor fuels not measured in gallon units? What about motor fuels which are not currently paying any highway tax? How come some highway uses of motor fuel are not included for attribution? And what about the problem of fuel purchased tax-paid in one state, and then consumed on highways in another state? The purpose of this paper is to raise these issues, recognizing that some of them have not been answered in any definitive way.
The proceeding sections have discussed attribution methodologies. In the actual world, a perfect attribution procedure cannot and will not be achieved. However, serious effort can be made to identify the significant attribution shortcomings and to analyze the potential to achieve second-best solutions, or some form of satisfactory solution. Several principals should be considered:
The above points should be considered when analyzing and discussing the following individual issues. The following discussion is grouped into two categories:
Some of the reasons the ideal is un-achievable include:
Assuming FHWA chooses attribution on the basis of where the tax is paid and using motor fuel gallon data, then the question is how to deal with data not available or not of sufficient quality to use for attribution. The options include:
The data on state's ability to track any of the following information came primarily from the Re-assessment survey completed May 1999. Other sources occasionally provided additional data.
Currently FHWA estimates:
Currently we do not estimate (which means they are assumed to be zero unless a state reports data in accordance with FHWA's Guide to Reporting Highway Statistics):
Currently FHWA makes some determinations (recognizing our determination are sometimes arbitrary, and largely based on attempting to be consistent across all states):
Not estimating a number means that zero is the estimate. In fact, a bias is most likely introduced in these cases. How big a problem is this?
Initial thoughts on conclusions:
FHWA will probably continue to use gallons of motor fuel reported by states as the proxy for on-highway use, developing estimates where needed and including highway uses where states cannot separate out uses (like state and local gasoline and diesel, and public use of diesel.)
Under the re-assessment process FHWA has been conducting, the following general findings summarizes FHWA position at this point. (January, 2000)
FHWA believes the current attribution is sound:
Improvements in data are needed:
Improvements in documentation are needed:
The two biggest barriers to better reporting for almost all states are:
Barriers to More Equitable Attribution - Gasoline/gasohol
Barriers to More Equitable Attribution - Special Fuels
Allow additional time before initial report
Permit alternative reporting procedures
Improvements are also needed in the following areas: