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Federal Highway Administrator Mary Peters
Remarks as prepared for delivery
"Winning the Battle Against Fuel Tax Evasion: Where We Need to Go"
October 19, 2004, St.Louis, Missouri

WELCOME

It's good to see so many state revenue and DOT people. I'm told there are over 35 states represented here. It's also good to have our partners, IRS and the DOT Office of the Inspector General (OIG), with us . . . as well as industry reps who have a serious interest in making sure everyone plays by the rules.

This large turnout underscores the concern that the each of you and the agencies and organizations you represent have for fuel-tax evasion. You are here to find out what the Federal Highway Administration and its partners can do about it.

President Bush, Secretary Mineta, and I are committed to ensuring that American tax dollars are properly spent. That's why the Federal Highway Administration works very closely with Ken Mead's OIG, with AASHTO, with the IRS -- with all of you. We want to increase awareness of fuel tax evasion.

More importantly, we are working to prevent it.

VITAL TO WORK TOGETHER

We are here to renew relationships and to energize our efforts to address fuel tax evasion. As you heard this morning, making progress on the problem truly is a group effort -- it is vital that we work together.

Without a doubt, DOTs -- and America's travelers -- benefit from the determined work of revenue collectors. We understand the purpose of the Highway Trust Fund (HTF). The funds are used by states to improve safety, relieve congestion, and increase mobility. In short, transportation moves the American economy.

In order to keep America moving, FHWA depends on the resources that we get from our highway use and motor fuel taxes. About 90 percent of our highway trust fund revenues come from fuel taxes. Loss of this tax revenue robs the public of its investment in the highway system. The Highway Trust Fund finances our nation's highways -- we are committed to doing everything possible to make sure everyone pays their fair share

One report in 2001 estimated that over $1 billion a year in federal gas tax evasion and fraud was occurring. However, it is virtually impossible to ascertain the magnitude of the problem because until the "crime" is "uncovered" it is difficult to know the loss. Until now, there was no way to track what is not being reported.

The corporate tax bill that President Bush is expected to sign contains measures that will give us data to crosscheck state motor fuel reports.

New cases being discovered, such as bypassing the dye injector systems at terminals, confirm our belief that evasion is with us and is significant. The new tax bill also mandates that dye-injection equipment has to be tamper-proof, with appropriate penalties for those found altering the systems for their gain.

This is why we felt it was time to get together and refocus on what is going on in the area of fuel tax evasion and what we at both the federal and state levels, hope to do about it.

FUNDING THE SYSTEM

Over the years, we have seen steady growth in the amount of trust fund dollars, but even with the growth, we are not able to fully fund all of the needs of our transportation infrastructure.

Every dollar that is collected and remitted to the federal highway trust fund counts in two ways.

  1. TEA-21 linked HTF revenues and expenditures so that as more dollars are deposited into the Federal Highway Trust Fund, the actual dollars allotted to the states increased. Four of the largest transportation programs (STP, IM, NHS, Minimum Guarantee) rely on motor fuel use or contributions to the HTF as formula factors for determining the amount of funding a state receives.

  2. Also, federal evasion programs often have a positive effect on state revenues as well. In the past, states have seen their revenue collections increase when federal enforcement activities are occurring, a kind of "spillover" compliance or residual compliance.

    As an example, when FHWA changed the point of taxation for diesel fuel to the terminal rack and began dyeing untaxed diesel fuel in 1994, diesel fuel tax receipts were $600 to $700 million higher in 1994 than 1993. Increases in state revenues for 1994 were estimated at $150 million.

In addition, fuel tax compliance levels the playing field for legitimate business. It is difficult to sell your product on the market if your competition can sell the same thing for less.

STAYING AHEAD OF CRIMINALS

Everyone would like to have a "smoking gun" to present as evidence when asking for personnel, funding or other resources. We have learned, however, that those smoking guns have allowed millions of dollars to leak out of the highway trust fund, so we are working at being more proactive through legislation.

Some interesting case histories were presented today that provide that necessary evidence. You also have to think about what may happen and where the potential for evasion may be.

It's hard to stay ahead of criminals. These schemes should create anger and frustration in your role as a steward of public funds and as a private citizen. No one wants to be taken advantage of in our personal or professional lives and that is exactly what is happening when fuel taxes are evaded.

Your state loses out on federal apportionments and you may end up driving on more congested roadways in need of repair, or enduring bus or subway delays because maintenance was deferred.

NATIVE AMERICAN TRIBES

We also have to deal with the fuel tax issue and Native American tribes.

At the federal level, we have to deal with fuel movements across international borders into reservation lands where the tax may not be collected. Some federal court cases are finding that states cannot tax fuel sold on Native American land. Idaho and Kansas court cases have determined that "such taxation violated tribal sovereignty."

Other states have been able to reach an agreement with tribal governments where a tribal tax, similar to the state tax is collected by the tribe and used exclusively for reservation roads.

DETERRENT PROGRAMS

We need strong evasion deterrent programs at the federal and state levels.

Federal Highways is working with the OIG and with the IRS on the development of new technologies and enforcement through audits, examinations and criminal investigations. The new tax law that the President signed last week is our strongest to date on fuel tax evasion.

In many states, revenue departments are charged with enforcing the motor fuel tax, and it is through their efforts that DOTs are able to pay for many transportation projects. State transportation agencies are well rewarded for devoting a portion of STP funds to fuel tax compliance initiatives. In the past funds invested in enforcement programs have been shown to yield at least $10 of additional revenue for each $1 spent.

Cooperative enforcement efforts within your state and with surrounding states can go far in addressing fuel tax evasion. All of the states represented here participate as members of at least one regional task force under the Joint Federal/State Motor Fuel Tax Compliance Project and have benefited from the relationships developed and the information shared as a result of being active members in the task forces.

We took a more aggressive approach to fuel tax evasion in our proposal for surface transportation reauthorization. Passage is delayed, as you know. However, Congress is working on making changes to close some of the loopholes that allow evasion to occur.

CLOSE

All of us are on the front line.

Progress in dealing with fuel tax evasion has relied on partnerships developed between and among states and federal agencies. These partnerships are one of the most valuable, if not the most valuable tool we have for addressing evasion. Sharing information, providing leads, working together is the only way we will be able to prevent the problem of fuel tax evasion, and I can't emphasize enough, the need for cooperative efforts.

Always remember, we have a public trust -- together, we are protecting the investment of American taxpayers. Now, more than ever, we have to be wary, we have to be vigilant, and we have to stay prepared.

-end-

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