NGVAmerica says natural gas vehicle fuel will once again be equitably taxed in Indiana relative to traditional motor fuel with the passage of House Bill 23-1454, which ensures that state taxes on compressed natural gas will be calculated based on the diesel gallon equivalent sold at the fueling dispenser.
NGVAmerica coordinated a multi-year advocacy effort – which included fuel retailers, fleets, utilities and Drive Clean Indiana – to correct this issue, engaging the support of Rep. Randy Frye. Frye helped grow a coalition of like-minded legislators who ushered the change into law in this year’s General Assembly session.
The discrepancy first arose in 2015 when the Indiana Department of Revenue changed the point of taxation for CNG sales from the CNG retail station dispenser to the natural gas utility meter to better align with how traditional liquid petroleum motor fuels are taxed.
The distribution and dispensing of CNG motor fuel, however, is different, which resulted in an unfair CNG motor fuel tax rate. Local utilities receive natural gas from large transmission pipelines and deliver gas via smaller distribution pipes to customers, including CNG motor fuel retailers.
After receiving the natural gas, retailers remove moisture and compress the methane molecules to make them suitable for dispensing, storage, and use as CNG motor fuel. Through that process, the amount of natural gas reported as delivered to the retail fueling station is always higher than the amount of CNG actually sold at the dispenser to the station’s fleet customer due to a number of factors. The result was that natural gas retailers in Indiana were taxed at least an additional 5.77% over gasoline and diesel retailers for the same amount of energy sold.
Furthering the problem was the fact that CNG motor fuel in Indiana was taxed energy-wise per gasoline gallon equivalent (GGE) but subject to the diesel gallon equivalent (DGE) rate, which added an additional 13% increase in CNG’s effective tax rate.
Before this legislative fix, total overtax rate for CNG motor fuel sold in Indiana was 18.77%, or approximately $0.10 in additional tax over what diesel customers pay per gallon.
Indiana House Bill 23-1454 includes language that “Provides that the difference between the amount of special fuel purchased by a compressed natural gas product fuel station and the amount of compressed natural gas product produced and sold by the compressed natural gas product fuel station is exempt from the special fuel tax.”
The change also enables an accurate refund for CNG motor fuel taxes that have been overpaid since the 2015 change.
“NGVAmerica salutes Representative Frye for championing this issue for our members and fleet customers,” says NGVAmerica President Daniel Gage. “This seemingly innocuous change in the point of taxation and the way CNG was measured had a negative impact on fuelers and fleets looking to transition to cleaner, less carbon-intensive transportation fuels. We are proud to say that with this law’s passage, the U.S. Internal Revenue Service and every U.S. state administers CNG motor fuel tax in the same equitable manner.”
