[Federal Register Volume 65, Number 160 (Thursday, August 17, 2000)]
[Notices]
[Pages 50269-50272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20941]


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DEPARTMENT OF TRANSPORTATION

Federal Highway Administration

[FHWA Docket No. FHWA-2000-7635]


Highway Motor Fuel Reporting Reassessment; Public Workshop

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Notice; public workshop; request for comments.

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SUMMARY: The FHWA presents this statement of proposed policy regarding 
the methodology to be used by the FHWA for estimating Highway Trust 
Fund (HTF) receipts attributable to the States. This motor fuel 
attribution process is used in determining the distribution of Federal-
aid highway funds in three large highway programs and the minimum 
guarantee. The purpose of this policy announcement is to provide 
information on the FHWA's proposed changes to reporting of motor fuel 
data from the States to the FHWA, and to gather comments on potential 
changes to the reporting procedures. Also, a one-day workshop will be 
held to assist individuals who wish to know more about the procedures 
and to discuss this subject matter.

DATES: Comments on the proposed policy must be received on or before 
October 30, 2000. The public workshop will be held on October 5, 2000, 
from 8:30 a.m. to 5 p.m., e.t., Washington, DC 20590-0001.

ADDRESSES: Mail or hand deliver comments to the U.S. Department of 
Transportation, Dockets Management Facility, Room PL-401, 400 Seventh 
Street, SW., Washington, DC 20590, or submit electronically at http://dmses.dot.gov/submit. All comments should include the docket number 
that appears in the heading of this document. All comments received 
will be available for examination and copying at the above address from 
9 a.m. to 5 p.m., e.t., Monday through Friday, except Federal Holidays. 
Those desiring notification of receipt of comments must include a self-
addressed, stamped postcard or you may print the acknowledgment page 
that appears after submitting comments electronically.
    The workshop location is the Capitol Hill Holiday Inn, 550 C Street 
SW., Washington, DC. For details on registration and hotel 
accommodation information, and to make reservations to attend this 
meeting, please contact Ms. Gina Burge of Harrington-Hughes and 
Associates, Inc. at (202) 347-3511 by September 21, 2000.

FOR FURTHER INFORMATION CONTACT: Mr. Tom Howard, Office of Highway 
Policy Information, (202) 366-0170; or Ms. Gloria Hardiman-Tobin, 
Office of the Chief Counsel, HCC-32 (202) 366-1397, Federal Highway 
Administration, 400 Seventh Street, SW., Washington, DC 20590-0001. 
Office hours are from 8 a.m. to 5 p.m., e.t., Monday through Friday, 
except Federal holidays.

SUPPLEMENTARY INFORMATION:

Electronic Access and Filing

    You may submit or retrieve comments online through the Document 
Management System (DMS) at: http://dmses.dot.gov/submit. Acceptable 
formats include: MS Word (versions 95 to 97), MS Word for Mac (versions 
6 to 8), Rich Text File (RTF), American Standard Code Information 
Interchange (ASCII) (TXT), Portable Document Format (PDF), and 
WordPerfect (versions 7 to 8). The DMS is available 24 hours each day, 
365 days each year. Electronic submission and retrieval help and 
guidelines are available under the help section of the web site.
    An electronic copy of this document may also be downloaded by using 
a computer, modem and suitable communications software from the 
Government Printing Office's Electronic Bulletin Board Service at (202) 
512-1661. Internet users may also reach the Office of the Federal 
Register's home page at: http://www.nara.gov/fedreg and the Government 
Printing Office's web page at http://www.access.gpo.gov/nara. 
    The ``Guide to Reporting Highway Statistics,'' is available for 
review at the URL: http://www.fhwa.dot.gov/ohim/ghwystat.htm. 
Additional information on the Internal Revenue Service (IRS) projects 
Excise Files Information Retrieval System (ExFirs) and Excise Summary 
Terminal Activity Reporting System (ExSTARS) may be found at the URL: 
http://www.taxadmin.org/fta/mf. 

Background

    Under the Transportation Equity Act for the 21st Century (TEA 
21)(Public Law 105-178, 112 Stat. 107(1998)), 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 program funds. About $11.3 billion 
annually are apportioned based on State-reported motor fuel data. The 
following shows these factors for fiscal year (FY) 2000:
     Highway Trust Fund payments to the highway account are 
used as a 35 percent factor for distributing about $5.4 billion in FY 
2000 STP funds.
     Diesel fuel used on highways is used as a 30 percent 
factor for distributing about $4.6 billion in FY 2000 NHS funds.
     Commercial vehicle contributions to the highway account 
are used as a 33.3 percent factor for distributing about $3.8 billion 
in FY 2000 IM funds.
     The minimum guarantee, under which each State is 
guaranteed that its share of apportionments and funding for highway 
priority projects will be at least 90.5 percent of its share of 
contributions to the highway account of the Highway Trust Fund, is 
estimated to be about $6.7 billion in FY 2000.
    The current process for attributing motor fuel data was formulated 
in 1985. In the policy statement published on June 21, 1985, under FHWA 
Docket No. 85-13, at 50 FR 25812, FHWA established highway use of motor 
fuel as its attribution basis, and defined a new method to attribute 
the non-fuel truck taxes (the tire, truck and trailer retail excise, 
and heavy vehicle use taxes), using special fuels as the attribution 
factor. Prior to this change, truck vehicle registrations had been used 
as the attribution factor for these taxes. These changes were in 
response to the Surface Transportation Assistance Act of 1982 (Public 
Law 97-424, 96 Stat. 2097) which created a Federal-aid program funding 
category that relied on attribution, and in which truck taxes were 
raised significantly. Since June 1985, no policy changes have been made 
to the attribution process.
    Recognizing the increasing importance of accurate, timely reporting 
of motor fuel and related attribution data in determining State funding 
shares, the FHWA, with expert support from the American Association of 
State Highway and Transportation officials (AASHTO) and the Federation 
of Tax Administrators (FTA), initiated a review of the motor fuel data 
reporting system. As part of the review, the FHWA is evaluating the 
attribution process to determine the continued quality of the 
attribution methodology, and to identify where improvement can be made. 
Experts on motor fuel taxation and reporting from several State 
departments of revenue and transportation and the FHWA field offices 
met with the FHWA, the AASHTO, and the FTA, and provided technical 
expertise and feedback to the review. Two meetings were held in

[[Page 50270]]

December 1998 and September 1999. While not announced, minutes of these 
two meeting are available from Mr. Tom Howard, Office of Highway Policy 
Information, FHWA, at (202) 366-0170.
    Three public workshops were held in association with the 
reassessment process on December 7, 1999, in Atlanta, GA; January 27, 
2000, in Philadelphia, PA: and February 24, 2000, in Denver, CO. (65 FR 
2222, January 13, 2000). Minutes of these meetings are available from 
Mr. Tom Howard, Office of Highway Policy Information, at (202) 366-
0170.
    The attribution process was one of the subjects of review in a 
General Accounting Office (GAO) study dated June 29, 2000, ``Highway 
Funding; Problems with Highway Trust Fund Information Can Affect State 
Highway Funds'' (Report No. RCED/AIMD-00-148 (15pp.) Plus 7 appendices 
(47 pp.)). This report is available from the URL: http://www.gao.gov 
and click on ``GAO Reports.''

Overview

    In general, the FHWA found that the existing motor fuel reporting 
and basic attribution process is serving adequately, but it needs to be 
better documented to maintain its credibility, and updated to continue 
to meet the attribution requirements of accuracy and equity. These 
requirements are even more important because of the increased amount of 
money dependent on this data.
    The existing methodology that relies on motor fuel use as the basis 
for attributing Highway Trust Fund receipts continues to be consistent 
with the basic principals of highway user fees. However, the process 
can be improved in three areas: (1) Reporting, (such as losses, special 
fuels, alternative fuels, and International Fuels Tax Agreement (IFTA), 
(2) treatment of motor fuel data in attribution, (such as public use of 
diesel, and special fuels), and (3) process management (process 
oversight and documentation).
    The FHWA is developing an ``action plan'' to address the issues and 
concerns raised by the reassessment process. At this point in time, 
action items include the following:
     Fully document FHWA's data preparation and attribution 
process, providing explanation and rationale of the data flow and 
analyses throughout the attribution steps;
     Ensure that State's motor fuel data is subject to detailed 
independent verification;
     Write instructions to implement the proposed changes 
listed in this Federal Register notice (after comments have been 
received and evaluated), and rewrite FHWA reporting instructions to 
clarify selected items;
     Identify States with high risk of reporting shortcomings, 
and perform in-depth reviews with these States;
     Develop ``smart-forms'' (with appropriate data editing 
capabilities) for State motor fuel data submission to simplify 
reporting, and internal processing through the FHWA evaluation process, 
to minimize errors and data handling;
     Document results of FHWA's annual analysis to Divisions 
and States for comment and revision, if necessary;
     Develop training for data providers;
     Review statistical models and other procedures used by the 
FHWA to estimate missing information and fund research to update these 
procedures.
     Conduct an independent review of the FHWA's motor fuel 
data preparation and attribution process.
    Availability of the detailed action plan will be announced in the 
final Federal Register policy statement.

Purpose

    The primary purpose of this notice is to provide the opportunity 
for public comment on proposed policy modifications to the existing 
process. The proposed modifications are significant in that they will 
improve equity and simplify reporting, but are not expected to have 
large impacts on a State's share of the TEA-21 funds in the attribution 
process.

Discussion of Proposed Changes

Issue: Reporting of Public Use of Diesel Fuel

Background
    Current FHWA instructions to the States in the ``Guide to Reporting 
Highway Statistics'' (Guide), call for the inclusion of private and 
commercial on-highway diesel gallons, and the exclusion of public 
diesel gallons. In the past, public diesel was not generally taxed by 
States, and it was typical for States to tax non-public diesel at the 
retail pump. With taxes collected at the retail pump, it was most 
likely that the fuel would be used on the highway by private and 
commercial vehicles. Under these circumstances, it was reasonable to 
request States to report non-public (i.e., private and commercial) 
diesel. However, with the efforts to combat tax evasion initiated in 
the past 15 years, diesel fuel is now generally taxed higher up the 
fuel distribution chain, making it more difficult to differentiate 
public and private uses. These changes in the tax collection process 
impact the existing attribution and formula fund distribution process.
Current Situation
    The TEA-21 language specifies that the NHS program fund 
distribution is partly based on diesel gallons by State, which includes 
public, private, and commercial uses. It also specifies that the IM 
program is partly based on commercial vehicle contributions, which does 
not include motor fuel used in public vehicles. Most States cannot 
separately identify public use of diesel motor fuel, and therefore are 
reporting public diesel as part of private and commercial diesel. The 
reasons this situation exists are the lack of a tax mechanism in many 
States that separately identifies the publicly used fuel (no State 
legislation for exemption or refunds), and the complexity of State 
reporting from many subjurisdictions (such as counties or school 
districts reporting to the State). Only about seven States currently 
separate all public diesel from other uses.
Improvements
    The FHWA proposes to require the reporting of all on-highway diesel 
fuel (therefore including public diesel, as well as private and 
commercial diesel) for all States. This will resolve current inequities 
and remove inconsistencies in the current procedures related to the 
public diesel data issue. This solution serves the purposes of equity, 
minimal State reporting burden, and congressional intent.
Implementation
    The FHWA proposes to begin including on-highway public diesel with 
on-highway private and commercial diesel for data year 2002, which will 
impact Federal funds attribution in FY 2005.

Issue: Accounting for Motor Fuel Losses

Background
    Motor fuel inventory losses for tax accounting purposes include 
occurrences such as storage tank leakage, destruction by fire or other 
means, spillage, meter faults, and measurement differences due to 
temperature and evaporation (often called shrinkage, but could be a 
gain in volume).
    Federal (IRS) regulations do not recognize losses of highway motor 
fuel. Under these regulations, fuel lost or destroyed through spillage, 
fire or other casualty, cannot be treated as fuel used in an off-
highway business use, and a refund from highway taxes cannot be 
claimed. At the State level, about ten States allow a flat percentage 
loss for

[[Page 50271]]

gasoline, and some States allow for actual losses for tax accounting 
inventory.
Current Situation
    For those States that allow a flat percentage for gasoline losses, 
the FHWA caps the loss at one percent of gross gasoline reported. The 
reasoning behind capping losses at one percent is the concept that the 
gallons above the one percent threshold are actually consumed on the 
highway. While a State may choose to allow a tax break to wholesalers 
and distributors, the gallons represented by this paper transaction are 
not actually lost, they are just not taxed by the State. Diesel losses 
are not considered in the FHWA Guide instructions on the assumption 
that shrinkage and evaporation of diesel fuel is not significant.
Improvements
    The FHWA proposes to modify its process and to accept only actual 
losses as reported by the States. The FHWA proposes to eliminate the 
one-percent loss allowance cap, and to discontinue the reporting of any 
State percentage loss allowances. The FHWA also proposes to treat 
diesel losses the same as gasoline losses, i.e., allowing the reporting 
of actual diesel losses.
Implementation
    The FHWA will revise the Guide, worksheets, and tables to eliminate 
the reporting and analysis of percentage losses beginning with data 
year 2002. The FHWA will continue to request the reporting of actual 
losses for gasoline, and will begin accepting and incorporating actual 
diesel losses reported by States.

Issue: Oversight of State-Reported Data

Background
    For decades, State-reported motor fuel data collected through State 
tax authorities has been reported to the FHWA for statistical record 
keeping purposes. Within the last two decades, however, the Congress 
has increasingly used this data for purposes related to distributing 
highway funds to the States. With this trend, the quality of the data 
being reported has been increasingly questioned. The FHWA is 
considering whether additional oversight actions might be needed to 
assure the quality of this data.
Current Situation
    Currently, the FHWA Division Offices conduct motor fuel reviews on 
a three-year cycle. These reviews address key reporting issues, help 
the FHWA evaluate the quality of the data being submitted by the States 
and identify problem areas. The GAO has concluded that the FHWA needs 
to ensure that State data is independently verified.
    Several options are available to address this recommendation, 
including:
     Certification of the State data by a high-level State 
official;
     Certification by State official with periodic, 
independent, in-depth reviews;
     Periodic multi-State/FHWA peer reviews; or
     In-depth reviews by FHWA staff on a periodic basis.
Implementation
    The FHWA is soliciting comments on the best way to ensure State 
data validity. FHWA use of the IRS ExFIRS data base, being developed to 
combat tax evasion (by IRS with FHWA funding), will likely provide 
additional verification functions when it is available. ExSTARS, the 
tracking system of ExFIRS, is projected to be available by October 
2000. The FHWA will also pursue further investigation of using ExFIRS 
for additional verification of State data when ExFIRS becomes 
available.

Issue: Special Fuel Versus Diesel Fuel as an Attribution Issue

Background
    Historically, the FHWA has allowed States to report gallons of 
diesel fuel together with small amounts of other special fuels, and has 
called the combined total ``special fuels.'' These other special fuels 
include, in order of prevalence (most to least prevalent) liquefied 
petroleum gases (LPG), compressed natural gas (CNG), and liquefied 
natural gases (LNG), 85 percent alcohol mixtures, and any other 
alternative fuels. Kerosene, another alternative fuel historically not 
used as a motor fuel, is now occasionally mixed with diesel fuel in 
cold weather to improve running characteristics; this is generally 
treated as a diesel fuel and is not reported separately.
Current Situation
    The TEA-21 directs that the NHS component 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 not include LPG and the 
other fuels. However, because the amounts of other special fuels are 
estimated to be very small (less than 2 percent), and about one-half of 
the States do not--or cannot--separately identify them, existing FHWA 
procedures combine all ``special fuels'' with diesel fuel. Hence, 
current attribution procedures currently include LPG and other special 
fuels.
Improvements
    Two options to address special fuels as an attribution factor 
exist:
     Use only diesel fuel as the NHS attribution factor; or
     Maintain the combined category special fuels as the NHS 
attribution factor.
    One problem with excluding special fuels is how to deal with States 
which may have reportable gallons of the these fuels, but cannot 
document them separately (e.g., two fuels may have the same tax rate, 
and the State revenue department reduces reporting burden on the 
taxpayer by not requiring separate reporting of the fuels). The FHWA 
does not have a procedure for identifying and removing special fuel 
gallons from gross reported diesel gallons for States that report 
aggregated data. Taking the special fuel gallons out of the data of 
States who report it separately would be inconsistent treatment when 
compared with those States who report aggregated special fuel gallons. 
Given these circumstances, the FHWA is proposing not to require 
separation of diesel and special fuels.
Implementation
    The FHWA proposes to retain its current reporting requirement and 
not require States to split diesel and special fuels. For those States 
that can readily provide information on a variety of alternative fuels, 
the FHWA will request that they report that information so that the 
FHWA can monitor the use of special fuels.

Issue: Reporting of Alternative Fuels

Background
    ``Alternative fuels''--such as 85 percent ethanol (E85), 85 percent 
methanol (M85), LPG, LNG, and CNG--are currently a very small portion 
of motor fuel used for highways but may be a growing segment of the 
motor fuel industry. Over the long term, alternative fuel growth could 
significantly skew motor fuel data as it is currently reported.
    In the attribution of motor fuel data, gallons have been the 
traditional unit of measure of motor fuels, but some alternative fuels 
are compressed gases which must be measured in other units. The energy 
content of the alternative fuels, and their variance from traditional 
motor fuel energy content, also causes concern for motor fuel 
attribution.

[[Page 50272]]

    Several States do not tax alternative fuels on a per gallon basis. 
These States typically charge annual alternative-fueled vehicle 
registration fees, often depending on vehicle weight or distance of 
travel, and provide for the issuance of decals to these vehicles. While 
this fee is a highway-related tax, it is not reportable as on-highway 
motor fuel use. Receipts associated with these decals are reported to 
the FHWA as State revenue, but no gallons of highway use are reported 
to the FHWA, or shown in the FHWA consumption and attribution tables.
Current Situation
    At the Federal level, these fuels pay applicable motor fuel taxes 
if the fuels are consumed in on-highway vehicles. At the State level, 
these fuels usually pay applicable motor fuel taxes if consumed in on-
highway vehicles, although some States substitute registration fees as 
discussed above.
    The FHWA instructions in the Guide request the States to report 
gallons of E85 and M85 with State-reported gallons of gasoline. 
Likewise, CNG and compressed natural gas are to be reported as LPG. The 
reported amounts of these fuels are therefore used in the attribution 
process and reported in FHWA statistical tables.
Improvements
    The FHWA is proposing to on revise the method of reporting 
alternative fuels. The FHWA proposes to instruct States to use standard 
conversion rates for equating the energy content of alternative fuels 
to diesel (to ensure all States will use consistent conversion 
factors), and to report these energy equivalent gallons to the FHWA by 
each alternative fuel type.
    The FHWA also proposes to develop a mechanism for the reporting of 
motor fuel gallons that pay registration fees in lieu of per unit motor 
fuel taxes. The FHWA proposes working with the States to develop a 
common method of estimating gallons consumed in States that have a 
registration fee in lieu of per gallon taxes on alternative fuels.
Implementation
    After evaluating the comments, the FHWA will work with States to 
develop a procedure, provide the opportunity for public comment, and 
develop appropriate procedures. The FHWA will also revise the Guide to 
provide instructions for the above improvements. Revised reporting is 
proposed to begin in calendar year 2002.

Issue: Accounting for International Fuel Tax Agreement Procedures

Background
    The IFTA is a motor fuel accounting process that became mandatory 
for all States (and Canadian Provinces) on September 31, 1996. Under 
IFTA, motor carriers report the distances their trucks travel in all 
States (and Provinces) in which they operate, and pay the motor fuel 
taxes due in each State in one transaction to their base State 
(typically the State where the carrier's business headquarters is 
located). On a quarterly basis, the States adjust the motor carrier tax 
revenues among themselves to allocate motor fuel taxes to the State in 
which the travel actually took place.
    The FHWA requires State reporting of IFTA gallons on a net basis--
that is, adding in credits for gallons (and revenues received) from 
other States, and subtracting out credits for gallons (and debiting out 
receipts) sent to other States. To ensure proper crediting in FHWA 
tables and attribution procedures, State's must correctly report IFTA 
motor fuel gallons and receipts.
Current Situation
    The IFTA organizational agreements have procedures to insure that 
base State reporting responsibilities are properly carried out and that 
procedures (such as peer reviews) and sanctions are available to remedy 
deficient conditions.
Improvements
    To increase the understanding of States on the importance of 
reporting adjusted IFTA data to the FHWA, the FHWA proposes to review 
and document State practices in the reporting of IFTA data to the FHWA. 
This document will describe how States collect IFTA revenue, how States 
separate out revenues not related to the gallons of motor fuel and 
direct motor fuel gallon taxes, how they calculate net gallons and 
revenues, the time required to process IFTA data and report to the 
FHWA, and will suggest alternatives for IFTA calculations if full data 
are not available. An abbreviated version of this report will be 
incorporated as an appendix to Chapter Two of the Guide.
Implementation
    The FHWA is soliciting comments on IFTA reporting issues, such as, 
timing of data submissions and processing, difficulties in data 
handling and processing, difficulties in incorporating revised data, 
the FHWA's proposed improvements (above), and any other issues related 
to developing accurate IFTA data. The FHWA proposes to incorporate 
these comments into its evaluation of the relation between the IFTA and 
the FHWA's motor fuel reporting procedures and to develop additional 
guidance on IFTA reporting.

(Authority: 23 U.S.C. 315; sections 1103 and 1104, Pub. L. 105-178, 
112 Stat. 107 (1998); and 49 CFR 1.48).

    Issued on: August 10, 2000.
Walter L. Sutton, Jr.,
Federal Highway Deputy Administrator.
[FR Doc. 00-20941 Filed 8-16-00; 8:45 am]
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