By Vic Lance
Motor fuel wholesalers in Texas who would like to start operations with diesel fuel need to get a tax license to operate legally. It guarantees their compliance with state laws regarding fuel tax collection.
The Texas diesel fuel tax permit is issued by the Texas Office of the Comptroller of Public Accounts. Wholesalers need to meet a range of licensing requirements, including posting a fuel tax bond. This ensures they will comply with relevant Texas Tax Code provisions.
To give you a kickstart in your licensing process, here are the main steps you need to go through to start your diesel fuel business in Texas.
The Purpose of Fuel Tax Licensing
Taxes collected on fuel sales are a major contributor to government and state finances. Making sure that these taxes reach the relevant bodies is a priority. The current Texas diesel fuel tax rate is $0.20 per gallon—imported, blended or sold.
That’s why all operators who import and export, supply, deal and blend fuels are required to get licensed and bonded. This guarantees their suitability to engage in the trade and high level of responsibility to collect the taxes and duly pass them on to the respective authorities.
More specifically, the fuel tax bond protects state authorities from financial losses due to operators’ non-payment of due taxes. The bond can provide a financial reimbursement in such cases.
Fulfilling the Texas Diesel Fuel Tax Permit Requirements
Diesel fuel wholesalers in Texas need to get a tax license just like fuel operators in most other states. The specific requirements vary between the types of operations you might want to conduct, such as dealing, supplying, importing, exporting or blending.
All licensees have to complete the Texas Application for Fuels Tax License. You need to provide your business papers for sole proprietorship, partnership or corporation, and fill in the respective parts of the application for your type of business entity. You also need to submit your Texas Identification Number, Federal Employer Identification Number (FEIN) and business address.
On the application form, you can check the types of licenses you’d like to apply for, which can be more than one. For diesel fuels, they include:
- Permissive Supplier
- Motor Fuel Transporter
- Aviation Fuel Dealer
- Interstate Trucker
Other than the exact license type, you also need to identify for each license that you’d like to operate with diesel fuel. Together with the completed application form, you have to attach a letter of business operation that describes your business activities, planned uses or sales, information about your main suppliers and customers, or a plan how you will deliver your own fuel.
Getting Your Texas Fuel Tax Bond
A main requirement for obtaining your Texas diesel fuel tax permit is to get a fuel tax bond in an appropriate amount. The bond is continuous and must be kept active at all times during your licensing period.
The bond is an extra layer of security for the state that you will make all due payments of collected taxes to the relevant state authorities. It ensures you will comply with Texas Motor Fuels Tax Law.
For businesses operating with diesel fuel, the bond requirement is between $30,000 and $600,000. For dyed diesel fuel operators, it is between $10,000 and $600,000. The exact amount depends on your specific tax liability. The bond has to be two times bigger than the greatest tax liability you can have for a reporting period. The amount is set by the Texas Comptroller on a case-by-case basis.
The bond cost that you need to cover is only a small percentage of the amount you need to post. For a $50,000 bond, for example, your bond costs can be about $500 – $2,500.
The bond amount, in fact, is the maximum penal sum of your bond. If you fail to comply with Texas Motor Fuels Tax Law, you can face a claim on the bond. In such a case, you may be liable to compensate state authorities up to your bond’s total amount.
Vic Lance is the Founder and President of Lance Surety Bond Associates. He is a surety bond expert who helps business owners get licensed and bonded. Vic graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan’s Ross School of Business.