Information on Tax Credits and Refunds for Aviation Fuels and Security Enhancements Made to Aerial Applicattion Facilities
Sharpen your pencils, it is tax time again. Remember there are a number of tax credits and refunds available to aerial application businesses that can save your hard-earned money, whether it be tax exemptions on excise taxes levied on aviation fuels, or tax credits for security enhancements made to your facilities. The IRS has updated a number of its tax forms pertaining to these tax credits and refunds. Those tax relief provisions, the IRS publications and forms associated with them and a brief description of their contents are as follows:
Tax Credits and Refunds for Aviation Fuels
Remember, federal excise taxes levied on fuels used on a farm for farming purposes, such as fuel used in the application of fertilizers, pesticides, or other substances, including aerial applications, qualifies for either a full tax credit or refund. The updated IRS reference that explains the rules and procedures to follow in taking these fuel tax credits and refunds is IRS Publication 510-Excise Taxes, specifically Chapter 2 of the document (see http://www.irs.gov/pub/irs-pdf/p510.pdf). IRS Publication 225-Farmer’s Tax Guide, also provides instructions explaining the rules and procedures to follow in taking these credits and refunds, specifically Chapter 14 on Excise Taxes (see http://www.irs.gov/pub/irs-pdf/p225.pdf).
The rules in taking the tax credits or refunds are different depending on the fuel used. As stated in IRS Publication 510 and 225, for aviation gasoline, the aerial applicator may claim a tax credit as the ultimate purchaser of the fuel, but cannot claim a refund. Aviation gasoline users may take a tax credit using IRS Form 4136, Credit for Federal Tax Paid on Fuels (see http://www.irs.gov/pub/irs-pdf/f4136.pdf).
According to IRS Publication 510 “for kerosene used in aviation [Jet A], the ultimate purchaser may make the claim or waive their right to make the claim to the registered ultimate vendor [fuel supplier].” A registered ultimate vendor may sell kerosene used in aviation free of excise taxes and make the claim with the IRS himself—if he chooses to do so; however, he is not obligated to do this. In order for the registered ultimate vendor to make this claim he must obtain a waiver from the ultimate purchaser. A sample waiver is included as Model Waiver L in the Appendix of IRS Publication 510. The registered ultimate vendor must have the waiver at the time the credit or payment is claimed. Only an ultimate vendor that is registered can make these claims. Registration requirements are partially explained on page 5 of IRS Publication 510. If the ultimate purchaser of kerosene does not waive his right to make the claim, he may make a claim for a refund on the excise tax on fuel himself using IRS Form 8849 (see http://www.irs.gov/pub/irs-pdf/f8849.pdf).
The IRS recommends that tax filers making these claims keep the following records at their principal place of business:
• the total number of gallons bought and used during the period covered by the claim;
• the dates of the purchases;
• the names and addresses of suppliers and amounts bought from each during the period covered by your claim;
• the nontaxable use for which you used the fuel;
• the number of gallons used for each non-taxable use.
NAAA was successful in providing aerial applicators full relief from the federal excise taxes levied on both aviation gasoline and kerosene used in aviation a few years ago. This includes, according to IRS Publication 510, “fuel used by an aerial applicator for the direct flight between the airfield and one or more farms.” These taxes levied on fuels “ferrying to the field” did not qualify for tax relief until recently. These fuel tax relief provisions are estimated to save the aerial application industry $20 million a year.
Ag Chemical Security Tax Credit
NAAA, working with a number of other agricultural organizations including CLA and ARA was successful in attaching to the enacted 2008 Farm Bill a chemical security tax credit. The credit helps to offset increased security costs incurred by “businesses that aerially apply fertilizers and or ag chemicals” resulting from the safeguarding against terrorist threats. Any pesticide classified under the Federal Insecticide, Fungicide and Rodenticide Act used for growing food, feed and fiber is covered. The credit is limited to $100,000 per facility and covers 30 percent of the amount paid or incurred for qualified security measures, but cannot exceed $2 million per company with multiple facilities. The tax credit expires at the end of 2012 and went into effect on May 22, 2008.
To apply for the tax credit an aerial applicator should use IRS Form 8931 (see http://www.irs.gov/pub/irs-pdf/f8931.pdf). As stated on IRS Form 8931 “taxpayers (other than partnerships, S corporations, estates, and trusts) whose only source of this credit is from those pass-through entities are not required to complete or file this form. Instead, report this credit directly on line 1v of the 2008 Form 3800, General Business Credit.”