Objective

To determine whether the Department of Taxation and Finance (Department) has systems and practices in place that allow it to appropriately collect Petroleum Business Tax and Motor Fuel Excise Tax, as required by relevant law and regulation. Our audit covered the period January 1, 2016 to January 31, 2019.

About the Program

Petroleum Business Tax (PBT) is paid by petroleum businesses for certain types of fuel and is imposed at a cents-per-gallon rate at different points in the distribution chain (e.g., at importation into the State or on the first sale or use in the State), depending on the product involved. Fuels subject to PBT include motor fuel and highway diesel motor fuel, among others. Effective January 1, 2020, the PBT rate, which is adjusted annually based on the change in the Producer Price Index for refined petroleum products, is 17.4 cents per gallon, down from 17.7 cents in 2019. Certain sales, such as those to federal, state, and local governments, are exempt from the tax.

New York also has a Motor Fuel Excise Tax (MFT) on gasoline and similar motor fuels that is imposed when motor fuel is first produced or imported or when diesel fuel is first sold or used in the State. Effective January 1, 2020, the MFT rate is 8.0 cents per gallon. An additional .05 cent-per-gallon petroleum testing fee is imposed on gasoline and similar motor fuels. For the two State Fiscal Years ended March 31, 2019 and 2018, PBT collections totaled $1.17 billion and $1.09 billion, respectively; MFT collections for the same two years totaled $528.1 million and $512.5 million, respectively.

A portion of revenues from PBT and MFT is used to support investment in the State’s mass transportation systems, including highways and bridges. The Department jointly administers the two taxes, which are reported on the same series of tax forms. Diesel and motor fuel distributors must be registered with the Department to legally conduct petroleum transactions in the State. They may also be required to provide collateral security in an amount provided for in statute or determined by the Department. Distributors whose combined PBT and MFT liability exceeds $5 million for the Department’s reference period must enroll in its PrompTax electronic filing and payment program and prepay a portion of each month’s tax liability. As of June 2018, there were 1,658 businesses registered with the Department as distributors, retailers, and in other capacities.

Key Findings

• We found that the Department does not review distributors’ existing collateral security amounts to determine if they continue to be appropriate based on Department criteria.
• We identified distributors that – despite Department notification – were not enrolled in PrompTax and were not prepaying their PBT and/or MFT tax liability as required.

Key Recommendations

• Using a risk-based approach, revisit collateral security amounts to determine if they are appropriate, and adjust them as warranted.
• Assess whether distributors that are required to enroll in PrompTax are complying with applicable requirements, and take appropriate follow-up action as needed.