Objective

To determine the extent of implementation of the two recommendations included in our initial audit report, Collection of Petroleum Business Tax and Motor Fuel Excise Tax (2018-S-28).

About the Program

Petroleum Business Tax (PBT) is paid by registered distributors of applicable types of fuel at a cents-per-gallon rate at different points in the distribution chain, depending on the product involved. Fuels subject to PBT include motor fuel and highway diesel fuel, among others. Effective January 1, 2022, the PBT rate is 17.3 cents per gallon, up from 16.6 cents in 2021. Transactions exempt from PBT include sales to federal, state, and local governments and sales of certain types of residential heating fuel.

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, 2022, the MFT rate is 8 cents per gallon. An additional .05 cent-per-gallon petroleum testing fee is imposed on gasoline and similar motor fuels. For the 2 State Fiscal Years ended March 31, 2021 and 2020, PBT collections totaled $942 million and $1.2 billion, respectively; MFT collections for the same 2 years totaled $425 million and $512 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 register with the Department to legally conduct petroleum transactions in the State and 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 January 2022, there were more than 1,300 PBT licensees that hold a Distributor of Motor Fuel and/or Distributor of Diesel Fuel and/or Residual Petroleum Product license with the Department.

The objective of our initial audit, issued May 20, 2020, was to determine whether the Department had systems and practices in place that allow it to appropriately collect PBT and MFT, as required by relevant law and regulation. We found that, in general, the Department had systems and practices in place that allow it to appropriately collect PBT and MFT, as required by relevant law and regulation. However, we also found that the Department did not review distributors’ existing collateral security amounts to determine if they continued to be appropriate based on Department criteria. We also identified distributors that, despite Department notification, were not enrolled in PrompTax and were not prepaying their PBT and/or MFT tax liability as required. We issued two recommendations to address these areas.

Key Finding

The Department has made significant progress in addressing the issues we identified and has implemented both recommendations from the initial audit report.