Oil Spill Liability Tax Basics
The 9 cents per barrel federal oil spill liability tax, which expired Dec. 31, 2017, went back into effect March 1, 2018, after Congress reinstated the tax as part of the recently enacted congressional budget bill, under Senate Bill 2256.
Since its inception more than three decades ago (1986), the 9 cents per barrel tax has been collected on domestic crude oil and imported crude oil and petroleum products as a main source of revenue to fund the Oil Spill Liability Trust Fund to aid in the cleanup of oil spills.
U.S. oil companies exposed to the tax have generally passed along the cost to their wholesale distributors as part of their wholesale rack price or as a separate line item expressed in cents per gallon.
OPIS maintains an updated list of how individual companies handle the oil spill tax as part of their wholesale billing invoices. Check out the list.
Oil Spill Liability Tax Reinstated but Not Retroactive
Some confusion emerged this year after the tax expired when it was unclear if the tax would be reinstated. This year is not the first year the tax expired, but it is the first time Congress did not make its reinstatement retroactive to Jan. 1.
This year, Congress made the tax effective date “on or after the first day of the first calendar month beginning after the date of enactment.” Since the budget deal was passed in February, that made the new effective date for the tax March 1.
While the oil spill tax was in limbo and was expected – as in the past – to be reinstated retroactively, many companies continued to collect the tax in lieu of suspending collection and having to go back and collect the fee. A few companies opted to stop collecting the tax Jan. 1 pending a decision from Congress.
U.S. oil refiners who continued to extract the fee from Jan. 1, 2018 are now in a position of refunding the fees collected from Jan. 1, 2018 through the end of February. The new budget imposes the fee from March 1, 2018 through Dec. 31, 2018, so fees collected for January and February must be refunded.
Given the uncertainty over the status of the tax, a few companies collected the fee in January but suspended it Feb. 1, so they need to refund just the January collections.
Underscoring how confusing all of this turned out to be, a few companies abandoned collecting the fee Jan. 1 but started collecting the fee Feb. 1, thinking it would be re-imposed retroactively. These suppliers must now refund the February collections.
The oil spill liability tax has long been a sore spot for the industry, especially when it comes to including the fee as part of the wholesale price or listing it as a separate line item.
The Petroleum Marketers Association (PMAA) has long advocated that the tax be embedded in the wholesale rack price and not listed as a separate line item since it is largely a tax on crude oil paid by refiners and producers and not by distributors and jobbers.
Nonetheless, most suppliers break out the tax as a separate line item on invoices.
PMAA did fight successfully in this case not to have the 2018 fee applied retroactively.
Finally, a second tax provision critical to petroleum marketers included the renewal of the $1 per gallon biodiesel blenders tax credit for tax year 2017 only. It is not yet clear on how reimbursement specifics for this fee will work.
As we mentioned, OPIS keeps a list of how individual companies handle the oil spill tax as part of their wholesale billing invoices. Click below to check out the list – and be sure to bookmark the page. The supplier listings will be updated as we learn of changes.