Motor Fuel Excise Tax Explained

Motor fuel excise tax is a tax charged per gallon of fuel. It is built into the supply chain at set points, mostly when fuel leaves a terminal. There are three main layers to know: federal, state, and IFTA. Each one works a little differently. This is general background, not tax advice, so check your own numbers with your accountant.

What excise tax is

Excise tax is a flat charge per gallon, not a percent of the price. The tax on a gallon of diesel is the same whether the fuel costs three dollars or five. That flat, per-gallon design is why fuel tax work is all about gallons, loads, and where the fuel went.

Federal motor fuel excise tax

The federal government charges a set rate per gallon. As of 2026, the main rates are:

These rates include a 0.1 cent per gallon Leaking Underground Storage Tank (LUST) fee on both fuels. The federal tax generally attaches when fuel is removed at the terminal rack. For what that means, read above the rack vs below the rack.

State motor fuel tax

Each state adds its own per-gallon tax, and the rates vary a lot. Some states sit under 20 cents a gallon, others run past 50 cents once you add their extra fees. States also differ on when the tax is collected. Some collect it at the terminal rack, some collect it from the licensed distributor later. Because rates and rules change by state and over time, a jobber or petroleum marketer moving fuel across state lines has to track each state on its own.

IFTA: the tax for interstate trucking

IFTA stands for the International Fuel Tax Agreement. It applies to carriers that run qualifying trucks across state or provincial lines. Instead of filing fuel tax in every state they drive through, a carrier files one quarterly IFTA return, and the tax is split among the states based on miles driven and fuel bought in each. IFTA is a fleet reporting system. It is separate from the per-gallon tax a jobber pays when buying fuel. If you run your own trucks across state lines, IFTA likely applies to that fleet.

Where jobbers get burned

A few things cause most of the fuel tax pain:

• Mixing taxed and untaxed gallons without clear records.
• Dyed diesel. Dyed (red) diesel is for off-road use and is taxed differently from clear on-road diesel. Tracking or selling it wrong invites penalties.
• Losing track of which state a load went to.
• Treating fuel tax as one number instead of the stack of federal, state, and local pieces it really is.

The fix is the same in every case: track the tax per gallon, per load, as the fuel moves, so filing season is just a report and not a rebuild.

What good fuel tax records look like

Clean records share a few traits:

• Every load tied to its bill of lading.
• The gallons, product type, and destination state on each load.
• The tax layers figured per gallon as fuel moves, not at the end.
• Reports that come out filing-ready for each jurisdiction.

This is the part where software earns its keep. PUP figures the tax layers on each load and produces filing-ready reports, so the work is done as you go.

Common questions

Sources: federal rates per the Pennsylvania Petroleum Association and IRS; state and IFTA background from the Federation of Tax Administrators and Avalara. Rates as of June 2026 and subject to change.