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108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-444

======================================================================

 
                HIGHWAY REAUTHORIZATION TAX ACT OF 2004

                                _______
                                

 March 23, 2004.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3971]

      [Including cost estimate of the Congressional Budget Office]

      The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3971) to amend the Internal Revenue Code of 1986 to 
credit the Highway Trust Fund with the full amount of fuel 
taxes, to combat fuel tax evasion, and for other purposes, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.


                                CONTENTS

                                                                   Page
 I. Summary and Background...........................................14
II. Explanation of the Bill..........................................15
    Title I--Restructuring of Incentives for Alcohol Fuels, etc......15
        A. Reduced Rates of Tax on Alcohol Fuel Mixtures Replaced 
            With an Excise Tax Credit, Etc. (secs. 101 and 102 of 
            the bill and secs. 4041, 4081, 4091, 6427, and 9503 
            of the Code).........................................    15
    Title II--Reduction of Fuel Tax Evasion..........................21
        A. Exemption From Certain Excise Taxes for Mobile 
            Machinery Vehicles (sec. 201 of the bill, and secs. 
            4053, 4072, 4082, 4483 and 6421 of the Code).........    21
        B. Taxation of Aviation-Grade Kerosene (sec. 202 of the 
            bill and secs. 4041, 4081, 4082, 4083, 4091, 4092, 
            4093, 4101, and 6427 of the Code)....................    23
        C. Mechanical Dye Injection Equipment and Related 
            Penalties (sec. 203 of the bill and sec. 4082 and new 
            sec. 6715A of the Code)..............................    29
        D. Authority To Inspect On-Site Records (sec. 204 of the 
            bill and sec. 4083 of the Code)......................    31
        E. Registration and Reporting Requirements...............    32
            1. Registration of pipeline or vessel operators 
                required for exemption of bulk transfers to 
                registered terminals or refineries (sec. 205 of 
                the bill and sec. 4081 of the Code)..............    32
            2. Display of registration and penalties for failure 
                to display registration and to register (secs. 
                206 and 207 of the bill, secs. 4101, 7232, 7272 
                and new secs. 6717 and 6718 of the Code).........    33
            3. Penalties for failure to report (sec. 207 of the 
                bill and new sec. 6725 o0f the Code).............    34
        F. Collection From Customs Bond Where Importer Not 
            Registered (sec. 208 of the bill and new sec. 4104 of 
            the Code)............................................    35
        G. Modification of the Use Tax on Heavy Highway Vehicles 
            (sec. 209 of the bill and secs. 4481, 4483 and 6156 
            of the Code).........................................    36
        H. Modification of Ultimate Vendor Refund Claims With 
            Respect to Farming (sec. 210 of the bill and sec. 
            6427 of the Code)....................................    38
        I. Dedication of Revenue From Certain Penalties to the 
            Highway Trust Fund (sec. 211 of the bill and sec. 
            9503 of the Code)....................................    39
    Title III--Other Highway Excise Tax Provisions...................39
        A. Taxable Fuel Refunds for Certain Ultimate Vendors 
            (sec. 301 of the bill and secs. 6416 and 6427 of the 
            Code)................................................    39
        B. Two-Party Exchanges (sec. 302 of the bill and new sec. 
            4105 of the Code)....................................    41
        C. Simplification of Tax on Tires (sec. 303 of the bill 
            and sec. 4071 of the Code)...........................    42
III.Votes of the Committee...........................................43

IV. Budget Effects of the Bill.......................................43
 V. Other Matters To Be Discussed Under the Rules of the House.......50
        A. Committee Oversight Findings and Recommendations......    50
        B. Statement of General Performance Goals and Objectives.    50
        C. Constitutional Authority Statement....................    51
        D. Information Relating to Unfunded Mandates.............    51
        E. Applicability of House Rule XXI 5(b)..................    51
        F. Tax Complexity Analysis...............................    51
VI. Changes in Existing Law Made by the Bill, as Reported............52
    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE, ETC.

  (a) Short Title.--This Act may be cited as the ``Highway 
Reauthorization Tax Act of 2004''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title, etc.

      TITLE I--RESTRUCTURING OF INCENTIVES FOR ALCOHOL FUELS, ETC.

Sec. 101. Reduced rates of tax on gasohol replaced with excise tax 
credit; repeal of other alcohol-based fuel incentives; etc.
Sec. 102. Alcohol fuel subsidies borne by general fund.

                TITLE II--REDUCTION OF FUEL TAX EVASION

Sec. 201. Exemption from certain excise taxes for mobile machinery.
Sec. 202. Taxation of aviation-grade kerosene.
Sec. 203. Dye injection equipment.
Sec. 204. Authority to inspect on-site records.
Sec. 205. Registration of pipeline or vessel operators required for 
exemption of bulk transfers to registered terminals or refineries.
Sec. 206. Display of registration.
Sec. 207. Penalties for failure to register and failure to report.
Sec. 208. Collection from Customs bond where importer not registered.
Sec. 209. Modifications of tax on use of certain vehicles.
Sec. 210. Modification of ultimate vendor refund claims with respect to 
farming.
Sec. 211. Dedication of revenues from certain penalties to the Highway 
Trust Fund.

                 TITLE III--OTHER EXCISE TAX PROVISIONS

Sec. 301. Taxable fuel refunds for certain ultimate vendors.
Sec. 302. Two-party exchanges.
Sec. 303. Simplification of tax on tires.

      TITLE I--RESTRUCTURING OF INCENTIVES FOR ALCOHOL FUELS, ETC.

SEC. 101. REDUCED RATES OF TAX ON GASOHOL REPLACED WITH EXCISE TAX 
                    CREDIT; REPEAL OF OTHER ALCOHOL-BASED FUEL 
                    INCENTIVES; ETC.

  (a) Excise Tax Credit for Alcohol Fuel Mixtures.--
          (1) In general.--Subsection (f) of section 6427 is amended to 
        read as follows:
  ``(f) Alcohol Fuel Mixtures.--
          ``(1) In general.--The amount of credit which would (but for 
        section 40(c)) be determined under section 40(a)(1) for any 
        period--
                  ``(A) shall, with respect to taxable events occurring 
                during such period, be treated--
                          ``(i) as a payment of the taxpayer's 
                        liability for tax imposed by section 4081, and
                          ``(ii) as received at the time of the taxable 
                        event, and
                  ``(B) to the extent such amount of credit exceeds 
                such liability for such period, shall (except as 
                provided in subsection (k)) be paid subject to 
                subsection (i)(3) by the Secretary without interest.
          ``(2) Special rules.--
                  ``(A) Only certain alcohol taken into account.--For 
                purposes of paragraph (1), section 40 shall be 
                applied--
                          ``(i) by not taking into account alcohol with 
                        a proof of less than 190, and
                          ``(ii) by treating as alcohol the alcohol 
                        gallon equivalent of ethyl tertiary butyl ether 
                        or other ethers produced from such alcohol.
                  ``(B) Treatment of refiners.--For purposes of 
                paragraph (1), in the case of a mixture--
                          ``(i) the alcohol in which is described in 
                        subparagraph (A)(ii), and
                          ``(ii) which is produced by any person at a 
                        refinery prior to any taxable event,
                section 40 shall be applied by treating such person as 
                having sold such mixture at the time of its removal 
                from the refinery (and only at such time) to another 
                person for use as a fuel.
          ``(3) Mixtures not used as fuel.--Rules similar to the rules 
        of subparagraphs (A) and (D) of section 40(d)(3) shall apply 
        for purposes of this subsection.
          ``(4) Termination.--This section shall apply only to periods 
        to which section 40 applies, determined by substituting in 
        section 40(e)--
                  ``(A) `December 31, 2010' for `December 31, 2007', 
                and
                  ``(B) `January 1, 2011' for `January 1, 2008'.''
          (2) Revision of rules for payment of credit.--Paragraph (3) 
        of section 6427(i) is amended to read as follows:
          ``(3) Special rule for alcohol mixture credit.--
                  ``(A) In general.--A claim may be filed under 
                subsection (f)(1)(B) by any person for any period--
                          ``(i) for which $200 or more is payable under 
                        such subsection (f)(1)(B), and
                          ``(ii) which is not less than 1 week.
                In the case of an electronic claim, this subparagraph 
                shall be applied without regard to clause (i).
                  ``(B) Payment of claim.--Notwithstanding subsection 
                (f)(1)(B), if the Secretary has not paid pursuant to a 
                claim filed under this section within 45 days of the 
                date of the filing of such claim (20 days in the case 
                of anelectronic claim), the claim shall be paid with 
interest from such date determined by using the overpayment rate and 
method under section 6621.
                  ``(C) Time for filing claim.--No claim filed under 
                this paragraph shall be allowed unless filed on or 
                before the last day of the first quarter following the 
                earliest quarter included in the claim.''
  (b) Repeal of Other Incentives for Fuel Mixtures.--
          (1) Subsection (b) of section 4041 is amended to read as 
        follows:
  ``(b) Exemption for Off-Highway Business Use.--
          ``(1) In general.--No tax shall be imposed by subsection (a) 
        or (d)(1) on liquids sold for use or used in an off-highway 
        business use.
          ``(2) Tax where other use.--If a liquid on which no tax was 
        imposed by reason of paragraph (1) is used otherwise than in an 
        off-highway business use, a tax shall be imposed by paragraph 
        (1)(B), (2)(B), or (3)(A)(ii) of subsection (a) (whichever is 
        appropriate) and by the corresponding provision of subsection 
        (d)(1) (if any).
          ``(3) Off-highway business use defined.--For purposes of this 
        subsection, the term `off-highway business use' has the meaning 
        given to such term by section 6421(e)(2); except that such term 
        shall not, for purposes of subsection (a)(1), include use in a 
        diesel-powered train.''
          (2) Section 4041(k) is hereby repealed.
          (3) Section 4081(c) is hereby repealed.
          (4) Section 4091(c) is hereby repealed.
  (c) Transfers to Highway Trust Fund.--Paragraph (4) of section 
9503(b) is amended by adding ``or'' at the end of subparagraph (B), by 
striking the comma at the end of subparagraph (C) and inserting a 
period, and by striking subparagraphs (D), (E), and (F).
  (d) Conforming Amendments.--
          (1) Subsection (c) of section 40 is amended to read as 
        follows:
  ``(c) Coordination With Excise Tax Benefits.--The amount of the 
credit determined under this section with respect to any alcohol shall, 
under regulations prescribed by the Secretary, be properly reduced to 
take into account the benefit provided with respect to such alcohol 
under section 6427(f).''
          (2) Subparagraph (B) of section 40(d)(4) is amended by 
        striking ``under section 4041(k) or 4081(c)'' and inserting 
        ``under section 6427(f)''.
  (e) Effective Dates.--
          (1) In general.--Except as provided by paragraph (2), the 
        amendments made by this section shall apply to fuel sold or 
        used after September 30, 2004.
          (2) Subsection (c).--The amendments made by subsection (c) 
        shall apply to taxes imposed after September 30, 2003.

SEC. 102. ALCOHOL FUEL SUBSIDIES BORNE BY GENERAL FUND.

  (a) Transfers to Fund.--Section 9503(b)(1) is amended by adding at 
the end the following new flush sentence:
        ``For purposes of this paragraph, the amount of taxes received 
        under section 4081 shall include any amount treated as a 
        payment under section 6427(f)(1)(A) and shall not be reduced by 
        the amount paid under section 6427(f)(1)(B).''.
  (b) Transfers From Fund.--Subparagraph (A) of section 9503(c)(2) is 
amended by adding at the end the following new sentence: ``Clauses 
(i)(III) and (ii) shall not apply to claims under section 
6427(f)(1)(B).''
  (c) Effective Date.--
          (1) Subsection (a).--The amendment made by subsection (a) 
        shall apply to taxes received after September 30, 2004.
          (2) Subsection (b).--The amendment made by subsection (b) 
        shall apply to amounts paid after September 30, 2004, and (to 
        the extent related to section 34 of the Internal Revenue Code 
        of 1986) to fuel used after such date.

                TITLE II--REDUCTION OF FUEL TAX EVASION

SEC. 201. EXEMPTION FROM CERTAIN EXCISE TAXES FOR MOBILE MACHINERY.

  (a) Exemption From Tax on Heavy Trucks and Trailers Sold at Retail.--
          (1) In general.--Section 4053 (relating to exemptions) is 
        amended by adding at the end the following new paragraph:
          ``(8) Mobile machinery.--Any vehicle which consists of a 
        chassis--
                  ``(A) to which there has been permanently mounted (by 
                welding, bolting, riveting, or other means) machinery 
                or equipment to perform a construction, manufacturing, 
                processing, farming, mining, drilling, timbering, or 
                similar operation if the operation of the machinery or 
                equipment is unrelated to transportation on or off the 
                public highways,
                  ``(B) which has been specially designed to serve only 
                as a mobile carriage and mount (and a power source, 
                where applicable) for the particular machinery or 
                equipment involved, whether or not such machinery or 
                equipment is in operation, and
                  ``(C) which, by reason of such special design, could 
                not, without substantial structural modification, be 
                used as a component of a vehicle designed to perform a 
                function of transporting any load other than that 
                particular machinery or equipment or similar machinery 
                or equipment requiring such a specially designed 
                chassis.''.
          (2) Effective date.--The amendment made by this subsection 
        shall take effect on the day after the date of the enactment of 
        this Act.
  (b) Exemption From Tax on Use of Certain Vehicles.--
          (1) In general.--Section 4483 (relating to exemptions) is 
        amended by redesignating subsection (g) as subsection (h) and 
        by inserting after subsection (f) the following new subsection:
  ``(g) Exemption for Mobile Machinery.--No tax shall be imposed by 
section 4481 on the use of any vehicle described in section 4053(8).''.
          (2) Effective date.--The amendments made by this subsection 
        shall take effect on the day after the date of the enactment of 
        this Act.
  (c) Exemption From Tax on Tires.--
          (1) In General.--Section 4072(b)(2) is amended by adding at 
        the end the following flush sentence: ``Such term shall not 
        include tires of a type used exclusively on vehicles described 
        in section 4053(8).''.
          (2) Effective date.--The amendment made by this subsection 
        shall take effect on the day after the date of the enactment of 
        this Act.
  (d) Refund of Fuel Taxes.--
          (1) In general.--Section 6421(e)(2) (defining off-highway 
        business use) is amended by adding at the end the following new 
        subparagraph:
                  ``(C) Uses in mobile machinery.--
                          ``(i) In general.--The term `off-highway 
                        business use' shall include any use in a 
                        vehicle which meets the requirements described 
                        in clause (ii).
                          ``(ii) Requirements for mobile machinery.--
                        The requirements described in this clause are--
                                  ``(I) the design-based test, and
                                  ``(II) the use-based test.
                          ``(iii) Design-based test.--For purposes of 
                        clause (ii)(I), the design-based test is met if 
                        the vehicle consists of a chassis--
                                  ``(I) to which there has been 
                                permanently mounted (by welding, 
                                bolting, riveting, or other means) 
                                machinery or equipment to perform a 
                                construction, manufacturing, 
                                processing, farming, mining, drilling, 
                                timbering, or similar operation if the 
                                operation of the machinery or equipment 
                                is unrelated to transportation on or 
                                off the public highways,
                                  ``(II) which has been specially 
                                designed to serve only as a mobile 
                                carriage and mount (and a power source, 
                                where applicable) for the particular 
                                machinery or equipment involved, 
                                whether or not such machinery or 
                                equipment is in operation, and
                                  ``(III) which, by reason of such 
                                special design, could not, without 
                                substantial structural modification, be 
                                used as a component of a vehicle 
                                designed to perform a function of 
                                transporting any load other than that 
                                particular machinery or equipment or 
                                similar machinery or equipment 
                                requiring such a specially designed 
                                chassis.
                          ``(iv) Use-based test.--For purposes of 
                        clause (ii)(II), the use-based test is met if 
                        the use of the vehicle on public highways was 
                        less than 7,500 miles during the taxpayer's 
                        taxable year.''.
          (2) No tax-free sales.--Subsection (b) of section 4082, as 
        amended by section 202, is amended by inserting before the 
        period at the end ``and such term shall not include any use 
        described in section 6421(e)(2)(C)''.
          (3) Annual refund of tax paid.--Section 6427(i)(2) (relating 
        to exceptions) is amended by adding at the end the following 
        new subparagraph:
                  ``(C) Nonapplication of paragraph.--This paragraph 
                shall not apply to any fuel used solely in any off-
                highway business use described in section 
                6421(e)(2)(C).''.
          (4) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after the date of the 
        enactment of this Act.

SEC. 202. TAXATION OF AVIATION-GRADE KEROSENE.

  (a) Rate of Tax.--
          (1) In general.--Subparagraph (A) of section 4081(a)(2) is 
        amended by striking ``and'' at the end of clause (ii), by 
        striking the period at the end of clause (iii) and inserting 
        ``, and'', and by adding at the end the following new clause:
                          ``(iv) in the case of aviation-grade 
                        kerosene, 21.8 cents per gallon.''.
          (2) Commercial aviation.--Paragraph (2) of section 4081(a) is 
        amended by adding at the end the following new subparagraph:
                  ``(C) Taxes imposed on fuel used in commercial 
                aviation.--In the case of aviation-grade kerosene which 
                is removed from any refinery or terminal directly into 
                the fuel tank of an aircraft for use in commercial 
                aviation, the rate of tax under subparagraph (A)(iv) 
                shall be 4.3 cents per gallon.''.
          (3) Certain refueler trucks, tankers, and tank wagons treated 
        as terminal.--Subsection (a) of section 4081 is amended by 
        adding at the end the following new paragraph:
          ``(3) Certain refueler trucks, tankers, and tank wagons 
        treated as terminal.--
                  ``(A) In general.--In the case of aviation-grade 
                kerosene which is removed from any terminal directly 
                into the fuel tank of an aircraft (determined without 
                regard to any refueler truck, tanker, or tank wagon 
                which meets the requirements of subparagraph (B)), a 
                refueler truck, tanker, or tank wagon shall be treated 
                as part of such terminal if--
                          ``(i) such truck, tanker, or wagon meets the 
                        requirements of subparagraph (B) with respect 
                        to an airport, and
                          ``(ii) except in the case of exigent 
                        circumstances identified by the Secretary in 
                        regulations, no vehicle registered for highway 
                        use is loaded with aviation-grade kerosene at 
                        such terminal.
                  ``(B) Requirements.--A refueler truck, tanker, or 
                tank wagon meets the requirements of this subparagraph 
                with respect to an airport if such truck, tanker, or 
                wagon--
                          ``(i) is loaded with aviation-grade kerosene 
                        at such terminal located within such airport 
                        and delivers such kerosene only into aircraft 
                        at such airport,
                          ``(ii) has storage tanks, hose, and coupling 
                        equipment designed and used for the purposes of 
                        fueling aircraft,
                          ``(iii) is not registered for highway use, 
                        and
                          ``(iv) is operated by--
                                  ``(I) the terminal operator of such 
                                terminal, or
                                  ``(II) a person that makes a daily 
                                accounting to such terminal operator of 
                                each delivery of fuel from such truck, 
                                tanker, or wagon.
                  ``(C) Reporting.--The Secretary shall require under 
                section 4101(d) reporting by such terminal operator 
                of--
                          ``(i) any information obtained under 
                        subparagraph (B)(iv)(II), and
                          ``(ii) any similar information maintained by 
                        such terminal operator with respect to 
                        deliveries of fuel made by trucks, tankers, or 
                        wagons operated by such terminal operator.''.
          (4) Liability for tax on aviation-grade kerosene used in 
        commercial aviation.--Subsection (a) of section 4081 is amended 
        by adding at the end the following new paragraph:
          ``(4) Liability for tax on aviation-grade kerosene used in 
        commercial aviation.--For purposes of paragraph (2)(C), the 
        person who uses the fuel for commercial aviation shall pay the 
        tax imposed under such paragraph. For purposes of the preceding 
        sentence, fuel shall be treated as used when such fuel is 
        removed into the fuel tank.''.
          (5) Nontaxable uses.--
                  (A) In general.--Section 4082 is amended by 
                redesignating subsections (e) and (f) as subsections 
                (f) and (g), respectively, and by inserting after 
                subsection (d) the following new subsection:
  ``(e) Aviation-Grade Kerosene.--In the case of aviation-grade 
kerosene which is exempt from the tax imposed by section 4041(c) (other 
than by reason of a prior imposition of tax) and which is removed from 
any refinery or terminal directly into the fuel tank of an aircraft, 
the rate of tax under section 4081(a)(2)(A)(iv) shall be zero.''.
                  (B) Conforming amendments.--
                          (i) Subsection (b) of section 4082 is amended 
                        by adding at the end the following new flush 
                        sentence:
``The term `nontaxable use' does not include the use of aviation-grade 
kerosene in an aircraft.''.
                          (ii) Section 4082(d) is amended by striking 
                        paragraph (1) and by redesignating paragraphs 
                        (2) and (3) as paragraphs (1) and (2), 
                        respectively.
          (6) Nonaircraft use of aviation-grade kerosene.--
                  (A) In general.--Subparagraph (B) of section 
                4041(a)(1) is amended by adding at the end the 
                following new sentence: ``This subparagraph shall not 
                apply to aviation-grade kerosene.''.
                  (B) Conforming amendment.--The heading for paragraph 
                (1) of section 4041(a) is amended by inserting ``and 
                kerosene'' after ``diesel fuel''.
  (b) Commercial Aviation.--Section 4083 is amended by redesignating 
subsections (b) and (c) as subsections (c) and (d), respectively, and 
by inserting after subsection (a) the following new subsection:
  ``(b) Commercial Aviation.--For purposes of this subpart, the term 
`commercial aviation' means any use of an aircraft in a business of 
transporting persons or property for compensation or hire by air, 
unless properly allocable to any transportation exempt from the taxes 
imposed by sections 4261 and 4271 by reason of section 4281 or 4282 or 
by reason of section 4261(h).''.
  (c) Refunds.--
          (1) In general.--Paragraph (4) of section 6427(l) is amended 
        to read as follows:
          ``(4) Refunds for aviation-grade kerosene.--
                  ``(A) No refund of certain taxes on fuel used in 
                commercial aviation.--In the case of aviation-grade 
                kerosene used in commercial aviation (as defined in 
                section 4083(b)) (other than supplies for vessels or 
                aircraft within the meaning of section 4221(d)(3)), 
                paragraph (1) shall not apply to so much of the tax 
                imposed by section 4081 as is attributable to--
                          ``(i) the Leaking Underground Storage Tank 
                        Trust Fund financing rate imposed by such 
                        section, and
                          ``(ii) so much of the rate of tax specified 
                        in section 4081(a)(2)(A)(iv) as does not exceed 
                        4.3 cents per gallon.
                  ``(B) Payment to ultimate, registered vendor.--With 
                respect to aviation-grade kerosene, if the ultimate 
                purchaser of such kerosene waives (at such time and in 
                such form and manner as the Secretary shall prescribe) 
                the right to payment under paragraph (1) and assigns 
                such right to the ultimate vendor, then the Secretary 
                shall pay the amount which would be paid under 
                paragraph (1) to such ultimate vendor, but only if such 
                ultimate vendor--
                          ``(i) is registered under section 4101, and
                          ``(ii) meets the requirements of subparagraph 
                        (A), (B), or (D) of section 6416(a)(1).''.
          (2) Time for filing claims.--Subparagraph (A) of section 
        6427(i)(4) is amended--
                  (A) by striking ``subsection (l)(5)'' both places it 
                appears and inserting ``paragraph (4)(B) or (5) of 
                subsection (l)'', and
                  (B) by striking ``the preceding sentence'' and 
                inserting ``subsection (l)(5)''.
          (3) Conforming amendment.--Subparagraph (B) of section 
        6427(l)(2) is amended to read as follows:
                  ``(B) in the case of aviation-grade kerosene--
                          ``(i) any use which is exempt from the tax 
                        imposed by section 4041(c) other than by reason 
                        of a prior imposition of tax, or
                          ``(ii) any use in commercial aviation (within 
                        the meaning of section 4083(b)).''.
  (d) Repeal of Prior Taxation of Aviation Fuel.--
          (1) In general.--Part III of subchapter A of chapter 32 is 
        amended by striking subpart B and by redesignating subpart C as 
        subpart B.
          (2) Conforming amendments.--
                  (A) Section 4041(c) is amended to read as follows:
  ``(c) Aviation-Grade Kerosene.--
          ``(1) In general.--There is hereby imposed a tax upon 
        aviation-grade kerosene--
                  ``(A) sold by any person to an owner, lessee, or 
                other operator of an aircraft for use in such aircraft, 
                or
                  ``(B) used by any person in an aircraft unless there 
                was a taxable sale of such fuel under subparagraph (A).
          ``(2) Exemption for previously taxed fuel.--No tax shall be 
        imposed by this subsection on the sale or use of any aviation-
        grade kerosene if tax was imposed on such liquid under section 
        4081 and the tax thereon was not credited or refunded.
          ``(3) Rate of tax.--The rate of tax imposed by this 
        subsection shall be the rate of tax specified in section 
        4081(a)(2)(A)(iv) which is in effect at the time of such sale 
        or use.''.
                  (B) Section 4041(d)(2) is amended by striking 
                ``section 4091'' and inserting ``section 4081''.
                  (C) Section 4041 is amended by striking subsection 
                (e).
                  (D) Section 4041 is amended by striking subsection 
                (i).
                  (E) Sections 4101(a), 4103, 4221(a), and 6206 are 
                each amended by striking ``, 4081, or 4091'' and 
                inserting ``or 4081''.
                  (F) Section 6416(b)(2) is amended by striking ``4091 
                or''.
                  (G) Section 6416(b)(3) is amended by striking ``or 
                4091'' each place it appears.
                  (H) Section 6416(d) is amended by striking ``or to 
                the tax imposed by section 4091 in the case of refunds 
                described in section 4091(d)''.
                  (I) Section 6427(j)(1) is amended by striking ``, 
                4081, and 4091'' and inserting ``and 4081''.
                  (J)(i) Section 6427(l)(1) is amended to read as 
                follows:
          ``(1) In general.--Except as otherwise provided in this 
        subsection and in subsection (k), if any diesel fuel or 
        kerosene on which tax has been imposed by section 4041 or 4081 
        is used by any person in a nontaxable use, the Secretary shall 
        pay (without interest) to the ultimate purchaser of such fuel 
        an amount equal to the aggregate amount of tax imposed on such 
        fuel under section 4041 or 4081, as the case may be, reduced by 
        any payment made to the ultimate vendor under paragraph 
        (4)(B).''.
                  (ii) Paragraph (5)(B) of section 6427(l) is amended 
                by striking ``Paragraph (1)(A) shall not apply to 
                kerosene'' and inserting ``Paragraph (1) shall not 
                apply to kerosene (other than aviation-grade 
                kerosene)''.
                  (K) Subparagraph (B) of section 6724(d)(1) is amended 
                by striking clause (xv) and by redesignating the 
                succeeding clauses accordingly.
                  (L) Paragraph (2) of section 6724(d) is amended by 
                striking subparagraph (W) and by redesignating the 
                succeeding subparagraphs accordingly.
                  (M) Paragraph (1) of section 9502(b) is amended by 
                adding ``and'' at the end of subparagraph (B) and by 
                striking subparagraphs (C) and (D) and inserting the 
                following new subparagraph:
                  ``(C) section 4081 with respect to aviation gasoline 
                and aviation-grade kerosene, and''.
                  (N) The last sentence of section 9502(b) is amended 
                to read as follows:
``There shall not be taken into account under paragraph (1) so much of 
the taxes imposed by section 4081 as are determined at the rate 
specified in section 4081(a)(2)(B).''.
                  (O) Subsection (b) of section 9508 is amended by 
                striking paragraph (3) and by redesignating paragraphs 
                (4) and (5) as paragraphs (3) and (4), respectively.
                  (P) Section 9508(c)(2)(A) is amended by striking 
                ``sections 4081 and 4091'' and inserting ``section 
                4081''.
                  (Q) The table of subparts for part III of subchapter 
                A of chapter 32 is amended to read as follows:

                              ``Subpart A. Motor and aviation fuels.
                              ``Subpart B. Special provisions 
                                        applicable to fuels tax.''.

                  (R) The heading for subpart A of part III of 
                subchapter A of chapter 32 is amended to read as 
                follows:

                ``Subpart A--Motor and Aviation Fuels''.

                  (S) The heading for subpart B of part III of 
                subchapter A of chapter 32, as redesignated by 
                paragraph (1), is amended to read as follows:

       ``Subpart B--Special Provisions Applicable to Fuels Tax''.

  (e) Effective Date.--The amendments made by this section shall apply 
to aviation-grade kerosene removed, entered, or sold after September 
30, 2004.
  (f) Floor Stocks Tax.--
          (1) In general.--There is hereby imposed on aviation-grade 
        kerosene held on October 1, 2004, by any person a tax equal 
        to--
                  (A) the tax which would have been imposed before such 
                date on such kerosene had the amendments made by this 
                section been in effect at all times before such date, 
                reduced by
                  (B) the tax imposed before such date under section 
                4091 of the Internal Revenue Code of 1986, as in effect 
                on the day before the date of the enactment of this 
                Act.
          (2) Liability for tax and method of payment.--
                  (A) Liability for tax.--The person holding the 
                kerosene on October 1, 2004, to which the tax imposed 
                by paragraph (1) applies shall be liable for such tax.
                  (B) Method and time for payment.--The tax imposed by 
                paragraph (1) shall be paid at such time and in such 
                manner as the Secretary of the Treasury (or the 
                Secretary's delegate) shall prescribe, including the 
                nonapplication of such tax on de minimis amounts of 
                kerosene.
          (3) Transfer of floor stock tax revenues to trust funds.--For 
        purposes of determining the amount transferred to any trust 
        fund, the tax imposed by this subsection shall be treated as 
        imposed by section 4081 of the Internal Revenue Code of 1986--
                  (A) at the Leaking Underground Storage Tank Trust 
                Fund financing rate under such section to the extent of 
                0.1 cents per gallon, and
                  (B) at the rate under section 4081(a)(2)(A)(iv) to 
                the extent of the remainder.
          (4) Held by a person.--For purposes of this section, kerosene 
        shall be considered as held by a person if title thereto has 
        passed to such person (whether or not delivery to the person 
        has been made).
          (5) Other laws applicable.--All provisions of law, including 
        penalties, applicable with respect to the tax imposed by 
        section 4081 of such Code shall, insofar as applicable and not 
        inconsistent with the provisions of this subsection, apply with 
        respect to the floor stock tax imposed by paragraph (1) to the 
        same extent as if such tax were imposed by such section.

SEC. 203. DYE INJECTION EQUIPMENT.

  (a) In General.--Section 4082(a)(2) (relating to exemptions for 
diesel fuel and kerosene) is amended by inserting ``by mechanical 
injection'' after ``indelibly dyed''.
  (b) Dye Injector Security.--Not later than 180 days after the date of 
the enactment of this Act, the Secretary of the Treasury shall issue 
regulations regarding mechanical dye injection systems described in the 
amendment made by subsection (a), and such regulations shall include 
standards for making such systems tamper resistant.
  (c) Penalty for Tampering With or Failing To Maintain Security 
Requirements for Mechanical Dye Injection Systems.--
          (1) In general.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by adding after 
        section 6715 the following new section:

``SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY 
                    REQUIREMENTS FOR MECHANICAL DYE INJECTION SYSTEMS.

  ``(a) Imposition of Penalty--
          ``(1) Tampering.--If any person tampers with a mechanical dye 
        injection system used to indelibly dye fuel for purposes of 
        section 4082, such person shall pay a penalty in addition to 
        the tax (if any).
          ``(2) Failure to maintain security requirements.--If any 
        operator of a mechanical dye injection system used to indelibly 
        dye fuel for purposes of section 4082 fails to maintain the 
        security standards for such system as established by the 
        Secretary, then such operator shall pay a penalty in addition 
        to the tax (if any).
  ``(b) Amount of Penalty.--The amount of the penalty under subsection 
(a) shall be--
          ``(1) for each violation described in paragraph (1), the 
        greater of--
                  ``(A) $25,000, or
                  ``(B) $10 for each gallon of fuel involved, and
          ``(2) for each--
                  ``(A) failure to maintain security standards 
                described in paragraph (2), $1,000, and
                  ``(B) failure to correct a violation described in 
                paragraph (2), $1,000 per day for each day after which 
                such violation was discovered or such person should 
                have reasonably known of such violation.
  ``(c) Joint and Several Liability.--
          ``(1) In general.--If a penalty is imposed under this section 
        on any business entity, each officer, employee, or agent of 
        such entity or other contracting party who willfully 
        participated in any act giving rise to such penalty shall be 
        jointly and severally liable with such entity for such penalty.
          ``(2) Affiliated groups.--If a business entity described in 
        paragraph (1) is part of an affiliated group (as defined in 
        section 1504(a)), the parent corporation of such entity shall 
        be jointly and severally liable with such entity for the 
        penalty imposed under this section.''.
          (2) Clerical amendment.--The table of sections for part I of 
        subchapter B of chapter 68 is amended by adding after the item 
        related to section 6715 the following new item:

                              ``Sec. 6715A. Tampering with or failing 
                                        to maintain security 
                                        requirements for mechanical dye 
                                        injection systems.''.

  (d) Effective Date.--The amendments made by subsections (a) and (c) 
shall take effect on the 180th day after the date on which the 
Secretary issues the regulations described in subsection (b).

SEC. 204. AUTHORITY TO INSPECT ON-SITE RECORDS.

  (a) In General.--Section 4083(d)(1)(A) (relating to administrative 
authority), as previously amended by this Act, is amended by striking 
``and'' at the end of clause (i) and by inserting after clause (ii) the 
following new clause:
                          ``(iii) inspecting any books and records and 
                        any shipping papers pertaining to such fuel, 
                        and''.
  (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 205. REGISTRATION OF PIPELINE OR VESSEL OPERATORS REQUIRED FOR 
                    EXEMPTION OF BULK TRANSFERS TO REGISTERED TERMINALS 
                    OR REFINERIES.

  (a) In General.--Section 4081(a)(1)(B) (relating to exemption for 
bulk transfers to registered terminals or refineries) is amended--
          (1) by inserting ``by pipeline or vessel'' after 
        ``transferred in bulk'', and
          (2) by inserting ``, the operator of such pipeline or 
        vessel,'' after ``the taxable fuel''.
  (b) Effective Date.--The amendments made by this section shall take 
effect on October 1, 2004.
  (c) Publication of Registered Persons.--Beginning on July 1, 2004, 
the Secretary of the Treasury (or the Secretary's delegate) shall 
periodically publish a current list of persons registered under section 
4101 of the Internal Revenue Code of 1986 who are required to register 
under such section.

SEC. 206. DISPLAY OF REGISTRATION.

  (a) In General.--Subsection (a) of section 4101 (relating to 
registration) is amended--
          (1) by striking ``Every'' and inserting the following:
          ``(1) In general.--Every'', and
          (2) by adding at the end the following new paragraph:
          ``(2) Display of registration.--Every operator of a vessel 
        required by the Secretary to register under this section shall 
        display proof of registration through an electronic 
        identification device prescribed by the Secretary on each 
        vessel used by such operator to transport any taxable fuel.''.
  (b) Civil Penalty for Failure To Display Registration.--
          (1) In general.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by inserting 
        after section 6716 the following new section:

``SEC. 6717. FAILURE TO DISPLAY TAX REGISTRATION ON VESSELS.

  ``(a) Failure To Display Registration.--Every operator of a vessel 
who fails to display proof of registration pursuant to section 
4101(a)(2) shall pay a penalty of $500 for each such failure. With 
respect to any vessel, only one penalty shall be imposed by this 
section during any calendar month.
  ``(b) Multiple Violations.--In determining the penalty under 
subsection (a) on any person, subsection (a) shall be applied by 
increasing the amount in subsection (a) by the product of such amount 
and the aggregate number of penalties (if any) imposed with respect to 
prior months by this section on such person (or a related person or any 
predecessor of such person or related person).
  ``(c) Reasonable Cause Exception.--No penalty shall be imposed under 
this section with respect to any failure if it is shown that such 
failure is due to reasonable cause.''.
          (2) Clerical amendment.--The table of sections for part I of 
        subchapter B of chapter 68 is amended by inserting after the 
        item relating to section 6716 the following new item:

                              ``Sec. 6717. Failure to display tax 
                                        registration on vessels.''.

  (c) Effective Dates.--
          (1) Subsection (a).--The amendments made by subsection (a) 
        shall take effect on October 1, 2004.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall apply to penalties imposed after September 30, 2004.

SEC. 207. PENALTIES FOR FAILURE TO REGISTER AND FAILURE TO REPORT.

  (a) Increased Penalty.--Subsection (a) of section 7272 (relating to 
penalty for failure to register) is amended by inserting ``($10,000 in 
the case of a failure to register under section 4101)'' after ``$50''.
  (b) Increased Criminal Penalty.--Section 7232 (relating to failure to 
register under section 4101, false representations of registration 
status, etc.) is amended by striking ``$5,000'' and inserting 
``$10,000''.
  (c) Assessable Penalty for Failure To Register.--
          (1) In general.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by inserting 
        after section 6717 the following new section:

``SEC. 6718. FAILURE TO REGISTER.

  ``(a) Failure To Register.--Every person who is required to register 
under section 4101 and fails to do so shall pay a penalty in addition 
to the tax (if any).
  ``(b) Amount of Penalty.--The amount of the penalty under subsection 
(a) shall be--
          ``(1) $10,000 for each initial failure to register, and
          ``(2) $1,000 for each day thereafter such person fails to 
        register.
  ``(c) Reasonable Cause Exception.--No penalty shall be imposed under 
this section with respect to any failure if it is shown that such 
failure is due to reasonable cause.''.
          (2) Clerical amendment.--The table of sections for part I of 
        subchapter B of chapter 68 is amended by inserting after the 
        item relating to section 6717 the following new item:

                              ``Sec. 6718. Failure to register.''.

  (d) Assessable Penalty for Failure To Report.--
          (1) In general.--Part II of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by adding at the 
        end the following new section:

``SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 4101.

  ``(a) In General.--In the case of each failure described in 
subsection (b) by any person with respect to a vessel or facility, such 
person shall pay a penalty of $10,000 in addition to the tax (if any).
  ``(b) Failures Subject to Penalty.--For purposes of subsection (a), 
the failures described in this subsection are--
          ``(1) any failure to make a report under section 4101(d) on 
        or before the date prescribed therefor, and
          ``(2) any failure to include all of the information required 
        to be shown on such report or the inclusion of incorrect 
        information.
  ``(c) Reasonable Cause Exception.--No penalty shall be imposed under 
this section with respect to any failure if it is shown that such 
failure is due to reasonable cause.''.
          (2) Clerical amendment.--The table of sections for part II of 
        subchapter B of chapter 68 is amended by adding at the end the 
        following new item:

                              ``Sec. 6725. Failure to report 
                                        information under section 
                                        4101.''.

  (e) Effective Date.--The amendments made by this section shall apply 
to penalties imposed after September 30, 2004.

SEC. 208. COLLECTION FROM CUSTOMS BOND WHERE IMPORTER NOT REGISTERED.

  (a) Tax at Point of Entry Where Importer Not Registered.--Subpart B 
of part III of subchapter A of chapter 32, as redesignated by section 
202(d), is amended by adding after section 4103 the following new 
section:

``SEC. 4104. COLLECTION FROM CUSTOMS BOND WHERE IMPORTER NOT 
                    REGISTERED.

  ``(a) In General.--The importer of record shall be jointly and 
severally liable for the tax imposed by section 4081(a)(1)(A)(iii) if, 
under regulations prescribed by the Secretary, any other person that is 
not a person who is registered under section 4101 is liable for such 
tax.
  ``(b) Collection From Customs Bond.--If any tax for which any 
importer of record is liable under subsection (a), or for which any 
importer of record that is not a person registered under section 4101 
is otherwise liable, is not paid on or before the last date prescribed 
for payment, the Secretary may collect such tax from the Customs bond 
posted with respect to the importation of the taxable fuel to which the 
tax relates. For purposes of determining the jurisdiction of any court 
of the United States or any agency of the United States, any action by 
the Secretary described in the preceding sentence shall be treated as 
an action to collect the tax from a bond described in section 
4101(b)(1) and not as an action to collect from a bond relating to the 
importation of merchandise.''.
  (b) Conforming Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 32, as redesignated by section 
202(d), is amended by adding after the item related to section 4103 the 
following new item:

                              ``Sec. 4104. Collection from Customs bond 
                                        where importer not 
                                        registered.''.

  (c) Effective Date.--The amendments made by this section shall apply 
with respect to fuel entered after September 30, 2004.

SEC. 209. MODIFICATIONS OF TAX ON USE OF CERTAIN VEHICLES.

  (a) Proration of Tax Where Vehicle Sold.--
          (1) In general.--Subparagraph (A) of section 4481(c)(2) 
        (relating to where vehicle destroyed or stolen) is amended by 
        striking ``destroyed or stolen'' both places it appears and 
        inserting ``sold, destroyed, or stolen''.
          (2) Conforming amendment.--The heading for section 4481(c)(2) 
        is amended by striking ``destroyed or stolen'' and inserting 
        ``sold, destroyed, or stolen''.
  (b) Repeal of Installment Payment.--
          (1) Section 6156 (relating to installment payment of tax on 
        use of highway motor vehicles) is repealed.
          (2) The table of sections for subchapter A of chapter 62 is 
        amended by striking the item relating to section 6156.
  (c) Electronic Filing.--Section 4481 is amended by redesignating 
subsection (e) as subsection (f) and by inserting after subsection (d) 
the following new subsection:
  ``(e) Electronic Filing.--Any taxpayer who files a return under this 
section with respect to 25 or more vehicles for any taxable period 
shall file such return electronically.''.
  (d) Repeal of Reduction in Tax for Certain Trucks.--Section 4483 is 
amended by striking subsection (f).
  (e) Effective Date.--The amendments made by this section shall apply 
to taxable periods beginning after the date of the enactment of this 
Act.

SEC. 210. MODIFICATION OF ULTIMATE VENDOR REFUND CLAIMS WITH RESPECT TO 
                    FARMING.

  (a) In General.--
          (1) Refunds.--Section 6427(l) is amended by adding at the end 
        the following new paragraph:
          ``(6) Registered vendors permitted to administer certain 
        claims for refund of diesel fuel and kerosene sold to 
        farmers.--
                  ``(A) In general.--In the case of diesel fuel or 
                kerosene used on a farm for farming purposes (within 
                the meaning of section 6420(c)), paragraph (1) shall 
                not apply to the aggregate amount of such diesel fuel 
                or kerosene if such amount does not exceed 250 gallons 
                (as determined under subsection (i)(5)(A)(iii)).
                  ``(B) Payment to ultimate vendor.--The amount which 
                would (but for subparagraph (A)) have been paid under 
                paragraph (1) with respect to any fuel shall be paid to 
                the ultimate vendor of such fuel, if such vendor--
                          ``(i) is registered under section 4101, and
                          ``(ii) meets the requirements of subparagraph 
                        (A), (B), or (D) of section 6416(a)(1).''.
          (2) Filing of claims.--Section 6427(i) is amended by 
        inserting at the end the following new paragraph:
          ``(5) Special rule for vendor refunds with respect to 
        farmers.--
                  ``(A) In general.--A claim may be filed under 
                subsection (l)(6) by any person with respect to fuel 
                sold by such person for any period--
                          ``(i) for which $200 or more ($100 or more in 
                        the case of kerosene) is payable under 
                        subsection (l)(6),
                          ``(ii) which is not less than 1 week, and
                          ``(iii) which is for not more than 250 
                        gallons for each farmer for which there is a 
                        claim.
                Notwithstanding subsection (l)(1), paragraph (3)(B) 
                shall apply to claims filed under the preceding 
                sentence.
                  ``(B) Time for filing claim.--No claim filed under 
                this paragraph shall be allowed unless filed on or 
                before the last day of the first quarter following the 
                earliest quarter included in the claim.''.
          (3) Conforming amendments.--
                  (A) Section 6427(l)(5)(A) is amended to read as 
                follows:
                  ``(A) In general.--Paragraph (1) shall not apply to 
                diesel fuel or kerosene used by a State or local 
                government.''.
                  (B) The heading for section 6427(l)(5) is amended by 
                striking ``farmers and''.
  (b) Effective Date.--The amendment made by this section shall apply 
to fuels sold for nontaxable use after the date of the enactment of 
this Act.

SEC. 211. DEDICATION OF REVENUES FROM CERTAIN PENALTIES TO THE HIGHWAY 
                    TRUST FUND.

  (a) In General.--Subsection (b) of section 9503 (relating to transfer 
to Highway Trust Fund of amounts equivalent to certain taxes) is 
amended by redesignating paragraph (5) as paragraph (6) and inserting 
after paragraph (4) the following new paragraph:
          ``(5) Certain penalties.--There are hereby appropriated to 
        the Highway Trust Fund amounts equivalent to the penalties paid 
        under sections 6715, 6715A, 6717, 6718, 6725, 7232, and 7272 
        (but only with regard to penalties under such section related 
        to failure to register under section 4101).''.
  (b) Conforming Amendments.--
          (1) The heading of subsection (b) of section 9503 is amended 
        by inserting ``and Penalties'' after ``Taxes''.
          (2) The heading of paragraph (1) of section 9503(b) is 
        amended by striking ``In general'' and inserting ``Certain 
        taxes''.
  (c) Effective Date.--The amendments made by this section shall apply 
to penalties assessed after October 1, 2004.

                 TITLE III--OTHER EXCISE TAX PROVISIONS

SEC. 301. TAXABLE FUEL REFUNDS FOR CERTAIN ULTIMATE VENDORS.

  (a) In General.--Paragraph (4) of section 6416(a) (relating to 
abatements, credits, and refunds) is amended to read as follows:
          ``(4) Registered ultimate vendor to administer credits and 
        refunds of gasoline tax.--
                  ``(A) In general.--For purposes of this subsection, 
                if an ultimate vendor purchases any gasoline on which 
                tax imposed by section 4081 has been paid and sells 
                such gasoline to an ultimate purchaser described in 
                subparagraph (C) or (D) of subsection (b)(2) (and such 
                gasoline is for a use described in such subparagraph), 
                such ultimate vendor shall be treated as the person 
                (and the only person) who paid such tax, but only if 
                such ultimate vendor is registered under section 4101. 
                For purposes of this subparagraph, if the sale of 
                gasoline is made by means of a credit card, the person 
                extending the credit to the ultimate purchaser shall be 
                deemed to be the ultimate vendor.
                  ``(B) Timing of claims.--The procedure and timing of 
                any claim under subparagraph (A) shall be the same as 
                for claims under section 6427(i)(4), except that the 
                rules of section 6427(i)(3)(B) regarding electronic 
                claims shall not apply unless the ultimate vendor has 
                certified to the Secretary for the most recent quarter 
                of the taxable year that all ultimate purchasers of the 
                vendor covered by such claim are certified and entitled 
                to a refund under subparagraph (C) or (D) of subsection 
                (b)(2).''.
  (b) Credit Card Purchases of Diesel Fuel or Kerosene by State and 
Local Governments.--Section 6427(l)(5)(C) (relating to nontaxable uses 
of diesel fuel, kerosene, and aviation fuel) is amended by adding at 
the end the following new flush sentence: ``For purposes of this 
subparagraph, if the sale of diesel fuel or kerosene is made by means 
of a credit card, the person extending the credit to the ultimate 
purchaser shall be deemed to be the ultimate vendor.''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 2004.

SEC. 302. TWO-PARTY EXCHANGES.

  (a) In General.--Subpart B of part III of subchapter A of chapter 32, 
as amended by this Act, is amended by adding after section 4104 the 
following new section:

``SEC. 4105. TWO-PARTY EXCHANGES.

  ``(a) In General.--In a two-party exchange, the delivering person 
shall not be liable for the tax imposed under section 
4081(a)(1)(A)(ii).
  ``(b) Two-Party Exchange.--The term `two-party exchange' means a 
transaction, other than a sale, in which taxable fuel is transferred 
from a delivering person registered under section 4101 as a taxable 
fuel registrant fuel to a receiving person who is so registered where 
all of the following occur:
          ``(1) The transaction includes a transfer from the delivering 
        person, who holds the inventory position for taxable fuel in 
        the terminal as reflected in the records of the terminal 
        operator.
          ``(2) The exchange transaction occurs before or 
        contemporaneous with completion of removal across the rack from 
        the terminal by the receiving person.
          ``(3) The terminal operator in its books and records treats 
        the receiving person as the person that removes the taxable 
        fuel across the terminal rack for purposes of reporting the 
        transaction to the Secretary.
          ``(4) The transaction is the subject of a written 
        contract.''.
  (b) Conforming Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 32, as amended by this Act, is 
amended by adding after the item relating to section 4104 the following 
new item:

                              ``Sec. 4105. Two-party exchanges.''.

  (c) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 303. SIMPLIFICATION OF TAX ON TIRES.

  (a) In General.--Subsection (a) of section 4071 is amended to read as 
follows:
  ``(a) Imposition and Rate of Tax.--There is hereby imposed on taxable 
tires sold by the manufacturer, producer, or importer thereof a tax at 
the rate of 9.4 cents (4.7 cents in the case of a biasply tire) for 
each 10 pounds so much of the maximum rated load capacity thereof as 
exceeds 3,500 pounds.''
  (b) Taxable Tire.--Section 4072 is amended by redesignating 
subsections (a) and (b) as subsections (b) and (c), respectively, and 
by inserting before subsection (b) (as so redesignated) the following 
new subsection:
  ``(a) Taxable Tire.--For purposes of this chapter, the term `taxable 
tire' means any tire of the type used on highway vehicles if wholly or 
in part made of rubber and if marked pursuant to Federal regulations 
for highway use.''
  (c) Exemption for Tires Sold to Department of Defense.--Section 4073 
is amended to read as follows:

``SEC. 4073. EXEMPTIONS.

  ``The tax imposed by section 4071 shall not apply to tires sold for 
the exclusive use of the Department of Defense or the Coast Guard.''
  (d) Conforming Amendments.--
          (1) Section 4071 is amended by striking subsection (c) and by 
        moving subsection (e) after subsection (b) and redesignating 
        subsection (e) as subsection (c).
          (2) The item relating to section 4073 in the table of 
        sections for part II of subchapter A of chapter 32 is amended 
        to read as follows:

                              ``Sec. 4073. Exemptions.''

  (e) Effective Date.--The amendments made by this section shall apply 
to sales in calendar years beginning more than 30 days after the date 
of the enactment of this Act.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3971, as amended, contains provisions that 
credit the Highway Trust Fund with the full amount of fuel 
taxes, combat fuel tax evasion, and make other changes related 
to highway excise taxes.

                 B. Background and Need for Legislation

    The provisions approved by the Committee reflect the need 
to increase Highway Trust Fund resources for the purposes of 
funding a highway reauthorization bill. The bill increases 
Highway Trust Fund resources by reducing fuel tax evasion and 
ensuring that the Highway Trust Fund is credited with the full 
fuels tax. The bill also includes provisions to simplify and 
reform highway related excise taxes, refund procedures, and 
ethanol fuel subsidies.
    In addition, the bill reflects the Committee's view of the 
appropriate treatment of mobile machinery vehicles. On June 6, 
2002, the U.S. Department of the Treasury issued proposed 
regulations that would eliminate the mobile machinery 
exemption. The issuance of final regulations has been delayed 
to give Congress the opportunity to address the issue in the 
context of a highway bill.

                         C. Legislative History

    The House Committee on Ways and Means marked up the Highway 
Reauthorization Tax Act of 2004 on March 17, 2004, and ordered 
the bill, as amended, favorably reported by voice vote.

                      II. EXPLANATION OF THE BILL


      TITLE I--RESTRUCTURING OF INCENTIVES FOR ALCOHOL FUELS, ETC.


   A. Reduced Rates of Tax on Alcohol Fuel Mixtures Replaced With An 
                        Excise Tax Credit, Etc.


(Secs. 101 and 102 of the bill and secs. 4041, 4081, 4091, 6427, and 
        9503 of the Code)

                              PRESENT LAW

Alcohol fuels income tax credit

    The alcohol fuels credit is the sum of three credits: the 
alcohol mixture credit, the alcohol credit, and the small 
ethanol producer credit. Generally, the alcohol fuels credit 
expires after December 31, 2007.\1\
---------------------------------------------------------------------------
    \1\ The alcohol fuels credit is unavailble when, for any period 
before January 1, 2008, the tax rates for gasoline and diesel fuels 
drop to 4.3 cents per gallon.
---------------------------------------------------------------------------
    A taxpayer (generally a petroleum refiner, distributor, or 
marketer) who mixes ethanol with gasoline (or a special fuel 
\2\) is an ``ethanol blender.'' Ethanol blenders are eligible 
for an income tax credit of 52 cents per gallon of ethanol used 
in the production of a qualified mixture (the ``alcohol mixture 
credit''). A qualified mixture means a mixture of alcohol and 
gasoline, (or of alcohol and a special fuel) sold by the 
blender as fuel, or used as fuel by the blender in producing 
the mixture. The term alcohol includes methanol and ethanol but 
does not include (1) alcohol produced from petroleum, natural 
gas, or coal (including peat), or (2) alcohol with a proof of 
less than 150. Businesses also may reduce their income taxes by 
52 cents for each gallon of ethanol (not mixed with gasoline or 
other special fuel) that they sell at the retail level as 
vehicle fuel or use themselves as a fuel in their trade or 
business (``the alcohol credit''). The 52-cents-per-gallon 
income tax credit rate is scheduled to decline to 51 cents per 
gallon during the period 2005 through 2007. For blenders using 
an alcohol other than ethanol, the rate is 60 cents per 
gallon.\3\
---------------------------------------------------------------------------
    \2\ A special fuel includes any liquid (other than gasoline) that 
is suitable for use in an internal combustion engine.
    \3\ In the case of any alcohol (other than ethanol) with a proof 
that is at least 150 but less than 190, the credit is 45 cents per 
gallon (the ``low-proof blender amount''). For ethanol with a proof 
that is at least 150 but less than 190, the low-proof blender amount is 
38.52 cents for sales or uses during calendar year 2004, and 37.78 
cents for calendar years 2005, 2006, and 2007.
---------------------------------------------------------------------------
    A separate income tax credit is available for small ethanol 
producers (the ``small ethanol producer credit''). A small 
ethanol producer is defined as a person whose ethanol 
production capacity does not exceed 30 million gallons per 
year. The small ethanol producer credit is 10 cents per gallon 
of ethanol produced during the taxable year for up to a maximum 
of 15 million gallons.
    The credits that comprise the alcohol fuels tax credit are 
includible in income. The credit may not be used to offset 
alternative minimum tax liability. The credit is treated as a 
general business credit, subject to the ordering rules and 
carryforward/carryback rules that apply to business credits 
generally.

Excise tax reductions for alcohol mixture fuels

    Generally, motor fuels tax rates are as follows: \4\
---------------------------------------------------------------------------
    \4\ These rules are also subject to an additional 0.1 cent-per-
gallon excise tax to fund the Leaking Underground Storage Tank Trust 
Fund. See secs. 4041(d) and 4081(a)(2)(B). In addition, the basic fuel 
tax rate will drop to 4.3 cents per gallon beginning on October 1, 
2005.

Gasoline..................................  18.3 cents per gallon.
Diesel fuel and kerosene..................  24.3 cents per gallon.
Special motor fuels.......................  18.3 cents per gallon
                                             generally.


    Alcohol-blended fuels are subject to a reduced rate of tax. 
The benefits provided by the alcohol fuels income tax credit 
and the excise tax reduction are integrated such that the 
alcohol fuels credit is reduced to take into account the 
benefit of any excise tax reduction.
            Gasohol
    Registered ethanol blenders may forgo the full income tax 
credit and instead pay reduced rates of excise tax on gasoline 
that they purchase for blending with ethanol. Most of the 
benefit of the alcohol fuels credit is claimed through the 
excise tax system.
    The reduced excise tax rates apply to gasohol upon its 
removal or entry. Gasohol is defined as a gasoline/ethanol 
blend that contains 5.7 percent ethanol, 7.7 percent ethanol, 
or 10 percent ethanol. For the calendar year 2004, the 
following reduced rates apply to gasohol: \5\
---------------------------------------------------------------------------
    \5\ These rates include the additional 0.1 cent-per-gallon excise 
tax to fund the Leaking Underground Storage Tank Trust Fund. These 
special rates will terminate after September 30, 2007 (sec. 
4081(c)(8)).

5.7 percent ethanol.......................  15.436 cents per gallon.
7.7 percent ethanol.......................  14.396 cents per gallon.
10.0 percent ethanol......................  13.200 cents per gallon.


    Reduced excise tax rates also apply when gasoline is being 
purchased for the production of ``gasohol.'' When gasoline is 
purchased for blending into gasohol, the rates above are 
multiplied by a fraction (e.g., 10/9 for 10-percent gasohol) so 
that the increased volume of motor fuel will be subject to tax. 
The reduced tax rates apply if the person liable for the tax is 
registered with the IRS and (1) produces gasohol with gasoline 
within 24 hours of removing or entering the gasoline or (2) 
gasoline is sold upon its removal or entry and such person has 
an unexpired certificate from the buyer and has no reason to 
believe the certificate is false.\6\
---------------------------------------------------------------------------
    \6\ Treas. Reg. sec. 48.4081-6(c). A certificate from the buyer 
assures that the gasoline will be used to produce gasohol within 24 
hours after purchase. A copy of the registrant's letter of registration 
cannot be used as a gasohol blender's certificate.
---------------------------------------------------------------------------
            Qualified methanol and ethanol fuels
    Qualified methanol or ethanol fuel is any liquid that 
contains at least 85 percent methanol or ethanol or other 
alcohol produced from a substance other than petroleum or 
natural gas. These fuels are taxed at reduced rates.\7\ The 
rate of tax on qualified methanol is 12.35 cents per gallon. 
The rate on qualified ethanol in 2004 is 13.15 cents. From 
January 1, 2005, through September 30, 2007, the rate of tax on 
qualified ethanol is 13.25 cents.
---------------------------------------------------------------------------
    \7\ These reduced rates terminate after September 30, 2007. 
Included in these rates is the 0.05-cent-per-gallon Leaking Underground 
Storage Tank Trust Fund tax imposed on such fuel. (sec. 4041(b)(2)).
---------------------------------------------------------------------------
            Alcohol produced from natural gas
    A mixture of methanol, ethanol, or other alcohol produced 
from natural gas that consists of at least 85 percent alcohol 
is also taxed at reduced rates.\8\ For mixtures not containing 
ethanol, the applicable rate of tax is 9.25 cents per gallon 
before October 1, 2005. In all other cases, the rate is 11.4 
cents per gallon. After September 30, 2005, the rate is reduced 
to 2.15 cents per gallon when the mixture does not contain 
ethanol and 4.3 cents per gallon in all other cases.
---------------------------------------------------------------------------
    \8\ These rates include the additional 0.1 cent-per-gallon excise 
tax to fund the Leaking Underground Storage Tank Trust Fund (sec. 
4041(d)(1)).
---------------------------------------------------------------------------
            Blends of alcohol and diesel fuel or special motor fuels
    A reduced rate of tax applies to diesel fuel or kerosene 
that is combined with alcohol as long as at least 10 percent of 
the finished mixture is alcohol. If none of the alcohol in the 
mixture is ethanol, the rate of tax is 18.4 cents per gallon. 
For alcohol mixtures containing ethanol, the rate of tax in 
2004 is 19.2 cents per gallon and for 2005 through September 
30, 2007, the rate for ethanol mixtures is 19.3 cents per 
gallon. Fuel removed or entered for use in producing a 10 
percent diesel-alcohol fuel mixture (without ethanol), is 
subject to a tax of 20.44 cents per gallon. The rate of tax for 
fuel removed or entered to produce a 10 percent diesel-ethanol 
fuel mixture is 21.333 cents per gallon for 2004 and 21.444 
cents per gallon for the period January 1, 2005, through 
September 30, 2007.\9\
---------------------------------------------------------------------------
    \9\ These rates include the additional 0.1 cent-per-gallon excise 
tax to fund the Leaking Underground Storage Tank Trust Fund.
---------------------------------------------------------------------------
    Special motor fuel (nongasoline) mixtures with alcohol also 
are taxed at reduced rates.
            Aviation fuel
    Noncommercial aviation fuel is subject to a tax of 21.9 
cents per gallon.\10\ Fuel mixtures containing at least 10 
percent alcohol are taxed at lower rates.\11\ In the case of 10 
percent ethanol mixtures, any sale or use during 2004, the 21.9 
cents is reduced by 13.2 cents (for a tax of 8.7 cents per 
gallon), for 2005, 2006, and 2007 the reduction is 13.1 cents 
(for a tax of 8.8 cents per gallon) and is reduced by 13.4 
cents in the case of any sale during 2008 or thereafter. For 
mixtures not containing ethanol, the 21.9 cents is reduced by 
14 cents for a tax of 7.9 cents. These reduced rates expire 
after September 30, 2007.\12\
---------------------------------------------------------------------------
    \10\ This rate includes the additional 0.1 cent-per-gallon tax for 
the Leaking Underground Storage Tank Trust Fund.
    \11\ Secs. 4041(k)(1) and 4091(c).
    \12\ Sec. 4091(c)(1).
---------------------------------------------------------------------------
    When aviation fuel is purchased for blending with alcohol, 
the rates above are multiplied by a fraction (10/9) so that the 
increased volume of aviation fuel will be subject to tax.

Refunds and payments

    If fully taxed gasoline (or other taxable fuel) is used to 
produce a qualified alcohol mixture, the Code permits the 
blender to file a claim for a quick excise tax refund. The 
refund is equal to the difference between the gasoline (or 
other taxable fuel) excise tax that was paid and the tax that 
would have been paid by a registered blender on the alcohol 
fuel mixture being produced. Generally, the IRS pays these 
quick refunds within 20 days. Interest accrues if the refund is 
paid more than 20 days after filing. A claim may be filed by 
any person with respect to gasoline, diesel fuel, or kerosene 
used to produce a qualified alcohol fuel mixture for any period 
for which $200 or more is payable and which is not less than 
one week.

Ethyl tertiary butyl ether (ETBE)

    Ethyl tertiary butyl ether (``ETBE'') is an ether that is 
manufactured using ethanol. Unlike ethanol, ETBE can be blended 
with gasoline before the gasoline enters a pipeline because 
ETBE does not result in contamination of fuel with water while 
in transport. Treasury regulations provide that gasohol 
blenders may claim the income tax credit and excise tax rate 
reductions for ethanol used in the production of ETBE. The 
regulations also provide a special election allowing refiners 
to claim the benefit of the excise tax rate reduction even 
though thefuel being removed from terminals does not contain 
the requisite percentages of ethanol for claiming the excise tax rate 
reduction.

Highway Trust Fund

    With certain exceptions, the taxes imposed by section 4041 
(relating to retail taxes on diesel fuels and special motor 
fuels) and section 4081 (relating to tax on gasoline, diesel 
fuel and kerosene) are credited to the Highway Trust Fund. In 
the case of alcohol fuels, 2.5 cents per gallon of the tax 
imposed is retained in the General Fund.\13\ In the case of a 
taxable fuel taxed at a reduced rate upon removal or entry 
prior to mixing with alcohol, 2.8 cents of the reduced rate is 
retained in the General Fund.\14\
---------------------------------------------------------------------------
    \13\ Sec. 9503(b)(4)(E).
    \14\ Sec. 9503(b)(4)(F).
---------------------------------------------------------------------------

Taxes from gasoline and special motor fuels used in motorboats and 
        gasoline used in the nonbusiness use of small-engine outdoor 
        power equipment

    The Aquatic Resources Trust Fund is funded by a portion of 
the receipts from the excise tax imposed on motorboat gasoline 
and special motor fuels, as well as small-engine fuel taxes, 
that are first deposited into the Highway Trust Fund. As a 
result, transfers to the Aquatic Resources Trust Fund are 
governed in part by Highway Trust Fund provisions.\15\
---------------------------------------------------------------------------
    \15\ Sec. 9503(c)(4) and 9503(c)(5).
---------------------------------------------------------------------------
    A total tax rate of 18.4 cents per gallon is imposed on 
gasoline and special motor fuels used in motorboats. Of this 
rate, 0.1 cent per gallon is dedicated to the Leaking 
Underground Storage Tank Trust Fund. Of the remaining 18.3 
cents per gallon, the Code currently transfers 13.5 cents per 
gallon from the Highway Trust Fund to the Aquatics Resources 
Trust Fund and Land and Water Conservation Fund. The remainder, 
4.8 cents per gallon, is retained in the General Fund. In 
addition, the Sport Fish Restoration Account of the Aquatics 
Resources Trust Fund receives 13.5 cents per gallon of the 
revenues from the tax imposed on gasoline used as a fuel in the 
nonbusiness use of small-engine outdoor power equipment. The 
balance of 4.8 cents per gallon is retained in the General 
Fund.\16\
---------------------------------------------------------------------------
    \16\ The Sport Fish Restoration Account also is funded with 
receipts from an ad valorem manufacturer's excise tax on sport fishing 
equipment.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Highway vehicles using alcohol-blended fuels contribute to 
the wear and tear of the same highway system used by gasoline 
or diesel vehicles. Therefore, the Committee believes that 
alcohol-blended fuels should be taxed at rates equal to 
gasoline or diesel. The Committee believes that present law 
provides opportunities for fraud because individuals can buy 
gasoline at reduced tax rates for blending with alcohol, but 
never actually use the gasoline to make an alcohol fuel blend. 
The Committee believes that eliminating the reduced tax rate on 
gasoline prior to blending with alcohol will reduce such 
opportunities for fraud. The Committee also believes that 
providing a tax credit based on the gallons of alcohol used to 
make an alcohol fuel and eliminating the various blend tiers 
associated with reduced tax rates for alcohol-blended fuels 
will simplify present law.

                        EXPLANATION OF PROVISION

Overview

    The provision eliminates reduced rates of excise tax for 
alcohol-blended fuels and imposes the full rate of excise tax 
on alcohol-blended fuels (18.4 cents per gallon on gasoline 
blends and 24.4 cents per gallon of diesel blended fuel). In 
place of reduced rates, the provision permits the section 40 
alcohol mixture credit, with certain modifications, to be 
applied against excise tax liability. The credit may be taken 
against the tax imposed on taxable fuels (by section 4081). To 
the extent a person does not have section 4081 liability, the 
provision allows taxpayers to file a claim for payment equal to 
the amount of the credit for the alcohol used to produce an 
eligible mixture. Under certain circumstances, a tax is imposed 
if an alcohol fuel mixture credit is claimed with respect to 
alcohol used in the production of any alcohol mixture, which is 
subsequently used for a purpose for which the credit is not 
allowed or changed into a substance that does not qualify for 
the credit. The provision eliminates the General Fund retention 
of certain taxes on alcohol fuels, and credits these taxes to 
the Highway Trust Fund.

Alcohol fuel mixture excise tax credit and payment provisions

            Alcohol fuel mixture excise tax credit
    The provision eliminates the reduced rates of excise tax 
for alcohol-blended fuels and taxable fuels used to produce an 
alcohol fuel mixture. Under the provision, the full rate of tax 
for taxable fuels is imposed on both alcohol fuel mixtures and 
the taxable fuel used to produce an alcohol fuel mixture.
    In lieu of the reduced excise tax rates, the provision 
provides that the alcohol mixture credit provided under section 
40 may be applied against section 4081 excise tax liability 
(hereinafter referred to as ``the alcohol fuel mixture 
credit''). The credit is treated as a payment of the taxpayer's 
tax liability received at the time of the taxable event. The 
alcohol fuel mixture credit is 52 cents for each gallon of 
alcohol used by a person in producing an alcohol fuel mixture 
for sale or use in a trade or business of the taxpayer. The 
credit declines to 51 cents per gallon after calendar year 
2004. For mixtures not containing ethanol (renewable source 
methanol), the credit is 60 cents per gallon. As discussed 
further below, the excise tax credit is refundable in order to 
provide a benefit equivalent to the reduced tax rates, which 
are being repealed under the provision.
    For purposes of the alcohol fuel mixture credit, an 
``alcohol fuel mixture'' is a mixture of alcohol and gasoline 
or alcohol and a special fuel which is sold for use or used as 
a fuel by the taxpayer producing the mixture. Alcohol for this 
purpose includes methanol, ethanol, and alcohol gallon 
equivalents of ETBE or other ethers produced from such alcohol. 
It does not include alcohol produced from petroleum, natural 
gas, or coal (including peat), or alcohol with a proof of less 
than 190 (determined without regard to any added denaturants). 
Special fuel is anyliquid fuel (other than gasoline) which is 
suitable for use in an internal combustion engine. The benefit obtained 
from the excise tax credit is coordinated with the alcohol fuels income 
tax credit. For refiners making an alcohol fuel mixture with ETBE, the 
mixture is treated as sold to another person for use as a fuel only 
upon removal from the refinery. The excise tax credit is available 
through December 31, 2010.
            Payments with respect to qualified alcohol fuel mixtures
    To the extent the alcohol fuel mixture credit exceeds any 
section 4081 liability of a person, the Secretary is to pay 
such person an amount equal to the alcohol fuel mixture credit 
with respect to such mixture. These payments are intended to 
provide an equivalent benefit to replace the partial exemption 
for fuels to be blended with alcohol and alcohol fuels being 
repealed by the provision. If claims for payment are not paid 
within 45 days, the claim is to be paid with interest. The 
provision also provides that in the case of an electronic 
claim, if such claim is not paid within 20 days, the claim is 
to be paid with interest. If claims are filed electronically, 
the claimant may make a claim for less than $200.
    The provision does not apply with respect to alcohol fuel 
mixtures sold after December 31, 2010.

Alcohol fuel subsidies borne by General Fund

    The provision eliminates the requirement that 2.5 and 2.8 
cents per gallon of excise taxes be retained in the General 
Fund with the result that the full amount of tax on alcohol 
fuels is credited to the Highway Trust Fund. The provision also 
authorizes the full amount of fuel taxes to be appropriated to 
the Highway Trust Fund without reduction for amounts equivalent 
to the excise tax credits allowed for alcohol fuel mixtures and 
the Trust Fund is not required to reimburse any payments with 
respect to qualified alcohol fuel mixtures.

Motorboat and small engine fuel taxes

    The provision eliminates the General Fund retention of the 
4.8 cents per gallon of the taxes imposed on gasoline and 
special motor fuels used in motorboats and gasoline used as a 
fuel in the nonbusiness use of small-engine outdoor power 
equipment.

                            EFFECTIVE DATES

    The provisions generally are effective for fuel sold or 
used after September 30, 2004. The repeal of the General Fund 
retention of the 2.5/2.8 cents per gallon of tax regarding 
alcohol fuels and the repeal of the 4.8 cents per gallon 
General Fund retention of the taxes imposed on fuels used in 
motorboats and small engine equipment is effective for taxes 
imposed after September 30, 2003. The provision regarding the 
crediting of the full amount of tax to the Highway Trust Fund 
without regard to credits and payments is effective for taxes 
received after September 30, 2004, and payments made after 
September 30, 2004.

                TITLE II--REDUCTION OF FUEL TAX EVASION


  A. Exemption From Certain Excise Taxes for Mobile Machinery Vehicles


(Sec. 201 of the bill, and secs. 4053, 4072, 4082, 4483 and 6421 of the 
        Code)

                              PRESENT LAW

    Under present law, the definition of a ``highway vehicle'' 
affects the application of the retail tax on heavy vehicles, 
the heavy vehicle use tax, the tax on tires, and fuel 
taxes.\17\ Section 4051 of the Code provides for a 12-percent 
retail sales tax on tractors, heavy trucks with a gross vehicle 
weight (``GVW'') over 33,000 pounds, and trailers with a GVW 
over 26,000 pounds. Section 4071 provides for a tax on highway 
vehicle tires that weigh more than 40 pounds, with higher rates 
of tax for heavier tires. Section 4481 provides for an annual 
use tax on heavy vehicles with a GVW of 55,000 pounds or more, 
with higher rates of tax on heavier vehicles. All of these 
excise taxes are paid into the Highway Trust Fund.
---------------------------------------------------------------------------
    \17\ Secs. 4051, 4071, 4481, 4041 and 4081.
---------------------------------------------------------------------------
    Federal excise taxes are also levied on the motor fuels 
used in highway vehicles. Gasoline is subject to a tax of 18.4 
cents per gallon, of which 18.3 cents per gallon is paid into 
the Highway Trust Fund and 0.1 cents per gallon is paid into 
the Leaking Underground Storage Tank (``LUST'') Trust Fund. 
Highway diesel fuel is subject to a tax of 24.4 cents per 
gallon, of which 24.3 cents per gallon is paid into the Highway 
Trust Fund and 0.1 cents per gallon is paid into the LUST Trust 
Fund.
    The Code does not define a ``highway vehicle.'' For 
purposes of these taxes, Treasury regulations define a highway 
vehicle as any self-propelled vehicle or trailer or semitrailer 
designed to perform a function of transporting a load over the 
public highway, whether or not also designed to perform other 
functions. Excluded from the definition of highway vehicle are 
(1) certain specially designed mobile machinery vehicles for 
non-transportation functions (the ``mobile machinery 
exception''); (2) certain vehicles specially designed for off-
highway transportation for which the special design 
substantially limits or impairs the use of such vehicle to 
transport loads over the highway (the ``off-highway 
transportation vehicle'' exception); and (3) certain trailers 
and semi-trailers specially designed to function only as an 
enclosed stationary shelter for the performance of non-
transportation functions off the public highways.\18\
---------------------------------------------------------------------------
    \18\ See Treas. Reg. sec. 48.4061-1(d)).
---------------------------------------------------------------------------
    The mobile machinery exception applies if three tests are 
met: (1) the vehicle consists of a chassis to which jobsite 
machinery (unrelated to transportation) has been permanently 
mounted; (2) the chassis has been specially designed to serve 
only as a mobile carriage and mount for the particular 
machinery and (3) by reason of such special design, the chassis 
could not, without substantial structural modification, be used 
to transport a load other than the particular machinery. An 
example of a mobile machinery vehicle is a crane mounted on a 
truck chassis that meets the forgoing factors.
    On June 6, 2002, the Treasury Department put forth proposed 
regulations that would eliminate the mobile machinery 
exception.\19\ The other exceptions from the definition of 
highway vehicle would continue to apply with some 
modifications. Under the proposed regulations, the chassis of a 
mobile machinery vehicle would be subject to the retail sales 
tax on heavy vehicles unless the vehicle qualified under the 
off-highway transportation vehicle exception. Also, under the 
proposed regulations, mobile machinery vehicles may be subject 
to the heavy vehicle use tax. In addition, the tax credits, 
refunds, and exemptions from tax may not be available for the 
fuel used in these vehicles.
---------------------------------------------------------------------------
    \19\ Prop. Treas. Reg. sec. 48.4051-1(a), 67 Fed. Reg. 38913, 
38914-38915 (2002).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Treasury Department has delayed issuance of final 
regulations regarding mobile machinery to allow Congressional 
action on a statutory definition of mobile machinery vehicle as 
part of the reauthorization of the Highway Trust Fund. The 
Highway Trust Fund is supported by taxes related to the use of 
vehicles on the public highways. The Committee understands that 
a mobile machinery exemption was created by Treasury regulation 
because the Treasury Department believed that mobile machinery 
used the public highways only incidentally to get from one job 
site to another. However, it has come to the Committee's 
attention that certain vehicles are taking advantage of the 
mobile machinery exemption even though they spend a significant 
amount of time on public highways and, therefore, cause wear 
and tear to such highways. Because the mobile machinery 
exemption is based on incidental use of the public highways, 
the Committee believes it is appropriate to add a use-based 
test to the design-based test that exists under current 
regulation. The Committee believes that a use-based test is 
practical to administer only for purposes of the fuel excise 
tax.

                        EXPLANATION OF PROVISION

    The provision codifies the present-law mobile machinery 
exemption for purposes of three taxes: the retail tax on heavy 
vehicles, the heavy vehicle use tax, and the tax on tires. 
Thus, if a vehicle can satisfy the three-part test, it will not 
be treated as a highway vehicle and will be exempt from these 
taxes.
    For purposes of the fuel excise tax, the three-part design 
test is codified and a use test is added. Specifically, in 
addition to the three-part design test, the vehicle must not 
have traveled more than 7,500 miles over public highways during 
the owner's taxable year. Refunds of fuel taxes are permitted 
on an annual basis only. For purposes of this rule, a person's 
taxable year is his taxable year for income tax purposes.

                             EFFECTIVE DATE

    The provision generally is effective after the date of 
enactment. As to the fuel taxes, the proposal is effective for 
taxable years beginning after the date of enactment.

                 B. Taxation of Aviation-Grade Kerosene


(Sec. 202 of the bill and secs. 4041, 4081, 4082, 4083, 4091, 4092, 
        4093, 4101, and 6427 of the Code)

                              PRESENT LAW

In general

    Aviation fuel is kerosene and any liquid (other than any 
product taxable under section 4081) that is suitable for use as 
a fuel in an aircraft.\20\ Unlike other fuels that generally 
are taxed upon removal from a terminal rack,\21\ aviation fuel 
is taxed upon sale of the fuel by a producer or importer.\22\ 
Sales by a registered producer to another registered producer 
are exempt from tax, with the result that, as a practical 
matter, aviation fuel is not taxed until the fuel is used at 
the airport (or sold to an unregistered person). Use of untaxed 
aviation fuel by a producer is treated as a taxable sale.\23\ 
The producer or importer is liable for the tax. The rate of tax 
on aviation fuel is 21.9 cents per gallon.\24\
---------------------------------------------------------------------------
    \20\ Sec. 4093(a).
    \21\ A rack is a mechanism capable of delivering taxable fuel into 
a means of transport other than a pipeline or vessel. Treas. Reg. sec. 
48.4081-1(b).
    \22\ Sec. 4091(a)(1).
    \23\ Sec. 4091(a)(2).
    \24\ Sec. 4091(b). This rate includes a 0.1 cent per gallon Leaking 
Underground Storage Tank (``LUST'') Trust Fund tax. The LUST Trust Fund 
tax is set to expire after March 31, 2005, with the result that on 
April 1, 2005, the tax rate is scheduled to be 21.8 cents per gallon. 
Secs. 4091(b)(3)(B) and 4081(d)(3). Beginning on October 1, 2007, the 
rate of tax is reduced to 4.3 cents per gallon. Sec. 4091(b)(3)(A).
---------------------------------------------------------------------------
    The tax on aviation fuel is reported by filing Form 720--
Quarterly Federal Excise Tax Return. Generally, semi-monthly 
deposits are required using Form 8109B--Federal Tax Deposit 
Coupon or by depositing the tax by electronic funds transfer.

Partial exemptions

    In general, aviation fuel sold for use or used in 
commercial aviation is taxed at a reduced rate of 4.4 cents per 
gallon.\25\ Commercial aviation means any use of an aircraft in 
a business of transporting persons or property for compensation 
or hire by air (unless the use is allocable to any 
transportation exempt from certain excise taxes).\26\
---------------------------------------------------------------------------
    \25\ Sec. 4092(b). The 4.4 cent rate includes 0.1 cent per gallon 
that is attributable to the LUST Trust Fund financing rate. A full 
exemption, discussed below, applies to aviation fuel that is sold for 
use in commercial aviation as fuel supplies for vessels or aircraft, 
which includes use by certain foreign air carriers and for the 
international flights of domestic carriers. Secs. 4092(a), 4092(b), and 
4221(d)(3).
    \26\ Secs. 4092(b) and 4041(c)(2).
---------------------------------------------------------------------------
    In order to qualify for the 4.4 cents per gallon rate, the 
person engaged in commercial aviation must be registered with 
the Secretary \27\ and provide the seller with a written 
exemption certificate stating the airline's name, address, 
taxpayer identification number, registration number, and 
intended use of the fuel. A person that is registered as a 
buyer of aviation fuel for use in commercial aviation generally 
is assigned a registration number with a ``Y'' suffix (a ``Y'' 
registrant), which entitles the registrant to purchase aviation 
fuel at the 4.4 cents per gallon rate.
---------------------------------------------------------------------------
    \27\ Notice 88-132, sec. III(D). See also, Form 637--Application 
for Registration (For Certain Excise Tax Activities). A bond may be 
required as a condition of registration.
---------------------------------------------------------------------------
    Large commercial airlines that also are producers of 
aviation fuel qualify for registration numbers with an ``H'' 
suffix. As producers of aviation fuel, ``H'' registrants may 
buy aviation fuel tax free pursuant to a full exemption that 
applies to sales of aviation fuel by a registered producer to a 
registered producer. If the ``H'' registrant ultimately uses 
such untaxed fuel in domestic commercial aviation, the H 
registrant is liable for the aviation fuel tax at the 4.4 cents 
per gallon rate.

Exemptions

    Aviation fuel sold by a producer or importer for use by the 
buyer in a nontaxable use is exempt from the excise tax on 
sales of aviation fuel.\28\ To qualify for the exemption, the 
buyer must provide the seller with a written exemption 
certificate stating the buyer's name, address, taxpayer 
identification number, registration number (if applicable), and 
intended use of the fuel.
---------------------------------------------------------------------------
    \28\ Sec. 4092(a).
---------------------------------------------------------------------------
    Nontaxable uses include: (1) use other than as fuel in an 
aircraft (such as use in heating oil); (2) use on a farm for 
farming purposes; (3) use in a military aircraft owned by the 
United States or a foreign country; (4) use in a domestic air 
carrier engaged in foreign trade or trade between the United 
States and any of its possessions; \29\ (5) use in a foreign 
air carrier engaged in foreign trade or trade between the 
United States and any of its possessions (but only if the 
foreign carrier's country of registration provides similar 
privileges to United States carriers); (6) exclusive use of a 
State or local government; (7) sales for export, or shipment to 
a United States possession; (8) exclusive use by a nonprofit 
educational organization; (9) use by an aircraft museum 
exclusively for the procurement, care, or exhibition of 
aircraft of the type used for combat or transport in World War 
II, and (10) use as a fuel in a helicopter or a fixed-wing 
aircraft for purposes of providing transportation with respect 
to which certain requirements are met.\30\
---------------------------------------------------------------------------
    \29\ ``Trade'' includes the transportation of persons or property 
for hire. Treas. Reg. sec. 48.4221-4(b)(8).
    \30\ Secs. 4041(f)(2), 4041(g), 4041(h), 4041(l), and 4092.
---------------------------------------------------------------------------
    A producer that is registered with the Secretary may sell 
aviation fuel tax-free to another registered producer.\31\ 
Producers include refiners, blenders, wholesale distributors of 
aviation fuel, dealers selling aviation fuel exclusively to 
producers of aviation fuel, the actual producer of the aviation 
fuel, and with respect to fuel purchased at a reduced rate, the 
purchaser of such fuel.
---------------------------------------------------------------------------
    \31\ Sec. 4092(c).
---------------------------------------------------------------------------

Refunds and credits

    A claim for refund of taxed aviation fuel held by a 
registered aviation fuel producer is allowed \32\ (without 
interest) if: (1) the aviation fuel tax was paid by an importer 
or producer (the ``first producer'') and the tax has not 
otherwise been credited or refunded; (2) the aviation fuel was 
acquired by a registered aviation fuel producer (the ``second 
producer'') after the tax was paid; (3) the second producer 
files a timely refund claim with the proper information; and 
(4) the first producer and any other person that owns the fuel 
after its sale by the first producer and before its purchase by 
the second producer have met certain reporting 
requirements.\33\ Refund claims should contain the volume and 
type of aviation fuel, the date on which the second producer 
acquired the fuel, the amount of tax that the first producer 
paid, a statement by the claimant that the amount of tax was 
not collected nor included in the sales price of the fuel by 
the claimant when the fuel was sold to a subsequent purchaser, 
the name, address, and employer identification number of the 
first producer, and a copy of any required statement of a 
subsequent seller (subsequent to the first producer but prior 
to the second producer) that the second producer received. A 
claim for refund is filed on Form 8849, Claim for Refund of 
Excise Taxes, and may not be combined with any other 
refunds.\34\
---------------------------------------------------------------------------
    \32\ Sec. 4091(d).
    \33\ Treas. Reg. sec. 48.4091-3(b).
    \34\ Treas. Reg. sec. 48.4091-3(d)(1).
---------------------------------------------------------------------------
    A payment is allowable to the ultimate purchaser of taxed 
aviation fuel if the aviation fuel is used in a nontaxable 
use.\35\ A claim for payment may be made on Form 8849 or on 
Form 720, Schedule C. A claim made on Form 720, Schedule C, may 
be netted against the claimant's excise tax liability.\36\ 
Claims for payment not so taken may be allowable as income tax 
credits \37\ on Form 4136, Credit for Federal Tax Paid on 
Fuels.
---------------------------------------------------------------------------
    \35\ Sec. 6427(1)(1).
    \36\ Treas. Reg. sec. 40.6302(c)-1(a)(3).
    \37\ Sec. 34.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the present law rules for 
taxation of aviation fuel create opportunities for widespread 
abuse and evasion of fuels excise taxes. In general, aviation 
fuel is taxed on its sale, whereas other fuel generally is 
taxed on its removal from a refinery or terminal rack. Because 
the incidence of tax on aviation fuel is sale and not removal, 
under present law, aviation fuel may be removed from a refinery 
or terminal rack tax free if such fuel is intended for use in 
aviation purposes. The Committee is aware that unscrupulous 
persons are removing fuel tax free, purportedly for aviation 
use, but then selling the fuel for highway use, charging their 
customer the full rate of tax that would be owed on highway 
fuel, and keeping the amount of the tax.
    In order to prevent such fraud, the Committee believes that 
it is appropriate to conform the tax treatment of all taxable 
fuels by shifting the incidence of taxation on aviation fuel 
from the sale of aviation fuel to the removal of such fuel from 
a refinery or terminal rack. In general, all removals of 
aviation fuel will be fully taxed at the time of removal, 
therefore minimizing the cost to the government of the 
fraudulent diversion of aviation fuel for non-aviation uses. If 
fuel is later used for an aviation use to which a reduced rate 
of tax applies, refunds are available. The Committee notes that 
when the incidence of tax for other fuels (for example, 
gasoline or diesel) was shifted to the terminal rack, 
collection of the tax increased significantly indicating that 
fraud had been occurring.
    The proposal provides exceptions to the general rule in 
cases where the opportunities for fraud are insignificant. For 
example, if fuel is removed from an airport terminal directly 
into the wing of a commercial aircraft by a hydrant system, it 
is clear that the fuel will be used in commercial aviation and 
that the reduced rate of tax for commercial aviation should 
apply. In addition, if a terminal is located within a secure 
airport and, except in exigent circumstances, does not fuel 
highway vehicles, then the Committee believes it is appropriate 
to permit certain airline refueling vehicles to transport fuel 
from the terminal rack directly to the wing of an aircraft and 
have the applicable rate of tax (reduced or otherwise) apply 
upon removal from the refueling vehicle.

                        EXPLANATION OF PROVISION

    The provision changes the incidence of taxation of aviation 
fuel from the sale of aviation fuel to the removal of aviation 
fuel from a refinery or terminal, or the entry into the United 
States of aviation fuel. Sales of not previously taxed aviation 
fuel to an unregistered person also are subject to tax.
    Under the provision, the full rate of tax--21.9 cents per 
gallon--is imposed upon removal of aviation fuel from a 
refinery or terminal (or entry into the United States). 
Aviation fuel may be removed at a reduced rate--either 4.4 or 
zero cents per gallon--only if the aviation fuel is: (1) 
removed directly into the wing of an aircraft (i) that is 
registered with the Secretary as a buyer of aviation fuel for 
use in commercial aviation (e.g., a ``Y'' registrant under 
current law), (ii) that is a foreign airline entitled to the 
present law exemption for aviation fuel used in foreigntrade, 
or (iii) for a tax-exempt use; or (2) removed or entered as part of an 
exempt bulk transfer.\38\ An exempt bulk transfer is a removal or entry 
of aviation fuel transferred in bulk by pipeline or vessel to a 
terminal or refinery if the person removing or entering the aviation 
fuel, the operator of such pipeline or vessel, and the operator of such 
terminal or refinery are registered with the Secretary.
---------------------------------------------------------------------------
    \38\ See sec. 4081(a)(1)(B).
---------------------------------------------------------------------------
    Under a special rule, the provision treats certain refueler 
trucks, tankers, and tank wagons as a terminal if certain 
requirements are met. For the special rule to apply, a 
qualifying truck, tanker, or tank wagon must be loaded with 
aviation fuel from a terminal: (1) that is located within an 
airport, and (2) from which no vehicle licensed for highway use 
is loaded with aviation fuel, except in exigent circumstances 
identified by the Secretary in regulations. The Committee 
intends that a terminal is located within an airport if the 
terminal is located in a secure facility on airport grounds. 
For example, if an access road runs between a terminal and an 
airport's runways, and the terminal, like the runways, is 
physically located on airport grounds and is part of a secure 
facility, the Committee intends that under the provision the 
terminal is located within the airport. The Committee intends 
that an exigent circumstance under which loading a vehicle 
registered for highway use with fuel would not disqualify a 
terminal under the special rule, would include, for example, 
the unloading of fuel from bulk storage tanks into highway 
vehicles in order to repair the storage tanks.
    In order to qualify for the special rule, a refueler truck, 
tanker, or tank wagon must: (1) deliver the aviation fuel 
directly into the wing of the aircraft at the airport where the 
terminal is located; (2) have storage tanks, hose, and coupling 
equipment designed and used for the purposes of fueling 
aircraft; (3) not be licensed for highway use; and (4) be 
operated by the terminal operator (who operates the terminal 
rack from which the fuel is unloaded) or by a person that makes 
a daily accounting to such terminal operator of each delivery 
of fuel from such truck, tanker, or tank wagon.\39\
---------------------------------------------------------------------------
    \39\ The provision requires that if such delivery of information is 
provided to a terminal operator (or if a terminal operator collects 
such information), that the terminal operator provide such information 
to the Secretary.
---------------------------------------------------------------------------
    The provision does not change the applicable rates of tax 
under present law, 21.9 cents per gallon for use in 
noncommercial aviation, 4.4 cents per gallon for use in 
commercial aviation, and zero cents per gallon for use by 
domestic airlines in an international flight, by foreign 
airlines, or other nontaxable use. The provision imposes 
liability for the tax on aviation fuel removed from a refinery 
or terminal directly into the wing of an aircraft for use in 
commercial aviation on the person receiving the fuel, in which 
case, such person self-assesses the tax on a return. The 
provision does not change present-law nontaxable uses of 
aviation fuel, or change the persons or the qualifications of 
persons who are entitled to purchase fuel at a reduced rate, 
except that a producer is not permitted to purchase aviation 
fuel at a reduced rate by reason of such persons' status as a 
producer.
    Under the provision, a refund is allowable to the ultimate 
vendor of aviation fuel if such ultimate vendor purchases fuel 
tax paid and subsequently sells the fuel to a person qualified 
to purchase at a reduced rate and who waives the right to a 
refund. In such a case, the provision permits an ultimate 
vendor to net refund claims against any excise tax liability of 
the ultimate vendor, in a manner similar to the present law 
treatment of ultimate purchaser payment claims.
    As under present law, if previously taxed aviation fuel is 
used for a nontaxable use, the ultimate purchaser may claim a 
refund for the tax previously paid. If previously taxed 
aviation fuel is used for a taxable non aircraft use, the fuel 
is subject to the tax imposed on kerosene (24.4 cents per 
gallon) and a refund of the previously paid aviation fuel tax 
is allowed. Claims by the ultimate vendor or the purchaser that 
are not taken as refund claims may be allowable as income tax 
credits.
    For example, for an airport that is not served by a 
pipeline, aviation fuel generally is removed from a terminal 
and transported to an airport storage facility for eventual use 
at the airport. In such a case, the aviation fuel will be taxed 
at 21.9 cents per gallon upon removal from the terminal. At the 
airport, if the fuel is purchased from a vendor by a person 
registered with the Secretary to use fuel in commercial 
aviation, the purchaser may buy the fuel at a reduced rate 
(generally, 4.4 cents per gallon for domestic flights and zero 
cents per gallon for international flights) and waive the right 
to a refund. The ultimate vendor generally may claim a refund 
for the difference between 21.9 cents per gallon of tax paid 
upon removal and the rate of tax paid to the vendor by the 
purchaser. To obtain a zero rate upon purchase, a registered 
domestic airline must certify to the vendor at the time of 
purchase that the fuel is for use in an international flight; 
otherwise, the airline must pay the 4.4 cents per gallon rate 
and file a claim for refund to the Secretary if the fuel is 
used for international aviation. If a zero rate is paid and the 
fuel subsequently is used in domestic and not international 
travel, the domestic airline is liable for tax at 4.4 cents per 
gallon. A foreign airline eligible under present law to 
purchase aviation fuel tax-free would continue to purchase such 
fuel tax-free.
    As another example, for an airport that is served by a 
pipeline, aviation fuel generally is delivered to the wing of 
an aircraft either by a refueling truck or by a ``hydrant'' 
that runs directly from the pipeline to the airplane wing. If a 
refueling truck that is not licensed for highway use loads fuel 
from a terminal located within the airport (and the other 
requirements of the provision for such truck and terminal are 
met), and delivers the fuel directly to the wing of an aircraft 
for use in commercial aviation, the aviation fuel is taxed at 
4.4 cents per gallon upon delivery to the wing and the person 
receiving the fuel is liable for the tax, which such person 
would be able to self-assess on a return.\40\ If fuel is loaded 
into a refueling truck that does not meet the requirements of 
the provision, then the fuel is treated as removed from the 
terminal into the refueling truck and tax of 21.9 cents per 
gallon is paid on such removal. The ultimate vendor is entitled 
to a refund of the difference between 21.9 cents per gallon 
paid on removal and the rate paid by a commercial airline 
purchaser (assuming the purchaser waived the refund right). If 
fuel is removed from a terminal directly to the wing of an 
aircraft registered to use fuel in commercial aviation by a 
hydrant or similar device, the person removing the aviation 
fuel is liable for a tax of 4.4 cents per gallon (or zero in 
the case of an international flight or qualified foreign 
airline) and may self-assess such tax on a return.
---------------------------------------------------------------------------
    \40\ Alternatively, if the aviation fuel in the example is for use 
in noncommercial aviation, the fuel is taxed at 21.9 cents per gallon 
upon delivery into the wing. Self-assessment of the tax would not apply 
in such case.
---------------------------------------------------------------------------
    Under the provision, a floor stocks tax applies to aviation 
fuel held by a person (if title for such fuel has passed to 
such person) on October 1, 2004. The tax is equal to the amount 
of tax that would have been imposed before October 1, 2004, if 
the provision was in effect at all times before such date, 
reduced by the tax imposed by section 4091, as in effect on the 
day before the date of enactment. The Secretary shall determine 
the time and manner for payment of the tax, including the 
nonapplication of the tax on de minimis amounts of aviation 
fuel. Under the provision, 0.1 cents per gallon of such tax is 
transferred to the LUST Trust Fund. The remainder is 
transferred to the Airport and Airway Trust Fund.

                             EFFECTIVE DATE

    The provision is effective for aviation fuel removed, 
entered, or sold after September 30, 2004.

      C. Mechanical Dye Injection Equipment and Related Penalties


(Sec. 203 of the bill and sec. 4082 and new sec. 6715A of the Code)

                              PRESENT LAW

Overview

    Diesel fuel is usually dyed at a terminal rack by either 
manual dyeing or mechanical injection. At a terminal using a 
typical manual dyeing technique, a measured amount of dye is 
manually placed into an empty tank compartment of a transport 
trailer while the trailer is at the terminal rack. Then, as 
diesel fuel is pumped into the compartment at the rack, the dye 
and the fuel are mixed together. Further mixing occurs through 
the motion of the trailer as it moves on the highway.
    At a terminal using a typical mechanical injection system, 
a measured amount of dye is automatically injected into the 
diesel fuel as the fuel is delivered into a compartment of a 
transport trailer at the terminal rack.

Statutory rules

    Gasoline, diesel fuel and kerosene are generally subject to 
excise tax upon removal from a refinery or terminal, upon 
importation into the United States, and upon sale to 
unregistered persons unless there was a prior taxable removal 
or importation of such fuels.\41\ However, a tax is not imposed 
upon diesel fuel or kerosene if all of the following are met: 
(1) the Secretary determines that the fuel is destined for a 
nontaxable use, (2) the fuel is indelibly dyed in accordance 
with regulations prescribed by the Secretary,\42\ and (3) the 
fuel meets marking requirements prescribed by the 
Secretary.\43\ A nontaxable use is defined as (1) any use that 
is exempt from the tax imposed by section 4041(a)(1) other than 
by reason of a prior imposition of tax, (2) any use in a train, 
or (3) certain uses in buses for public and school 
transportation, as described in section 6427(b)(1) (after 
application of section 6427(b)(3)).\44\
---------------------------------------------------------------------------
    \41\ Sec. 4081(a)(1)(A). If such fuel is used for a nontaxable 
purpose, the purchaser is entitled to a refund of tax paid, or in some 
cases, an income tax credit. See sec. 6427. See also sec. 6421 
(allowing certain credits or refunds for off-highway business use and 
certain other exempt uses of gasoline).
    \42\ Dyeing is not a requirement, however, for certain fuels under 
certain conditions, i.e., diesel fuel or kerosene exempted from dyeing 
in certain States by the EPA under the Clean Air Act, aviation-grade 
kerosene as determined under regulations prescribed by the Secretary, 
kerosene received by pipeline or vessel and used by a registered 
recipient to produce substances (other than gasoline, diesel fuel or 
special fuels), kerosene removed or entered by a registrant to produce 
such substances or for resale, and (under regulations) kerosene sold by 
a registered distributor who sells kerosene exclusively to ultimate 
vendors that resell it (1) from a pump that is not suitable for fueling 
any diesel-powered highway vehicle or train, or (2) for blending with 
heating oil to be used during periods of extreme or unseasonable cold. 
Sec. 4082(c), (d).
    \43\ Sec. 4082(a).
    \44\ Sec. 4082(b).
---------------------------------------------------------------------------
    The Secretary is required to prescribe necessary 
regulations relating to dyeing, including specifically the 
labeling of retail diesel fuel and kerosene pumps.\45\
---------------------------------------------------------------------------
    \45\ Sec. 4082(e).
---------------------------------------------------------------------------
    A person who sells dyed fuel (or holds dyed fuel for sale) 
for any use that such person knows (or has reason to know) is a 
taxable use, or who willfully alters or attempts to alter the 
dye in any dyed fuel, is subject to a penalty.\46\ The penalty 
also applies to any person who uses dyed fuel for a taxable use 
(or holds dyed fuel for such a use) and who knows (or has 
reason to know) that the fuel is dyed.\47\ The penalty is the 
greater of $1,000 per act or $10 per gallon of dyed fuel 
involved. In determining the amount of the penalty, the $1,000 
is increased by the product of $1,000 and the number of prior 
penalties imposed upon such person (or a related person or 
predecessor of such person or related person).\48\ The penalty 
may be imposed jointly and severally on any business entity, 
each officer, employee, or agent of such entity who willfully 
participated in any act giving rise to such penalty.\49\ For 
purposes of the penalty, the term ``dyed fuel'' means any dyed 
diesel fuel or kerosene, whether or not the fuel was dyed 
pursuant to section 4082.\50\
---------------------------------------------------------------------------
    \46\ Sec. 6715(a).
    \47\ Sec. 6715(a).
    \48\ Sec. 6715(b).
    \49\ Sec. 6715(d).
    \50\ Sec. 6715(c)(1).
---------------------------------------------------------------------------

Regulations

    The Secretary has prescribed certain regulations under this 
provision, including regulations that specify the allowable 
types and concentration of dye, that the person claiming the 
exemption must be a taxable fuel registrant, that the terminal 
must be an approved terminal (in the case of a removal from a 
terminal rack), and the contents of the notice to be posted on 
diesel fuel and kerosene pumps.\51\ However, the regulations do 
not prescribe the time or method of adding the dye to taxable 
fuel.\52\
---------------------------------------------------------------------------
    \51\ See Treas. Reg. secs. 48.4082-1, -2.
    \52\ In March 2000, the IRS withdrew its Notice of Proposed 
Rulemaking PS-6-95 (61 F.R. 10490 (1996)) relating to dye injection 
systems. Announcement 2000-42, 2000-1 C.B. 949. The proposed regulation 
established standards for mechanical dye injection equipment and 
required terminal operators to report nonconforming dyeing to the IRS. 
See also Treas. Reg. sec. 48.4082-1(c), (d).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Federal government, State governments, and various 
segments of the petroleum industry have long been concerned 
with the problem of diesel fuel tax evasion. To address this 
problem, Congress changed the law to require that untaxed 
diesel fuel be indelibly dyed. The Committee is concerned, 
however, that tax can still be evaded through removals at a 
terminal of undyed fuel that has been designated as dyed.
    Manual dyeing is inherently difficult to monitor. It occurs 
after diesel fuel has been withdrawn from a terminal storage 
tank, generally requires the work of several people, is 
imprecise, and does not automatically create a reliable record. 
The Committee believes that requiring that untaxed diesel fuel 
be dyed only by mechanical injection will significantly reduce 
the opportunities for diesel fuel tax evasion.
    The Committee further believes that security of such 
mechanical dyeing systems will be enhanced by the establishment 
of standards for making such systems tamper resistant, and by 
the addition of new penalties for tampering with such 
mechanical dyeing systems and for failing to maintain the 
established security standards for such systems. In furtherance 
of the enforcement of these penalties in the case of business 
entities, it is appropriate to impose joint and several 
liability for such penalties upon natural persons who have 
willfully participated in any act giving rise to these 
penalties and upon the parent corporation of an affiliated 
group of which the business entity is a member.

                        EXPLANATION OF PROVISION

    With respect to terminals that offer dyed fuel, the 
provision eliminates manual dyeing of fuel and requires dyeing 
by a mechanical system. Not later than 180 days after enactment 
of this provision, the Secretary of the Treasury is to 
prescribe regulations establishing standards for tamper 
resistant mechanical injector dyeing. Such standards shall be 
reasonable, cost-effective, and establish levels of security 
commensurate with the applicable facility.
    The provision adds an additional set of penalties for 
violation of the new rules. A penalty, equal to the greater of 
$25,000 or $10 for each gallon of fuel involved, applies to 
each act of tampering with a mechanical dye injection system. 
The person committing the act is also responsible for any 
unpaid tax on removed undyed fuel. A penalty of $1,000 is 
imposed for each failure to maintain security for mechanical 
dye injection systems. An additional penalty of $1,000 is 
imposed for each day any such violation remains uncorrected 
after the first day such violation has been or reasonably 
should have been discovered. For purposes of the daily penalty, 
a violation may be corrected by shutting down the portion of 
the system causing the violation. If any of these penalties are 
imposed on any business entity, each officer, employee, or 
agent of such entity or other contracting party who willfully 
participated in any act giving rise to such penalty shall be 
jointly and severally liable with such entity for such penalty. 
If such business entity is part of an affiliated group, the 
parent corporation of such entity shall be jointly and 
severally liable with such entity for the penalty.

                             EFFECTIVE DATE

    The provision requiring the use of mechanical dye injection 
systems and imposing penalties is effective 180 days after the 
date that the Secretary issues the required regulations. The 
Secretary must issue such regulations no later than 180 days 
after enactment.

                D. Authority to Inspect On-Site Records


(Sec. 204 of the bill and sec. 4083 of the Code)

                              PRESENT LAW

    The IRS is authorized to inspect any place where taxable 
fuel is produced or stored (or may be stored). The inspection 
is authorized to: (1) examine the equipment used to determine 
the amount or composition of the taxable fuel and the equipment 
used to store the fuel; and (2) take and remove samples of 
taxable fuel. Places of inspection, include, but are not 
limited to, terminals, fuel storage facilities, retail fuel 
facilities or any designated inspection site.\53\
---------------------------------------------------------------------------
    \53\ Sec. 4083(c)(1)(A).
---------------------------------------------------------------------------
    In conducting the inspection, the IRS may detain any 
receptacle that contains or may contain any taxable fuel, or 
detain any vehicle or train to inspect its fuel tanks and 
storage tanks. The scope of the inspection includes the book 
and records kept to determine the excise tax liability under 
section 4081.\54\
---------------------------------------------------------------------------
    \54\ Treas. Reg. sec. 48.4083-1(b)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to expand the 
authority of the IRS to make on site inspections of books and 
records. The Committee believes that such expanded authority 
will aid in the detection of fuel tax evasion and the 
enforcement of Federal fuel taxes.

                        EXPLANATION OF PROVISION

    The provision expands the scope of the inspection to 
include any books, records or shipping papers pertaining to the 
sale and transportation of taxable fuel, located in any 
authorized inspection locations or possessed by any carrier.

                             EFFECTIVE DATE

    The provision is effective on the date on enactment.

               E. Registration and Reporting Requirements


1. Registration of pipeline or vessel operators required for exemption 
        of bulk transfers to registered terminals or refineries (sec. 
        205 of the bill and sec. 4081 of the Code)

                              PRESENT LAW

    In general, gasoline, diesel fuel, and kerosene (``taxable 
fuel'') are taxed upon removal from a refinery or a 
terminal.\55\ Tax also is imposed on the entry into the United 
States of any taxable fuel for consumption, use, or 
warehousing. The tax does not apply to any removal or entry of 
a taxable fuel transferred in bulk (a ``bulk transfer'') to a 
terminal or refinery if both the person removing or entering 
the taxable fuel and the operator of such terminal or refinery 
are registered with the Secretary.\56\
---------------------------------------------------------------------------
    \55\ Sec. 4081(a)(1)(A).
    \56\ Sec. 4081(a)(1)(B). The sale of a taxable fuel to an 
unregistered person prior to a taxable removal or entry of the fuel is 
subject to tax. Sec. 4081(a)(1)(A).
---------------------------------------------------------------------------
    Present law does not require that the vessel or pipeline 
operator that transfers fuel as part of a bulk transfer be 
registered in order for the transfer to be exempt. For example, 
a registered refiner may transfer fuel to an unregistered 
vessel or pipeline operator who in turn transfers fuel to a 
registered terminal operator. The transfer is exempt despite 
the intermediate transfer to an unregistered person.
    In general, the owner of the fuel is liable for payment of 
tax with respect to bulk transfers not received at an approved 
terminal or refinery.\57\ The refiner is liable for payment of 
tax with respect to certain taxable removals from the 
refinery.\58\
---------------------------------------------------------------------------
    \57\ Treas. Reg. sec. 48.4081-3(e)(2).
    \58\ Treas. Reg. sec. 48.4081-3(b)
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is concerned that unregistered pipeline and 
vessel operators are receiving transfers in bulk of taxable 
fuel, and then diverting the fuel to retailers or end users 
without the tax ever being paid. The Committee believes that 
requiring that a pipeline or vessel operator be registered with 
the IRS in order to claim a bulk transfer exemption, in 
combination with other provisions that impose penalties 
relating to registration, will help to ensure that transfers of 
fuel in bulk are delivered as intended to approved refineries 
and terminals and taxed appropriately.

                        EXPLANATION OF PROVISION

    The provision requires that for a bulk transfer of a 
taxable fuel to be exempt from tax, any pipeline or vessel 
operator that is a party to the bulk transfer be registered 
with the Secretary. Transfer to an unregistered party will 
subject the transfer to tax.
    The Secretary is required to publish periodically a list of 
all registered persons that are required to register.

                             EFFECTIVE DATE

    The provision is effective on October 1, 2004, except that 
the Secretary is required to publish the list of registered 
persons beginning on July 1, 2004.

2. Display of registration and penalties for failure to display 
        registration and to register (secs. 206 and 207 of the bill, 
        secs. 4101, 7232, 7272 and new secs. 6717 and 6718 of the Code)

                              PRESENT LAW

    Blenders, enterers, pipeline operators, position holders, 
refiners, terminal operators, and vessel operators are required 
to register with the Secretary with respect to fuels taxes 
imposed by sections 4041(a)(1) and 4081.\59\ A non-assessable 
penalty for failure to register is $50.\60\ A criminal penalty 
of $5,000, or imprisonment of not more than five years, or 
both, together with the costs of prosecution also applies to a 
failure to register and to certain false statements made in 
connection with a registration application.\61\
---------------------------------------------------------------------------
    \59\ Sec. 4104; Treas. Reg. sec. 48.4101-1(a) and (c)(1).
    \60\ Sec. 7272(a).
    \61\ Sec. 7232.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    Registration with the Secretary is a critical component of 
enabling the Secretary to regulate the movement and use of 
taxable fuels and ensure that the appropriate excise taxes are 
being collected. The Committee believes that present law 
penalties are not severe enough to ensure that persons that are 
required to register in fact register. Accordingly, the 
Committee believes it is appropriate to increase present law 
penalties significantly and to add a new assessable penalty for 
failure to register. In addition, the Committee believes that 
persons that do business with vessel operators should be able 
easily to verify whether the vessel operator is registered. 
Thus, the Committee requires that vessel operators display 
proof of registration on their vessels and imposes an attendant 
penalty for failure to display such proof.

                        EXPLANATION OF PROVISION

    The provision requires that every operator of a vessel who 
is required to register with the Secretary display on each 
vessel used by the operator to transport fuel, proof of 
registration through an electronic identification device 
prescribed by the Secretary. A failure to display such proof of 
registration results in a penalty of $500 per month per vessel. 
The amount of the penalty is increased for multiple prior 
violations. No penalty is imposed upon a showing by thetaxpayer 
of reasonable cause. The provision authorizes amounts equivalent to the 
penalties received to be appropriated to the Highway Trust Fund.
    The provision imposes a new assessable penalty for failure 
to register of $10,000 for each initial failure, plus $1,000 
per day that the failure continues. No penalty is imposed upon 
a showing by the taxpayer of reasonable cause. In addition, the 
provision increases the present-law non-assessable penalty for 
failure to register from $50 to $10,000 and the present law 
criminal penalty for failure to register from $5,000 to 
$10,000. The provision authorizes amounts equivalent to any of 
such penalties received to be appropriated to the Highway Trust 
Fund.

                             EFFECTIVE DATE

    The provision requiring display of registration is 
effective on October 1, 2004. The provision relating to 
penalties is effective for penalties imposed after September 
30, 2004.

3. Penalties for failure to report (sec. 207 of the bill and new sec. 
        6725 of the Code)

                              PRESENT LAW

    A fuel information reporting program, the Excise Summary 
Terminal Activity Reporting System (``ExSTARS''), requires 
terminal operators and bulk transport carriers to report 
monthly on the movement of any liquid product into or out of an 
approved terminal.\62\ Terminal operators file Form 720-TO--
Terminal Operator Report, which shows the monthly receipts and 
disbursements of all liquid products to and from an approved 
terminal.\63\ Bulk transport carriers (barges, vessels, and 
pipelines) that receive liquid product from an approved 
terminal or deliver liquid product to an approved terminal file 
Form 720-CS--Carrier Summary Report, which details such 
receipts and disbursements. In general, the penalty for failure 
to file a report or a failure to furnish all of the required 
information in a report is $50 per report.\64\
---------------------------------------------------------------------------
    \62\ Sec. 4010(d); Treas. Reg. sec. 48.4101-2. The reports are 
required to be filed by the end of the month following the month to 
which the report relates.
    \63\ An approved terminal is a terminal that is operated by a 
taxable fuel registrant that is a terminal operator. Treas. Reg. sec. 
48.4081-1(b).
    \64\ Sec. 6721(a).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the proper and timely reporting 
of the disbursements of taxable fuels under the ExSTARs system 
is essential to the Treasury Department's ability to monitor 
and enforce the excise fuels taxes. Accordingly, the Committee 
believes it is appropriate to provide for significant penalties 
if required information is not provided accurately, completely, 
and on a timely basis.

                        EXPLANATION OF PROVISION

    The provision imposes a new assessable penalty for failure 
to file a report or to furnish information required in a report 
required by the ExSTARS system. The penalty is $10,000 per 
failure with respect to each vessel or facility (e.g., a 
terminal or other facility) for which information is required 
to be furnished. No penalty is imposed upon a showing by the 
taxpayer of reasonable cause. The provision authorizes amounts 
equivalent to the penalties received to be appropriated to the 
Highway Trust Fund.

                             EFFECTIVE DATE

    The provision is effective for penalties imposed after 
September 30, 2004.

     F. Collection From Customs Bond Where Importer Not Registered


(Sec. 208 of the bill and new sec. 4104 of the Code)

                              PRESENT LAW

    Typically, gasoline, diesel fuel, and kerosene are 
transferred by pipeline or barge in large quantities (``bulk'') 
to terminal storage facilities that geographically are located 
closer to destination retail markets. A fuel is taxed when it 
``breaks bulk,'' i.e., when it is removed from the refinery or 
terminal, typically by truck or rail car, for delivery to a 
smaller wholesale facility or a retail outlet. The party liable 
for payment of the taxes is the ``position holder,'' i.e., the 
person shown on the records of the terminal facility as holding 
the inventory position in the fuel.
    Tax is also imposed on the entry into the United States of 
any taxable fuel for consumption, use, or warehousing.\65\ This 
tax does not apply to any entry of a taxable fuel transferred 
in bulk to a terminal or refinery if the person entering the 
taxable fuel and the operator of such terminal or refinery are 
registered. The ``enterer'' is liable for the tax. An enterer 
generally means the importer of record (under customs law) with 
respect to the taxable fuel. However, if the importer of record 
is acting as an agent (a broker for example), the person for 
whom the agent is acting is the enterer. If there is no 
importer of record for taxable fuel entered into the United 
States, the owner of the taxable fuel at the time it is brought 
into the United States is the enterer. An importer's liability 
for Customs duties includes a liability for any internal 
revenue taxes that attach upon the importation of merchandise 
unless otherwise provided by law or regulation.\66\
---------------------------------------------------------------------------
    \65\ Sec. 4081(a)(1)(A)(iii).
    \66\ 19 CFR 141.3.
---------------------------------------------------------------------------
    As a part of the entry documentation, the importer, 
consignee, or an authorized agent usually is required to file a 
bond with Customs. The bond, among other things, guarantees 
that proper entry summary, with payment of estimated duties and 
taxes when due, will be made for imported merchandise and that 
any additional duties and taxes subsequently found to be due 
will be paid.
    As a condition of permitting anyone to be registered with 
the IRS, under section 4101 of the Code, the Secretary may 
require that such person give a bond in such sum as the 
Secretary determines appropriate.

                           REASONS FOR CHANGE

    It is the Committee's understanding that fuel is brought 
into the United States by unregistered parties and the 
appropriate tax is not being remitted. Therefore, the Committee 
believes it is appropriate to allow the Secretary to recover 
the tax due from the Customs bond.

                        EXPLANATION OF PROVISION

    Under the provision, the importer of record is jointly and 
severally liable for the tax imposed upon entry of fuel into 
the United States if, under regulations, any other person that 
is not registered with the Secretary as a taxable fuel 
registrant is liable for such tax. If the importer of record is 
liable for the tax and such tax is not paid on or before the 
last date prescribed for payment, the Secretary may collect 
such tax from the Customs bond posted with respect to the 
importation of the taxable fuel to which the tax relates.
    For purposes of determining the jurisdiction of any court 
of the United States or any agency of the United States, any 
action by the Secretary to collect the tax from the Customs 
bond is treated as an action to collect tax from a bond 
authorized by section 4101 of the Code, not as an action to 
collect from a bond relating to the importation of merchandise.

                             EFFECTIVE DATE

    The provision is effective for fuel entered after September 
30, 2004.

        G. Modification of the Use Tax on Heavy Highway Vehicles


(Sec. 209 of the bill and secs. 4481, 4483 and 6156 of the Code)

                              PRESENT LAW

    An annual use tax is imposed on heavy highway vehicles, at 
the rates below.\67\
---------------------------------------------------------------------------
    \67\ Sec. 4481.

Under 55,000 pounds.......................  No tax.
55,000-75,000 pounds......................  $100 plus $22 per 1,000
                                             pounds over 55,000.
Over 75,000 pounds........................  $550.


    The annual use tax is imposed for a taxable period of July 
1 through June 30. Generally, the tax is paid by the person in 
whose name the vehicle is registered. In certain cases, 
taxpayers are allowed to pay the tax in installments.\68\ State 
governments are required to receive proof of payment of the 
highway use tax as a condition of vehicle registration.
---------------------------------------------------------------------------
    \68\ Sec. 6156.
---------------------------------------------------------------------------
    Exemptions and reduced rates are provided for certain 
``transit-type buses,'' trucks used for fewer than 5,000 miles 
on public highways (7,500 miles for agricultural vehicles), and 
logging trucks.\69\ Any highway motor vehicle that is issued a 
base plate by Canada or Mexico and is operated on U.S. highways 
is subject to the highway use tax whether or not the vehicles 
are required to be registered in the United States. The tax 
rate for Canadian and Mexican vehicles is 75 percent of the 
rate that would otherwise be imposed.\70\
---------------------------------------------------------------------------
    \69\ See generally, sec. 4483.
    \70\ Sec. 4483(f): Treas. Reg. sec. 41.4483-7(a).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee notes that in the case of taxpayers that 
elect quarterly installment payments, the IRS has no procedure 
for ensuring that installments subsequent to the first one 
actually are paid. Thus, it is possible for taxpayers to 
receive State registrations when only the first quarterly 
installment is paid with the return. Similarly, it is possible 
for taxpayers repeatedly to pay the first quarterly installment 
and continue to receive State registrations because the IRS has 
no computerized system for checking past compliance when it 
issues certificates of payment for the current year. In the 
case of taxpayers owning only one or a few vehicles, it is not 
cost effective for the IRS to monitor and enforce compliance. 
Thus, the Committee believes it is appropriate to eliminate the 
ability of taxpayers to pay the use tax in installments. The 
Committee also believes that Canadian and Mexican vehicles 
operating on U.S. highways should be subject to the full amount 
of use tax, as such vehicles contribute to the wear and tear on 
U.S. highways.

                        EXPLANATION OF PROVISION

    The provision eliminates the ability to pay the tax in 
installments. It also eliminates the reduced rates for Canadian 
and Mexican vehicles. The proposal requires taxpayers with 25 
or more vehicles for any taxable period to file their returns 
electronically. Finally, the proposal permits proration of tax 
for vehicles sold during the taxable period.

                             EFFECTIVE DATE

    The provision is effective for taxable periods beginning 
after the date of enactment.

   H. Modification of Ultimate Vendor Refund Claims with Respect to 
                                Farming


(Sec. 210 of the bill and sec. 6427 of the Code)

                              PRESENT LAW

    In general, the Code provides that, if diesel fuel, 
kerosene, or aviation fuel on which tax has been imposed is 
used by any person in a nontaxable use, the Secretary is to 
refund (without interest) the amount of tax imposed. The refund 
is made to the ultimate purchaser of the taxed fuel. However, 
in the case of diesel fuel or kerosene used on a farm for 
farming purposes or by a State or local government, refund 
payments are paid to the ultimate, registered vendors 
(``ultimate vendors'') of such fuels.

                           REASONS FOR CHANGE

    The Committee reaffirms its belief that fuel used for 
farming purposes be exempt from tax, but is concerned that, 
when large quantities of undyed, or clear, diesel fuel or 
kerosene are sold for exempt uses and a refund claimed by the 
``ultimate vendor,'' there is an increased possibility of 
diversion of fuel to taxable uses. If there were no expense to 
the provision and storage of dyed fuel, and if dyed fuel were 
easily available at all times and locations, the Committee 
would prefer that only dyed fuel be sold for exempt purposes. 
However, the Committee recognizes that, to insure sufficient 
quantities of fuel are available in a timely manner for farming 
purposes, sometimes clear fuel must be sold to the farmer. In 
such circumstances, a refund for the tax paid in the price of 
the clear fuel is appropriate. The Committee believes that the 
person engaged in farming who purchases the clear fuel is in 
the best position to certify that the taxed fuel is, in fact, 
used for farming purposes and therefore it is more appropriate 
for such a person to claim refunds, rather than the ``ultimate 
vendor'' who, as a dealer in fuels, really has no knowledge as 
to what use the fuel will be put. Notwithstanding this general 
conclusion, the Committee believes it is appropriate to permit 
``ultimate vendor'' refunds when small amounts of fuel are 
purchased to ease the filing burden on farmers who purchase 
small quantities of clear fuel.

                        EXPLANATION OF PROVISION

    In the case of diesel fuel or kerosene used on a farm for 
farming purposes, the provision limits ultimate vendor claims 
for refund to sales of such fuel in amounts less than 250 
gallons per farmer per claim period. Qualifying ultimate vendor 
claims for refund with respect to fuel sales to farmers may be 
filed for refund amounts totaling $200 or more ($100 or more in 
the case of kerosene) accrued over any period greater than one 
week. However, no claim for refund is allowed unless filed on 
or before the last day of the quarter following the earliest 
calendar quarter in which an exempt sale was made for which a 
refund is being claimed.

                             EFFECTIVE DATE

    The provision is effective for fuels sold for nontaxable 
use after the date of enactment.

 I. Dedication of Revenue from Certain Penalties to the Highway Trust 
                                  Fund


(Sec. 211 of the bill and sec. 9503 of the Code)

                              PRESENT LAW

    Present law does not dedicate to the Highway Trust Fund any 
penalties assessed and collected by the Secretary.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to dedicate to the 
Highway Trust Fund penalties associated with the administration 
and enforcement of taxes supporting the Highway Trust Fund.

                        EXPLANATION OF PROVISION

    The provision dedicates to the Highway Trust Fund amounts 
equivalent to the penalties assessed under the penalty 
provisions created by the bill as well as the existing 
penalties (as increased by the provision) for failing to 
register under section 4101 and as otherwise required by law or 
regulation.

                             EFFECTIVE DATE

    The provision is effective for penalties assessed after 
October 1, 2004.

             TITLE III--OTHER HIGHWAY EXCISE TAX PROVISIONS


          A. Taxable Fuel Refunds for Certain Ultimate Vendors


(Sec. 301 of the bill and secs. 6416 and 6427 of the Code)

                              PRESENT LAW

    The Code provides that, in the case of gasoline on which 
tax has been paid and sold to a State or local government, to a 
nonprofit educational organization, for supplies for vessels or 
aircraft, for export, or for the production of special fuels, a 
wholesale distributor that sells the gasoline for such exempt 
purposes is treated as the person who paid the tax and thereby 
is the proper claimant for a credit or refund of the tax paid. 
In the case of undyed diesel fuel or kerosene used on a farm 
for farming purposes or by a State or local government, a 
credit or payment is allowable only to the ultimate, registered 
vendors (``ultimate vendors'') of such fuels.
    In general, refunds are paid without interest. However, in 
the case of overpayments of tax on gasoline, diesel fuel, or 
kerosene that is used to produce a qualified alcohol mixture 
and for refunds due ultimate vendors of diesel fuel or kerosene 
used on a farm for farming purposes or by a State or local 
government, the Secretary is required to pay interest on 
certain refunds. The Secretary must pay interest on refunds of 
$200 or more ($100 or more in the case of kerosene) due to the 
taxpayer arising from sales over any period of a week or more, 
if the Secretary does not make payment of the refund within 20 
days.

                           REASONS FOR CHANGE

    The Committee observes that refund procedures for gasoline 
differ from those for diesel fuel and kerosene. The Committee 
believes that simplification of administration can be achieved 
for both taxpayers and the IRS by providing a more uniform 
refund procedure applicable to all taxed highway fuels. The 
Committee further believes that compliance can be increased and 
administration made less costly by increased use of electronic 
filing.
    The Committee further observes that often State and local 
governments find it prudent to monitor and pay for fuel 
purchases by the use of a credit card, fleet buying card, or 
similar arrangement. In such a case the person extending the 
credit stands between the vendor of fuel and purchaser of fuel 
(the State or local government) in an exempt transaction, and 
the person extending the credit insures payment of the fuel 
bill thereby paying the amount of any tax owed that is embedded 
in the price of the fuel. In addition, because the person 
extending credit to the tax-exempt purchaser has a contractual 
relationship with the tax-exempt user, the person extending the 
credit should be best able to establish that the fuel should be 
sold at a tax-exempt price. The Committee believes that in such 
a situation it is appropriate to deem the person extending the 
credit to hold ultimate vendor status, not withstanding that 
such a person is not actually a vendor of fuel. The Committee 
observes that the billing service provided by the person 
extending credit to the tax-exempt purchaser creates a ``paper 
trail'' that should facilitate compliance and aid in any 
necessary audits that the IRS may undertake.

                        EXPLANATION OF PROVISION

    For sales of gasoline to a State or local government for 
the exclusive use of a State or local government or to a 
nonprofit educational organization for its exclusive use on 
which tax has been imposed, the provision conforms the payment 
of refunds to that procedure established under present law in 
the case of diesel fuel or kerosene. That is, the ultimate 
vendor claims the refund.
    The provision modifies the payment of interest on refunds. 
Under the provision, in the case of overpayments of tax on 
gasoline, diesel fuel, or kerosene that is used to produce a 
qualified alcohol mixture and for refunds due ultimate vendors 
of diesel fuel or kerosene used on a farm for farming purposes 
or by a State or local government, all refunds unpaid after 45 
days must be paid with interest. If the taxpayer has filed for 
his or her refund by electronic means, refunds unpaid after 20 
days must be paid with interest.
    Lastly, for claims for refund of tax paid on diesel fuel or 
kerosene sold to State and local governments or for sales of 
gasoline to a State or local government for the exclusive use 
of a State or local government or to a nonprofit educational 
organization for its exclusive use on which tax has been 
imposed and for which the ultimate purchaser utilized a credit 
card, the provision deems the person extending the credit to 
the ultimate purchaser to be the ultimate vendor. That is, the 
person extending credit via a credit card administers claims 
for refund, and is responsible for supplying all the 
appropriate documentation currently required from ultimate 
vendors.

                             EFFECTIVE DATE

    The provision is effective on October 1, 2004.

                         B. Two-Party Exchanges


(Sec. 302 of the bill and new sec. 4105 of the Code)

                              PRESENT LAW

    Most fuel is taxed when it is removed from a registered 
terminal.\71\ The party liable for payment of this tax is the 
``position holder.'' The position holder is the person 
reflected on the records of the terminal operator as holding 
the inventory position in the fuel.\72\
---------------------------------------------------------------------------
    \71\ A ``terminal'' is a storage and distribution facility that is 
supplied by pipeline or vessel, and from which fuel may be removed at a 
rack. A ``rack'' is a mechanism capable of delivering taxable fuel into 
a means of transport other than a pipeline or vessel.
    \72\ Such person has a contractual agreement with the terminal 
operator to store and provide services with respect to the fuel. A 
``terminal operator'' is any person who owns, operates, or otherwise 
controls a terminal. A terminal operator can also be a position holder 
if that person owns fuel in its terminal.
---------------------------------------------------------------------------
    It is common industry practice for oil companies to serve 
customers of other oil companies under exchange agreements, 
e.g., where Company A's terminal is more conveniently located 
for wholesale or retail customers of Company B. In such cases, 
the exchange agreement party (Company B in the example) owns 
the fuel when the motor fuel is removed from the terminal and 
sold to B's customer.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to recognize 
industry practice under exchange agreements by relieving the 
original position holder of tax liability for the removal of a 
taxable fuel from a terminal if certain circumstances are met.

                        EXPLANATION OF PROVISION

    The provision permits two registered parties to switch 
position holder status in fuel within a registered terminal 
(thereby relieving the person originally owning the fuel \73\ 
of tax liability as the position holder) if all of the 
following occur:
---------------------------------------------------------------------------
    \73\ In the provision, this person is referred to as the 
``delivering person.''
---------------------------------------------------------------------------
    (1) The transaction includes a transfer from the original 
owner, i.e., the person who holds the original inventory 
position for taxable fuel in the terminal as reflected in the 
records of the terminal operator prior to the transaction.
    (2) The exchange transaction occurs at the same time as 
completion of removal across the rack from the terminal by the 
receiving person or its customer.
    (3) The terminal operator in its books and records treats 
the receiving person as the person that removes the product 
across a terminal rack for purposes of reporting the 
transaction to the Internal Revenue Service.
    (4) The transaction is the subject of a written contract.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                   C. Simplification of Tax on Tires


(Sec. 303 of the bill and sec. 4071 of the Code)

                              PRESENT LAW

    A graduated excise tax is imposed on the sale by a 
manufacturer (or importer) of tires designed for use on highway 
vehicles (sec. 4071). The tire tax rates are as follows:


                Tire weight                           Tax rate

Not more than 40 lbs......................  No tax.
More than 40 lbs., but not more than 70     15 cents/lb. in excess of 40
 lbs.                                        lbs.
More than 70 lbs., but not more than 90     $4.50 plus 30 cents/lb. in
 lbs.                                        excess of 70 lbs.
More than 90 lbs..........................  $10.50 plus 50 cents/lb. in
                                             excess of 90 lbs.


    No tax is imposed on the recapping of a tire that 
previously has been subject to tax. Tires of extruded tiring 
with internal wire fastening also are exempt.
    The tax expires after September 30, 2005.

                           REASONS FOR CHANGE

    Under present law, the tire excise tax is based on the 
weight of each tire. This forces tire manufacturers to weigh 
sample batches of every type of tire made and collect the tax 
based on that weight. This regime also makes it difficult for 
the IRS to measure and enforce compliance with the tax, as the 
IRS likewise must weigh sample batches of tires to ensure 
compliance. The Committee believes significant administrative 
simplification for both tire manufacturers and the IRS will be 
achieved if the tax were based on the weight carrying capacity 
of the tire, rather than the weight of the tire, because 
Department of Transportation requires the load rating to be 
stamped on the side of highway tires. Thus, both the 
manufacturer and the IRS will know immediately whether a tire 
is taxable and how much tax should be paid.

                        EXPLANATION OF PROVISION

    The provision modifies the excise tax applicable to tires. 
The provision replaces the present-law tax rates based on the 
weight of the tire with a tax rate based on the load capacity 
of the tire. In general, the tax is 9.4 cents for each 10 
pounds of tire load capacity in excess of 3,500 pounds. In the 
case of a biasply tire, the tax rate is 4.7 cents for each 10 
pounds of tire load capacity in excess of 3,500 pounds.
    The provision modifies the definition of tires for use on 
highway vehicles to include any tire marked for highway use 
pursuant to certain regulations promulgated by the Secretary of 
Transportation. The provision also exempts from tax any tire 
sold for the exclusive use of the United States Department of 
Defense or the United States Coast Guard.
    Tire load capacity is the maximum load rating labeled on 
the tire pursuant to regulations promulgated by the Secretary 
of Transportation. A biasply tire is any tire manufactured 
primarily for use on piggyback trailers.

                             EFFECTIVE DATE

    The provision is effective for sales in calendar years 
beginning more than 30 days after the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 3971.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 3971, as amended was ordered favorably 
reported by voice vote (with a quorum being present).

                          VOTES ON AMENDMENTS

    An amendment by Mr. Pomeroy that would make ethanol tax 
subsidies permanent was defeated by voice vote.

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 3971 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2004-2008:


B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 22, 2004.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3971, the Highway 
Reauthorization Tax Act of 2004.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Annie 
Bartsch (for revenues), and Dave Hull (for direct spending).
            Sincerely,
                                     Douglas Holtz-Eakin, Director.
    Enclosure.

H.R. 3971--Highway Reauthorization Tax Act of 2004

    Summary: H.R. 3971 would amend several provisions of tax 
law relating to alcohol fuels. The bill would replace the 
reduced tax rate on alcohol fuels with an excise credit and 
make several changes intended to reduce evasion of fuel taxes. 
The tax provisions of the bill would generally take effect on 
October 1, 2004.
    The Congressional Budget Office (CBO) and the Joint 
Committee on Taxation (JCT) estimate that enacting the bill 
would increase governmental receipts by $108 million in 2004, 
about $4.8 billion over the 2004-2009 period, and about $15.1 
billion over the 2004-2014 period. (About $5.9 billion of the 
10-year increase occurs because the new excise credit is 
assumed to expire in 2010, whereas the existing reduction in 
the excise tax rate is assumed to remain in effect beyond 2010, 
as specified in law.) CBO estimates that the bill would 
increase direct spending by $105 million in 2005, $571 million 
over the 2004-2009 period, and $901 million over the 2004-2014 
period.
    JCT has determined that H.R. 3971 contains three private-
sector mandates, as defined in the Unfunded Mandates Reform Act 
(UMRA). The cost of complying with those mandates would exceed 
the annual threshold for private-sector mandates established by 
UMRA ($120 million in 2004, adjusted annually for inflation) 
beginning in 2005.
    JCT has determined that the tax provisions contain no 
intergovernmental mandates, as defined by UMRA, and would not 
affect the budgets of state, local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3971 is shown in the following table. 
The spending impact of the legislation falls within budget 
function 350 (agriculture).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           By fiscal year, in millions of dollars--
                                                                    ------------------------------------------------------------------------------------
                                                                      2004   2005   2006   2007   2008   2009   2010    2011     2012     2013     2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Replacing Reduced Tax Rate on Alcohol Fuels with Excise Credit:
    Impact of Expiring Excise Credit...............................      0      0      0      0      0      0      0  a 1,131  a 1,559  a 1,586  a 1,614
    Increased Compliance...........................................      0     22     23     23     23     22     22       22       21       21       21
    Impact of Making Direct Payments to Some Recipients............      0    105    114    116    117    119    121     a 38      a 0      a 0      a 0
Taxing Aviation-Grade Kerosene.....................................      0    395    423    426    427    427    425      421      417      413      412
Other Provisions Intended to Reduce Fuel Tax Evasion...............    108    341    397    400    402    405    405      407      408      409      410
                                                                    ------------------------------------------------------------------------------------
      Estimated Revenues...........................................    108    863    957    965    969    973    973    2,019    2,405    2,429    2,457

                                                              CHANGES IN DIRECT SPENDING b

Replacing Reduced Tax Rate on Alcohol Fuels with Excise Credit:
    Impact of Making Direct Payments to Some Recipients............      0    105    114    116    117    119    121     a 38      a 0      a 0      a 0
    Impact of Expiring Excise Credit on Farm Programs..............      0      0      0      0      0      0      0     a 19     a 32     a 54     a 66
                                                                    ------------------------------------------------------------------------------------
      Total Changes in Direct Spending.............................      0    105    114    116    117    119    121       57       32       54       66
--------------------------------------------------------------------------------------------------------------------------------------------------------
a These effects result from application of the budget law for constructing CBO's baseline in the case of expiring excise taxes dedicated to trust funds.
  Under current law, the taxes on motor fuels dedicated to the Highway Trust Fund (HTF) expire in 2005, and are assumed to be permanently extended in
  CBO's baseline under budget law. The lower excise tax rates on alcohol fuels, which reduce revenue to the HTF, expire in 2007 and are also assumed to
  be permanently extended in CBO's baseline. H.R. 3971 would replace the lower excise tax rates on alcohol fuels with an excise tax credit that would
  not reduce revenue to the HTF and that would expire in 2010. If this bill is enacted, CBO's subsequent baseline would not assume extension of the
  excise tax credit beyond its expiration because the requirement to assume extension only applies to excise taxes dedicated to trust funds. For
  purposes of this cost estimate, therefore, CBO and JCT assume that the credit would expire as scheduled. That treatment generates changes in revenues
  and outlays beyond 2010.
b The estimated changes in budget authority equal the estimated changes in outlays for each provision.

Note.--Positive (negative) changes in revenues correspond to decreases (increases) in budget deficits. Positive (negative) changes in direct spending
  correspond to increases (decreases) in budget deficits.

Sources: CBO and the Joint Committee on Taxation.

Basis of estimate

            Revenues
    JCT provided all the revenue estimates. One provision would 
repeal the existing exemptions from the gasoline tax rate for 
alcohol fuels and replace those exemptions with an excise tax 
credit worth the same amount. JCT estimates the increased 
compliance from doing so would increase federal revenues by $22 
million in 2005, $113 million over the 2005-2009 period, and 
$220 million over the 2005-2014 period. This estimate assumes 
the excise tax credit for alcohol fuels would be extended 
beyond the provision's 2010 expiration.
    Budget law (the Balanced Budget and Emergency Deficit 
Control Act of 1985) requires CBO to treat excise taxes 
dedicated to trust funds as permanent, even if they expire 
during the projection period. CBO's baseline includes permanent 
extension of the reduced rates of taxation on alcohol fuels 
beyond their expiration because they reduce amounts credited to 
the Highway Trust Fund (HTF). However, the excise tax credit 
for alcohol fuels, as provided for in the bill, would not 
reduce amounts credited to the HTF. Therefore, CBO and JCT do 
not assume the credit would be extended and estimate that 
repealing the existing exemptions from the gasoline tax rate 
for alcohol fuels would increase governmental receipts by an 
additional $5.9 billion between 2011 and 2014, after the new 
tax credit would expire.
    H.R. 3971 also would provide direct payments to recipients 
of the excise tax credits for both alcohol fuel mixtures who 
would have insufficient tax liability to use them otherwise. 
Under current law, the equivalent lower rates of taxation 
reduce revenues. As a result, JCT estimates that the provision 
would increase outlays and correspondingly raise revenues by an 
estimated $571 million over the 2005-2009 period and $730 
million over the 2005-2011 period, with no effect beyond the 
credit's December 31, 2010, expiration.
    The bill also contains numerous provisions intended to 
reduce evasion of fuel taxes. JCT estimates that taxing 
aviation-grade kerosene at the terminal rack would increase 
governmental receipts by $395 million in 2005, about $2.1 
billion over the 2005-2009 period, and about $4.2 billion over 
the 2005-2014 period. Other such provisions include, but are 
not limited to, exempting mobile machinery vehicles from 
certain excise taxes, implementing registration and reporting 
requirements for certain operators of pipelines and vessels, 
and modifying the use tax on heavy vehicles. In total, JCT 
estimates that the remaining evasion provisions would increase 
revenues by $108 million in 2004, about $2.1 billion between 
2004 and 2009, and about $4.1 billion between 2004 and 2014.
            Direct spending
    Providing Direct Payments in Lieu of Excise Credits. The 
bill would provide for payments to recipients of the tax 
credits who have insufficient tax liability to use them 
otherwise. As a result of this provision, CBO estimates that 
outlays would increase by $571 million over the 2005-2009 
period and $730 million over the 2005-2011 period. Because 
these payments would replace the existing reduced tax rate on 
alcohol fuels, this amount exactly equals the increased 
revenues estimated for this provision.
    Expiration of Special Tax Treatment for Ethanol. Expiration 
of the excise tax credit for alcohol fuels in the bill also 
would result in increased spending for farm income payments 
after 2010. Because the alcohol in such fuels is primarily 
derived from corn, demand for corn rises and falls with the 
demand for ethanol. The higher after-tax price of alcohol fuels 
resulting from expiration of the tax credit in 2010 would 
slightly reduce demand for ethanol and corn prices relative to 
those projected in the CBO baseline. As a result, CBO estimates 
that federal spending for farm price and income support 
payments would increase by $171 million over the 2011-2014 
period.
    Intergovernmental and private-sector impact: JCT has 
determined that H.R. 3971 contains three private-sector 
mandates as defined in UMRA: (1) taxing aviation-grade 
kerosene; (2) requiring registration of pipeline and vessel 
operators; and (3) modifying the heavy vehicle use tax. The 
cost of complying with those mandates would exceed the annual 
threshold for private-sector mandates established by UMRA ($120 
million in 2004, adjusted annually for inflation) beginning in 
2005. JCT has determined that the cost of complying with the 
three mandates would be no greater than the estimated revenue 
effects of the provisions. Those effects sum to $108 million in 
2004 and $631 million in 2005, and grow slowly thereafter.
    JCT has determined that H.R. 3971 contains no 
intergovernmental mandates and would not affect the budgets of 
state, local, or tribal governments.
    Previous CBO estimate: On October 14, 2003, CBO transmitted 
a cost estimate for S. 1548, a bill to amend the Internal 
Revenue Code of 1986 to provide incentives for the production 
of renewable fuels and to simplify the administration of the 
Highway Trust Fund fuel excise taxes, and for other purposes, 
as ordered reported by the Senate Committee on Finance on 
September 17, 2003.
    Like H.R. 3971, that bill included excise tax credits that 
expire in 2010. Unlike H.R. 3971, S. 1548 included incentives 
for the production of biodiesel fuels. CBO estimated that 
enacting S. 1548 would increase governmental receipts by $28 
million in 2004, by $277 million over the 2004-2008 period, and 
by about $4.3 billion over the 2004-2013 period. In addition, 
CBO estimated that the bill would increase direct spending by 
$16 million in 2004, by $108 million over the 2004-2008 period, 
and by $339 million over the 2004-2013 period. Some of the 
differences between CBO's estimates of S. 1548 and H.R. 3971 
are due to changes in JCT's estimates of the effects of 
replacing the reduced tax rate on alcohol fuels, with an excise 
tax credit. The remaining differences are due to the provisions 
not included in both bills.
    Estimate prepared by: Federal Revenues: Annie Bartsch and 
Andrew Shaw, and Federal Spending: Dave Hull.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis, and Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning fuel tax evasion that the Committee 
concluded that it is appropriate and timely to enact the 
revenue provision included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * *''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the following provisions 
of the bill contain Federal mandates on the private sector (for 
amounts, see table in Part II.A above): (1) the provision 
relating to the taxation of aviation grade kerosene; (2) the 
provision requiring registration of pipeline and vessel 
operators for exemption of bulk transfers and imposing a 
penalty for failure to display such registration; and (3) the 
provision to modify the heavy vehicle use tax.
    The costs required to comply with each Federal private 
sector mandate generally are no greater than the estimated 
budget effects of the provision. Benefits from the provisions 
include the prevention of fuel tax evasion and improved 
administration of the Federal tax laws.
    The Committee has determined that the revenue provisions of 
the bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments.

                 E. Applicability of House Rule XXI5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less thanthree-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that the 
provisions of the bill do not involve any Federal income tax rate 
increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
(the ``Code'') and has widespread applicability to individuals 
or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that have ``widespread applicability'' to 
individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                     INTERNAL REVENUE CODE OF 1986


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



Subpart D--Business Related Credits

           *       *       *       *       *       *       *



SEC. 40. ALCOHOL USED AS FUEL.

  (a) * * *

           *       *       *       *       *       *       *

  [(c) Coordination with Exemption From Excise Tax.--The amount 
of the credit determined under this section with respect to any 
alcohol shall, under regulations prescribed by the Secretary, 
be properly reduced to take into account any benefit provided 
with respect to such alcohol solely by reason of the 
application of subsection (b)(2), (k), or (m) of section 4041, 
section 4081(c), or section 4091(c).]
  (c) Coordination With Excise Tax Benefits.--The amount of the 
credit determined under this section with respect to any 
alcohol shall, under regulations prescribed by the Secretary, 
be properly reduced to take into account the benefit provided 
with respect to such alcohol under section 6427(f).
  (d) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Volume of alcohol.--For purposes of determining--
                  (A) * * *
                  (B) [under section 4041(k) or 4081(c)] under 
                section 6427(f) the percentage of any mixture 
                which consists of alcohol,
        the volume of alcohol shall include the volume of any 
        denaturant (including gasoline) which is added under 
        any formulas approved by the Secretary to the extent 
        that such denaturants do not exceed 5 percent of the 
        volume of such alcohol (including denaturants).

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 31--RETAIL EXCISE TAXES

           *       *       *       *       *       *       *


Subchapter B--Special Fuels

           *       *       *       *       *       *       *


SEC. 4041. IMPOSITION OF TAX.

  (a) Diesel Fuel and Special Motor Fuels.--
          (1) Tax on diesel fuel and kerosene in certain 
        cases.--
                  (A)  * * *
                  (B) Exemption for previously taxed fuel.--No 
                tax shall be imposed by this paragraph on the 
                sale or use of any liquid if tax was imposed on 
                such liquid under section 4081 and the tax 
                thereon was not credited or refunded. This 
                subparagraph shall not apply to aviation-grade 
                kerosene.

           *       *       *       *       *       *       *

  [(b) Exemption for Off-Highway Business Use; Reduction in Tax 
for Qualified Methanol and Ethanol Fuel.--
          [(1) Exemption for off-highway business use
                  [(A) In general.--No tax shall be imposed by 
                subsection (a) or (d)(1) on liquids sold for 
                use or used in an off-highway business use.
                  [(B) Tax where other use.--If a liquid on 
                which no tax was imposed by reason of 
                subparagraph (A) is used otherwise than in an 
                off-highway business use, a tax shall be 
                imposed by paragraph (1)(B), (2)(B), or 
                (3)(A)(ii) of subsection (a) (whichever is 
                appropriate) and by the corresponding provision 
                of subsection (d)(1) (if any).
                  [(C) Off-highway business use defined.--For 
                purposes of this subsection, the term ``off-
                highway business use'' has the meaning given to 
                such term by section 6421(e)(2); except that 
                such term shall not, for purposes of subsection 
                (a)(1), include use in a diesel-powered train.
          [(2) Qualified methanol and ethanol fuel
                  [(A) In general.--In the case of any 
                qualified methanol or ethanol fuel--
                          [(i) the rate applicable under 
                        subsection (a)(2) shall be the 
                        applicable blender rate per gallon less 
                        than the otherwise applicable rate (6 
                        cents per gallon in the case of a 
                        mixture none of the alcohol in which 
                        consists of ethanol), and
                          [(ii) subsection (d)(1) shall be 
                        applied by substituting ``0.05 cent'' 
                        for ``0.1 cent'' with respect to the 
                        sales and uses to which clause (i) 
                        applies.
                  [(B) Qualified methanol or ethanol fuel.--The 
                term ``qualified methanol or ethanol fuel'' 
                means any liquid at least 85 percent of which 
                consists of methanol, ethanol, or other alcohol 
                produced from a substance other than petroleum 
                or natural gas.
                  [(C) Applicable blender rate--.--For purposes 
                of subparagraph (A)(i), the applicable blender 
                rate is--
                          [(i) except as provided in clause 
                        (ii), 5.4 cents, and
                          [(ii) for sales or uses during 
                        calendar years 2001 through 2007, 1/10 
                        of the blender amount applicable under 
                        section 40(h)(2) for the calendar year 
                        in which the sale or use occurs.
                  [(D) Termination.--On and after October 1, 
                2007, subparagraph (A) shall not apply.
  [(c) Noncommercial Aviation.--
          [(1) Tax on nongasoline fuels where no tax imposed on 
        fuel under section 4091.--There is hereby imposed a tax 
        upon kerosene and any other liquid (other than any 
        product taxable under section 4081)--
                  [(A) sold by any person to an owner, lessee, 
                or other operator of an aircraft, for use as a 
                fuel in such aircraft in noncommercial 
                aviation; or
                  [(B) used by any person as a fuel in an 
                aircraft in noncommercial aviation, unless 
                there was a taxable sale of such liquid under 
                this section.
        The rate of the tax imposed by this paragraph shall be 
        the rate of tax specified in section 4091(b)(1) which 
        is in effect at the time of such sale or use. No tax 
        shall be imposed by this paragraph on the sale or use 
        of any liquid if there was a taxable sale of such 
        liquid under section 4091.
          [(2) Definition of noncommercial aviation.--For 
        purposes of this chapter, the term ``noncommercial 
        aviation'' means any use of an aircraft, other than use 
        in a business of transporting persons or property for 
        compensation or hire by air. The term also includes any 
        use of an aircraft, in a business described in the 
        preceding sentence, which is properly allocable to any 
        transportation exempt from the taxes imposed by 
        sections 4261 and 4271 by reason of section 4281 or 
        4282 or by reason of section 4261(h).
          [(3) Termination.--The rate of the taxes imposed by 
        paragraph (1) shall be 4.3 cents per gallon--
                  [(A) after December 31, 1996, and before the 
                date which is 7 days after the date of the 
                enactment of the Airport and Airway Trust Fund 
                Tax Reinstatement Act of 1997, and
                  [(B) after September 30, 2007.]
  (b) Exemption for Off-Highway Business Use.--
          (1) In general.--No tax shall be imposed by 
        subsection (a) or (d)(1) on liquids sold for use or 
        used in an off-highway business use.
          (2) Tax where other use.--If a liquid on which no tax 
        was imposed by reason of paragraph (1) is used 
        otherwise than in an off-highway business use, a tax 
        shall be imposed by paragraph (1)(B), (2)(B), or 
        (3)(A)(ii) of subsection (a) (whichever is appropriate) 
        and by the corresponding provision of subsection (d)(1) 
        (if any).
          (3) Off-highway business use defined.--For purposes 
        of this subsection, the term ``off-highway business 
        use'' has the meaning given to such term by section 
        6421(e)(2); except that such term shall not, for 
        purposes of subsection (a)(1), include use in a diesel-
        powered train.
  (c) Aviation-Grade Kerosene.--
          (1) In general.--There is hereby imposed a tax upon 
        aviation-grade kerosene--
                  (A) sold by any person to an owner, lessee, 
                or other operator of an aircraft for use in 
                such aircraft, or
                  (B) used by any person in an aircraft unless 
                there was a taxable sale of such fuel under 
                subparagraph (A).
          (2) Exemption for previously taxed fuel.--No tax 
        shall be imposed by this subsection on the sale or use 
        of any aviation-grade kerosene if tax was imposed on 
        such liquid under section 4081 and the tax thereon was 
        not credited or refunded.
          (3) Rate of tax.--The rate of tax imposed by this 
        subsection shall be the rate of tax specified in 
        section 4081(a)(2)(A)(iv) which is in effect at the 
        time of such sale or use.
  (d) Additional Taxes to Fund Leaking Underground Storage Tank 
Trust Fund.--
          (1) * * *
          (2) Liquids used in aviation.--In addition to the 
        taxes imposed by subsection (c), there is hereby 
        imposed a tax of 0.1 cent a gallon on any liquid (other 
        than gasoline (as defined in section 4083)--
                  (A) * * *

           *       *       *       *       *       *       *

        No tax shall be imposed by this paragraph on the sale 
        or use of any liquid if there was a taxable sale of 
        such liquid under [section 4091] section 4081.

           *       *       *       *       *       *       *

  [(e) Additional Tax.--If a liquid on which tax was imposed on 
the sale thereof is taxable at a higher rate under subsection 
(c)(1) of this section on the use thereof, there is hereby 
imposed a tax equal to the difference between the tax so 
imposed and the tax payable at such higher rate.]

           *       *       *       *       *       *       *

  [(i) Registration.--If any liquid is sold by any person for 
use as a fuel in an aircraft, it shall be presumed for purposes 
of this section that a tax imposed by this section applies to 
the sale of such liquid unless the purchaser is registered in 
such manner (and furnishes such information in respect of the 
use of the liquid) as the Secretary shall by regulations 
provide.]

           *       *       *       *       *       *       *

  [(k) Fuels Containing Alcohol.--
          [(1) In general.--Under regulations prescribed by the 
        Secretary, in the case of the sale or use of any liquid 
        at least 10 percent of which consists of alcohol (as 
        defined in section 4081(c)(3))--
                  [(A) the rates under paragraphs (1) and (2) 
                of subsection (a) shall be the comparable rates 
                under section 4081(c), and
                  [(B) the rate of the tax imposed by 
                subsection (c)(1) shall be the comparable rate 
                under section 4091(c).
          [(2) Later separation.--If any person separates the 
        liquid fuel from a mixture of the liquid fuel and 
        alcohol to which paragraph (1) applied, such separation 
        shall be treated as a sale of the liquid fuel. Any tax 
        imposed on such sale shall be reduced by the amount (if 
        any) of the tax imposed on the sale of such mixture.
          [(3) Termination.--Paragraph (1) shall not apply to 
        any sale or use after September 30, 2007.]

           *       *       *       *       *       *       *


Subchapter C--Heavy Trucks and Trailers

           *       *       *       *       *       *       *


SEC. 4053. EXEMPTIONS.

  No tax shall be imposed by section 4051 on any of the 
following articles:
          (1) * * *

           *       *       *       *       *       *       *

          (8) Mobile machinery.--Any vehicle which consists of 
        a chassis--
                  (A) to which there has been permanently 
                mounted (by welding, bolting, riveting, or 
                other means) machinery or equipment to perform 
                a construction, manufacturing, processing, 
                farming, mining, drilling, timbering, or 
                similar operation if the operation of the 
                machinery or equipment is unrelated to 
                transportation on or off the public highways,
                  (B) which has been specially designed to 
                serve only as a mobile carriage and mount (and 
                a power source, where applicable) for the 
                particular machinery or equipment involved, 
                whether or not such machinery or equipment is 
                in operation, and
                  (C) which, by reason of such special design, 
                could not, without substantial structural 
                modification, be used as a component of a 
                vehicle designed to perform a function of 
                transporting any load other than that 
                particular machinery or equipment or similar 
                machinery or equipment requiring such a 
                specially designed chassis.

CHAPTER 32--MANUFACTURERS EXCISE TAXES

           *       *       *       *       *       *       *


Subchapter A--Automotive and Related Items

           *       *       *       *       *       *       *


                             PART II--TIRES

        Sec. 4071. Imposition of tax.
     * * * * * * *
        [Sec. 4073. Exemption for tires with internal wire fastening.]
        Sec. 4073. Exemptions.

           *       *       *       *       *       *       *


SEC. 4071. IMPOSITION OF TAX.

  [(a) Imposition and Rate of Tax.--There is hereby imposed on 
tires of the type used on highway vehicles, if wholly or in 
part made of rubber, sold by the manufacturer, producer, or 
importer a tax at the following rates:

      


      [If the tire weighs:                 The rate of tax is:

Not more than 40 lbs.            No tax.
More than 40 lbs. but not more   15 cents per lb. in excess of 40 lbs.
 than 70 lbs.
More than 70 lbs. but not more   $4.50 plus 30 cents per in excess of 70
 than 90 lbs.                     lbs.
More than 90 lbs.                $10.50 plus 50 cents per lb. in excess
                                  of 90 lbs.]



  (a) Imposition and Rate of Tax.--There is hereby imposed on 
taxable tires sold by the manufacturer, producer, or importer 
thereof a tax at the rate of 9.4 cents (4.7 cents in the case 
of a biasply tire) for each 10 pounds so much of the maximum 
rated load capacity thereof as exceeds 3,500 pounds.

           *       *       *       *       *       *       *

  [(c) Determination of Weight.--For purposes of this section, 
weight shall be based on total weight exclusive of metal rims 
or rim bases. Total weight of the articles shall be determined 
under regulations prescribed by the Secretary.]
  [(e)] (c) Tires on Imported Articles.--For the purposes of 
subsection (a), if an article imported into the United States 
is equipped with tires--
          (1) * * *

           *       *       *       *       *       *       *


SEC. 4072. DEFINITIONS.

  (a) Taxable Tire.--For purposes of this chapter, the term 
``taxable tire'' means any tire of the type used on highway 
vehicles if wholly or in part made of rubber and if marked 
pursuant to Federal regulations for highway use.
  [(a)] (b) Rubber.--For purposes of this chapter, the term 
``rubber'' includes synthetic and substitute rubber.
  [(b)] (c) Tires of the Type Used on Highway Vehicles.--For 
purposes of this part, the term ``tires of the type used on 
highway vehicles'' means tires of the type used on--
          (1) motor vehicles which are highway vehicles, or
          (2) vehicles of the type used in connection with 
        motor vehicles which are highway vehicles.
Such term shall not include tires of a type used exclusively on 
vehicles described in section 4053(8).

[SEC. 4073. EXEMPTION FOR TIRES WITH INTERNAL WIRE FASTENING.

  [The tax imposed by section 4071 shall not apply to tires of 
extruded tiring with an internal wire fastening agent.]

SEC. 4073. EXEMPTIONS.

  The tax imposed by section 4071 shall not apply to tires sold 
for the exclusive use of the Department of Defense or the Coast 
Guard.

                      PART III--PETROLEUM PRODUCTS

        [Subpart A. Gasoline.
        [Subpart B. Disel fuel and aviation fuel.
        [Subpart C. Special provisions applicable to petroleum 
                  products.]
        Subpart A. Motor and aviation fuels.
        Subpart B. Special provisions applicable to fuels tax.

                 [Subpart A--Gasoline and Diesel Fuel]

                  Subpart A--Motor and Aviation Fuels

SEC. 4081. IMPOSITION OF TAX.

  (a) Tax Imposed.--
          (1) Tax on removal, entry, or sale.--
                  (A) * * *
                  (B) Exemption for bulk transfers to 
                registered terminals or refineries.--The tax 
                imposed by this paragraph shall not apply to 
                any removal or entry of a taxable fuel 
                transferred in bulk by pipeline or vessel to a 
                terminal or refinery if the person removing or 
                entering the taxable fuel, the operator of such 
                pipeline or vessel, and the operator of such 
                terminal or refinery are registered under 
                section 4101.
          (2) Rates of tax.--
                  (A) In general.--The rate of the tax imposed 
                by this section is--
                          (i) * * *
                          (ii) in the case of aviation 
                        gasoline, 19.3 cents per gallon, [and]
                          (iii) in the case of diesel fuel or 
                        kerosene, 24.3 cents per gallon[.]; and
                          (iv) in the case of aviation-grade 
                        kerosene, 21.8 cents per gallon.

           *       *       *       *       *       *       *

                  (C) Taxes imposed on fuel used in commercial 
                aviation.--In the case of aviation-grade 
                kerosene which is removed from any refinery or 
                terminal directly into the fuel tank of an 
                aircraft for use in commercial aviation, the 
                rate of tax under subparagraph (A)(iv) shall be 
                4.3 cents per gallon.
          (3) Certain refueler trucks, tankers, and tank wagons 
        treated as terminal.--
                  (A) In general.--In the case of aviation-
                grade kerosene which is removed from any 
                terminal directly into the fuel tank of an 
                aircraft (determined without regard to any 
                refueler truck, tanker, or tank wagon which 
                meets the requirements of subparagraph (B)), a 
                refueler truck, tanker, or tank wagon shall be 
                treated as part of such terminal if--
                          (i) such truck, tanker, or wagon 
                        meets the requirements of subparagraph 
                        (B) with respect to an airport, and
                          (ii) except in the case of exigent 
                        circumstances identified by the 
                        Secretary in regulations, no vehicle 
                        registered for highway use is loaded 
                        with aviation-grade kerosene at such 
                        terminal.
                  (B) Requirements.--A refueler truck, tanker, 
                or tank wagon meets the requirements of this 
                subparagraph with respect to an airport if such 
                truck, tanker, or wagon--
                          (i) is loaded with aviation-grade 
                        kerosene at such terminal located 
                        within such airport and delivers such 
                        kerosene only into aircraft at such 
                        airport,
                          (ii) has storage tanks, hose, and 
                        coupling equipment designed and used 
                        for the purposes of fueling aircraft,
                          (iii) is not registered for highway 
                        use, and
                          (iv) is operated by--
                                  (I) the terminal operator of 
                                such terminal, or
                                  (II) a person that makes a 
                                daily accounting to such 
                                terminal operator of each 
                                delivery of fuel from such 
                                truck, tanker, or wagon.
                  (C) Reporting.--The Secretary shall require 
                under section 4101(d) reporting by such 
                terminal operator of--
                          (i) any information obtained under 
                        subparagraph (B)(iv)(II), and
                          (ii) any similar information 
                        maintained by such terminal operator 
                        with respect to deliveries of fuel made 
                        by trucks, tankers, or wagons operated 
                        by such terminal operator.
          (4) Liability for tax on aviation-grade kerosene used 
        in commercial aviation.--For purposes of paragraph 
        (2)(C), the person who uses the fuel for commercial 
        aviation shall pay the tax imposed under such 
        paragraph. For purposes of the preceding sentence, fuel 
        shall be treated as used when such fuel is removed into 
        the fuel tank.

           *       *       *       *       *       *       *

  [(c) Taxable Fuels Mixed With Alcohol.--Under regulations 
prescribed by the Secretary--
          [(1) In general.--The rate of tax under subsection 
        (a) shall be the alcohol mixture rate in the case of 
        the removal or entry of any qualified alcohol mixture.
          [(2) Tax prior to mixing.--
                  [(A) In general.--In the case of the removal 
                or entry of any taxable fuel for use in 
                producing at the time of such removal or entry 
                a qualified alcohol mixture, the rate of tax 
                under subsection (a) shall be the applicable 
                fraction of the alcohol mixture rate. Subject 
                to such terms and conditions as the Secretary 
                may prescribe (including the application of 
                section 4101), the treatment under the 
                preceding sentence also shall apply to use in 
                producing a qualified alcohol mixture after the 
                time of such removal or entry.
                  [(B) Applicable fraction.--For purposes of 
                subparagraph (A), the applicable fraction is--
                          [(i) in the case of a qualified 
                        alcohol mixture which contains 
                        gasoline, the fraction the numerator of 
                        which is 10 and the denominator of 
                        which is--
                                  [(I) 9 in the case of 10 
                                percent gasohol,
                                  [(II) 9.23 in the case of 7.7 
                                percent gasohol, and
                                  [(III) 9.43 in the case of 
                                5.7 percent gasohol, and
                          [(ii) in the case of a qualified 
                        alcohol mixture which does not contain 
                        gasoline, 10/9.
          [(3) Alcohol; qualified alcohol mixture.--For 
        purposes of this subsection--
                  [(A) Alcohol.--The term ``alcohol'' includes 
                methanol and ethanol but does not include 
                alcohol produced from petroleum, natural gas, 
                or coal (including peat). Such term does not 
                include alcohol with a proof of less than 190 
                (determined without regard to any added 
                denaturants).
                  [(B) Qualified alcohol mixture.--The term 
                ``qualified alcohol mixture'' means--
                          [(i) any mixture of gasoline with 
                        alcohol if at least 5.7 percent of such 
                        mixture is alcohol, and
                          [(ii) any mixture of diesel fuel with 
                        alcohol if at least 10 percent of such 
                        mixture is alcohol.
          [(4) Alcohol mixture rates for gasoline mixtures.--
        For purposes of this subsection--
                  [(A) General rules--
                          [(i) Mixtures containing ethanol.--
                        Except as provided in clause (ii), in 
                        the case of a qualified alcohol mixture 
                        which contains gasoline, the alcohol 
                        mixture rate is the excess of the rate 
                        which would (but for this paragraph) be 
                        determined under subsection (a) over--
                                  [(I) in the case of 10 
                                percent gasohol, the applicable 
                                blender rate (as defined in 
                                section 4041(b)(2)(C)) per 
                                gallon,
                                  [(II) in the case of 7.7 
                                percent gasohol, the number of 
                                cents per gallon equal to 77 
                                percent of such applicable 
                                blender rate, and
                                  [(III) in the case of 5.7 
                                percent gasohol, the number of 
                                cents per gallon equal to 57 
                                percent of such applicable 
                                blender rate.
                          [(ii) Mixtures not containing 
                        ethanol.--In the case of a qualified 
                        alcohol mixture which contains gasoline 
                        and none of the alcohol in which 
                        consists of ethanol, the alcohol 
                        mixture rate is the excess of the rate 
                        which would (but for this paragraph) be 
                        determined under subsection (a) over--
                                  [(I) in the case of 10 
                                percent gasohol, 6 cents per 
                                gallon,
                                  [(II) in the case of 7.7 
                                percent gasohol, 4.62 cents per 
                                gallon, and
                                  [(III) in the case of 5.7 
                                percent gasohol, 3.42 cents per 
                                gallon.
                  [(B) 10 percent gasohol.--The term ``10 
                percent gasohol'' means any mixture of gasoline 
                with alcohol if at least 10 percent of such 
                mixture is alcohol.
                  [(C) 7.7 percent gasohol.--The term ``7.7 
                percent gasohol'' means any mixture of gasoline 
                with alcohol if at least 7.7 percent, but not 
                10 percent or more, of such mixture is alcohol.
                  [(D) 5.7 percent gasohol.--The term ``5.7 
                percent gasohol'' means any mixture of gasoline 
                with alcohol if at least 5.7 percent, but not 
                7.7 percent or more, of such mixture is 
                alcohol.
          [(5) Alcohol mixture rate for diesel fuel mixtures.--
        The alcohol mixture rate for a qualified alcohol 
        mixture which does not contain gasoline is the excess 
        of the rate which would (but for this paragraph) be 
        determined under subsection (a) over the applicable 
        blender rate (as defined in section 4041(b)(2)(C)) per 
        gallon (6 cents per gallon in the case of a qualified 
        alcohol mixture none of the alcohol in which consists 
        of ethanol).
          [(6) Limitation.--In no event shall any alcohol 
        mixture rate determined under this subsection be less 
        than 4.3 cents per gallon.
          [(7) Later separation of fuel from qualified alcohol 
        mixture.--If any person separates the taxable fuel from 
        a qualified alcohol mixture on which tax was imposed 
        under subsection (a) at a rate determined under 
        paragraph (1) or (2) (or with respect to which a credit 
        or payment was allowed or made by reason of section 
        6427(f)(1)), such person shall be treated as the 
        refiner of such taxable fuel. The amount of tax imposed 
        on any removal of such fuel by such person shall be 
        reduced by the amount of tax imposed (and not credited 
        or refunded) on any prior removal or entry of such 
        fuel.
          [(8) Termination.--Paragraphs (1) and (2) shall not 
        apply to any removal, entry, or sale after September 
        30, 2007.]

           *       *       *       *       *       *       *


SEC. 4082. EXEMPTIONS FOR DIESEL FUEL AND KEROSENE.

  (a) In General.--The tax imposed by section 4081 shall not 
apply to diesel fuel and kerosene--
          (1)  * * *
          (2) which is indelibly dyed by mechanical injection 
        in accordance with regulations which the Secretary 
        shall prescribe, and

           *       *       *       *       *       *       *

  (b) Nontaxable Use.--For purposes of this section, the term 
``nontaxable use'' means--
          (1) any use which is exempt from the tax imposed by 
        section 4041(a)(1) other than by reason of a prior 
        imposition of tax,
          (2) any use in a train, and
          (3) any use described in section 6427(b)(1) (after 
        the application of section 6427(b)(3)) and such term 
        shall not include any use described in section 
        6421(e)(2)(C).
The term ``nontaxable use'' does not include the use of 
aviation-grade kerosene in an aircraft.

           *       *       *       *       *       *       *

  (d) Additional Exceptions to Dyeing Requirements for 
Kerosene.--
          [(1) Aviation-grade kerosene.--Subsection (a)(2) 
        shall not apply to aviation-grade kerosene (as 
        determined under regulations prescribed by the 
        Secretary) which the Secretary determines is destined 
        for use as a fuel in an aircraft.]
          [(2)] (1) Use for non-fuel feedstock purposes.--
        Subsection (a)(2) shall not apply to kerosene--
                  (A)  * * *

           *       *       *       *       *       *       *

          [(3)] (2) Wholesale distributors.--To the extent 
        provided in regulations, subsection (a)(2) shall not 
        apply to kerosene received by a wholesale distributor 
        of kerosene if such distributor--
                  (A) is registered under section 4101 with 
                respect to the tax imposed by section 4081 on 
                kerosene, and
                  (B) sells kerosene exclusively to ultimate 
                vendors described in section 6427(l)(5)(B) with 
                respect to kerosene.
  (e) Aviation-Grade Kerosene.--In the case of aviation-grade 
kerosene which is exempt from the tax imposed by section 
4041(c) (other than by reason of a prior imposition of tax) and 
which is removed from any refinery or terminal directly into 
the fuel tank of an aircraft, the rate of tax under section 
4081(a)(2)(A)(iv) shall be zero.
  [(e)] (f) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out this section, 
including regulations requiring the conspicuous labeling of 
retail diesel fuel and kerosene pumps and other delivery 
facilities to assure that persons are aware of which fuel is 
available only for nontaxable uses.
  [(f)] (g) Cross Reference.--

          For tax on train and certain bus uses of fuel purchased tax-
        free, see section 4041(a)(1).

SEC. 4083. DEFINITIONS; SPECIAL RULE; ADMINISTRATIVE AUTHORITY.

  (a) * * *

           *       *       *       *       *       *       *

  (b) Commercial Aviation.--For purposes of this subpart, the 
term ``commercial aviation'' means any use of an aircraft in a 
business of transporting persons or property for compensation 
or hire by air, unless properly allocable to any transportation 
exempt from the taxes imposed by sections 4261 and 4271 by 
reason of section 4281 or 4282 or by reason of section 4261(h).
  [(b)] (c) Certain Uses Defined as Removal.--If any person 
uses taxable fuel (other than in the production of taxable 
fuels or special fuels referred to in section 4041), such use 
shall for the purposes of this chapter be considered a removal.
  [(c)] (d) Administrative Authority.--
          (1) In general.--In addition to the authority 
        otherwise granted by this title, the Secretary may in 
        administering compliance with this subpart, section 
        4041, and penalties and other administrative provisions 
        related thereto--
                  (A) enter any place at which taxable fuel is 
                produced or is stored (or may be stored) for 
                purposes of--
                          (i) examining the equipment used to 
                        determine the amount or composition of 
                        such fuel and the equipment used to 
                        store such fuel, [and]
                          (ii) taking and removing samples of 
                        such fuel, and
                          (iii) inspecting any books and 
                        records and any shipping papers 
                        pertaining to such fuel, and

           *       *       *       *       *       *       *


                       [Subpart B--Aviation Fuel

[SEC. 4091. IMPOSITION OF TAX.

  [(a) Tax on Sale.--
          [(1) In general.--There is hereby imposed a tax on 
        the sale of aviation fuel by the producer or the 
        importer thereof or by any producer of aviation fuel.
          [(2) Use treated as sale.--For purposes of paragraph 
        (1), if any producer uses aviation fuel (other than for 
        a nontaxable use as defined in section 6427(1)(2)(B)) 
        on which no tax has been imposed under such paragraph 
        or on which tax has been credited or refunded, then 
        such use shall be considered a sale.
  [(b) Rate of Tax.--
          [(1) In general.--The rate of the tax imposed by 
        subsection (a) shall be 21.8 cents per gallon.
          [(2) Leaking underground storage tank trust fund 
        tax.--The rate of tax specified in paragraph (1) shall 
        be increased by 0.1 cent per gallon. The increase in 
        tax under this paragraph shall in this title be 
        referred to as the Leaking Underground Storage Tank 
        Trust Fund financing rate.
          [(3) Termination.--
                  [(A) The rate of tax specified in paragraph 
                (1) shall be 4.3 cents per gallon--
                          [(i) after December 31, 1996, and 
                        before the date which is 7 calendar 
                        days after the date of the enactment of 
                        the Airport and Airway Trust Fund Tax 
                        Reinstatement Act of 1997, and
                          [(ii) after September 30, 2007.
                  [(B) The Leaking Underground Storage Tank 
                Trust Fund financing rate shall not apply 
                during any period during which the Leaking 
                Underground Storage Tank Trust Fund financing 
                rate under section 4081 does not apply.
  [(c) Reduced Rate of Tax for Aviation Fuel in Alcohol 
Mixture, Etc.--Under regulations prescribed by the Secretary--
          [(1) In general.--The rate of tax under subsection 
        (a) shall be reduced by the applicable blender amount 
        per gallon in the case of the sale of any mixture of 
        aviation fuel if--
                  [(A) at least 10 percent of such mixture 
                consists of alcohol (as defined in section 
                4081(c)(3)), and
                  [(B) the aviation fuel in such mixture was 
                not taxed under paragraph (2).
        In the case of such a mixture none of the alcohol in 
        which is ethanol, the preceding sentence shall be 
        applied by substituting ``14 cents'' for ``the 
        applicable blender amount''. For purposes of this 
        paragraph, the term ``applicable blender amount'' means 
        13.3 cents in the case of any sale or use during 2001 
        or 2002, 13.2 cents in the case of any sale or use 
        during 2003 or 2004, 13.1 cents in the case of any sale 
        or use during 2005, 2006, or 2007, and 13.4 cents in 
        the case of any sale or use during 2008 or thereafter.
          [(2) Tax prior to mixing.--In the case of the sale of 
        aviation fuel for use (at the time of such sale) in 
        producing a mixture described in paragraph (1), the 
        rate of tax under subsection (a) shall be 10/9 of the 
        rate which would (but for this paragraph) have been 
        applicable to such mixture had such mixture been 
        created prior to such sale.
          [(3) Later separation.--If any person separates the 
        aviation fuel from a mixture of the aviation fuel and 
        alcohol on which tax was imposed under subsection (a) 
        at a rate determined under paragraph (1) or (2) (or 
        with respect to which a credit or payment was allowed 
        or made by reason of section 6427(f)(1)), such person 
        shall be treated as the producer of such aviation fuel. 
        The amount of tax imposed on any sale of such aviation 
        fuel by such person shall be reduced by the amount of 
        tax imposed (and not credited or refunded) on any prior 
        sale of such fuel.
          [(4) Limitation.--In no event shall any rate 
        determined under paragraph (1) be less than 4.3 cents 
        per gallon.
          [(5) Termination.--Paragraphs (1) and (2) shall not 
        apply to any sale after September 30, 2007.
  [(d) Refund of Tax-Paid Aviation Fuel to Registered Producer 
of Fuel.--If--
          [(1) a producer of aviation fuel is registered under 
        section 4101, and
          [(2) such producer establishes to the satisfaction of 
        the Secretary that a prior tax was paid (and not 
        credited or refunded) on aviation fuel held by such 
        producer, then an amount equal to the tax so paid shall 
        be allowed as a refund (without interest) to such 
        producer in the same manner as if it were an 
        overpayment of tax imposed by this section.

[SEC. 4092. EXEMPTIONS.

  [(a) Nontaxable Uses.--No tax shall be imposed by section 
4091 on aviation fuel sold by a producer or importer for use by 
the purchaser in a nontaxable use (as defined in section 
6427(l)(2)(B)).
  [(b) No Exemption from Certain Taxes on Fuel Used in 
Commercial Aviation.--In the case of fuel sold for use in 
commercial aviation (other than supplies for vessels or 
aircraft within the meaning of section 4221(d)(3)), subsection 
(a) shall not apply to so much of the tax imposed by section 
4091 as is attributable to--
          [(1) the Leaking Underground Storage Tank Trust Fund 
        financing rate imposed by such section, and
          [(2) in the case of fuel sold after September 30, 
        1995, 4.3 cents per gallon of the rate specified in 
        section 4091(b)(1).
For purposes of the preceding sentence, the term ``commercial 
aviation'' means any use of an aircraft other than in 
noncommercial aviation (as defined in section 4041(c)(2)).
  [(c) Sales to Producer.--Under regulations prescribed by the 
Secretary, the tax imposed by section 4091 shall not apply to 
aviation fuel sold to a producer of such fuel.

[SEC. 4093. DEFINITIONS.

  [(a) Aviation Fuel.--For purposes of this subpart, the term 
``aviation fuel'' means kerosene and any other liquid (other 
than any product taxable under section 4081) which is suitable 
for use as a fuel in an aircraft.
  [(b) Producer.--For purposes of this subpart--
          [(1) Certain persons treated as producers.--
                  [(A) In general.--The term ``producer'' 
                includes any person described in subparagraph 
                (B) and registered under section 4101 with 
                respect to the tax imposed by section 4091.
                  [(B) Persons described.--A person is 
                described in this subparagraph if such person 
                is--
                          [(i) a refiner, blender, or wholesale 
                        distributor of aviation fuel, or
                          [(ii) a dealer selling aviation fuel 
                        exclusively to producers of aviation 
                        fuel.
                  [(C) Reduced rate purchasers treated as 
                producers.--Any person to whom aviation fuel is 
                sold at a reduced rate under this subpart shall 
                be treated as the producer of such fuel.
          [(2) Wholesale distributor.--For purposes of 
        paragraph (1), the term ``wholesale distributor'' 
        includes any person who sells aviation fuel to 
        producers, retailers, or to users who purchase in bulk 
        quantities and accept delivery into bulk storage tanks. 
        Such term does not include any person who (excluding 
        the term ``wholesale distributor'' from paragraph (1)) 
        is a producer or importer.]

    [Subpart C--Special Provisions Applicable to Petroleum Products]


         Subpart B--Special Provisions Applicable to Fuels Tax

        Sec. 4101. Registration and bond.
     * * * * * * *
        Sec. 4104. Collection from Customs bond where importer not 
                  registered.
        Sec. 4105. Two-party exchanges.

SEC. 4101. REGISTRATION AND BOND.

  (a) Registration.--[Every]
          (1) In general.--Every person required by the 
        Secretary to register under this section with respect 
        to the tax imposed by section 4041(a)(1)[, 4081, or 
        4091] or 4081 shall register with the Secretary at such 
        time, in such form and manner, and subject to such 
        terms and conditions, as the Secretary may by 
        regulations prescribe. A registration under this 
        section may be used only in accordance with regulations 
        prescribed under this section.
          (2) Display of registration.--Every operator of a 
        vessel required by the Secretary to register under this 
        section shall display proof of registration through an 
        electronic identification device prescribed by the 
        Secretary on each vessel used by such operator to 
        transport any taxable fuel.

           *       *       *       *       *       *       *


SEC. 4103. CERTAIN ADDITIONAL PERSONS LIABLE FOR TAX WHERE WILLFUL 
                    FAILURE TO PAY.

  In any case in which there is a willful failure to pay the 
tax imposed by section 4041(a)(1)[, 4081, or 4091] or 4081, 
each person--
          (1)  * * *

           *       *       *       *       *       *       *


SEC. 4104. COLLECTION FROM CUSTOMS BOND WHERE IMPORTER NOT REGISTERED.

  (a) In General.--The importer of record shall be jointly and 
severally liable for the tax imposed by section 
4081(a)(1)(A)(iii) if, under regulations prescribed by the 
Secretary, any other person that is not a person who is 
registered under section 4101 is liable for such tax.
  (b) Collection From Customs Bond.--If any tax for which any 
importer of record is liable under subsection (a), or for which 
any importer of record that is not a person registered under 
section 4101 is otherwise liable, is not paid on or before the 
last date prescribed for payment, the Secretary may collect 
such tax from the Customs bond posted with respect to the 
importation of the taxable fuel to which the tax relates. For 
purposes of determining the jurisdiction of any court of the 
United States or any agency of the United States, any action by 
the Secretary described in the preceding sentence shall be 
treated as an action to collect the tax from a bond described 
in section 4101(b)(1) and not as an action to collect from a 
bond relating to the importation of merchandise.

SEC. 4105. TWO-PARTY EXCHANGES.

  (a) In General.--In a two-party exchange, the delivering 
person shall not be liable for the tax imposed under section 
4081(a)(1)(A)(ii).
  (b) Two-Party Exchange.--The term ``two-party exchange'' 
means a transaction, other than a sale, in which taxable fuel 
is transferred from a delivering person registered under 
section 4101 as a taxable fuel registrant fuel to a receiving 
person who is so registered where all of the following occur:
          (1) The transaction includes a transfer from the 
        delivering person, who holds the inventory position for 
        taxable fuel in the terminal as reflected in the 
        records of the terminal operator.
          (2) The exchange transaction occurs before or 
        contemporaneous with completion of removal across the 
        rack from the terminal by the receiving person.
          (3) The terminal operator in its books and records 
        treats the receiving person as the person that removes 
        the taxable fuel across the terminal rack for purposes 
        of reporting the transaction to the Secretary.
          (4) The transaction is the subject of a written 
        contract.

           *       *       *       *       *       *       *


Subchapter G--Exemptions, Registration, Etc.

           *       *       *       *       *       *       *


SEC. 4221. CERTAIN TAX-FREE SALES.

  (a) General Rule.--Under regulations prescribed by the 
Secretary, no tax shall be imposed under this chapter (other 
than under section 4121[, 4081, or 4091] or 4081) on the sale 
by the manufacturer (or under subchapter A or C of chapter 31 
on the first retail sale) of an article--
          (1)  * * *

           *       *       *       *       *       *       *


CHAPTER 36--CERTAIN EXCISE TAX

           *       *       *       *       *       *       *


Subchapter A--Harbor Maintenance Tax

           *       *       *       *       *       *       *


Subchapter D--Tax on Use of Certain Vehicles

           *       *       *       *       *       *       *


SEC. 4481. IMPOSITION OF TAX.

  (a)  * * *

           *       *       *       *       *       *       *

  (c) Proration of Tax
          (1)  * * *
          (2) Where vehicle [destroyed or stolen] sold, 
        destroyed, or stolen.--
                  (A) In general.--If in any taxable period a 
                highway motor vehicle is [destroyed or stolen] 
                sold, destroyed, or stolen before the first day 
                of the last month in such period and not 
                subsequently used during such taxable period, 
                the tax shall be reckoned proportionately from 
                the first day of the month in such period in 
                which the first use of such highway motor 
                vehicle occurs to and including the last day of 
                the month in which such highway motor vehicle 
                was [destroyed or stolen] sold, destroyed, or 
                stolen.
                  (B) Destroyed.--For purposes of subparagraph 
                (A), a highway motor vehicle is destroyed if 
                such vehicle is damaged by reason of an 
                accident or other casualty to such an extent 
                that it is not economic to rebuild.

           *       *       *       *       *       *       *

  (e) Electronic Filing.--Any taxpayer who files a return under 
this section with respect to 25 or more vehicles for any 
taxable period shall file such return electronically.
  [(e)] (f) Period Tax in Effect.--The tax imposed by this 
section shall apply only to use before October 1, 2005.

           *       *       *       *       *       *       *


SEC. 4483. EXEMPTIONS.

  (a)  * * *

           *       *       *       *       *       *       *

  [(f) Reduction in Tax for Trucks Base-Plated in a Contiguous 
Foreign Country.--If the base for registration purposes of any 
highway motor vehicle is in a contiguous foreign country for 
any taxable period, the tax imposed by section 4481 for such 
period shall be 75 percent of the tax which would (but for this 
subsection) be imposed by section 4481 for such period.]
  (g) Exemption for Mobile Machinery.--No tax shall be imposed 
by section 4481 on the use of any vehicle described in section 
4053(8).
  [(g)] (h) Termination of Exemptions.--Subsections (a) and (c) 
shall not apply on and after October 1, 2005.

           *       *       *       *       *       *       *


Subtitle E--Alcohol, Tobacco, and Certain Other Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 62--TIME AND PLACE FOR PAYING TAX

           *       *       *       *       *       *       *


          Subchapter A--Place and Due Date for Payment of Tax

        Sec. 6151. Time and place for paying tax shown on returns.
     * * * * * * *
        [Sec. 6156. Installment payments of tax on use of highway motor 
                  vehicles.]

           *       *       *       *       *       *       *


[SEC. 6156. INSTALLMENT PAYMENTS OF TAX ON USE OF HIGHWAY MOTOR 
                    VEHICLES.

  [(a) Privilege to Pay Tax in Installments.--If the taxpayer 
files a return of the tax imposed by section 4481 on or before 
the date prescribed for the filing of such return, he may elect 
to pay the tax shown on such return in equal installments in 
accordance with the following table:
                                                           The number of
[If liability is                                            installments
incurred in--                                                 shall be--
      July, August, or September                                       4
      October, November, or December                                   3
      January, February, or March                                      2
  [(b) Dates for Paying Installments.--In the case of any tax 
payable in installments by reason of an election under 
subsection (a)--
          [(1) the first installment shall be paid on the date 
        prescribed for payment of the tax,
          [(2) the second installment shall be paid on or 
        before the last day of the third month following the 
        calendar quarter in which the liability was incurred,
          [(3) the third installment (if any) shall be paid on 
        or before the last day of the sixth month following the 
        calendar quarter in which the liability was incurred, 
        and
          [(4) the fourth installment (if any) shall be paid on 
        or before the last day of the ninth month following the 
        calendar quarter in which the liability was incurred.
  [(c) Proration of Additional Tax to Installments.--If an 
election has been made under subsection (a) in respect of tax 
reported on a return filed by the taxpayer and tax required to 
be shown but not shown on such return is assessed before the 
date prescribed for payment of the last installment, the 
additional tax shall be prorated equally to the installments 
for which the election was made. That part of the additional 
tax so prorated to any installment the date for payment of 
which has not arrived shall be collected at the same time as 
and as part of such installment. That part of the additional 
tax so prorated to any installment the date for payment of 
which has arrived shall be paid upon notice and demand from the 
Secretary.
  [(d) Acceleration of Payments.--If the taxpayer does not pay 
any installment under this section on or before the date 
prescribed for its payment, the whole of the unpaid tax shall 
be paid upon notice and demand from the Secretary.
  [(e) Section Inapplicable to Certain Liabilities.--This 
section shall not apply to any liability for tax incurred in--
          [(1) April, May, or June of any year, or
          [(2) July, August, or September of 2005.]

           *       *       *       *       *       *       *


CHAPTER 63--ASSESSMENT

           *       *       *       *       *       *       *


Subchapter A--In General

           *       *       *       *       *       *       *


SEC. 6206. SPECIAL RULES APPLICABLE TO EXCESSIVE CLAIMS UNDER SECTIONS 
                    6420, 6421, AND 6427.

  Any portion of a payment made under section 6420, 6421, or 
6427 which constitutes an excessive amount (as defined in 
section 6675(b)), and any civil penalty provided by section 
6675, may be assessed and collected as if it were a tax imposed 
by section 4081 (with respect to payments under sections 6420 
and 6421), or 4041[, 4081, or 4091] or 4081 (with respect to 
payments under section 6427) and as if the person who made the 
claim were liable for such tax. The period for assessing any 
such portion, and for assessing any such penalty, shall be 3 
years from the last day prescribed for the filing of the claim 
under section 6420, 6421, or 6427, as the case may be.

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


Subchapter B--Rules of Special Application

           *       *       *       *       *       *       *


SEC. 6416. CERTAIN TAXES ON SALES AND SERVICES.

  (a) Condition to Allowance.--
          (1) * * *

           *       *       *       *       *       *       *

          [(4) Wholesale distributors to administer credits and 
        refunds of gasoline tax.--
                  [(A) In general.--For purposes of this 
                subsection, a wholesale distributor who 
                purchases any gasoline on which tax imposed by 
                section 4081 has been paid and who sells the 
                gasoline to its ultimate purchaser shall be 
                treated as the person (and the only person) who 
                paid such tax.
                  [(B) Wholesale distributor.--For purposes of 
                subparagraph (A), the term ``wholesale 
                distributor'' has the meaning given such term 
                by section 4093(b)(2) (determined by 
                substituting ``any gasoline taxable under 
                section 4081'' for ``aviation fuel'' therein). 
                Such term includes any personwho makes retail 
sales of gasoline at 10 or more retail motor fuel outlets.]
          (4) Registered ultimate vendor to administer credits 
        and refunds of gasoline tax.--
                  (A) In general.--For purposes of this 
                subsection, if an ultimate vendor purchases any 
                gasoline on which tax imposed by section 4081 
                has been paid and sells such gasoline to an 
                ultimate purchaser described in subparagraph 
                (C) or (D) of subsection (b)(2) (and such 
                gasoline is for a use described in such 
                subparagraph), such ultimate vendor shall be 
                treated as the person (and the only person) who 
                paid such tax, but only if such ultimate vendor 
                is registered under section 4101. For purposes 
                of this subparagraph, if the sale of gasoline 
                is made by means of a credit card, the person 
                extending the credit to the ultimate purchaser 
                shall be deemed to be the ultimate vendor.
                  (B) Timing of claims.--The procedure and 
                timing of any claim under subparagraph (A) 
                shall be the same as for claims under section 
                6427(i)(4), except that the rules of section 
                6427(i)(3)(B) regarding electronic claims shall 
                not apply unless the ultimate vendor has 
                certified to the Secretary for the most recent 
                quarter of the taxable year that all ultimate 
                purchasers of the vendor covered by such claim 
                are certified and entitled to a refund under 
                subparagraph (C) or (D) of subsection (b)(2).
  (b) Special Cases in Which Tax Payments Considered 
Overpayments.--Under regulations prescribed by the Secretary, 
credit or refund (without interest) shall be allowed or made in 
respect of the overpayments determined under the following 
paragraphs:
          (1) * * *
          (2) Specified uses and resales.--The tax paid under 
        chapter 32 (or under subsection (a) or (d) of section 
        4041 in respect of sales or under section 4051) in 
        respect of any article shall be deemed to be an 
        overpayment if such article was, by any person--
                  (A) * * *

           *       *       *       *       *       *       *

        Subparagraphs (C) and (D) shall not apply in the case 
        of any tax paid under section 4064. In the case of the 
        tax imposed by section 4131, subparagraphs (B), (C), 
        and (D) shall not apply and subparagraph (A) shall 
        apply only if the use of the exported vaccine meets 
        such requirements as the Secretary may by regulations 
        prescribe. This paragraph shall not apply in the case 
        of any tax imposed under section 4041(a)(1) or 4081 on 
        diesel fuel or kerosene and any tax paid under section 
        [4091 or] 4121.
          (3) Tax-paid articles used for further manufacture, 
        etc.--If the tax imposed by chapter 32 has been paid 
        with respect to the sale of any article (other than 
        coal taxable under section 4121) by the manufacturer, 
        producer, or importer thereof and such article is sold 
        to a subsequent manufacturer or producer before being 
        used, such tax shall be deemed to be an overpayment by 
        such subsequent manufacturer or producer if--
                  (A) in the case of any article other than any 
                fuel taxable under section 4081 [or 4091], such 
                article is used by the subsequent manufacturer 
                or producer as material in the manufacture or 
                production of, or as a component part of--
                          (i) * * *

           *       *       *       *       *       *       *

                  (B) in the case of any fuel taxable under 
                section 4081 [or 4091], such fuel is used by 
                the subsequent manufacturer or producer, for 
                nonfuel purposes, as a material in the 
                manufacture or production of any other article 
                manufactured or produced by him.

           *       *       *       *       *       *       *

  (d) Credit on Returns.--Any person entitled to a refund of 
tax imposed by chapter 31 or 32, paid to the Secretary may, 
instead of filing a claim for refund, take credit therefor 
against taxes imposed by such chapter due on any subsequent 
return. The preceding sentence shall not apply to the tax 
imposed by section 4081 in the case of refunds described in 
section 4081(e) [or to the tax imposed by section 4091 in the 
case of refunds described in section 4091(d)].

           *       *       *       *       *       *       *


SEC. 6421. GASOLINE USED FOR CERTAIN NONHIGHWAY PURPOSES, USED BY LOCAL 
                    TRANSIT SYSTEMS, OR SOLD FOR CERTAIN EXEMPT 
                    PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Definitions.--For purposes of this section--
          (1) * * *
          (2) Off-highway business use.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Uses in mobile machinery.--
                          (i) In general.--The term ``off-
                        highway business use'' shall include 
                        any use in a vehicle which meets the 
                        requirements described in clause (ii).
                          (ii) Requirements for mobile 
                        machinery.--The requirements described 
                        in this clause are--
                                  (I) the design-based test, 
                                and
                                  (II) the use-based test.
                          (iii) Design-based test.--For 
                        purposes of clause (ii)(I), the design-
                        based test is met if the vehicle 
                        consists of a chassis--
                                  (I) to which there has been 
                                permanently mounted (by 
                                welding, bolting, riveting, or 
                                other means) machinery or 
                                equipment to perform a 
                                construction, manufacturing, 
                                processing, farming, mining, 
                                drilling, timbering, or similar 
                                operation if the operation of 
                                the machinery or equipment is 
                                unrelated to transportation on 
                                or off the public highways,
                                  (II) which has been specially 
                                designed to serve only as a 
                                mobile carriage and mount (and 
                                a power source, where 
                                applicable) for the particular 
                                machinery or equipment 
                                involved, whether or not such 
                                machinery or equipment is in 
                                operation, and
                                  (III) which, by reason of 
                                such special design, could not, 
                                without substantial structural 
                                modification, be used as a 
                                component of a vehicle designed 
                                to perform a function of 
                                transporting any load other 
                                than that particular machinery 
                                or equipment or similar 
                                machinery or equipment 
                                requiring such a specially 
                                designed chassis.
                          (iv) Use-based test.--For purposes of 
                        clause (ii)(II), the use-based test is 
                        met if the use of the vehicle on public 
                        highways was less than 7,500 miles 
                        during the taxpayer's taxable year.

           *       *       *       *       *       *       *


SEC. 6427. FUELS NOT USED FOR TAXABLE PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  [(f) Gasoline, Diesel Fuel, Kerosene, and Aviation Fuel Used 
To Produce Certain Alcohol Fuels.--
          [(1) In general.--Except as provided in subsection 
        (k), if any gasoline, diesel fuel, kerosene, or 
        aviation fuel on which tax was imposed by section 4081 
        or 4091 at the regular tax rate is used by any person 
        in producing a mixture described in section 4081(c) or 
        4091(c)(1)(A) (as the case may be) which is sold or 
        used in such person's trade or business, the Secretary 
        shall pay (without interest) to such person an amount 
        equal to the excess of the regular tax rate over the 
        incentive tax rate with respect to such fuel.
          [(2) Definitions.--For purposes of paragraph (1)--
                  [(A) Regular tax rate.--The term ``regular 
                tax rate'' means--
                          [(i) in the case of gasoline, diesel 
                        fuel, or kerosene, the aggregate rate 
                        of tax imposed by section 4081 
                        determined without regard to subsection 
                        (c) thereof, and
                          [(ii) in the case of aviation fuel, 
                        the aggregate rate of tax imposed by 
                        section 4091 determined without regard 
                        to subsection (c) thereof.
                  [(B) Incentive tax rate.--The term 
                ``incentive tax rate'' means--
                          [(i) in the case of gasoline, diesel 
                        fuel, or kerosene, the aggregate rate 
                        of tax imposed by section 4081 with 
                        respect to fuel described in subsection 
                        (c)(2) thereof, and
                          [(ii) in the case of aviation fuel, 
                        the aggregate rate of tax imposed by 
                        section 4091 with respect to fuel 
                        described in subsection (c)(2) thereof.
          [(3) Coordination with other repayment provisions.--
        No amount shall be payable under paragraph (1) with 
        respect to any gasoline, diesel fuel, kerosene, or 
        aviation fuel with respect to which an amount is 
        payable under subsection (d), or (l) of this section or 
        under section 6420 or 6421.
          [(4) Termination.--This subsection shall not apply 
        with respect to any mixture sold or used after 
        September 30, 2007.]
  (f) Alcohol Fuel Mixtures.--
          (1) In general.--The amount of credit which would 
        (but for section 40(c)) be determined under section 
        40(a)(1) for any period--
                  (A) shall, with respect to taxable events 
                occurring during such period, be treated--
                          (i) as a payment of the taxpayer's 
                        liability for tax imposed by section 
                        4081, and
                          (ii) as received at the time of the 
                        taxable event, and
                  (B) to the extent such amount of credit 
                exceeds such liability for such period, shall 
                (except as provided in subsection (k)) be paid 
                subject to subsection (i)(3) by the Secretary 
                without interest.
          (2) Special rules.--
                  (A) Only certain alcohol taken into 
                account.--For purposes of paragraph (1), 
                section 40 shall be applied--
                          (i) by not taking into account 
                        alcohol with a proof of less than 190, 
                        and
                          (ii) by treating as alcohol the 
                        alcohol gallon equivalent of ethyl 
                        tertiary butyl ether or other ethers 
                        produced from such alcohol.
                  (B) Treatment of refiners.--For purposes of 
                paragraph (1), in the case of a mixture--
                          (i) the alcohol in which is described 
                        in subparagraph (A)(ii), and
                          (ii) which is produced by any person 
                        at a refinery prior to any taxable 
                        event,
                section 40 shall be applied by treating such 
                person as having sold such mixture at the time 
                of its removal from the refinery (and only at 
                such time) to another person for use as a fuel.
          (3) Mixtures not used as fuel.--Rules similar to the 
        rules of subparagraphs (A) and (D) of section 40(d)(3) 
        shall apply for purposes of this subsection.
          (4) Termination.--This section shall apply only to 
        periods to which section 40 applies, determined by 
        substituting in section 40(e)--
                  (A) ``December 31, 2010'' for ``December 31, 
                2007'', and
                  (B) ``January 1, 2011'' for ``January 1, 
                2008''.

           *       *       *       *       *       *       *

  (i) Time for Filing Claims; Period Covered.--
          (1) * * *
          (2) Exceptions.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Nonapplication of paragraph.--This 
                paragraph shall not apply to any fuel used 
                solely in any off-highway business use 
                described in section 6421(e)(2)(C).
          [(3) Special rule for alcohol mixture credit.--
                  [(A) In general.--A claim may be filed under 
                subsection (f) by any person with respect to 
                gasoline, diesel fuel, or kerosene used to 
                produce a qualified alcohol mixture (as defined 
                in section 4081(c)(3) for any period--
                          [(i) for which $200 or more is 
                        payable under such subsection (f), and
                          [(ii) which is not less than 1 week.
                  [(B) Payment of claim.--Notwithstanding 
                subsection (f)(1), if the Secretary has not 
                paid pursuant to a claim filed under this 
                section within 20 days of the date of the 
                filing of such claim, the claim shall be paid 
                with interest from such date determined by 
                using the overpayment rate and method under 
                section 6621.
                  [(C) Time for filing claim.--No claim filed 
                under this paragraph shall be allowed unless 
                filed on or before the last day of the first 
                quarter following the earliest quarter included 
                in the claim.]
          (3) Special rule for alcohol mixture credit.--
                  (A) In general.--A claim may be filed under 
                subsection (f)(1)(B) by any person for any 
                period--
                          (i) for which $200 or more is payable 
                        under such subsection (f)(1)(B), and
                          (ii) which is not less than 1 week.
                In the case of an electronic claim, this 
                subparagraph shall be applied without regard to 
                clause (i).
                  (B) Payment of claim.--Notwithstanding 
                subsection (f)(1)(B), if the Secretary has not 
                paid pursuant to a claim filed under this 
                section within 45 days of the date of the 
                filing of such claim (20 days in the case of an 
                electronic claim), the claim shall be paid with 
                interest from such date determined by using the 
                overpayment rate and method under section 6621.
                  (C) Time for filing claim.--No claim filed 
                under this paragraph shall be allowed unless 
                filed on or before the last day of the first 
                quarter following the earliest quarter included 
                in the claim.
          (4) Special rule for vendor refunds.--
                  (A) In general.--A claim may be filed under 
                [subsection (l)(5)] paragraph (4)(B) or (5) of 
                subsection (l) by any person with respect to 
                fuel sold by such person for any period--
                          (i) for which $200 or more ($100 or 
                        more in the case of kerosene) is 
                        payable under [subsection (l)(5)] 
                        paragraph (4)(B) or (5) of subsection 
                        (l), and

           *       *       *       *       *       *       *

                Notwithstanding subsection (l)(1), paragraph 
                (3)(B) shall apply to claims filed under [the 
                preceding sentence] subsection (l)(5).

           *       *       *       *       *       *       *

          (5) Special rule for vendor refunds with respect to 
        farmers.--
                  (A) In general.--A claim may be filed under 
                subsection (l)(6) by any person with respect to 
                fuel sold by such person for any period--
                          (i) for which $200 or more ($100 or 
                        more in the case of kerosene) is 
                        payable under subsection (l)(6),
                          (ii) which is not less than 1 week, 
                        and
                          (iii) which is for not more than 250 
                        gallons for each farmer for which there 
                        is a claim.
                Notwithstanding subsection (l)(1), paragraph 
                (3)(B) shall apply to claims filed under the 
                preceding sentence.
                  (B) Time for filing claim.--No claim filed 
                under this paragraph shall be allowed unless 
                filed on or before the last day of the first 
                quarter following the earliest quarter included 
                in the claim.
  (j) Applicable Laws.--
          (1) In general.--All provisions of law, including 
        penalties, applicable in respect of the taxes imposed 
        by sections 4041[, 4081, and 4091] and 4081 shall, 
        insofar as applicable and not inconsistent with this 
        section, apply in respect of the payments provided for 
        in this section to the same extent as if such payments 
        constituted refunds of overpayments of the tax so 
        imposed.

           *       *       *       *       *       *       *

  (l) Nontaxable Uses of Diesel Fuel, Kerosene, and Aviation 
Fuel.--
          [(1) In general.--Except as otherwise provided in 
        this subsection and in subsection (k), if--
                  [(A) any diesel fuel or kerosene on which tax 
                has been imposed by section 4041 or 4081, or
                  [(B) any aviation fuel on which tax has been 
                imposed by section 4091,
        is used by any person in a nontaxable use, the 
        Secretary shall pay (without interest) to the ultimate 
        purchaser of such fuel an amount equal to the aggregate 
        amount of tax imposed on such fuel under section 4041, 
        4081, or 4091, as the case may be.]
          (1) In general.--Except as otherwise provided in this 
        subsection and in subsection (k), if any diesel fuel or 
        kerosene on which tax has been imposed by section 4041 
        or 4081 is used by any person in a nontaxable use, the 
        Secretary shall pay (without interest) to the ultimate 
        purchaser of such fuel an amount equal to the aggregate 
        amount of tax imposed on such fuel under section 4041 
        or 4081, as the case may be, reduced by any payment 
        made to the ultimate vendor under paragraph (4)(B).
          (2) Nontaxable use.--For purposes of this subsection, 
        the term ``nontaxable use'' means--
                  (A) * * *
                  [(B) in the case of aviation fuel, any use 
                which is exempt from the tax imposed by section 
                4041(c)(1) other than by reason of a prior 
                imposition of tax.]
                  (B) in the case of aviation-grade kerosene--
                          (i) any use which is exempt from the 
                        tax imposed by section 4041(c) other 
                        than by reason of a prior imposition of 
                        tax, or
                          (ii) any use in commercial aviation 
                        (within the meaning of section 
                        4083(b)).

           *       *       *       *       *       *       *

          [(4) No refund of certain taxes on fuel used in 
        commercial aviation.--In the case of fuel used in 
        commercial aviation (as defined in section 4092(b)) 
        (other than supplies for vessels or aircraft within the 
        meaning of section 4221(d)(3)), paragraph (1) shall not 
        apply to so much of the tax imposed by section 4091 as 
        is attributable to--
                  [(A) the Leaking Underground Storage Tank 
                Trust Fund financing rate imposed by such 
                section, and
                  [(B) in the case of fuel purchased after 
                September 30, 1995, so much of the rate of tax 
                specified in section 4091(b)(1) as does not 
                exceed 4.3 cents per gallon.]
          (4) Refunds for aviation-grade kerosene.--
                  (A) No refund of certain taxes on fuel used 
                in commercial aviation.--In the case of 
                aviation-grade kerosene used in commercial 
                aviation (as defined in section 4083(b)) (other 
                than supplies for vessels or aircraft within 
                the meaning of section 4221(d)(3)), paragraph 
                (1) shall not apply to so much of the tax 
                imposed by section 4081 as is attributable to--
                          (i) the Leaking Underground Storage 
                        Tank Trust Fund financing rate imposed 
                        by such section, and
                          (ii) so much of the rate of tax 
                        specified in section 4081(a)(2)(A)(iv) 
                        as does not exceed 4.3 cents per 
                        gallon.
                  (B) Payment to ultimate, registered vendor.--
                With respect to aviation-grade kerosene, if the 
                ultimate purchaser of such kerosene waives (at 
                such time and in such form and manner as the 
                Secretary shall prescribe) the right to payment 
                under paragraph (1) and assigns such right to 
                the ultimate vendor, then the Secretary shall 
                pay the amount which would be paid under 
                paragraph (1) to such ultimate vendor, but only 
                if such ultimate vendor--
                          (i) is registered under section 4101, 
                        and
                          (ii) meets the requirements of 
                        subparagraph (A), (B), or (D) of 
                        section 6416(a)(1).
          (5) Registered vendors to administer claims for 
        refund of diesel fuel or kerosene sold to [farmers and] 
        state and local governments.--
                  [(A) In general.--Paragraph (1) shall not 
                apply to diesel fuel or kerosene used--
                          [(i) on a farm for farming purposes 
                        (within the meaning of section 
                        6420(c)), or
                          [(ii) by a State or local 
                        government.]
                  (A) In general.--Paragraph (1) shall not 
                apply to diesel fuel or kerosene used by a 
                State or local government.
                  (B) Sales of kerosene not for use in motor 
                fuel.--[Paragraph (1)(A) shall not apply to 
                kerosene]Paragraph (1) shall not apply to 
kerosene (other than aviation-grade kerosene) sold by a vendor--
                          (i) * * *

           *       *       *       *       *       *       *

                  (C) Payment to ultimate, registered vendor.--
                The amount which would (but for subparagraph 
                (A) or (B)) have been paid under paragraph (1) 
                with respect to any fuel shall be paid to the 
                ultimate vendor of such fuel, if such vendor--
                          (i) is registered under section 4101, 
                        and
                          (ii) meets the requirements of 
                        subparagraph (A), (B), or (D) of 
                        section 6416(a)(1).
                For purposes of this subparagraph, if the sale 
                of diesel fuel or kerosene is made by means of 
                a credit card, the person extending the credit 
                to the ultimate purchaser shall be deemed to be 
                the ultimate vendor.
          (6) Registered vendors permitted to administer 
        certain claims for refund of diesel fuel and kerosene 
        sold to farmers.--
                  (A) In general.--In the case of diesel fuel 
                or kerosene used on a farm for farming purposes 
                (within the meaning of section 6420(c)), 
                paragraph (1) shall not apply to the aggregate 
                amount of such diesel fuel or kerosene if such 
                amount does not exceed 250 gallons (as 
                determined under subsection (i)(5)(A)(iii)).
                  (B) Payment to ultimate vendor.--The amount 
                which would (but for subparagraph (A)) have 
                been paid under paragraph (1) with respect to 
                any fuel shall be paid to the ultimate vendor 
                of such fuel, if such vendor--
                          (i) is registered under section 4101, 
                        and
                          (ii) meets the requirements of 
                        subparagraph (A), (B), or (D) of 
                        section 6416(a)(1).

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter B--Assessable Penalties

           *       *       *       *       *       *       *


                       PART I--GENERAL PROVISIONS

        Sec. 6671. Rules for application of assessable penalties.
     * * * * * * *
        Sec. 6715A. Tampering with or failing to maintain security 
                  requirements for mechanical dye injection systems.
     * * * * * * *
        Sec. 6717. Failure to display tax registration on vessels.
        Sec. 6718. Failure to register.

           *       *       *       *       *       *       *


SEC. 6715A. TAMPERING WITH OR FAILING TO MAINTAIN SECURITY REQUIREMENTS 
                    FOR MECHANICAL DYE INJECTION SYSTEMS.

  (a) Imposition of Penalty--
          (1) Tampering.--If any person tampers with a 
        mechanical dye injection system used to indelibly dye 
        fuel for purposes of section 4082, such person shall 
        pay a penalty in addition to the tax (if any).
          (2) Failure to maintain security requirements.--If 
        any operator of a mechanical dye injection system used 
        to indelibly dye fuel for purposes of section 4082 
        fails to maintain the security standards for such 
        system as established by the Secretary, then such 
        operator shall pay a penalty in addition to the tax (if 
        any).
  (b) Amount of Penalty.--The amount of the penalty under 
subsection (a) shall be--
          (1) for each violation described in paragraph (1), 
        the greater of--
                  (A) $25,000, or
                  (B) $10 for each gallon of fuel involved, and
          (2) for each--
                  (A) failure to maintain security standards 
                described in paragraph (2), $1,000, and
                  (B) failure to correct a violation described 
                in paragraph (2), $1,000 per day for each day 
                after which such violation was discovered or 
                such person should have reasonably known of 
                such violation.
  (c) Joint and Several Liability.--
          (1) In general.--If a penalty is imposed under this 
        section on any business entity, each officer, employee, 
        or agent of such entity or other contracting party who 
        willfully participated in any act giving rise to such 
        penalty shall be jointly and severally liable with such 
        entity for such penalty.
          (2) Affiliated groups.--If a business entity 
        described in paragraph (1) is part of an affiliated 
        group (as defined in section 1504(a)), the parent 
        corporation of such entity shall be jointly and 
        severally liable with such entity for the penalty 
        imposed under this section.

           *       *       *       *       *       *       *


SEC. 6717. FAILURE TO DISPLAY TAX REGISTRATION ON VESSELS.

  (a) Failure To Display Registration.--Every operator of a 
vessel who fails to display proof of registration pursuant to 
section 4101(a)(2) shall pay a penalty of $500 for each such 
failure. With respect to any vessel, only one penalty shall be 
imposed by this section during any calendar month.
  (b) Multiple Violations.--In determining the penalty under 
subsection (a) on any person, subsection (a) shall be applied 
by increasing the amount in subsection (a) by the product of 
such amount and the aggregate number of penalties (if any) 
imposed with respect to prior months by this section on such 
person (or a related person or any predecessor of such person 
or related person).
  (c) Reasonable Cause Exception.--No penalty shall be imposed 
under this section with respect to any failure if it is shown 
that such failure is due to reasonable cause.

SEC. 6718. FAILURE TO REGISTER.

  (a) Failure To Register.--Every person who is required to 
register under section 4101 and fails to do so shall pay a 
penalty in addition to the tax (if any).
  (b) Amount of Penalty.--The amount of the penalty under 
subsection (a) shall be--
          (1) $10,000 for each initial failure to register, and
          (2) $1,000 for each day thereafter such person fails 
        to register.
  (c) Reasonable Cause Exception.--No penalty shall be imposed 
under this section with respect to any failure if it is shown 
that such failure is due to reasonable cause.

           *       *       *       *       *       *       *


     PART II--FAILURE TO COMPLY WITH CERTAIN INFORMATION REPORTING 
REQUIREMENTS

           *       *       *       *       *       *       *


        Sec. 6721. Failure to file correct information returns.
     * * * * * * *
        Sec. 6725. Failure to report information under section 4101.

           *       *       *       *       *       *       *


SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions.--For purposes of this part--
          (1) Information return.--The term ``information 
        return'' means--
                  (A) * * *
                  (B) any return required by--
                          (i) * * *

           *       *       *       *       *       *       *

                          [(xv) subparagraph (A) or (C) of 
                        subsection (c)(4) of section 4093 
                        (relating to information reporting with 
                        respect to tax on diesel and aviation 
                        fuels),]
                          [(xvi)] (xv) section 4101(d) 
                        (relating to information reporting with 
                        respect to fuels taxes),
                          [(xvii)] (xvi) subparagraph (C) of 
                        section 338(h)(10) (relating to 
                        information required to be furnished to 
                        the Secretary in case of elective 
                        recognition of gain or loss), or
                          [(xviii)] (xvii) section 
                        264(f)(5)(A)(iv) (relating to reporting 
                        with respect to certain life insurance 
                        and annuity contracts), and

           *       *       *       *       *       *       *

          (2) Payee statement.--The term ``payee statement'' 
        means any statement required to be furnished under--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(W) section 4093(c)(4)(B) (relating to 
                certain purchasers of diesel and aviation 
                fuels),]
                  [(X)] (W) section 408(i) (relating to reports 
                with respect to individual retirement plans) to 
                any person other than the Secretary with 
                respect to the amount of payments made to such 
                person,
                  [(Y)] (X) section 6047(d) (relating to 
                reports by plan administrators) to any person 
                other than the Secretary with respect to the 
                amount of payments made to such person,
                  [(Z)] (Y) section 6050S(d) (relating to 
                returns relating to qualified tuition and 
                related expenses),
                  [(AA)] (Z) section 264(f)(5)(A)(iv) (relating 
                to reporting with respect to certain life 
                insurance and annuity contracts), or
                  [(BB)] (AA) section 6050T (relating to 
                returns relating to credit for health insurance 
                costs of eligible individuals).

           *       *       *       *       *       *       *


SEC. 6725. FAILURE TO REPORT INFORMATION UNDER SECTION 4101.

  (a) In General.--In the case of each failure described in 
subsection (b) by any person with respect to a vessel or 
facility, such person shall pay a penalty of $10,000 in 
addition to the tax (if any).
  (b) Failures Subject to Penalty.--For purposes of subsection 
(a), the failures described in this subsection are--
          (1) any failure to make a report under section 
        4101(d) on or before the date prescribed therefor, and
          (2) any failure to include all of the information 
        required to be shown on such report or the inclusion of 
        incorrect information.
  (c) Reasonable Cause Exception.--No penalty shall be imposed 
under this section with respect to any failure if it is shown 
that such failure is due to reasonable cause.

           *       *       *       *       *       *       *


CHAPTER 75--CRIMES, OTHER OFFENSES, AND FORFEITURES

           *       *       *       *       *       *       *


Subchapter A--Crimes

           *       *       *       *       *       *       *


PART II--PENALTIES APPLICABLE TO CERTAIN TAXES

           *       *       *       *       *       *       *


SEC. 7232. FAILURE TO REGISTER UNDER SECTION 4101, FALSE 
                    REPRESENTATIONS OF REGISTRATION STATUS, ETC.

  Every person who fails to register as required by section 
4101, or who in connection with any purchase of any taxable 
fuel (as defined in section 4083), or aviation fuel falsely 
represents himself to be registered as provided by section 
4101, or who willfully makes any false statement in an 
application for registration under section 4101, shall, upon 
conviction thereof, be fined not more than [$5,000] $10,000, or 
imprisoned not more than 5 years, or both, together with the 
costs of prosecution.

           *       *       *       *       *       *       *


Subchapter B--Other Offenses

           *       *       *       *       *       *       *


SEC. 7272. PENALTY FOR FAILURE TO REGISTER.

  (a) In General.--Any person (other than persons required to 
register under subtitle E, or persons engaging in a trade or 
business on which a special tax is imposed by such subtitle) 
who fails to register with the Secretary as required by this 
title or by regulations issued thereunder shall be liable to a 
penalty of $50 ($10,000 in the case of a failure to register 
under section 4101).

           *       *       *       *       *       *       *


Subtitle I--Trust Fund Code

           *       *       *       *       *       *       *


CHAPTER 98--TRUST FUND CODE

           *       *       *       *       *       *       *


Subchapter A--Establishment of Trust Funds

           *       *       *       *       *       *       *


SEC. 9502. AIRPORT AND AIRWAY TRUST FUND.

  (a) * * *
  (b) Transfers to Airport and Airway Trust Fund.--There are 
hereby appropriated to the Airport and Airway Trust Fund 
amounts equivalent to--
          (1) the taxes received in the Treasury under--
                  (A) subsections (c) and (e) of section 4041 
                (relating to aviation fuels),
                  (B) sections 4261 and 4271 (relating to 
                transportation by air), and
                  [(C) section 4081 (relating to gasoline) with 
                respect to aviation gasoline,
                  [(D) section 4091 (relating to aviation 
                fuel), and]
                  (C) section 4081 with respect to aviation 
                gasoline and aviation-grade kerosene, and

           *       *       *       *       *       *       *

[There shall not be taken into account under paragraph (1) so 
much of the taxes imposed by sections 4081 and 4091 as are 
determined at the rates specified in section 4081(a)(2)(B) or 
4091(b)(2).] There shall not be taken into account under 
paragraph (1) so much of the taxes imposed by section 4081 as 
are determined at the rate specified in section 4081(a)(2)(B).

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SEC. 9503. HIGHWAY TRUST FUND.

  (a) * * *
  (b) Transfer to Highway Trust Fund of Amounts Equivalent to 
Certain Taxes and Penalties.--
          (1) [In general] Certain taxes.--There are hereby 
        appropriated to the Highway Trust Fund amounts 
        equivalent to the taxes received in the Treasury before 
        October 1, 2005, under the following provisions--
                  (A) * * *

           *       *       *       *       *       *       *

        For purposes of this paragraph, the amount of taxes 
        received under section 4081 shall include any amount 
        treated as a payment under section 6427(f)(1)(A) and 
        shall not be reduced by the amount paid under section 
        6427(f)(1)(B).

           *       *       *       *       *       *       *

          (4) Certain taxes not transferred to highway trust 
        fund.--For purposes of paragraphs (1) and (2), there 
        shall not be taken into account the taxes imposed by--
                  (A) section 4041(d),
                  (B) section 4081 to the extent attributable 
                to the rate specified in section 4081(a)(2)(B), 
                or
                  (C) section 4041 or 4081 to the extent 
                attributable to fuel used in a train[,].
                  [(D) in the case of gasoline and special 
                motor fuels used as described in paragraph 
                (4)(D) or (5)(B) of subsection (c), section 
                4041 or 4081 with respect to so much of the 
                rate of tax as exceeds 11.5 cents per gallon,
                  [(E) in the case of fuels described in 
                section 4041(b)(2)(A), 4041(k), or 4081(c), 
                section 4041 or 4081 before October 1, 2005, 
                with respect to a rate equal to 2.5 cents per 
                gallon, or
                  [(F) in the case of fuels described in 
                section 4081(c)(2), such section before October 
                1, 2005, with respect to a rate equal to 2.8 
                cents per gallon.]
          (5) Certain penalties.--There are hereby appropriated 
        to the Highway Trust Fund amounts equivalent to the 
        penalties paid under sections 6715, 6715A, 6717, 6718, 
        6725, 7232, and 7272 (but only with regard to penalties 
        under such section related to failure to register under 
        section 4101).
          [(5)] (6) Limitation on transfers to Highway Trust 
        Fund.--
                  (A) * * *

           *       *       *       *       *       *       *

  (c) Expenditures from Highway Trust Fund.--
          (1) * * *
          (2) Transfers from highway trust fund for certain 
        repayments and credits.--
                  (A) In general.--The Secretary shall pay from 
                time to time from the Highway Trust Fund into 
                the general fund of the Treasury amounts 
                equivalent to--
                          (i) * * *

           *       *       *       *       *       *       *

                The amounts payable from the Highway Trust Fund 
                under this subparagraph or paragraph (3) shall 
                be determined by taking into account only the 
                portion of the taxes which are deposited into 
                the Highway Trust Fund. Clauses (i)(III) and 
                (ii) shall not apply to claims under section 
                6427(f)(1)(B).

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SEC. 9508. LEAKING UNDERGROUND STORAGE TANK TRUST FUND.

  (a) * * *
  (b) Transfers to Trust Fund.--There are hereby appropriated 
to the Leaking Underground Storage Tank Trust Fund amounts 
equivalent to--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) taxes received in the Treasury under section 
        4091 (relating to tax on aviation fuel) to the extent 
        attributable to the Leaking Underground Storage Tank 
        Trust Fund financing rate under such section,]
          [(4)] (3) taxes received in the Treasury under 
        section 4042 (relating to tax on fuel used in 
        commercial transportation on inland waterways) to the 
        extent attributable to the Leaking Underground Storage 
        Tank Trust Fund financing rate under such section, and
          [(5)] (4) amounts received in the Treasury and 
        collected under section 9003(h)(6) of the Solid Waste 
        Disposal Act.
For purposes of this subsection, there shall not be taken into 
account the taxes imposed by sections 4041 and 4081 on diesel 
fuel sold for use or used as fuel in a diesel-powered boat.
  (c) Expenditures.--
          (1) * * *
          (2) Transfers from Trust Fund for certain repayments 
        and credits.--
                  (A) In general.--The Secretary shall pay from 
                time to time from the Leaking Underground 
                Storage Tank Trust Fund into the general fund 
                of the Treasury amounts equivalent to--
                          (i) * * *

           *       *       *       *       *       *       *

                with respect to the taxes imposed by section 
                4041(d) or by [sections 4081 and 4091] section 
                4081 (to the extent attributable to the Leaking 
                Underground Storage Tank Trust Fund financing 
                rate under such sections).

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