10-17-2024
Federal Lust Tax vs. Federal Oil Spill Tax
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Let's demystify the Federal LUST Tax and the Federal Oil Spill Tax in this blog. The blog highlights the differences between the two, explaining their purposes and how they apply to various aspects of fuel and petroleum management.
What is Federal LUST Tax?
The Federal Leaking Underground Storage Tank (LUST) Tax is a federal excise tax of 0.1 cents per gallon applied to motor fuels, including diesel, kerosene, and aviation fuel mixtures. This tax is collected quarterly, along with other applicable fuel taxes, depending on the nature of the business.
The revenue from this tax is deposited into the LUST Trust Fund, which is used to support environmental enforcement activities, such as monitoring, cleanup, and prevention of fuel leaks from underground storage tanks that can pose risks to soil and groundwater quality.
What is the Federal Oil Spill Tax?
The Petroleum Oil Spill Tax is a tax imposed on domestic crude oil and imported petroleum products to fund the Oil Spill Liability Trust Fund. This tax is applied when crude oil is received at a U.S. refinery or when imported petroleum products enter the U.S. for consumption, use, or storage.
The current rate for the oil spill tax is $0.09 per barrel. The funds collected are used to cover the costs associated with oil spill prevention, response, and environmental cleanup efforts, ensuring that resources are available to address oil spill-related incidents.
LUST Tax vs Petroleum Oil Spill Tax:
Although both taxes serve environmental purposes and are related to the handling of fuel products, they differ in several key aspects.
Aspect | Federal LUST Tax | Petroleum Oil Spill Tax |
Trust Fund | The Federal LUST Tax (Leaking Underground Storage Tank Tax) is collected and maintained by the LUST Trust Fund. This fund is designated for addressing leaks from underground storage tanks, which can lead to serious environmental hazards such as groundwater contamination. | The Federal Oil Spill Tax is collected and maintained by the Oil Spill Liability Trust Fund, which is used to address oil spill incidents. The fund supports the prevention, cleanup, and mitigation of oil spills into the ocean and other waters. |
Tax Rate | The tax rate for the LUST tax is 0.1 cent per gallon, applied to motor fuels such as gasoline, diesel, and kerosene. This rate has been relatively stable over time, as it is not typically subject to frequent changes. | The oil spill tax is currently set at $0.094 per barrel of crude oil, petroleum products, and renewable fuels. This rate is slightly adjusted over time to account for inflation and other economic factors, making it more variable compared to the LUST tax. |
Rate Adjustments | The LUST tax rate is generally maintained at a standard value and only changes in exceptional circumstances. This makes it relatively predictable for businesses to plan around. | The Oil Spill Tax rate is typically adjusted annually, with increases or decreases reflecting inflation or other economic trends. While the changes are usually minimal, the tax rate is more likely to fluctuate than the LUST tax rate. |
Filing Forms | Businesses that are subject to the LUST tax file their payments using IRS Form 720, which is designated for excise taxes. It is one of the many fuel-related taxes included on this form. | Taxpayers subject to the Oil Spill Tax also use Form 720 but must additionally file Form 6627. This additional form provides more detailed information related to petroleum products and oil transactions. |
Payers | The LUST tax is paid by importers, manufacturers, and retailers that use or distribute motor fuels, including gasoline and diesel. This includes a wide range of businesses that operate fueling stations or handle large volumes of fuel. | The Oil Spill Tax is paid primarily by refiners and importers of petroleum products. This includes businesses that handle crude oil, gasoline, and other petroleum-based products, and it applies when these products are entered for use, consumption, or warehousing in the U.S. |
Refund ability | The LUST tax is non-refundable, meaning once it is paid, businesses cannot claim it back, even if certain products are exported or used outside the typical taxable scope. | In contrast, taxpayers can claim a credit for the Oil Spill Tax if they have paid taxes on crude oil or petroleum products that are later exported or sold for export. This provides businesses with some financial relief if they are involved in international trade. |
Use of Funds | The LUST Trust Fund is primarily used for emergency and enforcement activities related to the cleanup of petroleum releases from underground storage tanks. This includes addressing environmental hazards at orphaned sites and conducting inspections of fuel release activities to ensure compliance with environmental regulations. | The Oil Spill Liability Trust Fund is used for the prevention, response, and cleanup of oil spills that threaten marine and coastal ecosystems. It also covers habitat restoration activities after spills occur, ensuring that natural resources are protected and restored. |
Form 720 Category | On Form 720, the LUST tax is categorized under fuel taxes, alongside other taxes on motor fuels like gasoline and diesel. This aligns with its purpose, which is tied to fuel-related environmental issues. | The Oil Spill Tax, however, is categorized under environmental taxes on Form 720. This is because its primary focus is on preventing and addressing environmental damage caused by oil spills, which affect water bodies and ecosystems. |
WRAP:
After reading this comparison, you should now have a clear understanding of the Federal LUST Tax and the Federal Oil Spill Tax. Though both taxes aim to protect the environment, they differ in their nature, purpose, and application.
You can file both these taxes online through our Excise Tax Submission Portal in just a few minutes!
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