Revenues from motor fuel are used primarily to support the states' transportation systems. In this time of large state budgetary deficits, it is particularly important that all motor fuel tax funds are collected, remitted, and credited to the respective state highway accounts. However, allegations of significant evasion of these taxes persist. The extent and causes for this loss of revenue from fuel tax evasion are not fully understood. For states to maximize receipt of their motor fuel taxes, it is imperative for them to most efficiently develop and direct their enforcement resources. In order to do so, it is important to determine the origin and extent of fuel tax evasion and to be able to evaluate the potential effectiveness of enforcement options.
Reliable estimates for motor fuel tax evasion rates are not available. The objective of this research project was to develop and demonstrate a methodology for identifying and quantifying state-level fuel tax evasion. The methodology, as envisioned, would account for different practices among states that may lead to different rates of evasion. The results from this methodology would allow individual states to develop and evaluate potential solutions and enforcement options.
The project entailed the following tasks: (1.) Conduct a review of literature and research on fuel tax administration, enforcement, and evasion. (2.) Develop a critical review of current state fuel tax enforcement practices, including notable policies, key problems, and issues. (3.) Identify and describe the types of data that are available regarding fuel tax administration and enforcement that relate to minimizing state fuel tax evasion. Determine the accessibility, limitations, and credibility of the data. (4.) Identify the physical, administrative, and enforcement characteristics of state practices and other factors that may influence the rates of compliance with state fuel tax laws and regulations. To the extent that available data allow, identify the relationships between rates of evasion and those characteristics. (5.) Based on the information developed in Tasks 1 through 4, identify possible strategies, methods, and tools to measure and evaluate state fuel tax evasion. (6.) Prepare an annotated outline of a preliminary methodology for identifying and quantifying state-level fuel tax evasion. (7.) Prepare and submit an interim report that documents the work performed and findings from Tasks 1 through 6. At a meeting with the NCHRP panel, discuss the information in the interim report, panel comments, and recommend revisions to the work plan for subsequent tasks. NCHRP approval is required before proceeding with subsequent tasks. (8.) Develop the preliminary methodology for evaluating and quantifying state-level fuel tax evasion, including strategies, methods, and tools. The methodology should be organized and presented in a manner to allow individual states to identify and evaluate potential solutions and enforcement options. (9.) Present the preliminary methodology developed in Task 8 to selected professional practitioners to obtain input and feedback. (10.) Based on practitioner review and feedback, and with the guidance of the NCHRP panel, revise the recommended strategies, methods, and tools included in the methodology. (11.) Prepare and submit a final report including the final methodology for panel review and approval.
Product Availability: The project final report is available as NCHRP Report 623.