LEGISLATIVE/REGULATORY UPDATE IRS MANDATES CITIES AND TOWNS TO PAY FEDERAL GAS TAX

By ALAN BEALS, Executive Director
National League of Cities

The IRS is scheduled to release new regulations requiring municipalities to pay the federal gas tax effective January 1, 1988. The regulations are based upon a provision in the 1986 Tax Reform Act. A similar provision in the House and Senate bills this year would mandate the same treatment of diesel fuel. We need your help to exempt municipalities from this tax.

The federal government is scheduled to issue proposed federal regulations 26 CFR parts 48 and 301 in the federal register requiring the payment of the federal gas tax on all gasoline purchases by municipalities effective January 1, 1988.

The regulations provide guidance on filing for a rebate, including substantial new recordkeeping requirements. Under the law, no interest payments win be made on the municipal funds withheld — that is, the federal government will be permitted to earn unlimited arbitrage. The rebate form could be filed on a quarterly basis.

The regulations apply to gas only; the House and Senate tax committees have each passed similar provisions in this year's tax bill on diesel fuel.

The regulations apply to gas purchased for the exclusive use of municipalities, for public school buses, and for public transportation.

Action necessary: Contact your Senators immediately to urge a technical correction in this year's tax bill to exempt municipalities from both the gas and diesel taxes.

Senate Finance Committee Chairman Lloyd Bentsen's (D-TX) staff has advised us that Bentsen would be willing to make a technical correction in both the gas and diesel provisions to exempt municipalities. Bentsen's staff has, however, indicated that Bentsen will not move forward without a green light from Rep. J. J. Pickle (D-TX), the senior Texas democratic member on the House Ways and Means Committee. Pickle is the author of the gas tax provision. Pickle's staff has adamantly opposed any change, however, thus preventing Bentsen from helping municipalities.

Under the proposed regulations, cities and towns are required to make a return of the Tax Form 720, and may file a form for a rebate. Tax Form 843, provided the form is accompanied by: (1) records of separate inventories; (2) duplicate copies; and (3) a complete and detailed record with respect to any claim of a refund.

All such records must be "available for inspection by internal revenue agents and officers . . . for a period of at least three years after the date the tax becomes due or the date the tax is paid, whichever is later."

Comments: Written comments or requests to testify at a public hearing scheduled on January 5, 1988 must be delivered or mailed by December 18, 1987 to:

Commissioner of Internal Revenue
Attention: CC:LR:T (LR-115-86)
Washington, D.C. 20224

NLC members with questions should contact: Tim McKenna of the Legislation and Regulations Division, Office of Chief Counsel, IRS, #202-566-3287. If you want a copy of the proposed federal regulations, please contact our Office of Federal Relations at (202) 626-3020. •

Page 14 / Illinois Municipal Review / December 1987