IRS Issue Hefty Fines for Failure to Display Nontaxable Use Dispenser Labels

PMAA continues to receive calls from marketers who are being slapped with hefty fines for failure to display IRS nontaxable use warning labels on dispensers. The IRS requires all dyed diesel and dyed kerosene dispensers to have a specific label indicating that the fuel is for nontaxable use only. Dispensers supplying undyed, untaxed kerosene sold from a blocked pump must also display an IRS nontaxable use warning label. PMCI members may order labels by contacting the association at 515-224-7545 or by emailing Alyse alyse@pmcofiowa.com.

The labeling requirement has been in place for diesel dyed diesel dispensers since 1993 and for dyed and clear kerosene dispensers since 1998. IRS field agents continue to aggressively enforce the dispenser label requirement in all regions of the country. Under IRS regulations, marketers who fail to post the required labels on applicable dispensers are presumed to know that the fuel will not be used for a nontaxable use and will be responsible for paying the 24.4 cpg federal excise tax on the fuel (the back-up tax) and assessed a $10 for every gallon of fuel in the tank at the time of the violation.

Some petroleum marketers are under the mistaken belief that the required EPA and FTC dispenser labels, which also provide a warning notice for nontaxable use, satisfy the IRS label requirement. This assumption is incorrect. The IRS, EPA and FTC labels are all required to appear on dispensers despite their apparent redundancy. The IRS does not enforce EPA and FTC label requirements.

The following IRS labels must be posted on any retail dispenser or other delivery facility (skid tank, consumer dispensers at bulk plants or card locks) where dyed diesel fuel and/or dyed kerosene are dispensed for use by a purchaser/consumer:

“DYED DIESEL FUEL, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE” or

“DYED KEROSENE, NONTAXABLE USE ONLY, PENALTY FOR TAXABLE USE”

In addition, the following label must be posted on all blocked pumps that sell clear, untaxed kerosene:

"UNDYED UNTAXED KEROSENE, NONTAXABLE USE ONLY"

The labels must be affixed to the dispenser in a conspicuous place within easy sight of the person dispensing the fuel either on the face of the dispenser (on both sides) or on the side of the dispenser just above the nozzle housing. The IRS issues violations for any IRS required label that is missing, faded, ripped or obscured in any from the consumers view. Marketers should frequently inspect dyed diesel fuel, dyed kerosene and clear untaxed kerosene dispensers to ensure the IRS label is properly placed and legible.