Policy Analysis | December 2019

Motor Fuel Evaporation Deductions

Roger Moore

During the handling, transportation and storage of motor fuel, evaporation loss commonly occurs. Movement from production operations to refineries, followed by fuel terminals and, lastly, service stations and local storage plants, often results in a loss of fuel caused by changes in temperature and modes of transportation.1 As a result, the amount of motor fuel delivered for consumption often is less than the original amount produced and refined.

Wholesalers are obligated to pay taxes on fuel based on the amount purchased at the time of receipt, before it is delivered and sold to retail outlets. Due to evaporation, the original taxable amount of fuel may be greater than the amount that ultimately is sold to retailers. Although wholesalers collect taxes from their buyers, they may not fully recoup the taxes they paid at the time of the original purchase.

To account for this discrepancy, many states have enacted deductions for dealers, suppliers and/or distributors of motor fuel. In the SLC region, eight of the 15 states currently have deductions to offset losses from fuel evaporation, ranging from 0.004 percent up to 3 percent of the original taxable amount. A review of state codes identified fuel evaporation deductions in Alabama, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Tennessee and West Virginia. Other states have fuel-related deductions, but these are not specifically associated with evaporation loss.

Codified Fuel Evaporation Deductions

Evaporation Deduction: 0.004 percent


“A licensed distributor or importer that timely pays the tax due to a supplier or permissive supplier as required in this section, may deduct from the amount otherwise due to the supplier or permissive supplier a discount of four tenths of one percent (.004) of the amount of tax payable. The discount covers the expense of furnishing a bond and losses due to shrinkage and evaporation.”


Evaporation Deduction: 2.00 percent of the first $0.55 per gallon


“Every person who purchases motor fuel in bulk quantities and sells the motor fuel at retail shall be entitled to a refund of 2 percent of the first 5 ½ cent(s) per gallon of the motor fuel taxes as compensation to cover losses for evaporation, shrinkage, and spillage.”


Evaporation Deduction: 2.25 percent


“To cover evaporation, shrinkage, unaccountable losses, collection costs, bad debts, and handling and reporting the tax, each dealer shall be allowed compensation equal to two and one-fourth percent (2.25%) of the net tax due the Commonwealth … before all allowable tax credits.”


Evaporation Deduction: 3.00 percent


“In computing the tax due, a supplier may make a deduction in the amount of three percent of the net taxable gallons after deducting approved refunds sold during the preceding calendar month as compensation for collecting and remitting the tax, and as an allowance for evaporation.”


Evaporation Deduction: 2.00 percent


“At the time of filing each monthly report with the commission, each distributor of gasoline shall pay to the commission the full amount of the gasoline tax due from such distributor for the preceding calendar month, less two percent (2%) to cover evaporation, shrinkage and other normal losses.”

North Carolina

Evaporation Deduction: 1.00 percent


“A licensed distributor that pays the tax due a supplier by the date the supplier must pay the tax to the State may deduct from the amount due a discount of one percent (1%) of the amount of tax payable. A licensed importer that removed motor fuel from a terminal rack of a permissive or an elective supplier and that pays the tax due the supplier by the date the supplier must pay the tax to the State may deduct from the amount due a discount of the same amount allowed a licensed distributor. The discount covers the expense of furnishing a bond and losses due to shrinkage or evaporation.”


Evaporation Deduction: 1.5415 percent


“A supplier, permissive supplier or bonded importer is entitled to an allowance covering loss of gallonage by evaporation, handling, unloading, shrinkage, and losses resulting from unknown causes, and as reimbursement for expenses incurred on behalf of the state in furnishing a bond, maintaining records, collecting taxes, and preparing reports and remittances … The allowance shall be an amount equivalent to one and five thousand four hundred fifteen thousandths percent (1.5415%) of the amount of tax imposed.”

West Virginia

Evaporation Deduction: Up to 0.50 percent


“Any dealer…who purchases or receives gasoline or special fuel in this State upon which the tax imposed by this article has been paid, shall be entitled to an annual refund for gallons lost through evaporation. Such refund shall be computed at the rate of tax imposed per gallon under this article on all gallons of gasoline or special fuel actually lost due to evaporation, not exceeding one half of one percent of the adjusted total accountable gallons, computed as determined by the commissioner.”

1 United States Environmental Protection Agency, accessed November 20, 2019.