[Code of Federal Regulations]
[Title 26, Volume 16]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR48.4042-2]

[Page 75-76]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 48_MANUFACTURERS AND RETAILERS EXCISE TAXES--Table of Contents
 
                 Subpart G_Fuel Used on Inland Waterways
 
Sec. 48.4042-2  Special rules.

    (a) Dual use of liquid fuels--(1) Dual use by the propulsion engine. 
The tax imposed by section 4042(a) applies to all taxable liquid used as 
a fuel in the propulsion system of the vessel, regardless of whether the 
engine (or other propulsion system) is used for a purpose other than 
propulsion of the vessel. For purposes of this section, any engines 
generating movement of a vessel (including bow thrusters used for 
steering) are part of the propulsion system. The tax does not apply to 
fuel consumed in engines which are not used to generate movement of a 
vessel. When the propulsion engine operates special equipment by means 
of a power take-off or power transfer, the tax applies to all liquid 
fuel consumed by that engine. For example, the tax applies to all fuel 
used in the engine operating an alternator, a generator, or pumps, if 
that engine is used to generate movement of a vessel.
    (2) Common tank. If the liquid fuel consumed by a nonpropulsion 
engine is drawn from the same tank as fuel consumed by a propulsion 
engine, a reasonable determination of the quantity of fuel used in such 
a separate engine will be acceptable for purposes of excluding from 
taxation a portion of the fuel consumed by the vessel. The determination 
of the amount of fuel consumed by the nonpropulsion engine may be based 
primarily on the operating experience of the person using the fuel; 
however, in order to exclude fuel from taxation under the rule set out 
in this paragraph (a)(2), the taxpayer must maintain records which will 
support the allocation used.
    (b) Voyages crossing boundaries of the specified waterways. Fuel 
consumed by a vessel traveling along the specified waterways is taxable 
only to the extent of fuel consumed for propulsion while on the 
specified waterways. Generally, the operator may calculate the amount of 
fuel consumed while on the specified waterways during a particular 
voyage by mulitplying total fuel consumed in the propulsion engine by a 
fraction. The numerator of the fraction is the time spent operating on 
the specified waterways; the denominator is the total time spent 
operating on the specified and nonspecified waterways during the voyage. 
This calculation may not be used when it is unreasonable. It may be 
determined to be unreasonable by:
    (1) Better evidence of fuel consumed (e.g., readings from an 
accurate fuel gauge or records from similar voyages); or
    (2) The existence of factors causing a substantial discrepancy 
between the rate of fuel consumption on the specified and nonspecified 
waterways.
    (c) Records required. (1) All operators of vessels used in 
commercial waterway transportation must maintain records sufficient to 
establish to the satisfaction of the district director the amount of 
fuel used for taxable purposes. Those records may include, when relevant 
to establish liability:
    (i) Quantity of fuel and date of acquisition of all liquid fuels 
acquired for both taxable and nontaxable purposes, whether delivered to 
storage tanks or tanks on a vessel;
    (ii) Date and quantity of fuel pumped into tanks on each vessel;
    (iii) Identification number or name of each vessel using fuel; and
    (iv) Departure time, departure point, route traveled, destination, 
and arrival time for each vessel.
    (2) Vessel operators seeking a tax exemption provided by section 
4042(c) must maintain records which will support any exemption claimed. 
Where applicable, the records shall contain:
    (i) The draft of the vessel on each voyage (for exemption under 
section 4042(c)(1));

[[Page 76]]

    (ii) The type of vessel in which fuel is consumed and the type of 
vessel in which cargo is transported (for exemption under section 
4042(c) (1), (2) or (4); and
    (iii) The ultimate use of cargo transported (for exemption under 
section 4042(c)(3)).

[T.D. 7727, 45 FR 70862, Oct. 27, 1980, as amended by T.D. 8442, 57 FR 
48186, Oct. 22, 1992]