Agricultural Off-Road Fuel Tax: Midwestern Comparative Analysis and Assessment

During the past several years, state governments across the United States have engaged in a variety of new efforts to curb motor fuels tax evasion. Unlike the income tax, which is typically evaded through a simple reporting error or other manipulation, motor fuels tax evasion often occurs because potential evaders are able to exploit the complexity of the audit, collection, and exemption processes. Estimates of annual revenue losses related to this sort of evasion are substantial, ranging from $1.5 billion to $2.5 billion. In response to these estimates, FHWA and a number of state governments have implemented changes designed to streamline the administration of this often-overlooked but critical revenue source. The potential for evasion that results from the fuel tax exemptions that Wisconsin provides for agricultural "off-road" uses was examined. The investigation began with a statistical analysis of recent tax-exempt fuel consumption and monthly rebate figures for all midwestern states. These results indicate that Wisconsin consumes significantly higher quantities of tax-exempt fuel for off-road agricultural purposes than other midwestern states. A comparative analysis was also conducted of Wisconsin's Motor Vehicle Fuel Tax law and equivalent laws throughout the Midwest. The statistical and comparative results provide statistical and legal-analytical evidence that Wisconsin's current law is vulnerable to evasion. With these findings in mind, policy options to improve the enforcement of Wisconsin's Motor Vehicle Fuel Tax law were developed.