California Issues Guidance on Claiming Partial Exemption on Diesel Fuel

The California Department of Tax and Fee Administration (CDTFA) has issued guidance to registered fuel retailers who may not have properly claimed the California partial sales and use tax exemption for diesel fuel. Effective October 1, 2022 through September 30, 2023, California is providing a 3.9375% partial sales and use tax exemption on the sale, storage, use, or other consumption of diesel fuel.

The CDTFA encourages registered fuel retailers that did not claim the partial exemption (but should have) to amend their returns for Q4 2022 and Q1 2023 if applicable. The total tax on diesel fuel when the exemption is claimed is 9.0625% plus applicable district taxes. When used off road, the total sales tax on dyed diesel fuel is 3.3125% plus applicable district taxes.

The following explains how diesel fuel is taxed from October 1, 2022 through September 30, 2023:

• • • The sales tax rate on diesel fuel is 7.25% (remember to add district taxes where applicable)
    • The partial exemption is 3.9375%
    • The sales tax rate with the exemption applied is 3.3125%
    • The additional state tax on diesel fuel is 5.75%
    • Which makes the total tax rate on diesel fuel 9.0625%

To claim the partial tax exemption when filing online:

• • • Include sales of diesel fuel in your Total Sales section on the Sales and Purchases Information screen.
    • Also include the selling price of diesel fuel on the Additional State Tax on Diesel Fuel screen.
    • Once those numbers have been entered, to view the exemption field, select Yes when answering Do you have any partial tax exemptions for this filing period?
    • On the next screen, under Diesel Fuel partial tax exemption, excluding sales tax and state excise tax (not used in farming and food processing), enter the total sales price of the diesel fuel that was not previously included in another exemption.

(Special Notice L-898, California Department of Tax and Fee Administration, April 2023)