IRS ExSTARS Program Brings Big Changes

Sept. 1, 2000
NEW reporting requirements from the Internal Revenue Service (IRS) just took effect and are expected to have a profound impact on many storage terminal

NEW reporting requirements from the Internal Revenue Service (IRS) just took effect and are expected to have a profound impact on many storage terminal operations. Initially scheduled to start June 1, 2000, the requirements were delayed until September 1.

The reporting requirements are part of ExSTARS (Excise Summary Terminal Activity Reporting System), a fuel reporting program that was developed by the IRS. Terminal operators (third-party, pipeline, and proprietary marketing terminals, such as heating oil bulk plants) and bulk carriers (including pipeline companies and vessel or barge operators) are required to file monthly reports, called Fuel Transaction Reports. The IRS wants electronic filing of all reports, but they are not required at this point.

The stated objective of the ExSTARS program is to track all fuel products that move through storage terminals and capture destination state information when the fuel is disbursed through the terminal rack. However, some industry officials believe the rules exceed the original intent.

"The IRS said the original purpose was to track taxable fuels to prevent tax evasion through bootlegging, illegal blending, and daisy chains," said Doug Burdick, Transmontaigne Transportation Services Inc. Burdick spoke on ExSTARS during the Independent Liquid Terminals Association's (ILTA's) 20th annual conference June 12-15 in Houston, Texas.

"The program that has emerged seems to be a total accountability system for certain terminals," he said. "If a facility needs a Terminal Control Number (TCN), it must now account for all products within the terminal, including nontaxable commodities, such as fertilizer and food oils.

"This level of reporting and scrutiny seems to be unwarranted for any reason related to tax administration. The system needs to capture only those products that are potentially taxable. Products that are normally nontaxable should be reported in summary, not detail.

"Gain and loss within the terminal system, including the removal of contaminated tank bottoms or de minimis amounts of remaining products when tanks are switched to different products, need only summary reporting. On the taxable products, the standards for detail reporting need to be clear and simple."

Terminal Protection John Prokop, ILTA president, said that at first glance it would appear that storage terminal operators are just doing the IRS's job. "Actually, we are protecting for-hire terminal assets from unscrupulous customers and from customer errors," he added. "The law makes for-hire terminals secondarily liable for excise taxes customers do not pay."

The ExSTARS program is primarily directed at companies involved in the storage and transportation of taxable fuels, including gasoline, diesel, and kerosene. However, a multitude of other products also are covered: benzene, butylene, ethylene, naphthas, mineral oils, pentane, propylene, raffinates, toluene, waste oil, and xylene.

ILTA has filed objections with the IRS over the need to report chemicals that are not compatible with gasoline or diesel fuel, such as molten sulfur, caustic soda, vegetable oil, and asphalt. The association also has questioned the need to report on products that are more expensive per gallon than wholesale gasoline. Prokop pointed out that tax evaders are not likely to put a $3 per gallon chemical into gasoline selling for $1.70 to $2 a gallon.

Terminals holding IRS form 637 approval must file monthly reports containing the transaction details of deliveries, receipts, inventories, and disbursements for all liquids. Form 637 approval also is needed by heating oil terminals that handle dyed fuel.

Despite IRS preference, electronic filing of reports is not required at this time. Paper reports are permissible, and ILTA can provide draft copies of the report form. Electronic filing cannot be required unless the IRS convinces Congress to mandate it. IRS officials have stated that they will ask Congress to mandate electronic filing after 2002 if not enough companies have signed on to the electronic program.

"We realize that many smaller or older petroleum terminals, and certainly almost all chemical terminals, are not equipped today to gather IRS desired ExSTARS information electronically," Prokop said. "The data gathering will be done manually."

Companies that plan to report through electronic data interchange (EDI) should obtain a copy of the EDI Implementation Guide. A draft copy is available on the Internet at Draft forms for the paper reports also are available from the taxadmin web site. TCN numbers can be obtained at

Reports on over-the-rack product transfers must include the destination state, carrier identification number, document number, net and gross gallons transferred, and position holder identification. Data on bulk transfers is similar and includes the date, document number, carrier identification name and number, net gallons transferred, and position holder identification, if applicable.

"The kerosene regulations require that the terminal account for all disbursements in either net or gross gallons," Burdick said. "This election can only be changed annually. We appreciate that the IRS does not want to have a taxpayer switching back and forth by month to minimize liability. However, the way this regulation is written will cause needless complications and expense.

"Traditionally, all exchanges are measured in net gallons. Typically, sales in the South are on net, and those in the North are on gross. The temperate zone in the middle has allowed customers to choose the method they prefer, which means a terminal may have sales in both net and gross gallons.

"The IRS could have achieved its goal by simply restricting customers to an annual election of either net or gross. Instead, the IRS regulations will force wholesale changes. In the North, for instance, exchangers may have to switch to gross or customers to net. It's going to be expensive."

Terminal Registration The system of registering terminals and having periodic inspections poses more concerns. IRS agents are being instructed to draw a map of the terminal showing all piping, which products are stored in each tank, and whether the products can be transferred to a truck, rail, or barge loading rack.

"It's not farfetched to believe that we may reach a point where we have to get IRS approval before we make changes in our facilities," Burdick said. "With EPA (Environmental Protection Agency) already having oversight authority at terminals, this industry does not need another agency with different goals and rules regulating the layout and operation."

The reporting load on terminal managers certainly will increase, and there are similarities between ExSTARS and many state reports. Data collected by the IRS is to be shared with states via ExTOLE. This arrangement should enable single-point reporting on terminal and carrier operations.

"We are working with the Federation of Tax Administrators to convince the states to adopt the ExSTARS reports and go to a single-point reporting system," Burdick said. "If we are unsuccessful, both the ExSTARS and state reports will be required in some, if not all, states. It will be costly and inefficient."

When all of the factors are examined, it's clear that the ExSTARS information reporting system could bring a high price. Terminals that store small amounts of regulated products may be forced to decide whether the incremental revenue from those products outweighs the administrative costs of registration and compliance.

"We believe some companies will decide to stop storing the regulated products," Burdick said. "This could have the effect of limiting the number of loc ations that take petroleum products. Those that do remain in the market will pass the compliance costs on to their customers."

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