Frequently Asked Questions

Why doesn't FHWA estimate gasohol anymore?

Congress passed legislation that changed Federal tax policy on gasohol. Two recent Congressional acts mandated the change.

The Surface Transportation Extension Act of 2004 did the following:

• Re-directed revenue related to the 2.5 cent gasohol diversion (to the U.S. Treasury General Fund) into the HTF
• Retroactive to October 1, 2003 through September 30, 2004
• U.S. Treasury estimated this amount to be: $918,174,000
• Accounted for in the 2004 Attribution impacting 2006 apportionments

The Jobs Creation Act of 2004:

• Extended the modification of the 2.5 cent diversion from January 1, 2005 until expiration of the taxes in 2010
• Enacted an Alcohol Fuel Income Tax Credit, applied to gasohol sold after January 1, 2005
• This effectively directs gasohol revenue to the Highway Account of the HTF

For 2007 Apportionments:

• FHWA would normally attribute 2006 fiscal year Federal revenue based on 2005 calendar year motor fuel data, but:
  • One quarter (October 1, 2004 to January 1, 2005) of revenue for FY 2006 fell under the old gasohol tax rates
  • The other three quarters of the FY fell under the new gasohol tax rates
• Attribution would be impacted by the in-year tax rate changes in two ways:
  • Revenue data impacts
  • Motor fuel data impacts

Revenue Impacts

Revenue streams change at the beginning of a calendar year 2005, within the federal fiscal year 2006:

• Gasohol revenue would normally be attributed to gasohol States only - this only takes place in the first quarter of FY 2006
• For the other three quarters of FY 2006, gasohol and gasoline revenue data would be combined since both fuels now pay the same tax rate
• Ratio of the gasohol revenue collected by the US Treasury in 2004 ($1,351,831,000) to the revenue collected in 2003 ($4,485,353,000)
• This division results in the fraction .30138787
• Divide the annual gasohol gallon estimates for each State (displayed in the 2004 Table 33-E) by this fraction, and attribute on the $1,351,831,000

Motor Fuel Impacts

• For the first quarter of FY 2006, the preceding procedures apply
• For the other three quarters of FY 2006, the gas and gasohol data are combined

After his transition year, gasohol and gasoline pay the same federal tax and the revenue is placed into the Highway Trust Fund, so FHWA will not distinguish between the two fuel types.

Why does FHWA modify the motor fuel data that State's report?

The process used by FHWA to attribute the Federal revenue generated in each State is complicated. The complexity is not in the calculation of attribution, the complexity is in determining the amount of motor fuel used on the highways in each State. This is a consequence of the wide variation among State taxation structures and administrative procedures for defining, capturing, and reporting data to the FHWA. State-by-State data is not uniform and consistent, particularly in the areas of gasohol usage, public vehicle usage and off-highway usage. Rather than imposing the data collection and reporting burden on the States, FHWA has opted to estimate these data. Therefore, FHWA has developed procedures to estimate consistent estimates of these data.

The three estimation major procedures that FHWA must perform include the following motor-fuel usage components:

1. Non-highway gasoline consumption
2. Government use of gasoline
3. On-highway use of gasohol

The estimation process developed by FHWA has been designed to treat all states equitably and to produce meaningful results to fulfill attribution process needs.

How does FHWA estimate gasohol usage in the States?

FHWA needs reliable estimates of gasohol consumption. This information is not only used for Highway Statistics, it is used in the FHWA attribution process, which in turn allocates Federal highway funds to the States. The Energy Policy Act of 1992 (EPACT) taxes gasohol based on percent ethanol by volume. These grades are available at 10%, 7.7%, and 5.7%. IRS taxes the three different kinds of gasohol at different tax rates.

Only Washington State, however, currently recognizes or defines in legislation three types of gasohol. Since highway-funding attribution is based on Federal motor-fuel tax revenue, FHWA has to determine gasohol revenues attributed to each State using the Federal definition of the three types of gasohol. This disconnect in the tax treatment of gasohol requires FHWA to estimate gasohol revenues attributed to each state using the Federal definitions since attribution is based on federal motor fuel (including the three levels of gasohol) tax revenue.

The following describes each step in the process of managing and running the gasohol model.

Step 1: FHWA receives the values of gasohol (if available) from each State as reported on the FHWA Form 551M.

Step 2 and 3: The gasohol value received from the State is multiplied by an ethanol adjustment factor to calculate the number of gallons of ethanol that are used by the State. For States that collect ethanol gallons data directly and derive total gasohol gallons assuming a 10 percent blend, the adjustment factor is 10. In aggregate, the default value for most States is 10. However, based on results of the interviews, adjustments were made for acknowledged under-reporting (+ .1 for a small amount, + .5 for a large amount). Adjustments also were made for States that use more than one blending.

Step 4: FHWA selects State-provided ethanol gallons values (found in Step 2) that represent accurate reporting of the ethanol used (about thirty States meet this criteria.) These ethanol gallons are summed together.

Step 5: The values found in Step 4 are subtracted from the Internal Revenue Service (IRS) control total, the known federal gasohol revenue as reported by IRS.

Step 6: The values from the States that are in question (i.e., those States not used in Step 4, and who are known to have some gasohol use) are estimated from the regression equation, as follows:

Number of ethanol gallons consumed is the dependent variable, with the following variables being independent variables:

• the proximity of an ethanol plant to the subject State;
• the amount, if any, of the State's ethanol producer's incentive;
• a calculated variable based on the market share ethanol has in relation to other alternative fuels, multiplied by the percentage of vehicle miles traveled within the ethanol fuel area
• the amount of the State's blender's incentive; and
• the total amount of gasoline used (regular [non-blended] gasoline and gasohol blends as reported by the State).

Step 7: Step 6 values are summed, showing the total gallons of ethanol estimated by the regression equation.

Step 8: Each individual estimate (from Step 6) is divided by the total calculated in Step 7 to create a percentage of the total.

Step 9: The percentage found in Step 8 is multiplied by the IRS difference found in Step 5. The value from this is the gallons of ethanol used by State.

Step 10: The ethanol gallon values from Step 9 and Step 3 are divided by the percentage blends to determine a value for gasohol gallons.