26 CFR § 48.6427-6
Limitation on credit or refund of tax paid on fuel used in intercity, local or school buses after July 31, 1984
June 25, 2020

(a) Limitation on amount of credit or refund—(1) In general. In the case of fuel sold or used after July 31, 1984, on which tax was imposed under section 4041(a), the amount of credit or refund under section 6427(b)(1) shall not exceed 12 cents per gallon except where fuel is used in a bus while such bus is being operated as a “qualified local bus” in which case the credit or refund shall be the full amount of tax paid under section 4041(a) on such fuel.

(2) Qualified local bus. A bus is considered to be operated as a “qualified local bus” if such bus—

(i) Is engaged in furnishing (for compensation) intracity passenger land transportation that is available to the general public and is scheduled and along regular routes,

(ii) Has a seating capacity of at least 20 adults (not including the driver), and

(iii) Is under contract with (or is receiving more than a nominal subsidy from) any State or local government (as defined in section 4221(d)(4)) to furnish such transportation.

A company that operates qualified local buses is eligible for a full refund or credit only with respect to fuel used while such buses are operating as qualified local buses. For example, a company that operates its buses along subsidized intracity routes and also on intercity or unsubsidized intracity routes may obtain a full refund or credit only with respect to fuel used while operating the subsidized intracity routes.

(b) Meaning of terms—(1) Contract with a State or local government. A bus is under contract with a State or local government only if the contract imposes a bona fide obligation on the operator of the bus to furnish the transportation to which the contract relates.

(2) More than a nominal subsidy. A subsidy is more than nominal if the subsidy is reasonably expected to exceed an amount equal to 3 cents multiplied by the number of gallons of fuel used while operating on subsidized routes.

(3) Intracity passenger land transportation. The term “intracity passenger land transportation” means the land transportation of passengers to and from points located within the same metropolitan area. The term includes transportation along routes that cross State, city or county boundaries provided such routes remain within the metropolitan area.

[T.D. 8027, 50 FR 21252, May 23, 1985]

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