Tar Sands Tax Loophole Elimination Act: Redefining 'Crude Oil' to Increase Excise Taxes on Bitumen

The Tar Sands Tax Loophole Elimination Act is straightforward: it changes the definition of “crude oil” in the tax code to ensure that materials from tar sands—specifically bitumen and other bituminous mixtures—are subject to federal excise taxes, just like traditional crude oil. Essentially, if it’s oil derived from these sources, the IRS will now treat it the same way for tax purposes.

Closing the Tax Gap on Dirty Oil

For years, depending on how they were classified, some materials derived from tar sands essentially skirted the federal excise taxes applied to regular crude oil. This bill closes that gap. Under Section 2, the definition of "crude oil" is explicitly expanded to include "any mixture consisting primarily of bitumen or bituminous material" and oil derived from those sources. They’ve also made a small but significant technical cleanup by removing the phrase "from a well located," which helps ensure that oil extracted through newer, non-traditional methods is clearly covered. This is about making sure all forms of this fuel pay the same excise tax.

Treasury Gets New Classification Power

Here’s the part that introduces a bit more complexity: Section 2 also hands the Secretary of the Treasury new authority to classify other fuel feedstocks or finished fuel products as crude oil for tax purposes. This power isn’t unlimited, though. The Secretary can only do this if the product is transported like crude oil (via pipelines, ships, railcars, etc.) and if a spill would create a "serious hazard." Crucially, this hazard assessment must align with the definition used under the Oil Pollution Act of 1990.

This new authority is a double-edged sword. On one hand, it allows the government to be proactive, ensuring that novel or alternative fuels that pose a significant environmental risk during transport are taxed appropriately. On the other hand, it’s a broad grant of power. If the Treasury Department decides that a product you use in your manufacturing or transportation business suddenly qualifies as “crude oil” under this new rule, you could face unexpected tax liabilities. The vagueness around what constitutes a “serious hazard” and “large enough commercial amounts” means we’ll need clear guidance from the Treasury to prevent arbitrary application.

The Real-World Cost Equation

So, what does this mean for you? The immediate impact is on the tar sands industry, which now faces higher tax bills. This could potentially increase federal revenue, which is a benefit to the government. However, when taxes increase on a raw material like this, those costs often get passed down the supply chain. If you rely on products derived from these sources—whether it’s gasoline for your commute or asphalt for road construction—you might eventually see a marginal increase in price. For the average person juggling rising costs, any new tax that gets baked into the price of fuel is something to watch closely.