HB1109

Regular Session

Relating to an exemption from certain motor fuel taxes for counties in this state.

ModeratePlan for compliance

Low Cost

Effective:2025-05-26

Enforcing Agencies

Texas Comptroller of Public Accounts

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

Effective Date: May 26, 2025 (Legislation enacted).
Compliance Deadline: July 1, 2025 (Operational start date). You must stop collecting state tax on sales to counties on this date. Invoices dated July 1 or later containing the tax are legally incorrect.
Agency Rulemaking: The Texas Comptroller will likely update Rule 3.432 and exemption forms (06-106) to explicitly include counties. Until then, use existing government exemption protocols.

Immediate Action Plan

1. Audit Master Data: Immediately identify all customers coded as "County Government" in your billing system.
2. Update Pricing Logic: Program your ERP to stop applying the $0.20/gallon state tax to these accounts effective 12:01 AM, July 1, 2025.
3. Request Certificates: Send a blast communication to all county clients requesting a signed Motor Fuel Tax Exemption Certificate.
4. Review Contracts: Identify fixed-price contracts and prepare addendums to lower the price by the tax amount.
5. Notify Tax Team: Ensure your tax preparers are ready to file "Credit Claims" rather than standard payments for these volumes in the next filing cycle.

Operational Changes Required

Contracts

Fixed-Price Agreements: If you have "Fixed Delivered Price" contracts with a county, you must issue an amendment reducing the price by the tax amount ($0.20/gallon) effective July 1. Failure to lower the price constitutes an illegal overcharge.
Cost-Plus Agreements: Ensure your pricing formula automatically excludes the state tax component for flagged county accounts.
Bids/RFPs: All future bids for county fuel supply must exclude state motor fuel tax from the base price.

Hiring/Training

Sales & Dispatch: Train staff to distinguish between County Governments (Exempt) and County Contractors (Taxable). A road construction firm working for the county is not eligible for this exemption.
Accounts Receivable: Staff must be prepared to reject short-payments if a county deducts tax from a pre-July 1 invoice. The exemption is not retroactive.

Reporting & Record-Keeping

Exemption Certificates: You must obtain a signed exemption certificate from every county client. Do not rely on implied status. Update your files immediately.
Tax Returns: Distributors must claim a credit on their monthly/quarterly return to the Comptroller for tax-paid fuel sold tax-free to counties.
Invoicing: Invoices must clearly separate state tax lines. For county sales, this line must read $0.00 or "Exempt."

Fees & Costs

Cash Flow Impact: Distributors will carry the float. You will pay the tax at the terminal rack and must wait to recover it via credits on your tax return after selling to the county.
System Updates: Immediate IT costs to update ERP/billing logic to flag "County" customer types as state-tax exempt (distinct from federal tax status).

Strategic Ambiguities & Considerations

Retail Point-of-Sale: The law is vague on how the exemption applies to retail pump sales (e.g., a Sheriff’s Deputy filling up at a convenience store). Standard pumps cannot verify "exclusive use."
*Guidance:* Unless you operate a cardlock system with specific fleet card logic (e.g., WEX/Voyager) that strips tax automatically, charge the tax at retail. The County must file for a refund directly with the Comptroller.
"Exclusive Use" Definition: The statute requires the fuel be for the county's "exclusive use."
*Risk:* If a county allows employees to fuel personal vehicles or fuels third-party equipment, the exemption is void.
*Guidance:* Ensure your contract language indemnifies you against tax liability if the county misuses the fuel.

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Legislative Timeline

This bill's path through the Texas Legislature

TopicsTaxation Taxation--motor Fuels County Government County Government--general Comptroller of Public Accounts

Official Analysis

View HRO Analysis View All Bill Documents

BILL ANALYSIS

H.B. 1109

By: VanDeaver

Ways & Means

Committee Report (Unamended)

BACKGROUND AND PURPOSE

Currently, state law provides motor fuel tax exemptions for various governmental and nonprofit entities, such as public school districts, volunteer fire departments, and nonprofit food banks. However, fuel sold to counties in Texas for the county's exclusive use is not included in this exemption, forcing counties to pay taxes on gasoline and diesel fuel used for official operations. This places a financial burden on counties, which rely on fuel for essential services such as law enforcement, road maintenance, and emergency response. H.B. 1109 seeks to address this issue by exempting counties from state motor fuel taxes on gasoline and diesel fuel purchased for the county's exclusive use.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

H.B. 1109 amends the Tax Code to exempt gasoline and diesel fuel sold to a county in Texas for the county's exclusive use from the applicable motor fuel tax. The bill authorizes the holder of an applicable license to take a credit on a return for the period in which a sale occurred for which the license holder paid tax on the purchase of gasoline or diesel fuel and subsequently resold the motor fuel without collecting the applicable tax to a county in Texas for the county's exclusive use. The bill entitles a county exempt from the gasoline tax or diesel fuel tax to a refund of any such tax paid and authorizes the county to file a refund claim with the comptroller of public accounts for that amount.

H.B. 1109 expressly does not affect tax liability accruing before the bill's effective date. That liability continues in effect as if the bill had not been enacted, and the former law is continued in effect for the collection of taxes due for civil and criminal enforcement of the liability of those taxes.

EFFECTIVE DATE

July 1, 2025, or, if the bill does not receive the necessary vote, September 1, 2025.

House Authors

Rep. Gary VandeaverRepublican · Primary Author

Joint Authors

Senate Sponsors

Sen. Bob HallRepublican · Primary Sponsor

Cosponsors (2)

Bill Text(with markup)

H.B. No. 1109

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

	AN ACT
	relating to an exemption from certain motor fuel taxes for counties
	in this state.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1. Section 162.104(a), Tax Code, is amended to read
	as follows:
	(a) The tax imposed by this subchapter does not apply to
	gasoline:
	(1) sold to the United States for its exclusive use,
	provided that the exemption does not apply with respect to fuel sold
	or delivered to a person operating under a contract with the United
	States;
	(2) sold to a public school district in this state for
	the district's exclusive use;
	(2-a) sold to a county in this state for the county's
	exclusive use;
	(3) sold to a commercial transportation company or a
	metropolitan rapid transit authority operating under Chapter 451,
	Transportation Code, that provides public school transportation
	services to a school district under Section 34.008, Education Code,
	and that uses the gasoline only to provide those services;
	(4) exported by either a licensed supplier or a
	licensed exporter from this state to any other state, provided that
	the bill of lading indicates the destination state and the supplier
	collects the destination state tax;
	(5) moved by truck or railcar between licensed
	suppliers or licensed permissive suppliers and in which the
	gasoline removed from the first terminal comes to rest in the second
	terminal, provided that the removal from the second terminal rack
	is subject to the tax imposed by this subchapter;
	(6) delivered or sold into a storage facility of a
	licensed aviation fuel dealer from which gasoline will be delivered
	solely into the fuel supply tanks of aircraft or aircraft servicing
	equipment, or sold from one licensed aviation fuel dealer to
	another licensed aviation fuel dealer who will deliver the aviation
	fuel exclusively into the fuel supply tanks of aircraft or aircraft
	servicing equipment;
	(7) exported to a foreign country if the bill of lading
	or shipping documents indicate the foreign destination and the fuel
	is actually exported to the foreign country;
	(8) sold to a volunteer fire department in this state
	for the department's exclusive use;
	(9) sold to a nonprofit entity that is organized for
	the sole purpose of and engages exclusively in providing emergency
	medical services and that uses the gasoline exclusively to provide
	emergency medical services, including rescue and ambulance
	services; or
	(10) sold to a nonprofit food bank and delivered into:
	(A) the fuel supply tank of a motor vehicle with a
	gross vehicle weight rating of at least 25,000 pounds that is owned
	by the nonprofit food bank and used to deliver food; or
	(B) a storage facility from which gasoline will
	be delivered solely into the fuel supply tanks of motor vehicles
	described by Paragraph (A).
	SECTION 2. Section 162.125, Tax Code, is amended by
	amending Subsection (a) and adding Subsection (g-3) to read as
	follows:
	(a) A license holder may take a credit on a return for the
	period in which the sale occurred if the license holder paid tax on
	the purchase of gasoline and subsequently resells the gasoline
	without collecting the tax to:
	(1) the United States government for its exclusive
	use, provided that a credit is not allowed for gasoline used by a
	person operating under contract with the United States;
	(2) a public school district in this state for the
	district's exclusive use;
	(2-a) a county in this state for the county's exclusive
	use;
	(3) an exporter licensed under this subchapter if the
	seller is a licensed supplier or distributor and the exporter
	subsequently exports the gasoline to another state;
	(4) a licensed aviation fuel dealer if the seller is a
	licensed distributor;
	(5) a commercial transportation company or a
	metropolitan rapid transit authority operating under Chapter 451,
	Transportation Code, that provides public school transportation
	services to a school district under Section 34.008, Education Code,
	and that uses the gasoline exclusively to provide those services;
	or
	(6) a nonprofit food bank that delivers or will
	deliver the gasoline into the fuel supply tank of a motor vehicle
	with a gross vehicle weight rating of at least 25,000 pounds that is
	owned by the nonprofit food bank and used to deliver food.
	(g-3) A county exempt from the tax imposed under this
	subchapter that paid tax on the purchase of gasoline is entitled to
	a refund of the tax paid, and the county may file a refund claim with
	the comptroller for that amount.
	SECTION 3. Section 162.204(a), Tax Code, is amended to read
	as follows:
	(a) The tax imposed by this subchapter does not apply to:
	(1) diesel fuel sold to the United States for its
	exclusive use, provided that the exemption does not apply to diesel
	fuel sold or delivered to a person operating under a contract with
	the United States;
	(2) diesel fuel sold to a public school district in
	this state for the district's exclusive use;
	(2-a) diesel fuel sold to a county in this state for
	the county's exclusive use;
	(3) diesel fuel sold to a commercial transportation
	company or a metropolitan rapid transit authority operating under
	Chapter 451, Transportation Code, that provides public school
	transportation services to a school district under Section 34.008,
	Education Code, and that uses the diesel fuel only to provide those
	services;
	(4) diesel fuel exported by either a licensed supplier
	or a licensed exporter from this state to any other state, provided
	that the bill of lading indicates the destination state and the
	supplier collects the destination state tax;
	(5) diesel fuel moved by truck or railcar between
	licensed suppliers or licensed permissive suppliers and in which
	the diesel fuel removed from the first terminal comes to rest in the
	second terminal, provided that the removal from the second terminal
	rack is subject to the tax imposed by this subchapter;
	(6) diesel fuel delivered or sold into a storage
	facility of a licensed aviation fuel dealer from which the diesel
	fuel will be delivered solely into the fuel supply tanks of aircraft
	or aircraft servicing equipment, or sold from one licensed aviation
	fuel dealer to another licensed aviation fuel dealer who will
	deliver the diesel fuel exclusively into the fuel supply tanks of
	aircraft or aircraft servicing equipment;
	(7) diesel fuel exported to a foreign country if the
	bill of lading or shipping documents indicate the foreign
	destination and the fuel is actually exported to the foreign
	country;
	(8) dyed diesel fuel sold or delivered by a supplier to
	another supplier and dyed diesel fuel sold or delivered by a
	supplier or distributor into the bulk storage facility of a dyed
	diesel fuel bonded user or to a purchaser who provides a signed
	statement as provided by Section 162.206;
	(9) the volume of water, fuel ethanol, renewable
	diesel, biodiesel, or mixtures thereof that are blended together
	with taxable diesel fuel when the finished product sold or used is
	clearly identified on the retail pump, storage tank, and sales
	invoice as a combination of diesel fuel and water, fuel ethanol,
	renewable diesel, biodiesel, or mixtures thereof;
	(10) dyed diesel fuel sold by a supplier or permissive
	supplier to a distributor, or by a distributor to another
	distributor;
	(11) dyed diesel fuel delivered by a license holder
	into the fuel supply tanks of railway engines, motorboats, or
	refrigeration units or other stationary equipment powered by a
	separate motor from a separate fuel supply tank;
	(12) dyed kerosene when delivered by a supplier,
	distributor, or importer into a storage facility at a retail
	business from which all deliveries are exclusively for heating,
	cooking, lighting, or similar nonhighway use;
	(13) diesel fuel used by a person, other than a
	political subdivision, who owns, controls, operates, or manages a
	commercial motor vehicle as defined by Section 548.001,
	Transportation Code, if the fuel:
	(A) is delivered exclusively into the fuel supply
	tank of the commercial motor vehicle; and
	(B) is used exclusively to transport passengers
	for compensation or hire between points in this state on a fixed
	route or schedule;
	(14) diesel fuel sold to a volunteer fire department
	in this state for the department's exclusive use;
	(15) diesel fuel sold to a nonprofit entity that is
	organized for the sole purpose of and engages exclusively in
	providing emergency medical services and that uses the diesel fuel
	exclusively to provide emergency medical services, including
	rescue and ambulance services; or
	(16) diesel fuel sold to a nonprofit food bank and
	delivered into:
	(A) the fuel supply tank of a motor vehicle with a
	gross vehicle weight rating of at least 25,000 pounds that is owned
	by the nonprofit food bank and used to deliver food; or
	(B) a storage facility from which diesel fuel
	will be delivered solely into the fuel supply tanks of motor
	vehicles described by Paragraph (A).
	SECTION 4. Section 162.227, Tax Code, is amended by
	amending Subsection (a) and adding Subsection (f-3) to read as
	follows:
	(a) A license holder may take a credit on a return for the
	period in which the sale occurred if the license holder paid tax on
	the purchase of diesel fuel and subsequently resells the diesel
	fuel without collecting the tax to:
	(1) the United States government for its exclusive
	use, provided that a credit is not allowed for gasoline used by a
	person operating under a contract with the United States;
	(2) a public school district in this state for the
	district's exclusive use;
	(2-a) a county in this state for the county's exclusive
	use;
	(3) an exporter licensed under this subchapter if the
	seller is a licensed supplier or distributor and the exporter
	subsequently exports the diesel fuel to another state;
	(4) a licensed aviation fuel dealer if the seller is a
	licensed distributor;
	(5) a commercial transportation company or a
	metropolitan rapid transit authority operating under Chapter 451,
	Transportation Code, that provides public school transportation
	services to a school district under Section 34.008, Education Code,
	and that uses the diesel fuel exclusively to provide those
	services; or
	(6) a nonprofit food bank that delivers or will
	deliver the diesel fuel into the fuel supply tank of a motor vehicle
	with a gross vehicle weight rating of at least 25,000 pounds that is
	owned by the nonprofit food bank and used to deliver food.
	(f-3) A county exempt from the tax imposed under this
	subchapter that paid tax on the purchase of diesel fuel is entitled
	to a refund of the tax paid, and the county may file a refund claim
	with the comptroller for that amount.
	SECTION 5. The changes in law made by this Act do not affect
	tax liability accruing before the effective date of this Act. That
	liability continues in effect as if this Act had not been enacted,
	and the former law is continued in effect for the collection of
	taxes due and for civil and criminal enforcement of the liability of
	those taxes.
	SECTION 6. This Act takes effect July 1, 2025, if it
	receives a vote of two-thirds of all the members elected to each
	house, as provided by Section 39, Article III, Texas Constitution.
	If this Act does not receive the vote necessary for effect on that
	date, this Act takes effect September 1, 2025.

LEGISLATIVE BUDGET BOARD
Austin, Texas

FISCAL NOTE, 89TH LEGISLATIVE REGULAR SESSION


March 14, 2025

TO:	Honorable Morgan Meyer, Chair, House Committee on Ways & Means

FROM:	Jerry McGinty, Director, Legislative Budget Board

IN RE:	HB1109 by VanDeaver (Relating to an exemption from certain motor fuel taxes for counties in this state.), As Introduced

Estimated Two-year Net Impact to General Revenue Related Funds for HB1109, As Introduced: a negative impact of ($2,293,000) through the biennium ending August 31, 2027, if the effective date of the bill is July 1, 2025; or a negative impact of ($2,104,000) through the biennium ending August 31, 2027, if the effective date of the bill is September 1, 2025.

All Funds, Five-Year Impact:

Fiscal Year	Probable Revenue (Loss) from General Revenue Fund 1	Probable Revenue (Loss) from Available School Fund 2	Probable Revenue (Loss) from State Highway Fund 6
2026	($89,000)	($1,046,000)	($3,139,000)
2027	($91,000)	($1,067,000)	($3,202,000)
2028	($93,000)	($1,089,000)	($3,266,000)
2029	($95,000)	($1,110,000)	($3,331,000)
2030	($97,000)	($1,132,000)	($3,397,000)

The above table assumes an effective date of July 1, 2025. The table below assumes an effective date of September 1, 2025.

All Funds, Five-Year Impact:

Fiscal Year	Probable Revenue (Loss) from General Revenue Fund 1	Probable Revenue (Loss) from Available School Fund 2	Probable Revenue (Loss) from State Highway Fund 6
2026	($74,000)	($872,000)	($2,616,000)
2027	($91,000)	($1,067,000)	($3,202,000)
2028	($93,000)	($1,089,000)	($3,266,000)
2029	($95,000)	($1,110,000)	($3,331,000)
2030	($97,000)	($1,132,000)	($3,397,000)

Fiscal Analysis

The bill would amend Chapter 162 of the Tax Code (Motor Fuels). Gasoline sales to counties for a county's exclusive use would be exempted from taxation. Conforming changes are made for diesel fuel.

The bill would allow counties to request a refund or take a credit on gasoline tax for fuel that had been purchased and used for its exclusive use. Conforming changes are made for diesel fuel.

The bill would take effect July 1, 2025, assuming it received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, it would take effect September 1, 2025.

Methodology

To estimate the exemption value, data on the number of county-owned and operated vehicles was obtained from the Texas Department of Motor Vehicles. The current number of registered vehicles owned and operated by Texas counties is 23,966. Of this number, 23,816 vehicles have internal combustion engines that use gasoline or diesel fuel. Around 65 percent of these 23,816 vehicles are comprised of sport utility vehicles, trucks (light, medium, and heavy), and buses. Information from the Comptroller's State of the Fleet Report 2025 indicates a very similar percent of internal combustion vehicles in this vehicle type.

The average vehicle in the state fleet consumes approximately 880 gallons of fuel per year. Given that the over 60 percent of the internal combustion vehicles in both the state and county fleets are composed of sport utility vehicles, trucks (light, medium, and heavy), and buses, it is assumed that the average annual motor fuel consumption per vehicle of the county fleet is the same as that of the state fleet. Therefore, it is estimated the current total county vehicle consumption is approximately 20.95 million gallons of motor fuel and, at 20 cents tax per gallon, yields $4.2 million in state motor fuel taxes, which amount would be expected to increase gradually in subsequent years.

Local Government Impact

Under current law, several public entities receive an exemption from the payment of gasoline and diesel fuel taxes. This bill would add counties to the list of entities that are exempted from the payment of such taxes and are entitled to file refund claims on the taxes paid for motor fuel that is exclusively used in their operations, resulting in reduced costs for counties.

Source Agencies:

304 Comptroller of Public Accounts

LBB Staff:

JMc, KK, SD

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Frequently Asked Questions

Common questions about HB1109

What does Texas HB1109 do?

Effective July 1, 2025, Texas counties are exempt from the $0. 20/gallon state motor fuel tax for gasoline and diesel used for exclusive county purposes. Fuel distributors and suppliers must immediately reconfigure billing systems to cease tax collection on these accounts; failure to do so will result in overcharges, contract disputes, and significant administrative burdens to issue retroactive credits.

Who authored HB1109?

HB1109 was authored by Texas Representative Gary Vandeaver during the Regular Session.

When was HB1109 signed into law?

HB1109 was signed into law by Governor Greg Abbott on May 26, 2025.

Which agencies enforce HB1109?

HB1109 is enforced by Texas Comptroller of Public Accounts.

How urgent is compliance with HB1109?

The compliance urgency for HB1109 is rated as "moderate". Businesses and organizations should review the requirements and timeline to ensure timely compliance.

What is the cost impact of HB1109?

The cost impact of HB1109 is estimated as "low". This may vary based on industry and implementation requirements.

What topics does HB1109 address?

HB1109 addresses topics including taxation, taxation--motor fuels, county government, county government--general and comptroller of public accounts.

Legislative data provided by LegiScanLast updated: November 25, 2025

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