How Fuel Tax Credits Work in Kentucky

Oct. 16, 2025, 4:45 p.m.
Here’s a breakdown of how fuel tax credits / refunds and related fuel taxation rules work (or can work) in Kentucky, especially for trucking / motor carriers. (Note: much depends on the vehicle type, use, and whether the carrier is under IFTA or Kentucky’s own mileage/weight system.)
How Fuel Tax Credits Work in Kentucky

Key Fuel-Tax Regimes in Kentucky for Trucking

First, it helps to understand the main fuel tax / road usage tax systems under which a carrier might operate in Kentucky:

Program / Regime Description Applicability to Trucking / Carriers
Kentucky KYU (Weight-Distance Tax / Highway Use Tax) Kentucky’s “weight-distance” tax on vehicles above certain weight thresholds, based on miles traveled in Kentucky. Carriers whose vehicles exceed certain weight thresholds (e.g. combined license weight over 59,999 lb) and who travel on Kentucky roads must obtain a KYU license and file quarterly returns.  
IFTA (International Fuel Tax Agreement) Interstate system under which carriers in multiple states report fuel use vs miles traveled; fuel taxes paid in one jurisdiction are credited or balanced across jurisdictions.   If a carrier operates in multiple states (including Kentucky), it will often be an IFTA licensee and file IFTA reports including for Kentucky.  
Fuel tax credit / refund (for certain non-road uses / power take-off / special equipment) Under Kentucky law (and its administrative regulations), there are provisions allowing refunds or credits when fuel is used for certain purposes (e.g. power-take-off, off-highway, or special equipment) rather than purely propulsion on public highways.   Carriers or licensees may be eligible to claim refunds (or credits) in limited cases, subject to rules and time limits.

How Fuel Tax Credits / Refunds Work in Kentucky

Below is how the credit/refund side works, the requirements, limitations, and practical steps.

Legal Authority & Regulation

  • Kentucky’s administrative regulation 601 KAR 1:200 (Administration of taxes imposed under KRS relating to motor fuel) includes provisions on Fuel Tax Refunds or Credits.  

  • Under that rule:

    1. A fuel tax licensee (i.e. someone holding a fuel tax license in Kentucky) may carry forward a motor fuel tax credit for up to eight quarters. 

    2. A refund request must be made in writing, stating the reason the refund is claimed.  

    3. A full credit is allowed to IFTA or KIT licensees for tax-paid fuel purchases placed in a qualified motor vehicle.  

    4. Any excess fuel tax paid (i.e. more paid than required) may be credited to liabilities in other jurisdictions or to the licensee’s account ledger.  

    5. There is a specific refund provision (within two quarters) for fuel used in power take-off (PTO) equipment or similar non-propulsion devices (e.g. mixers, pumps, load lifts, refrigeration units) under certain conditions. That is, if fuel taxed under the statute was used for those special non-highway uses, a refund may be claimed via Form TC 95-214. 

Eligibility & What’s Refundable

To qualify for the refund / credit, the fuel and its usage must satisfy certain conditions:

  1. Licensee status: You must be a fuel tax licensee (or KYU licensee, IFTA licensee) in Kentucky. 

  2. Non-propulsion / special use: The refund is not generally for regular highway driving. Rather, it is for fuel used to power non-propulsion equipment (PTO, refrigeration, pumps, mixers) or otherwise non-highway uses.  

  3. Same tank / same vehicle: The fuel must come from the same tank permanently attached to the power unit of the qualified motor vehicle and used in that vehicle.  

  4. Time limit: Claims for these refunds must be made within two quarters (i.e. within half a year) of the quarter when the fuel was used.  

  5. Offset / credit cross-jurisdiction: If you are an IFTA licensee, excess tax paid in Kentucky (beyond your Kentucky liability) may be credited against other states’ liabilities or held in your “account ledger” under IFTA rules. 

  6. Recordkeeping & documentation: You must maintain sufficient records — fuel purchase invoices, dates, quantities, use, etc. If audited, you must substantiate the claim 

  7. No refund unless liabilities satisfied: For IFTA licensees requesting refunds, you must be up to date with all fuel tax liabilities (including any audit assessments) across all jurisdictions before a refund is paid.  

Carryforward & Refund Timing

  • As noted, fuel tax credits (i.e. overpayments) can be carried forward for up to eight (8) quarters. If not used within that window, the credit may be forfeited.  

  • If a refund is approved for a licensee, the Kentucky Transportation Cabinet must pay it within 90 days of receiving a valid written request for payment. 

Example Scenario: PTO / Refrigeration Unit

Suppose a trucking company buys diesel fuel and uses part of that fuel to power a refrigeration unit (a “reefer”) on the truck, or a hydraulic pump (PTO). The portion of fuel used solely for that non-propulsion equipment might qualify for refund under the special provision (if the other eligibility criteria are met). The carrier would file Form TC 95-214 (Kentucky’s Application for Fuel Tax Refund for Use of Power Take-Off Equipment) within two quarters of use, and if approved, receive the refund (or credit).  

Interaction with KYU / Weight-Distance Tax

It’s important to note that KYU (Kentucky's weight-distance / highway use tax) is a separate tax regime. It is not exactly a “fuel tax credit,” but a mileage/weight-based tax imposed on heavy vehicles traveling in Kentucky.  

Thus:

  • Buying fuel in Kentucky (or elsewhere) does not by itself reduce your KYU liability.

  • The fuel tax credits/refunds are tied to fuel tax statutes (i.e. the motor fuel excise / highway fuel tax) and special usage, not the weight-distance tax.

  • Some carriers comment that “fuel does not come into the equation” for KYU in terms of offsetting the mileage/weight tax. (i.e., paying more fuel tax doesn’t reduce the weight-distance tax).  

So if you are a heavy interstate carrier passing through Kentucky, you’ll likely need to engage with both IFTA fuel tax reporting and KYU weight-distance filings, depending on your fleet. 

Practical Steps / Best Practices for Carriers

  1. Register for the appropriate licenses

    • If operating heavy trucks in Kentucky, get a KYU license (if subject to weight-distance) via Kentucky’s motor carrier portal.  

    • If operating interstate across states, obtain an IFTA license to streamline fuel tax reporting. 

  2. Maintain detailed fuel records

    • Invoices (date, gallons, supplier, price)

    • Records showing which portion of fuel use was for non-highway / non-propulsion (e.g. refrigeration, pumps, hydraulic lifts)

    • Records to link fuel use to the specific vehicle/tank

  3. Quarterly filings / reports

    • File quarterly KYU weight-distance / highway use returns, even if miles traveled are zero, to avoid penalties.  

    • File IFTA quarterly fuel use returns if applicable, allocating miles & fuel to jurisdictions including Kentucky. 

  4. Monitor and claim credits/refunds

    • If you have fuel used in special equipment, compute the eligible portion and file within two quarters via the correct refund form (e.g. TC 95-214 in Kentucky)  

    • If you overpaid fuel taxes in Kentucky relative to your Kentucky liability, carry forward the credit or apply it to other jurisdictions (as allowed)  

    • Submit refund requests in writing with proper documentation. 

  5. Stay compliant & timely

    • Refunds must be approved and paid within 90 days of a valid request.  

    • If you fail to file, misreport, or fail to maintain records, you may be assessed additional taxes, interest, or penalties. 

    • Credits not used within 8 quarters might expire.