1.5% diesel surcharge on the rental of excavation or other off-road diesel equipment in Texas:
The 1.5% surcharge is separate from Texas sales tax.
Texas imposes a 1.5% Texas Emissions Reduction Plan (TERP) surcharge on the sale, lease, or rental of qualifying off-road heavy-duty diesel equipment (generally 50+ horsepower). The surcharge is in addition to sales tax, not a substitute for it.
For example, if a contractor rents a qualifying excavator for $10,000:
- Rental charge: $10,000
- Texas sales tax (assuming 8.25%): $825
- TERP surcharge (1.5%): $150
- Total: $10,975
The surcharge is calculated on the rental amount and collected separately from sales tax.
If instead you’re asking about a fuel surcharge (e.g., a line item labeled “diesel surcharge” or “fuel surcharge” on an invoice), the answer depends on the underlying transaction. In Texas, charges related to a taxable sale are generally taxable even when separately stated.
If you have an invoice example (e.g., excavator rental + 1.5% diesel surcharge), I can tell you exactly whether:
How the invoice should be reported in an audit.
Sales tax applies to the surcharge itself,
The TERP surcharge applies, and
Need Help with a Texas Sales Tax Audit?
If your business has been assessed additional tax on diesel surcharges, fuel surcharges, equipment rentals, or construction-related transactions, a Texas sales tax attorney can review the audit and determine whether the assessment is correct.
Ansari Law Firm represents businesses in Texas sales tax audits, redeterminations, and administrative hearings.