Most states and the U.S. federal government tax LNG and compressed natural gas, says the ATA's State Laws Newsletter. Some states, and most of the Canadian provinces, don't tax either one, or tax one but not the other.
Because these fuels have not been widely used on the highway, there is probably little or nothing in the way of administrative apparatus - reporting forms, rules, taxpayer guidance, and so forth - to allow fuel taxes on gaseous fuels to be collected efficiently.
In addition, says the newsletter, there are a number of special problems connected with LNG and CNG: What's the point of taxation going to be in practice? How will fuel transport - most of it, in the absence of pipelines, by truck - going to be regulated? Will the tax rates on LNG and CNG reflect the energy content of those fuels, both of which contain fewer BTUs than diesel? What's a gallon of CNG? And because heavy trucks using LNG will also be using small amounts of diesel, how will the International Fuel Tax Agreement handle reporting of that use?