Airgas Northeast, Inc. ("Northeast") manufactures and distributes industrial, medical and specialty gases, including oxygen, argon, nitrogen, helium and acetylene. These gases must be contained within metal tanks or cylinders.
For large users, the gases are often delivered into bulk tanks or tube trailers and stored in a liquid state. For the majority of Northeast’s customers, however, the gases are provided in smaller cylinders in a compressed gaseous form.
The prices charged for Northeast’s gas products are established and invoiced without regard to the ownership of the tank or cylinder. Northeast’s customers own approximately 5% of the tanks and cylinders, which the customers purchase outright from either Northeast or other unrelated suppliers.
The remainder of the tanks and cylinders are owned by Northeast, and rented or leased to customers in one of three ways:
The majority of Northeast’s customers are invoiced and pay a fee for each cylinder for each day it is in the customer’s possession.
Approximately 30% of Northeast’s cylinders are leased to customers under long-term lease agreements. Under the long-term leases, the customers pay in advance for the use of a specific number of cylinders for a definite period of time (generally one year). The long-term lease customers are under no obligation to purchase Northeast’s gas products.
A small percentage of Northeast’s customers are billed a flat fee per cylinder for the number of cylinders in their possession on the 25th day of each month.
Northeast separately invoices its customers for tank and cylinder rentals and related costs (such as cylinder delivery charges) on a monthly basis. It does not typically charge demurrage, or late fees, for tanks or cylinders, and does not loan tanks or cylinders to customers free of charge.
Whether Northeast may purchase the tanks and cylinders it sells, rents or leases to its customers without tax, on a resale basis, under Conn. Gen. Stat. §12-407(3).
The definitions of "sale" and "selling" in Conn. Gen. Stat. §12-407(2) include, for purposes of sales and use taxes, "(a) [a]ny transfer of title . . . of tangible personal property for a consideration . . ." and "(j) the leasing or rental of tangible personal property of any kind whatsoever. . . ."
Retail sales of tangible personal property are subject to sales tax under Conn. Gen. Stat. §12-408(1), and purchases of tangible personal property "from any retailer for consumption or use in this state" are subject to use tax under §12-411(1). "Retailer" is defined in §12-407(12)(A) to include "every person engaged in the business of making sales at retail. . . ." A "sale at retail" is defined in pertinent part in §12-407(3) as "a sale for any purpose other than resale in the regular course of business of tangible personal property. . . ." (Emphasis added.) Under §12-410(1) and §12-411(9), all sales are presumed to be subject to sales or use tax until the contrary is established, and the burden of proving that a sale is for resale in the regular course of business is on the person making the sale, unless that person takes a resale certificate from the purchaser.
If Northeast is found to be a seller of tanks and cylinders in the regular course of its business, it may purchase empty tanks and cylinders on a resale basis from its vendors and charge 6% sales and use taxes on the tanks when it sells, leases or rents them to its customers (unless such sales qualify for a full or partial exemption).
The Connecticut Superior Court examined facts involving a retailer of gas products similar to Northeast in the case of Harsco Corporation v. Groppo, Conn. Super. Ct. No. 302579 (November 25, 1987). The plaintiff Harsco Corporation ("Harsco") was in the business of leasing empty gas tanks or cylinders to retailers of gas products. (The memorandum of decision uses the words "tank" and "cylinder" interchangeably.) The court held that the gas retailer to which Harsco leased empty tanks was not entitled to lease the tanks on resale and release them to its customers. The court concluded that the gas retailer’s "dominant purpose in leasing the tanks [as lessee] was for recurring use in marketing its gases."
The Department has followed the holding in Harsco. However, the Harsco court based its conclusion on facts that differ significantly from those presented here by Northeast. First, the court stated in its recitation of facts that Aero All-Gas Company ("Aero"), the gas retailer to which Harsco leased its cylinders, "neither sells nor leases the cylinders to its customers. They are returnable to Aero but it assesses a demurrage charge for each day the cylinders are held beyond a certain period of time."
Accepting the facts as Northeast has presented them, we must conclude that Northeast clearly does not do business the way Harsco’s customer Aero did, and that the Harsco holding does not apply here. Unlike Aero, Northeast does indeed sell, lease or rent tanks and cylinders to its customers, and can prove that it does so by separate invoices for its outright sales of tanks and cylinders, separate billings for rentals, and in some cases by separate cylinder lease contracts. Northeast does not loan cylinders free of charge, as Aero did, nor does it typically charge demurrage or late fees for the use of tanks and cylinders.
The declaratory ruling petition does not state where Northeast buys its tanks and cylinders, but we assume that it purchases them on a resale basis without payment of tax, and that it properly documents those purchases by presenting resale certificates to the vendors. Nothing in the facts suggests that the vendors prohibit Northeast from reselling the cylinders it purchases from them. In contrast to Aero, then, Northeast appears to be in the business of both selling gas products and selling, leasing and renting gas tanks and cylinders.
Northeast may purchase the tanks and cylinders it sells, rents or leases to its customers without tax, on a resale basis, because Northeast sells, rents or leases the tanks and cylinders to its customers separately from the sales of its gas products.