Ruling 2005-5, Petroleum Products Gross Earnings Tax/Biodiesel Fuel
FACTS:
A company doing business in Connecticut will sell a blend of pure biodiesel and petroleum diesel. The blended mixture will be 5% by volume pure biodiesel and 95% by volume petroleum diesel, and will be suitable for use as a motor vehicle fuel in most diesel-burning motor vehicles with little or no engine modification required.
The company also will sell a blend of pure biodiesel and the product commonly known as number 2 heating oil. The blended mixture will be 5% by volume pure biodiesel and 95% by volume number 2 heating oil, and will be suitable to be used for heating purposes.
The Code of Federal Regulations defines pure biodiesel as a nontoxic, biodegradable product made from the oils and fats of plants and animals. 7 C.F.R. §1424.3. Pure biodiesel is intended as a replacement for or additive to petroleum diesel fuel or number 2 heating oil. It burns cleaner and is safer to handle and store than petroleum diesel fuel or number 2 heating oil.
ISSUES:
Are the gross earnings from the first sale within Connecticut of the blend of predominantly petroleum diesel with a minimal amount of biodiesel subject to the petroleum products gross earnings tax, where the blended fuel is to be used for motor vehicle fuel?
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Are the gross earnings from the first sale within Connecticut of the blend of predominantly number 2 heating oil with a minimal amount of biodiesel subject to the petroleum products gross earnings tax, where the blended fuel is to be used exclusively for heating purposes?
RULING:
The gross earnings from the first sale within Connecticut of blended motor vehicle fuel are subject to tax where the product, by volume, is predominantly petroleum diesel with a minimal amount of pure biodiesel.
The gross earnings from the first sale within Connecticut of blended heating oil are not subject to the petroleum products gross earnings tax where the blended fuel is to be used exclusively for heating purposes, and the product, by volume, is predominantly number 2 heating oil with a minimal amount of pure biodiesel.
DISCUSSION:
The petroleum products gross earnings tax is imposed on gross earnings from the first sale in Connecticut of petroleum products. Conn. Gen. Stat. §12-587, et seq.
Products that contain or are made from petroleum or a petroleum derivative are “petroleum products.” Conn. Gen. Stat. §12-587(a)(4). Therefore, petroleum diesel is a petroleum product for purposes of the tax.
Biodiesel neither contains nor is made from petroleum or a petroleum derivative; pure biodiesel is made from the oils and fats of plants and animals. See Ruling No. 2003-1. Therefore, pure biodiesel is not a “petroleum product” as defined in Conn. Gen. Stat. §12-587(a)(4).
The gross earnings from the first sale in Connecticut of certain products described in Conn. Gen. Stat. §12-587(b)(2) are exempt from the tax. For example, the gross earnings from the first sale of number 2 heating oil to be used exclusively for heating purposes are exempt from the petroleum products gross earnings tax. Conn. Gen. Stat. §12-587(b)(2)(B).
Because the blended motor vehicle fuel at issue here contains only a minimal amount of pure biodiesel, the blend of biodiesel and petroleum diesel is a petroleum product for purposes of the petroleum products gross earnings tax. Accordingly, the gross earnings from the first sale of the blend of biodiesel and petroleum diesel motor vehicle fuel are subject to the petroleum products gross earnings tax.
In contrast, the blended heating oil is composed predominantly of number 2 heating oil, the gross earnings from the first sale of which are exempt from the tax. The remainder, a minimal amount, is pure biodiesel, a non-petroleum product. A product, consisting predominantly of blended heating oil with only a minimal amount of biodiesel will qualify for the exemption for number 2 heating oil to be used exclusively for heating purposes as provided in Conn. Gen. Stat. §12-587(b)(2). Accordingly, the gross earnings from the first sale of blended heating oil to be used exclusively for heating purposes are not subject to the petroleum products gross earnings tax.
LEGAL DIVISION
December 22, 2005