Ruling 94-16, Petroleum Products Gross Earnings Tax

FACTS:

A company (the "Company") is engaged in the sale and distribution of propane to locations in Connecticut. It purchases the propane from a distributor (the "Distributor") that sells only natural gas propane. The Distributor distributes its product through a system in which the natural gas propane is mingled with petroleum gas propane from other producers and distributors before the propane gas reaches Connecticut. Approximately 70 percent of the gas delivered through the system to the Company is natural gas propane, with the remainder being petroleum gas propane.

ISSUE:

Whether any part of the gross earnings of the Company from its distribution in Connecticut of propane gas which contains intermingled petroleum gas propane and natural gas propane must be included in the measure of Petroleum Products Gross Earnings Tax under Conn. Gen. Stat. §12-587.

DISCUSSION:

Conn. Gen. Stat. §12-587 defines "petroleum products" as those products which contain or are made from petroleum or a petroleum derivative. Conn. Agencies Regs. §12-602-1a(b) elaborates on that definition by stating that the term means "refined products made from crude petroleum and its fractionation products, through straight distillation of crude oil or through redistillation of unfinished petroleum derivatives," and provides a list of petroleum products that is drawn from Major Group 29, Industry No. 2911 of the Standard Industrial Classification Manual of 1972. Thus, because petroleum gas propane is included in this list as a "petroleum product," it is taxable as such.

Natural gas propane, on the other hand, is not included in the definition of "petroleum product." It is not made from either petroleum or a petroleum derivative (in fact, it is found under a completely different major group in the Standard Industrial Classification Manual (Major Group 13)). Thus, natural gas propane is not taxable under the Petroleum Products Gross Earnings Tax.

A problem arises where, as here, petroleum gas propane and natural gas propane are intermingled, whether during their transportation or during storage. In such cases, the components may no longer be distinguished from each other, nor is the distinction generally of importance to the person using the propane gas (except under Conn. Gen. Stat. § 12-587(c) for a company purchasing $100,000 or more of petroleum products during a quarterly period).

However, because the Petroleum Products Gross Earnings Tax is imposed only on gross earnings from the distribution in this state of "petroleum products" as defined in Conn. Stat. §12-587 and Conn. Agencies Regs. §12-602-1a(b), only the portion of the gross earnings of the Company from its sale and distribution of propane gas which is derived from petroleum gas is taxable.

RULING:

To the extent that the Company can establish to the satisfaction of the Commissioner the percentage of propane gas distributed by it that is natural gas propane, by maintaining written documentation of the extent to which the source of the propane is natural gas, the Company may exclude that percentage of its gross earnings from the distribution of the propane gas from the Petroleum Products Gross Earnings Tax, even though the natural gas propane may have become mingled with petroleum gas propane in the distribution system.

LEGAL DIVISION

Issued: August 3, 1994