Ruling 99-2, Petroleum Products Gross Earnings Tax / Fuel Used Exclusively for Heating Purposes
FACTS:
A company which is engaged in the refining or distribution, or both, of petroleum products and which distributes such products in this state makes the first sale of the petroleum product commonly known as number 2 heating oil within this state to a person which is engaged in the business of generating and then selling steam and delivering it to its customers through pipes. The person heats the water that generates the steam by the combustion of the number 2 heating oil. The person’s customers use the steam to heat their own buildings.
ISSUE:
When a company which is engaged in the refining or distribution, or both, of petroleum products and which distributes such products in this state makes the first sale of number 2 heating oil within this state to a person that will combust the number 2 heating oil to heat water that will generate steam, which steam will be delivered by the person to the person’s customers through pipes and will be used by the customers to heat their buildings, is the number 2 heating oil used exclusively for heating purposes?
DISCUSSION:
Conn. Gen. Stat. §12-587(b)(1) provides that, except as otherwise provided in Conn. Gen. Stat. §12-587(b)(2), "any company which is engaged in the refining or distribution, or both, of petroleum products and which distributes such products in this state shall pay a quarterly tax on its gross earnings derived from the first sale of petroleum products within this state." Not all gross earnings derived from the first sale of petroleum products within this state are subject to the petroleum products gross earnings tax. For example, "[g]ross earnings derived from the first sale of the following petroleum products within this state shall be exempt from tax: ... (B) the product designated by the American Society for Testing and Materials as ‘specification for heating oil D396-69’, commonly known as number 2 heating oil, to be used exclusively for heating purposes ..." Conn. Gen. Stat. §12-587(b)(2). (endnote 1)
The issue of whether, for petroleum products gross earnings tax purposes, number 2 heating oil was used exclusively for heating purposes was previously addressed in Ruling No. 92-6. There, the number 2 heating oil was combusted to heat the interior space of the purchaser’s buildings (which were used for commercial and manufacturing purposes); to heat manufacturing materials in order to remove moisture from those materials before the purchaser’s manufacturing production process began; and to heat the interior of a container in which those manufactured products were stored prior to their sale (which heated storage was necessary to prevent the products from becoming unusable).
If the phrase ‘to be used exclusively for heating purposes’ is construed according to the commonly approved usage of the language; Conn. Gen. Stat. §1-1(a); the verb ‘heat’ means ‘to make warm or hot; raise the temperature of [heat the oven to 350 degrees] [water heated by the sun] ...’ Webster, Third New International Dictionary. The uses that the [purchaser] makes of the heating oil all involve the raising of the temperature, and the making warm or hot, of space or tangible personal property: heating interior building space, heating manufactured materials to remove moisture, and heating the interior of a container in which the manufactured product is stored.
Ruling No. 92-6, at 2-3. The Ruling concluded that the number 2 heating oil was used exclusively for heating purposes.
Here, too, the uses that the person that is engaged in the business of selling steam and delivering it to its customers through pipes makes of the heating oil all involve the raising of the temperature, and the making warm or hot of space or tangible personal property. The person heats tangible personal property (water) that generates steam and delivers that steam to its customers through pipes in order to heat the interior space of its customers’ buildings. It is not necessary that the person own the interior building space that is being heated.
RULING:
When a company which is engaged in the refining or distribution, or both, of petroleum products and which distributes such products in this state makes the first sale of number 2 heating oil within this state to a person that will combust the number 2 heating oil to heat water that will generate steam, which steam will be delivered by the person to the person’s customers through pipes and will be used by the customers to heat their buildings, the number 2 heating oil is used exclusively for heating purposes. Ruling No. 92-6 is amplified and clarified. (endnote 2)
Endnotes:
1. In some circumstances, Conn. Gen. Stat. §12-587(c)(1) imposes a tax on any company which imports or cause to be imported into this state petroleum products, where the consideration given or contracted to be given for all such deliveries to such company during the quarterly period for which such tax is to be paid exceeds $100,000. However, "[consideration given or contracted to be given for petroleum products, gross earnings from the first sale of which are exempt from tax under [Conn. Gen. Stat. §12-587(b)(2)], [are] exempt from tax." Conn. Gen. Stat. §12-587(c)(2). Conn. Gen. Stat. §12-587(c)(1) does not apply to a company subject to and paying the tax imposed under Conn. Gen. Stat. §12-587(b) (because the company made the first sale of the petroleum products within this state).
2. The conclusion reached in Ruling No. 92-6 is confirmed notwithstanding that, after the passage of 1998 Conn. Pub. Acts 244, §25, Conn. Gen. Stat. §12-587(b)(2) is, in fact, a statute that confers a tax exemption. Because the definition of "petroleum products" no longer excludes number 2 heating oil to be used exclusively for heating purposes, the analogy in Ruling No. 92-6 to Plasticrete Block & Supply Corporation v. Commissioner, 216 Conn. 17, 25, 579 A.2d 20 (1990) is no longer appropriate.
LEGAL DIVISION
Issued May 27, 1999