Special Fuel

Signed 2/18/04







Petitioner, )

) Appeal No. 02-0048

v. )


AUDITING DIVISION OF ) Tax Type: Special Fuel


COMMISSION, ) Judge: Phan


Respondent. )




Jane Phan, Administrative Law Judge


For Petitioner: ATTORNEY 1, Attorney at Law

ATTORNEY 2, Attorney at Law

For Respondent: Clark Snelson, Assistant Attorney General




This matter came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. '59-1-502.5, on January 29, 2003.

Petitioner is appealing an audit deficiency of special fuel tax, penalty and interest for the audit period of May 1, 1998 through April 30, 2001. The tax portion of the deficiency was $$$$$. Interest has accrued at the statutory rate and as of the date of the Statutory Notice the amount of interest was $$$$$. The penalty assessed was a 10% negligence penalty.

The amount of the tax deficiency at issue in the appeal was $$$$$, which arose from Petitioner’s sale of Jet A Fuel to a COMPANY A (“COMPANY A”). Petitioner had initially paid tax on this fuel under the provisions for Aviation Fuel Tax in the amount of $$$$$. Respondent determined, and Petitioner now agrees, that the Aviation Fuel Tax is not applicable to the fuel at issue as the fuel was used by COMPANY A as a solvent in its manufacturing process, and was not used for operating an aircraft. It is Respondent’s position that the fuel at issue was subject to the Special Fuel Tax.


(a) “Special fuel” means any fuel regardless of name or character that: (i) is usable as fuel to operate or propel a motor vehicle upon the public highways of the state; and (ii) is not taxed under the category of aviation or motor fuel. (b) Special fuel includes: (i) fuels that are not conveniently measurable on a gallonage basis; and (ii) diesel fuel. (Utah Code Ann. Sec. 59-13-102(16).)

(a) “Diesel fuel” means any liquid that is commonly or commercially known, offered for sale, or used as a fuel in diesel engines. (b) “Diesel fuel” includes any combustible liquid, by whatever name the liquid may be known or sold, when the liquid is used in an internal combustion engine for the generation of power to operate a motor vehicle licensed to operate on the highway, except fuel that is subject to the tax imposed in Part 2, Motor Fuel, and Part 4, Aviation Fuel, of this chapter. (Utah Code Ann. Sec. 59-13-102(4).)

No special fuel tax is imposed on undyed diesel fuel which: (i) is sold to the United States Government or any of its instrumentalities or to this state or any of its political subdivisions; (ii) is exported from this state if proof of actual exportation on forms prescribed by the commission is made within 180 days after exportation; (iii) is used in a vehicle off-highway; (iv) is used to operate a power take-off unit of a vehicle; (v) is used for off-highway agricultural uses; (vi) is used in a separately fueled engine on a vehicle that does not propel the vehicle upon the highways of the state; or (vii) is used in machinery and equipment not registered and not required to be registered for highway use. (Utah Code Ann. Sec. 59-13-301 (2)(b).)


Respondent’s representative argues that the fuel at issue qualifies as diesel fuel under Utah Code Ann. 59-13-102(16)(b)(ii) and, does not qualify for a sales tax exemption. Therefore, he argues it is subject to Special Fuel Tax. The Commission disagrees with this interpretation.

It was undisputed by the parties that the Jet A fuel could not legally be used to operate a diesel engine. It was also undisputed that it was could not be used in a diesel engine without an additive. However, the additive was something that is relatively inexpensive and is commercially available. The Jet A fuel is not sold at gas stations or truck stops. Respondent argues that although it is illegal, it is possible and some truck drivers will purchase the Jet A fuel from airports or distributors for use in their diesel trucks because it is less expensive, due in part to the lower tax on Aviation Fuel. The Utah Legislature has defined “diesel fuel” at Utah Code Ann. Sec. 59-13-102(4)(a) as “any liquid that is commonly or commercially known, offered for sale, or used as a fuel in diesel engines.” The Commission concludes the legislature intended that the product be commercially known for use in diesel engines or offered for sale for use in a diesel engine, or used as a fuel in diesel engines. The Commission does not find an illegal market to meet either the commercially known or offered for sale for use in a diesel engine criteria of the statutory definition for “diesel fuel.”

However, even were the Commission to find that the Jet A fuel at issue was to qualify as diesel fuel for purposes of the Utah Code Ann. 59-13-102(16)(b)(ii), the Commission concludes that it would be exempt pursuant to Utah Code Ann. Sec. 59-13-301(2)(b)(vii) as being used in machinery and equipment not registered and not required to be registered for highway use. The Jet A fuel at issue is used by the purchaser COMPANY A in its manufacturing process, not to power any type of engine that it is used on the roadway. COMPANY A manufactures magnesium from brine that comes from the Great Salt Lake. The Jet A fuel at issue was used as a solvent to remove boron from its brine mixture. The Jet A fuel is added to the brine in a holding tank. The holding tank would certainly be equipment of the type that was not registered or required to be registered for highway use and is the sale is exempt pursuant to Utah Code Ann. 59-13-301(2)(b)(vii).

Both parties agreed that if the sales of Jet A fuel were not subject to Special Fuel tax, they would then be subject to sales tax.


Based on the foregoing, The Commission orders Respondent to revise the Special Fuel tax audit deficiency for the period of May 1, 1998 through April 30, 2001, abating the Special fuel tax but issuing a deficiency for the appropriate amount of sales tax. It is so ordered.

This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:

Utah State Tax Commission

Appeals Division

210 North 1950 West

Salt Lake City, Utah 84134

Failure to request a Formal Hearing will preclude any further appeal rights in this matter.

DATED this 18th day of February , 2003.



Jane Phan

Administrative Law Judge










The Commission has reviewed this case and the undersigned concur in this decision.

DATED this 18th day of February , 2003.

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner





Palmer DePaulis Marc B. Johnson

Commissioner Commissioner