02-0048
Special Fuel
Signed 2/18/04
____________________________________
PETITIONER, )
) ORDER
Petitioner, )
) Appeal No. 02-0048
v. )
)
AUDITING
DIVISION OF ) Tax Type: Special
Fuel
THE
UTAH STATE TAX )
COMMISSION, ) Judge: Phan
)
Respondent. )
_____________________________________
Presiding:
Jane Phan, Administrative Law Judge
Appearances:
For
Petitioner: ATTORNEY 1, Attorney
at Law
ATTORNEY 2,
Attorney at Law
For
Respondent: Clark Snelson, Assistant
Attorney General
STATEMENT
OF THE CASE
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.
APPLICABLE
LAW
(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.
DECISION
AND ORDER
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
BY ORDER OF THE
UTAH STATE TAX COMMISSION.
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