REQUEST LETTER
03-009
NAME
ADDRESS
PHONE
FAX
Dear Ms. Hendrickson,
I represent a business COMPANY that processes and markets used oil in Utah. I am writing to request a private letter ruling to clear up questions concerning the taxation of processed used oil when it is marketed for use as fuel for diesel trucks which operate on the highways of the State.
In the past COMPANY has sold the processed used oil only to local asphalt producers for use in their plants. This is very seasonal market and in an attempt to smooth out income from the sales of the product, COMPANY would like to sell the finished product to a company OTHER COMPANY that mines and produces sand and gravel and also mixes and sells concrete in Utah.
receives used oil from collectors who deliver the used oil directly to COMPANY process plant. The used oil is then processed and 65-70% becomes a product that works very well as a replacement for diesel fuel. The remaining 30 – 35% is water and “bottoms”, all of which is used back in the continuing used oil cleaning process.
The Utah Department of Environmental Quality has insisted that the marketable end product be called “used oil”. However, no matter what it is called, the product works very well as a replacement for diesel fuel and apparently will provide a quality fuel for diesel powered equipment. The product is available at a slightly lower price than diesel fuel and more importantly the price is not susceptible to the wild market fluctuations as are fuels produced directly from crude oil.
Therefore OTHER COMPANY would like to purchase this “used oil” to operate the heavy equipment that is utilized in the sand, gravel and concrete business. Much of this product would be used in off-highway equipment (dozers, loaders, screening equipment, etc.) However, OTHER COMPANY would also like to use it in the highway trucks, which are used to deliver its products to the market.
At present OTHER COMPANY purchases off-highway fuel (dyed) and highway fuel (clear – taxed) for its operation. The fuel is stored in separate tanks and only the clear fuel is used in the highway tracks.
COMPANY and OTHER COMPANY hold Utah State tax licenses and charge the appropriate sales tax to buyers of their products.
My questions are:
1. What state taxes would OTHER COMPANY and/or COMPANY become liable for or be required to collect on the fuel sold and used in the manner I have described.
2. It seems like the state will benefit by this used oil being recycled in several ways. First, it will remove a possible hazard to the environment. Second, it will reduce the need for an equal amount of fuel to be provided from crude oil. Therefore, could this “used oil” be classified as an alternative fuel and if so is there any tax exemptions for it?
3. Would the State Tax Commission require any other permits, licenses or fees on these transactions?
I appreciate your consideration of this matter and will await your reply.
Sincerely,
RESPONSE LETTER
May 27, 2003
NAME
ADDRESS
RE: Private Letter Ruling Request – Tax and Licensing Requirements of a Special Fuel Supplier
Dear Mr. Henderson,
We have received your request for information relating to the business activities of a firm referred to as COMPANY. COMPANY processes used oil in Utah and proposes to market the rerefined used oil as fuel for diesel trucks that operate on the highways of the State of Utah. To rerefine the used oil into diesel fuel, COMPANY heats the used oil and, as it cools, is able to extract different products, including a liquid that can be used as diesel fuel. You have asked what the taxation and licensing implications are should COMPANY sell the rerefined used oil as diesel fuel.
Under Utah Code Ann. §59-13-102(4), “diesel fuel” means “any liquid that is commonly or commercially known, offered for sale, or used as a fuel in diesel engines.” Because the rerefined used oil is a liquid that COMPANY would commercially offer for sale as a fuel in diesel engines, this liquid would be considered a “diesel fuel” for purposes of the Motor and Special Fuel Tax Act (“Fuel Tax Act”).
Diesel Fuel Suppliers Filing Requirements
Under UCA §59-13-302(1), a “supplier” of diesel fuel must obtain a supplier’s license from the Tax Commission, and pay a license fee. For purposes of Part 3, Special Fuel, of the Fuel Tax Act, a “supplier” includes a person who “produces, manufactures, refines, or blends diesel fuel in this state[.]” By processing the used oil into diesel fuel, COMPANY would be considered a “supplier” of diesel fuel. To become licensed as a supplier of diesel fuel, COMPANY should complete Tax Commission Forms TC-107 and TC-763 (copies enclosed). The forms indicate that paying a licensing fee and posting a bond are required prior to the supplier’s license being issued.
Under COMPANY §59-13-305(1), a “user” of diesel fuel must generally file a periodic report with the Tax Commission, which shows the amount of fuel purchased and used during the preceding reporting period. Specific exemptions from this requirement are provided in Subsection (5) of this statute. Under COMPANY §59-13-102(22), a “user” of diesel fuel means “a person who uses [the] fuel within the state in an engine or motor for the generation of power to operate or propel a motor vehicle upon the public highways of the state.” Because OTHER COMPANY would be purchasing the diesel fuel to use in an engine to propel a motor vehicle upon Utah’s public highways, OTHER COMPANY would be required to file the periodic user report, unless it qualifies for one of the exemptions from this requirement. Because OTHER COMPANY has diesel fuel tanks in place, it appears that OTHER COMPANY already purchases diesel fuel from other sources so that, in all likelihood, its reporting status would not change because of its business activities with COMPANY. Nevertheless, we have enclosed a copy of Tax Commission Form TC-920, with includes a Special Fuel User Permit Application and instructions for OTHER COMPANY to determine its filing status.
Undyed Diesel Fuel Sales
We assume that COMPANY would be selling undyed diesel fuel to OTHER COMPANY because the fuel would be used to generate power to operate or propel a motor vehicle upon Utah public highways. Under subsections (1) and (5) of UCA §59-13-301, a supplier of diesel fuel must impose a special fuel tax on the removal of undyed diesel fuel from the refinery and remit the tax to the Commission. Accordingly, COMPANY would impose the special fuel tax on those sales and then remit it to the Tax Commission. The special fuel tax, pursuant to UCA §§59-13-201(1) and 59-13-301(1), is 24½ cents per gallon. (Dyed diesel fuel sales that meet the requirements of UCA §59-13-301(2) are not subject to the special fuel tax, but are subject to Utah sales and use tax).
Clean Fuel Qualifications
Utah law does allow special fuel that qualifies as “clean fuel” to be treated differently for taxation purposes than ordinary special fuel. UCA §59-13-304. However, UCA §59-13-103(1) requires the Air Quality Board to include a fuel on its list of “clean fuels” before the Tax Commission can consider it a “clean fuel” for taxation purposes. The Air Quality Board has not determined diesel fuel processed from used oil to be a “clean fuel” for purposes of the Fuel Tax Act. Accordingly, the diesel fuel produced by COMPANY does not qualify as a “clean fuel” for taxation purposes.
Registration as a Used Oil Processing or Rerefining Facility
From your description, it appears that COMPANY has been in the business of purchasing and processing used oil for some time. Accordingly, we assume it is already registered and has a permit to operate as a used oil processing or rerefining facility, in accordance with UCA §19-6-710(3). If not, COMPANY should contact the Division of Solid and Hazardous Waste Control at the Department of Environmental Quality for compliance information.
Environmental Assurance Fee
Lastly, it appears that COMPANY would not collect Utah’s environmental assurance fee upon its sales of diesel fuel processed from used oil. UCA §19-6-410.5(4) imposes a voluntary environmental assurance fee of ¼ cent per gallon on the first sale or use of petroleum products in Utah. The Tax Commission has issued a tax bulletin identifying the first sale as the one generally occurring either at the refinery level or upon import into the state. The transaction on which the environmental assurance fee would be assessed would be the original Utah purchase or use of the oil, not the subsequent sale as diesel fuel.
Although COMPANY would not collect the environmental assurance fee on diesel fuel processed from used oil, it would be responsible for paying the fee on any used oil it imported into Utah, if it chooses to participate in the environmental assurance program. Used oil purchased in Utah would have already been subjected to the fee. However, COMPANY import of used oil from outside of Utah would be considered the first Utah sale or use of the used oil and, thus, subject to the fee. Accordingly, should COMPANY participate in this program and import any used oil into Utah, it must complete the section on Form TC-107 relating to the environmental assurance fee. COMPANY would then report and remit any environmental assurance fees due by filing Tax Commission Form TC-109E (copy enclosed).
If you have any questions, please contact us.
For the Commission,
Marc B. Johnson
Commissioner
MBJ/KC
03-009