Did section 6353 require a particular meter when a vendor put liquid propane or butane in its tank and vapor traveled through customer-owned pipes?

Plain-English summary

A propane vendor placed liquid gas in a vendor-owned tank on the consumer's premises. The vendor also owned the gauge, while the consumer owned the connected pipes. Staff first understood the device to meter vapor supplied through the pipes, but later learned that it measured the amount of liquid petroleum gas remaining in the tank; the billing method was not supplied.

Tax counsel said section 6353 did not require any particular meter. A vapor meter could support an inference that the parties intended an exempt sale of vapor delivered through pipes, but it was only evidence of when title passed.

The contract and billing terms remained decisive. If they showed a present sale of liquid gas when it entered the tank, tax applied even if a meter existed. If the seller retained title while the liquid vaporized and then delivered the vapor through pipes, the absence or placement of a meter did not by itself defeat the exemption.

Citations and references

• California Revenue and Taxation Code section 6353 (as cited)
• California Attorney General Opinion NS-4782, March 18, 1943 (as quoted and discussed)
• Board's June 10 letter to a redacted recipient applying section 6353 to the initially presented facts — letter referenced but not reproduced in the official PDF
• Mr. K---'s unidentified letter describing vendor-owned tank and meter and consumer-owned pipelines — letter referenced and facts characterized but not reproduced in the official PDF
• Mr. Unknown's June 24 letter clarifying that the device was a liquid-level gage rather than a vapor-flow meter — letter referenced and facts characterized but not reproduced in the official PDF
• Discussion with Mr. Stetson agreeing that a meter was title-passage evidence rather than an exemption requirement — discussion referenced without date, participants beyond Stetson and counsel, notes, or separate record in the official PDF
• Propane or butane sale, vendor-tank and meter ownership, customer-pipeline ownership, vaporization, title passage, contract, billing, delivery, and payment evidence — selected facts supplied; complete contract, invoices, meter records, tank agreement, delivery tickets, payment records, and title terms not reproduced in the official PDF
• Official Annotation 275.0080's meter-and-title summary and source-printed “title to any particular time” wording — annotation does not explain “to” versus the official PDF's “at” or supply the missing contract, billing, or final classification record
• Possible later fact development, sale classification, contract or billing production, audit, assessment, refund claim, appeal, or other agency action — no follow-up or final outcome supplied in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/275-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/275-0080.pdf

Original ruling text

State of California

Board of Equalization

Memorandum
To:

San Bernardino - Compliance (JLB)

From:

Headquarters - Sales Tax Counsel (JJD)

Subject:

Sales of Propane & Butane

275.0080
Date:

July 20, 1959

Our letter of June 10 to [X] stated that we believed the exemption contained in Section 6353 applied to the factual situation presented for our opinion. We understood from Mr. [K]’s letter that propane gas was delivered by a tank truck into a tank, which was placed on the consumer’s premises, but which was the property of the vendor of the propane. We also understood that the meter was owned by the vendor, but that the pipe lines were owned by the consumer. Since there was no other indication, we presumed that the meter mentioned was used to record the amount of vaporized gas supplied through the pipes. From Mr. [Unknown]’s letter of June 24, it now appears that the meter does not measure directly the amount of vaporized gas consumed, but is instead a gage which measures the amount of liquified petroleum gas in the storage tank. The manner in which the consumer is billed was not stated. This matter has been brought to the attention of Mr. Stetson and he has agreed that the existence of a meter of any type is not essential to the obtaining of the benefits of the statutory exemption but is an evidentiary aid in determining who has title at any particular time. You will notice that Section 6353 merely states that there are exempted from sales tax gross receipts from sales, furnishing, or service of and the storage, use, or other consumption in this State of gas, electricity, and water when delivered to consumers through mains, lines, or pipes. There is no mention of meters. Attorney General’s Opinion NS-4782, dated March 18, 1943, was concerned primarily with the problem of whether or not the statute required any particular type system of pipes and/or whether or not it was necessary that the vendor be a public utility in order to come within the terms of the exemption. The opinion concluded with a statement which went beyond the question in issue to the effect that, “If the seller of the gas merely attached the tank to pipelines owned by the consumer and received payment for the tank of gas, the sale would then be complete and would, in my opinion, be a taxable sale, since the seller does not make delivery of the gas to the consumer through mains, lines, or pipes. The consumer controls the delivery of the gas from the tank to his house appliances and with this delivery, the seller has no connection whatever.”

San Bernardino – Compliance (JLB)

-2-

July 20, 1059
275.0080

We believe that the above-quoted portion of the Attorney General’s opinion merely states that if the vendor transfers title to the liquified gas, tax applies. However, if the vendor retains title to the liquified gas, which gas is vaporized and delivered through pipes to the consumer, we believe that the placement of the meter or gage should not be the sole criteria for determining the taxability of the gross receipts received. The correct manner in which to handle this matter would seem to be to determine when title to the property actually passes. The existence of a meter which measures vaporized gas would seem to indicate that an exempt sale of vapor gas was intended. However, if the contract and billing indicate a present sale of liquified gas the existence of a meter would not prevent the tax from applying. On the other hand the absence of a vapor measuring meter does not by itself indicate a taxable sale but should be only one of the factors considered.

J. J. Delaney
JJD:fb