Was metered gaseous oxygen piped from an adjoining generation facility to a coal-gasification project exempt under section 6353?

Plain-English summary

A company involved in a commercial-scale coal-gasification project asked whether sales tax applied to oxygen used with coal in a gasifier to create fuel for the generating plant's boilers. An oxygen supplier generated the oxygen on adjoining property and furnished it in gaseous form through a metered pipeline.

Tax counsel read “gas” in section 6353 to include oxygen in gaseous form. The sale therefore qualified for the pipeline-delivery exemption if the customer was billed only for the metered gas supplied and the oxygen was gaseous when delivered through the pipeline.

The answer was expressly provisional. The letter warned that its opinion could be affected by the conclusion in the then-pending County of Sonoma litigation, in which the requesting company had intervened against the Board.

Citations and references

• California Revenue and Taxation Code section 6353 (as cited)
• County of Sonoma, et al. v. State Board of Equalization, et al., Sonoma County Superior Court Case No. 122141, then pending (as cited)
• Redacted company's June 15, 1984 letter asking about pipeline-furnished oxygen gas and asserting a natural-gas analogy — letter referenced and position characterized but not reproduced in the official PDF
• Redacted company's intervention as an interested party against the Board in County of Sonoma Case No. 122141 — status stated without complaint, intervention papers, briefs, orders, docket, or disposition in the official PDF
• Coal-gasification project, adjoining oxygen-generation facility, oxygen and natural-gas uses, gasifier and boiler process, metered pipeline, oxygen physical state, quantity, title, billing, delivery, and customer evidence — selected facts supplied; complete engineering, ownership, contract, invoice, meter, chemical-state, operating, and transaction records not reproduced in the official PDF
• Official Annotation 275.0175.100's oxygen-used-as-fuel and conditional pipeline-exemption summary — annotation supplies no additional request, facility, metering, billing, physical-state, litigation, or implementation record
• Possible County of Sonoma disposition, facility operation, sale, audit, assessment, refund claim, appeal, process change, 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/275-0175-100.pdf

Original ruling text

275.0175.100

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

July 31, 1984

Mr. J. G. E--S--- C--- E--- C--P.O. Box XXX
---, CA XXXXX
SZ -- XX XXXXXX

Dear E---:
Your letter of June 15, 1984 has been referred to me for reply. Your inquiry concerns whether tax applies to oxygen gas furnished through a pipeline. We understand that S--- C--- E--- C--- (“S---”) is involved in the construction, and at present time, the start-up and operation of the C--- W--- C--- G--- Project, located at ---, California. This is the first commercial size --- --- project in California. Your inquiry concerns the taxation of oxygen when furnished and used in gaseous form as part of the project’s operating process. Coal and oxygen are burned together in a gasifier which creates a fuel suitable to operate the boilers at the generating plant. The oxygen used in this process is furnished through a metered pipeline from a company which has erected oxygen generating facilities on property outside, but adjoining, the G--- Project. You contend that the furnishing and use of oxygen in gaseous form is no different than the use of natural gas, which is also used to preheat the gasifier. Therefore, it is your assumption that the sale of oxygen is exempt from sales tax under Section 6353 of the Revenue and Taxation Code. Revenue and Taxation Code Section 6353 provides, in pertinent part, that: “There are exempted from the taxes imposed by this part the gross receipts from the sales, furnishing, or service of and the storage, use, or other consumption in this state of gas, electricity, and water when delivered to customers through mains, lines, or pipes…” In our view, the term “gas,” as used in Section 6353, includes oxygen which is in gaseous form. Therefore, it is our opinion that the sale of oxygen is exempt from taxation pursuant to Section 6353, provided the customer is billed only on the metered supply of the gas delivered, and the oxygen is in gaseous form when delivered to the customer through the pipeline. Our

S--- C--- E--- C--SZ -- XX XXXXXX

-2-

July 31, 1984
275.0175.100

opinion in this matter, however, can be affected by the conclusion reached in the pending case of the County of Sonoma, et al. v. State Board of Equalization, et al, Sonoma County Superior Court, Case Number 122141. As you may know, S--- is an interested party in this case and has joined the suit against the Board as an Intervenor. If you have any further questions regarding this matter, please write this office. Very truly yours,

Charles J. Graziano
Tax Counsel

CJG:ba

bc:

--- – District Administrator