Was oxygen produced onsite and sold in vapor form through a pipeline to a glass-container manufacturer exempt under section 6353?

Plain-English summary

An oxygen producer operated a production facility on land owned by a glass-container manufacturer. It produced oxygen onsite and sold the oxygen in vapor form through a pipeline to the manufacturer's oxy-fuel furnace.

The producer owned the pipeline from its facility to a junction outside the manufacturer's building; the manufacturer owned the segment from that junction to the building. Title to the oxygen passed at the junction. The producer metered the gas as it entered the pipeline, while the manufacturer metered it again at the furnace, and the supply contract required specified hourly quantities.

Tax counsel concluded that section 6353 exempted the sales because the producer delivered oxygen gas to the purchaser through pipes and the oxygen was gaseous when the sale occurred.

Citations and references

• California Revenue and Taxation Code section 6353 (as cited)
• Redacted oxygen producer's July 12, 1995 letter requesting an opinion and supplying facility, pipeline, ownership, title, meter, furnace, contract, and hourly-quantity facts — letter referenced and facts recited but not reproduced as a separate record in the official PDF
• Oxygen supply contract requiring specified hourly quantities and measuring performance at the producer's inlet meter — terms summarized; complete contract, amendments, pricing, billing, title provisions, specifications, and performance records not reproduced in the official PDF
• Producer and manufacturer facility ownership, real-property arrangement, pipeline segments, junction point, title passage, dual meters, oxygen vapor state, oxy-fuel furnace, deliveries, and sales — selected facts supplied; deeds, leases, diagrams, meter records, chemical-state tests, delivery logs, invoices, and payment records not reproduced in the official PDF
• Official Annotation 275.0175's pipeline-ownership statement that the taxpayer owned the segment from the junction to the manufacturer's building — conflicts with the official PDF, which assigns that segment to the manufacturer; annotation supplies no source resolving the conflict
• Possible facility operation, sale, contract amendment, pipeline or meter change, 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/275-0175.pdf

Original ruling text

275.0175

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

JOHAN KLEHS
First District, Hayward

LEGAL DIVISION (MIC:82)
450 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082)
Telephone: (916) 485-6496
FAX: (916) 323-3387

DEAN ANDAL
Second District, Stockton
ERNEST J. DRONENBURG, JR.
Third District, San Diego
BRAD SHERMAN
Fourth District, Los Angeles
KATHLEEN CONNELL
Controller, Sacramento

BURTON W. OLIVER
Executive Director

September 11, 1995

Mr. J--- C--Manager, State and Local Use Tax
B--- G---, Inc.
XXX --- Avenue
--- ---, --- XXXXX
Re:

B--- G---, Inc.
Account No. SZ --- XX-XXXXXX

Dear Mr. C---:
This office has received your letter dated July 12, 1995, in which you request a legal opinion on the tax applicable to the sale of oxygen gas in the following situation: B--- G--- C--- Corporation owns and operates a glass-container manufacturing facility in
--- ---, California. As part of the manufacturing facility, B--- G--- C--- Corporation operates a oxy-fuel furnace used to manufacture glass containers. B--- G---, Inc. owns and operates an oxygen production facility, which is located on the real property owned by B--- G--- C--Corporation. B--- G---, Inc. produces oxygen and sells it in vapor form to B--- G--- C--Corporation via a pipeline. B--- G---, Inc. owns a segment of the pipeline from its oxygen production facility to the junction point outside the perimeter of the B--- G--- C--- Corporation building. B--- G--- C--- Corporation owns the pipeline from the junction point to the B--- G--C--- Corporation building. Title to the oxygen furnished is transferred to B--- G--- C--Corporation at the junction point. B--- G---, Inc. meters the oxygen as it enters the pipeline on its way to the B--- G--- C--- Corporation furnace. Inside its building, B--- G--- C--- Corporation meters the oxygen as it enters the furnace. Pursuant to the terms of a contract, B--- G---, Inc. must provide specified quantities of oxygen per hour. Contract performance is based on the volume of cubic feet of oxygen flowing through the B--- G---, Inc. meter as the oxygen enters the pipeline.

Mr. J--- C---

-2-

September 11, 1995
275.0175

You ask if the sale of the sale of the oxygen gas is exempt from tax pursuant to California Revenue and Taxation Code section 6353. California Revenue and Taxation Code section 6353 provides, in part: “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 consumers through mains, lines, or pipes . . . .” You are making sales of oxygen by delivering that oxygen to the purchaser via pipes. At the time of the sale, the oxygen is in gaseous form. We conclude that such sales are exempt from sales tax under section 6353. If you have any further questions or concerns, please feel free to contact me. Very truly yours,

Thomas J. Cooke
Staff Counsel
TJC/cmm