Was petroleum product consumed in pipeline flushing, cleanup, moisture removal, or minimum buffering taxable?

Plain-English summary

A pipeline operator's purchased petroleum product was taxable when used primarily to flush or clean the pipeline, remove additives or moisture, or serve as the minimum buffer needed to keep adjacent products from mixing.

The digest stated a different rule when the operator used crude oil it produced itself, or a product derived from its own crude, for those same purposes: that use did not create tax liability.

It defined a minimum buffer as the quantity required to prevent the products immediately ahead of and behind it from commingling. If the operator introduced more than the minimum required amount, the digest presumed that the introduction was for transportation.

Common questions

Was every buffer quantity treated as consumption?

No. The digest treated minimum buffering as a use but presumed an introduction larger than necessary for buffering was for transportation.

Did the digest include its underlying legal opinion?

No. The source expressly says “No back-up material.”

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/570-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/570-0240.pdf

Original ruling text

570.0240

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
CURRENT LEGAL DIGEST

Use--Pipelines, Fuel Used in Flushing, in Removing Additives or Moisture, or Serving as a Minimum Buffer.

A.

Tax applies to the sales price of any tangible personal property used by a person who transports petroleum products by pipeline primarily for purposes of:

1. Flushing or cleaning the pipeline,
2. Removing additives or moisture, or
3. Serving as a minimum buffer between other products transported
   through the pipeline.

B.

Where, and to the extent that, a person who transports petroleum products by pipeline uses crude oil of his own production, or a product he has derived from such crude oil, for the purposes stated in A-1, A-2, and A-3, above, no tax liability is incurred by reason of such use.

C.

A minimum buffer is that quantity of a product which is required to prevent two other products, one immediately preceding and one immediately following the buffer product, from commingling with one another while being transported by pipeline from one place to another. Whenever a product is introduced into a pipeline in larger quantities than required for buffering purposes, it will be presumed that the introduction was for the purpose of transportation.

(This supersedes CLD-204 dated January 7, 1969.)
GJJ:ab
[lb]
5/26/70
(No back-up material.)