Was a 55-percent-pitch, 45-percent-cutter-oil blend exempt waste fuel when exchanged for steam and electricity?

Plain-English summary

A refinery transferred fuel oil in exchange for steam and electricity. California treated the transfer as an exchange sale, with a measure no lower than the credit the other party allowed for the refinery fuel.

The fuel was a blend of 55 percent pitch and 45 percent cutter oil, equivalent in value to bunker fuel. That commercially valuable blend was not a waste by-product under section 6358.1, even if separately supplied pitch might have qualified.

The fact that the refinery received exempt steam under section 6353 did not extend exemption to the fuel it sold. California separately agreed that a duplicate-tax-payment credit should be allowed if payment by both companies was verified.

What this means for you

Refiners, cogeneration partners, and tax advisers

Barter is still a sale. Document the value credited for the transferred fuel, test the actual blend rather than one ingredient in isolation, and separately substantiate any duplicate-payment credit.

Common questions

Q: Was the 55/45 blend an exempt waste by-product?

A: No.

Q: Did receiving exempt steam make the fuel transfer exempt?

A: No.

Q: Could a duplicate-payment credit be allowed?

A: Yes, if both companies' payments were verified.

Citations and references

• California Revenue and Taxation Code §§ 6353 and 6358.1
• Union Oil Co. v. State Board of Equalization, 224 Cal. App. 3d 665 (1990)

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Annotation page: Annotation 596.0120
• Original supporting opinion: 596.0120 PDF

Original ruling text

596.0120
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 323-7977

June 25, 1991
Mr. REDACTED TEXT

Dear Mr. REDACTED TEXT:
Re:

SZ OH REDACTED TEXT

I have reviewed your letter dated March 6, 1991, and Principal Tax Auditor Glenn A. Bystrom’s memorandum of April 26, 1991, relative to the remaining items for the refund claim for the tax years 1980 to 1982. In summary, our conclusions are as follows: 1. The transfer of fuel oil to acquire steam and electricity is an exchange sale of the fuel oil. The measure of the sale cannot be less than the amount of credit allowed by REDACTED TEXT for the refinery fuel provided. 2. The fact that the product received in exchange from REDACTED TEXT was steam exempt under the provisions of Revenue and Taxation Code Section 6353 is of no consequence. This exemption does not extend to the sale of fuel oil. 3. The product exchanged for the steam is not exempt under the provisions of 6358.1 or the court’s ruling in Union Oil Company v. State Board of Equalization, 224 CA 3d 665. As we understand it, the fuel in question is not pitch but rather a blended product consisting of 55 percent pitch and 45 percent cutter oil. According to the information provided, this blend would be equivalent in value to bunker fuel. It, therefore, would not qualify as a waste by-product within the meaning of 6358.1 and the cited case. The fact that pitch may have qualified if separately provided is of no consequence to our decision in this case. 4. Your letter also discusses a claimed additional credit for overpayment of taxes in the amount of $REDACTED TEXT. These taxes were paid on the REDACTED TEXT tax return of this taxpayer. Tax on the subject transactions was also paid by REDACTED TEXT, Inc. (----) on its REDACTED TEXT tax return. A self-help credit taken by REDACTED TEXT has previously been denied by the Board.

Mr. REDACTED TEXT
SZ OH REDACTED TEXT

-2-

June 25, 1991
596.0120

The department agrees that credit should be granted if it is determined that taxes have been paid both by REDACTED TEXT and REDACTED TEXT. In light of this conclusion, we agree that the credit should be allowed upon verification of the fact that payment was made by both companies. We are hopeful that this is the end of the trail for this very lengthy tax proceeding. In the event that you desire to discuss any aspect of our ruling, please feel free to contact me by telephone at (916) 323-7977. Very truly yours,

W. E. Burkett
Hearing Officer
WEB:af
cc:

Mr. Glenn A. Bystrom
Principal Tax Auditor