Did petroleum coke left after a fluid-coking process qualify as an exempt waste by-product when sold as fuel to alternative-energy facilities?

Plain-English summary

A producer made petroleum coke in a fluid coker. The material was what remained after crude oil's light ends were removed and had a sand-like composition.

In 1990, four-fifths of the coke was exported and one-fifth was sold domestically, mainly as fuel for alternative-energy facilities. The refund claim concerned coke sold for use at California alternative-energy facilities.

California agreed that the petroleum coke was a manufacturing waste by-product used as industrial fuel in place of oil, natural gas, or coal. Counsel recommended granting the refund, subject to audit verification of the transactions.

What this means for you

Refiners, alternative-energy facilities, and tax advisers

Document the production process, the material's residual character, the industrial purchaser, and actual fuel use. Approval remained transaction-specific and audit-dependent.

Common questions

Q: Was the petroleum coke a waste by-product?

A: Yes, on the described fluid-coker facts.

Q: Did its use as alternative-energy fuel qualify?

A: Yes.

Q: Was the refund unconditional?

A: No. It was subject to audit verification.

Citations and references

• California Revenue and Taxation Code § 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 596.0600
• Original supporting opinion: 596.0600 PDF

Original ruling text

596.0600

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
(916) 445-3723

June 25, 1991

Mr. REDACTED TEXT

REDACTED TEXT

Dear Mr. REDACTED TEXT:
This is in reply to your claim for refund of sales tax of April 18, 1991, which was addressed to Mr. Glenn Bystrom. Your claim was referred to this office for review. We understand that REDACTED TEXT produces petroleum coke using the “REDACTED TEXT Process” from a “fluid” coker. This petroleum coke is what is left over from a barrel of crude after all the light ends have been removed and constitutes a waste byproduct. Its composition is similar to sand. During 1990, four-fifths of all the petroleum coke REDACTED TEXT produced was exported overseas. The other one-fifth was sold domestically, primarily for use as fuel in alternative energy facilities. REDACTED TEXT sold petroleum coke to REDACTED TEXT, Inc., for use as fuel in California alternative energy facilities. It is your position that the sales in question were exempt under Revenue and Taxation Code section 6358.1. That section provides an exemption for the sale of waste byproducts which are used in an industrial facility as a fuel source in lieu of the use of either oil, natural gas, or coal. You also cite the recently decided Court of Appeals decision, Union Oil v. State Board of Equalization (1990) 224 Cal.App.3d 665.

Mr. REDACTED TEXT

-2-

June 25, 1991
596.0600

We agree with your analysis, and it will be our recommendation to the Board that your claim be granted, subject to audit verification as to specific transactions. Very truly yours,

Gary J. Jugum
Assistant Chief Counsel
GJJ:sr
cc:

Mr. Glenn A. Bystrom
bp:
The circumstances are different from the circumstances in the REDACTED TEXT case. In that case, the product that we are seeking to tax is commercial grade propane and methane produced in the refining process and burned by the refiner as a fuel. In that case we have conceded that the tax does not apply to “dirty” propane and other contaminated still gases, of less than commercial grade. bc:

Audit Review and Refund Section