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CT Ruling 2005-5 Petroleum Products Gross Earnings Tax 2005-12-22

Are the gross earnings from the first Connecticut sale of a 5% biodiesel / 95% petroleum blend subject to the petroleum products gross earnings tax -- and does it matter whether the blend is motor vehicle fuel or heating oil?

Short answer: It depends on how the blend is used. A blend that is 95% petroleum diesel and 5% pure biodiesel, sold as motor vehicle fuel, IS subject to Connecticut's petroleum products gross earnings tax on its first in-state sale -- because it is predominantly petroleum diesel, which is a 'petroleum product' under Conn. Gen. Stat. § 12-587(a)(4). But a blend that is 95% number 2 heating oil and 5% pure biodiesel, used exclusively for heating, is NOT subject to the tax, because it qualifies for the exemption for number 2 heating oil used exclusively for heating purposes under Conn. Gen. Stat. § 12-587(b)(2)(B). Pure biodiesel itself is not a petroleum product (it is made from plant and animal oils and fats), but the minimal biodiesel content does not change the classification of the predominantly petroleum blend.

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This page answers the general question as of 2005. Ezel answers yours, under current Connecticut tax law, with citations.

Currency note: this ruling is from 2005
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Ruling of the Connecticut Department of Revenue Services (DRS), typically issued to a specific taxpayer in response to that taxpayer's request and based on the specific facts presented and the Connecticut tax law in effect when it was issued. DRS may later declare a Ruling obsolete or supersede it by a subsequent Ruling, Policy Statement, or Announcement, so a taxpayer with different facts should not assume it still applies. Taxpayer-identifying details are redacted. Connecticut imposes its sales and use tax solely at the state level: there are no local or municipal sales taxes. This summary is informational only and is not legal or tax advice. Consult a licensed Connecticut tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
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Plain-English summary

A company planned to sell two 5%-biodiesel blends in Connecticut: one that is 5% pure biodiesel / 95% petroleum diesel (a motor vehicle fuel), and one that is 5% pure biodiesel / 95% number 2 heating oil (used for heating). It asked DRS whether the gross earnings from the first sale in Connecticut of each blend are subject to the petroleum products gross earnings tax (Conn. Gen. Stat. § 12-587 et seq.).

DRS split the answer by product:

  • Motor vehicle fuel blend — TAXABLE. The petroleum products gross earnings tax applies to gross earnings from the first Connecticut sale of "petroleum products," which § 12-587(a)(4) defines as products that contain or are made from petroleum or a petroleum derivative. Petroleum diesel is a petroleum product, and because the blend is predominantly petroleum diesel with only a minimal amount of biodiesel, the whole blend is a petroleum product. Its first-sale gross earnings are taxable.

  • Heating oil blend — NOT TAXABLE. Section 12-587(b)(2)(B) exempts the first-sale gross earnings from number 2 heating oil used exclusively for heating purposes. Because this blend is predominantly number 2 heating oil (with only a minimal amount of biodiesel) and is used exclusively for heating, it qualifies for that exemption.

Notably, DRS confirmed that pure biodiesel is not itself a "petroleum product" — it neither contains nor is made from petroleum; it's made from the oils and fats of plants and animals (citing Ruling No. 2003-1 and the federal definition at 7 C.F.R. § 1424.3). But the small biodiesel fraction doesn't change how the predominantly-petroleum blend is classified. The result turns on what the blend is predominantly made of and how it is used, not on the presence of a little biodiesel.

What this means for you

Fuel distributors and petroleum wholesalers

If you make the first Connecticut sale of a diesel/biodiesel motor fuel that is mostly petroleum diesel, expect it to be subject to the petroleum products gross earnings tax — a minority biodiesel blend-in doesn't exempt it. By contrast, a mostly-number-2-heating-oil blend sold for heating use only falls under the heating-oil exemption. Because the exemption is tied to exclusive heating use, keep documentation of the end use.

Businesses buying or selling blended fuels

The classification hinges on the dominant component and the use, not on the "biodiesel" label. A B5 (5% biodiesel) motor fuel is treated as a petroleum product; a B5 heating oil used only for heating gets the heating-oil exemption. Pure (100%) biodiesel would be analyzed differently, since it isn't a petroleum product at all.

Accountants and tax professionals

The tax is a first-sale gross-earnings tax on petroleum products (§ 12-587). The definitional hook is § 12-587(a)(4) ("contain or are made from petroleum or a petroleum derivative"); the relevant carve-out is the number-2-heating-oil-for-heating exemption in § 12-587(b)(2)(B). For a predominantly-petroleum blend, the minimal biodiesel content is disregarded, so the blend follows its petroleum base component.

Common questions

Q: Is B5 biodiesel motor fuel subject to Connecticut's petroleum products gross earnings tax?
A: Yes. Because the blend is predominantly petroleum diesel (a petroleum product under § 12-587(a)(4)), the first-sale gross earnings are taxable; the small biodiesel share doesn't change that.

Q: Is a biodiesel/heating-oil blend taxable?
A: No, if it is predominantly number 2 heating oil and used exclusively for heating — it qualifies for the exemption in § 12-587(b)(2)(B).

Q: Is pure biodiesel a "petroleum product"?
A: No. DRS confirmed pure biodiesel is made from plant and animal oils and fats and neither contains nor is made from petroleum, so it is not a petroleum product under § 12-587(a)(4). (This ruling addresses the predominantly-petroleum blends, not standalone pure biodiesel.)

Q: Does the 5% biodiesel make any part of the motor fuel exempt?
A: No. The ruling treats the predominantly-petroleum motor fuel blend as a petroleum product in full; it does not carve out the biodiesel fraction.

Citations and references

Statutes:

  • Conn. Gen. Stat. § 12-587 et seq. (petroleum products gross earnings tax — imposed on gross earnings from the first sale in Connecticut of petroleum products)
  • Conn. Gen. Stat. § 12-587(a)(4) (definition of "petroleum products": products that contain or are made from petroleum or a petroleum derivative)
  • Conn. Gen. Stat. § 12-587(b)(2)(B) (exemption for the first sale of number 2 heating oil to be used exclusively for heating purposes)

Regulations:

  • 7 C.F.R. § 1424.3 (federal definition of pure biodiesel — a nontoxic, biodegradable product made from the oils and fats of plants and animals)

Related DRS guidance:

  • Ruling No. 2003-1 (cited for the conclusion that pure biodiesel is not a petroleum product)

Source

Original ruling text

Ruling 2005-5, Petroleum Products Gross Earnings Tax/Biodiesel Fuel

FACTS:

A company doing business in Connecticut will sell a blend of pure biodiesel and petroleum diesel.  The blended mixture will be 5% by volume pure biodiesel and 95% by volume petroleum diesel, and will be suitable for use as a motor vehicle fuel in most diesel-burning motor vehicles with little or no engine modification required.

The company also will sell a blend of pure biodiesel and the product commonly known as number 2 heating oil.  The blended mixture will be 5% by volume pure biodiesel and 95% by volume number 2 heating oil, and will be suitable to be used for heating purposes.

The Code of Federal Regulations defines pure biodiesel as a nontoxic, biodegradable product made from the oils and fats of plants and animals. 7 C.F.R. §1424.3.  Pure biodiesel is intended as a replacement for or additive to petroleum diesel fuel or number 2 heating oil.  It burns cleaner and is safer to handle and store than petroleum diesel fuel or number 2 heating oil.

ISSUES :

Are the gross earnings from the first sale within Connecticut of the blend of predominantly petroleum diesel with a minimal amount of biodiesel subject to the petroleum products gross earnings tax, where the blended fuel is to be used for motor vehicle fuel?

Are the gross earnings from the first sale within Connecticut of the blend of predominantly number 2 heating oil with a minimal amount of biodiesel subject to the petroleum products gross earnings tax, where the blended fuel is to be used exclusively for heating purposes?

RULING :

The gross earnings from the first sale within Connecticut of blended motor vehicle fuel are subject to tax where the product, by volume, is predominantly petroleum diesel with a minimal amount of pure biodiesel.

The gross earnings from the first sale within Connecticut of blended heating oil are not subject to the petroleum products gross earnings tax where the blended fuel is to be used exclusively for heating purposes, and the product, by volume, is predominantly number 2 heating oil with a minimal amount of pure biodiesel.

DISCUSSION:

The petroleum products gross earnings tax is imposed on gross earnings from the first sale in Connecticut of petroleum products.  Conn. Gen. Stat. §12-587, et seq .

Products that contain or are made from petroleum or a petroleum derivative are “petroleum products.”  Conn. Gen. Stat. §12-587(a)(4).  Therefore, petroleum diesel is a petroleum product for purposes of the tax.

Biodiesel neither contains nor is made from petroleum or a petroleum derivative; pure biodiesel is made from the oils and fats of plants and animals.  See Ruling No. 2003-1.  Therefore, pure biodiesel is not a “petroleum product” as defined in Conn. Gen. Stat. §12-587(a)(4).

The gross earnings from the first sale in Connecticut of certain products described in Conn. Gen. Stat. §12-587(b)(2) are exempt from the tax.  For example, the gross earnings from the first sale of number 2 heating oil to be used exclusively for heating purposes are exempt from the petroleum products gross earnings tax.  Conn. Gen. Stat. §12-587(b)(2)(B).

Because the blended motor vehicle fuel at issue here contains only a minimal amount of pure biodiesel, the blend of biodiesel and petroleum diesel is a petroleum product for purposes of the petroleum products gross earnings tax.  Accordingly, the gross earnings from the first sale of the blend of biodiesel and petroleum diesel motor vehicle fuel are subject to the petroleum products gross earnings tax.

In contrast, the blended heating oil is composed predominantly of number 2 heating oil, the gross earnings from the first sale of which are exempt from the tax.  The remainder, a minimal amount, is pure biodiesel, a non-petroleum product.  A product, consisting predominantly of blended heating oil with only a minimal amount of biodiesel will qualify for the exemption for number 2 heating oil to be used exclusively for heating purposes as provided in Conn. Gen. Stat. §12-587(b)(2). Accordingly, the gross earnings from the first sale of blended heating oil to be used exclusively for heating purposes are not subject to the petroleum products gross earnings tax.

LEGAL DIVISION

December 22, 2005

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