Did D.C.'s heating-oil gross receipts tax apply to No. 2 oil sold only to power manufacturing equipment?

Plain-English summary

D.C.'s heating-oil gross receipts tax did not apply to No. 2 oil sold solely to power equipment in a manufacturing operation. The purchaser did not use the oil to heat or warm residential or commercial property.

OTR focused on the oil's use. The ordinary meaning of “heating oil,” the Council's choice to tax heating oil rather than all oil, and an earlier contemporaneous emergency regulation all pointed to oil used for heat or warmth. A fuel's grade alone did not make an industrial sale taxable as heating oil.

The ruling is historically specific. Its own footnote says D.C. Act 16-0402 changed the tax effective September 19, 2006 and imposed a per-gallon system beginning October 1, 2006. Current treatment must be checked under current law.

What this means for you

Fuel sellers

Under this ruling's historical framework, document the purchaser's actual use. A sale of No. 2 oil for manufacturing power was outside the heating-oil tax because it was not used to heat or warm property.

Manufacturers and industrial users

The result was limited to fuel used solely for manufacturing or industrial purposes. If the oil also serves a property-heating function, this ruling does not decide that mixed-use situation.

Common questions

Was No. 2 oil automatically treated as heating oil? No. OTR looked to whether the oil was used to provide heat or warmth.

Why did OTR rely on an expired emergency regulation? OTR treated the regulation as a contemporaneous interpretation of the statute and also relied independently on the statute's ordinary meaning and limited reference to “heating oil.”

Did the ruling say all industrial fuel sales are exempt? No. It addressed No. 2 oil sold for manufacturing or industrial purposes only and not for heating residential or commercial property.

Did the heating-oil law change? Yes. The ruling's footnote describes a 2006 change from a sales-based gross receipts tax to a tax imposed on deliverers, with per-gallon amounts beginning October 1, 2006.

Citations and references

• D.C. Official Code § 47-2501(a), (a)(3) — historical heating-oil tax provisions analyzed by OTR.
• 9 DCMRA § 3515.1 — expired emergency definition of heating oil discussed as a contemporaneous interpretation.
• D.C. Official Code § 2-505(c) — cited for the emergency regulation's expiration.
• D.C. Act 16-0402 — 2006 statutory change described in the ruling's footnote.

Source

• Landing page: https://otr.cfo.dc.gov/page/otr-tax-rulings
• Ruling page: https://otr.cfo.dc.gov/node/402382
• Original PDF: https://otr.cfo.dc.gov/sites/default/files/dc/sites/otr/publication/attachments/heatimg_oil_tax_ruling.pdf

Original ruling text

GOVERNMENT OF THE DISTRICT OF COLUMBIA
OFFICE OF THE CHIEF FINANCIAL OFFICER
OFFICE OF TAX AND REVENUE

OTR TAX RULING 2006-01
Subject: Heating Oil Tax

Advice has been requested as to whether the gross receipts tax on heating oil under
District of Columbia (“District”) Official Code (“Code”) section 47-2501 applies to a taxpayer
that sells oil to a purchaser that uses it for manufacturing or industrial purposes only, and not for
purposes of heating or warming residential or commercial properties.
FACTS
Company A, a state X corporation, sells certain types of oils, gasoline and kerosene in the
District. Company A is qualified to do business in the District.
Company A sells No. 2 oil to Company C, a corporation qualified to do business in the
District, that conducts a manufacturing operation in the District. The oil sold by Company A to
Company C is used to power equipment utilized by Company C to manufacture product Y. In
this regard, Company C purchases the oil sold by Company A for manufacturing or industrial
purposes only, and not for purposes of heating or warming residential or commercial properties.
ISSUE
Does the District’s gross receipts tax on heating oil under Code section 47-2501(a) apply
to a taxpayer that sells oil to a purchaser that uses it for manufacturing or industrial purposes
only, and not for purposes of heating or warming residential or commercial properties?
CONCLUSION
The District’s gross receipts tax under Code section 47-2501(a) does not apply to a
taxpayer that sells No. 2 oil for manufacturing or industrial purposes only, and not for purposes
of heating or warming residential or commercial properties.
LEGAL ANALYSIS
District law provides that each person who, by any method of delivery, delivers heating
oil to an end-user in the District must file an affidavit each month indicating the amount of its
gross receipts from the sales or distribution of the delivery of heating oil to an end-user in the
District. D.C. Official Code § 47-2501(a). District law further provides that after December 31,
2004, each person who delivers heating oil to an end-user in the District must pay a tax of 11%
on those gross receipts from sales included in bills rendered after December 31, 2004 for
941 North Capitol Street, NE, Washington, D.C. 20002

OTR Tax Ruling 2006-01
Page 2
nonresidential customers, and 10% on those gross receipts from sales included in bills rendered
after December 31, 2004 for residential customers. D.C. Official Code § 47-2501(a)(3).1
By way of an emergency regulation, OTR originally set forth its interpretation of the term
“heating oil” for purposes of its imposition of the District’s gross receipts tax on heating oil
deliveries as follows:
[T]he phrase “heating oil” means any grade of oil, including number 2, 4, and 6 grades of
oil, used for the purpose of providing heat or warmth for residential and commercial
properties.
9 DCMRA § 3515.1, Gross Receipts Tax on Heating Oil – Definitions, added on an emergency
basis May 13, 1994. Under this regulation, Company A’s sale of No. 2 oil to Company C would
not be subject to the District’s gross receipts tax on heating oil, since the oil sold by Company A
to Company C was not used for the purpose of supplying heat or warmth for residential or
commercial properties, but rather for supplying steam power for electrical generators. However,
Regulation 9-3515.1 expired 120 days after its promulgation, without OTR ever issuing a final
regulation on this matter. D.C. Official Code § 2-505(c).
Nevertheless, several factors favor a finding that the District’s gross receipts tax on
heating oil should not be imposed on Company A in this case. First, Code section 47-2501
imposes a gross receipts tax on deliveries of “heating oil.” The ordinary, common-sense
meaning of the term “heating oil” is oil used for the purpose of providing heat or warmth. In this
case, Company A did not sell oil that was used for heating or warming purposes, but for a
specific industrial use.
Second, while the Council could have imposed the gross receipts tax on all kinds of oil, it
decided, instead, to tax only a certain type of oil, heating oil. The reference just to “heating oil”
suggests that the Council intended to limit the tax authorized in Code section 47-2501 to cover
only oil that is used for heat or warmth. Thus, it precludes the tax’s application to oils that are
used for non-heating or warming purposes, such as in a manufacturing process.
Third, OTR issued Regulation 9-3515.1 contemporaneously with the Council’s
enactment of the heating oil provisions of Code section 47-2501 under the “Omnibus Budget
Support Act of 1994.” See D.C. Law 10-128, approved by Mayor Sharon Pratt Kelly on April
14, 1994, effective as of June 1, 1994. As noted above, Regulation 9-3515.1 was issued on May
13, 1994, within thirty days following Mayor Kelly’s approval of the law enacting Code section
47-2501.
1

Effective September 19, 2006, The “Natural Gas and Home Heating Oil Taxation Relief and Ratepayer
Clarification Act of 2006,” D.C. Act 16-0402, converted the District’s heating oil tax from one imposed on sales to
one imposed on the deliverer. Act 16-0402 requires each deliverer of heating oil to end-users in the District to file
an affidavit with the Mayor, for sales included in bills rendered after September 30, 2006 and before the 21st day of
each month beginning November 1, 2006, indicating the gallons of home heating oil that it delivered for final
consumption in the District based on the preceding billing period. Beginning October 1, 2006, each deliverer of
heating oil is required to pay a tax of $0.17 for each gallon of home heating oil delivered to all end-users in the
District for the preceding billing period, and an additional tax of $0.017 for each gallon of home heating oil
delivered to nonresidential end-users in the District for the preceding billing period.

OTR Tax Ruling 2006-01
Page 3

Historically, courts have given great weight to government regulations issued
contemporaneously with enactment of new statutes by legislative bodies. See, e.g.,
Consolidated Rail Corporation v. Darrone, Administratix of the Estate of LeStrange, 465 U.S.
624, 634 (1984) (court upheld ruling that employer railroad was prohibited from discriminating
against disabled employee under the Rehabilitation Act of 1973, as interpreted by
contemporaneous regulation); cf., Brentwood Liquors, Inc. et al. v. District of Columbia
Alcoholic Beverage Control Board, Respondent. H&M Food Supply, Inc., T/A Metro Foods,
Intervenor, 661 A.2d 652, 1995 D.C. App. LEXIS 122 (1995) (court reversed board decision
granting liquor license, relying, in part, on two sets of board regulations issued
contemporaneously that provided a similar standard on the permissible distance between retail
licensees). The assumption is that the authors of a contemporaneous regulation had intimate
knowledge of the legislature’s intent when the law being interpreted by regulation was enacted.
This judicial deference to contemporaneous regulations also extends to tax cases. In
Crow v. Commissioner, 85 T.C. 376, the U.S. Tax Court held that a former U.S. citizen who
moved to Canada was not liable for capital gains tax since the 1942 U.S.-Canada Convention on
Double Taxation did not allow for the imposition of U.S. capital gains tax on nonresident aliens
of the U.S. In reaching this conclusion, the Court relied, in part, on the fact that “the
contemporaneous regulations issued by the Treasury Department implicitly rejected such an
application . . .” Crow, 85 T.C., at 381.
In Owens-Corning Fiberglas Corp. v. U.S., 199 Ct. Cl. 60 (1972), the Court of Claims
rejected a taxpayer’s action for interest on his overpayment of estimated tax. The taxpayer
sought both a credit for and interest on the overpayment. The Court noted that under Treasury
regulations issued contemporaneously with the Current Tax Payment Act of 1943, Owens, at 64,
interest is disallowed on estimated tax overpayments when the taxpayer elects to apply the
overpayment to estimated tax for the succeeding tax year. The Court upheld the regulations,
observing that a contemporaneous regulation “must be upheld unless it is ‘unreasonable or flouts
the Congressional will,” citing Birchenough v. U.S., 187 Ct. Cl. 702, 710, 410 F. 2d 1247, 1252
(1969), Owens, at 66. See also, P.L.R.
200102007, 2000 PLR LEXIS 1797 (January 12, 2001) (IRS upheld disallowance of deduction
of certain amounts claimed as “mine development expenditures” under section 616 of the
Internal Revenue Code and contemporaneous regulations promulgated thereunder).
Accordingly, the District’s gross receipts tax under Code section 47-2501(a) does not
apply to Company A’s sale of No 2 oil to Company C since the sale is for manufacturing
purposes only, and not for purposes of heating or warming residential or commercial properties.