Is a natural gas pipeline company's charge for transporting gas taxable when it is not the supplier of the gas?

Plain-English summary

A natural gas pipeline company asked how Kansas sales tax applies to the charges it bills customers for transporting natural gas to them. The key fact is who supplied the gas being moved. The company noted that, as far as it knew, it had never in the past billed or collected sales tax on these transportation charges.

The Department drew a clean line:

• When the pipeline company IS the supplier of the gas — that is, it sells the customer the natural gas and also delivers it — any charge for transporting the gas is considered part of the sale of the natural gas and is subject to sales tax. The transportation is bundled into the taxable sale of the commodity.

• When the pipeline company is NOT the supplier — the customer purchased the gas from a different supplier and the pipeline company is only moving that gas to them — the company's transportation charges are not subject to sales tax. Here the company is providing a stand-alone transportation service on gas it did not sell, and that service charge is not taxed.

In short, the taxability of the transportation charge follows the sale of the gas: if it is part of a taxable gas sale by the same company, it is taxed; if it is a separate delivery of someone else's gas, it is not.

What this means for you

Pipeline and gas marketing companies

Track whether you sold the gas you are moving. If you are both the seller and the transporter, bill sales tax on the delivered price, including the transportation component, because it is part of the taxable sale. If you are only transporting gas the customer bought from another supplier, your transportation charge is not taxable.

Customers and end users

If your gas supplier and your transporter are different companies, the transporter's charge for moving gas you bought elsewhere should not carry Kansas sales tax. If the same company both sells and delivers your gas, expect the transportation to be taxed as part of the gas sale.

Bundled vs. unbundled billing

The distinction reflects the older "unbundled" natural gas market, where commodity supply and pipeline transportation are often billed by different parties. The Department's treatment depends on that supplier/transporter split, so make sure your invoices reflect who actually supplied the gas.

Common questions

Q: Are natural gas transportation charges taxable in Kansas?
A: Only when the company charging for transportation is also the supplier of the gas. Then the transportation is part of the taxable gas sale. If the company is not the supplier, the transportation charge is not taxable.

Q: Why does it matter who supplied the gas?
A: If the transporter also sold the gas, the delivery is part of a taxable sale of tangible personal property. If the transporter is only moving gas the customer bought from someone else, it is providing a stand-alone service that is not taxed.

Q: The customer bought gas from another supplier and we just move it — do we charge tax?
A: No. Under this ruling, when the pipeline company is not the supplier of the gas, its transportation charges to the customer are not subject to Kansas sales tax.

Q: Does this ruling apply to my company?
A: A Kansas private letter ruling addresses only the requesting taxpayer's facts and cannot be relied on as precedent by others, but it reflects the Department's analysis distinguishing bundled gas sales from stand-alone transportation.

Citations and references

• The ruling analyzes the taxability of transportation charges by reference to whether they are part of a taxable sale of natural gas (the pipeline company as supplier) versus a stand-alone transportation service (gas supplied by another party); it does not cite a specific imposition subsection in the letter.
• K.A.R. 92-19-59 — the regulation authorizing Kansas private letter rulings.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2002-080

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

September 30, 2002

XXXX
XXXX
XXXX

Re: Private Letter Ruling Request Concerning Certain Transportation Charges

Dear XXXX:

Your company, XXXX, has requested a private letter ruling on the proper sales tax treatment for charges that XXXX, a natural gas pipeline company, bills its customers for transporting natural gas to them, when XXXX is not the supplier of the natural gas and those customers have purchased the natural gas from other suppliers. You indicated that as far as you know, XXXX has never in the past billed its customers or collected sales tax on such charges.

When XXXX is the supplier of natural gas to its customers, any charges billed by XXXX to its customers for transporting the gas to them would be considered part of the sale of the natural gas and are subject to applicable sales tax. However, when XXXX is not the supplier of the natural gas to its customers and those customers have instead purchased the natural gas from other suppliers, XXXX’s charges to its customers for transporting such natural gas to them is not subject to sales tax.

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked by operation of law without further department action if there is a change in the controlling statutes, administrative regulations, revenue rulings or case law that materially effects this determination.

Very truly yours,

Richard L. Cram

Cc: XXXX

Date Composed: 10/03/2002 Date Modified: 10/04/2002

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