Does Louisiana treat liquefied natural gas the same as natural gas for the state sales and use tax exemption?

Plain-English summary

Louisiana Private Letter Ruling 10-027 treated liquefied natural gas as natural gas for state sales and use tax purposes under the specific facts presented.

Liquefaction changed the gas into a compact liquid only to make storage and long-distance transport more efficient. The LNG had to be warmed and returned to gaseous form before it could be used.

Because the Department found no purpose or use different from natural gas, LNG received the same state tax treatment and rates as natural gas.

Facts that drove the result

The ruling described LNG as natural gas cooled to about minus 260 degrees Fahrenheit, reducing its volume to about 1/600 of the gaseous volume.

Before liquefaction, components such as dust, acid gases, helium, water, and heavy hydrocarbons were removed. The LNG then traveled in specially designed cryogenic tankers.

At the terminal, it was stored until the owner requested conversion. Vaporizers warmed it back into natural gas, which then left the terminal by pipeline.

The Department emphasized that:

• LNG was created solely for efficient storage and transportation;
• it was unusable as a fuel in liquid form;
• regasification was a physical rather than chemical process; and
• it had no purpose or use distinct from natural gas.

Why physical form did not change classification

Louisiana sales-tax law did not define “natural gas,” so the Department used common usage under LAC 61:I.4301(A).

The analysis asked whether liquefaction created a commercially different product with different purposes or uses. The Department concluded that it did not under the taxpayer's facts.

The ruling contrasted LNG with products such as ice or steam, which can be usable commercial products distinct from the water from which they are made.

Ruling and historical suspension periods

The state sales and use tax treatment of the LNG was the same as natural gas under La. R.S. 47:305(D)(1)(g).

The ruling noted that the natural-gas exemption had been fully or partially suspended during periods from July 1, 1986 through June 30, 2009. During those periods, LNG bore the same rates that applied to natural gas rather than receiving different treatment.

What this means for you

LNG suppliers and terminal operators

The favorable classification depended on liquefaction serving only storage and transport and on the product requiring regasification before use.

Natural gas purchasers

Document the product's processing, commercial use, storage path, and regasification. A product with a distinct use in liquid form would not necessarily fit this ruling's reasoning.

Accountants and tax professionals

The PLR addressed Louisiana state sales and use tax and historical suspension periods. Verify current state and local treatment independently.

Common questions

Q: Did liquefaction create a different taxable product?

A: No. Under the facts provided, it only made natural gas easier to store and transport.

Q: Could the LNG be used as fuel before regasification?

A: No. The ruling stated that LNG was unusable as a fuel source and had to be converted back to natural gas.

Q: Was LNG always exempt during the historical period discussed?

A: No. When the natural-gas exemption was fully or partly suspended, LNG bore the same applicable tax rates as natural gas.

Q: Can another company rely on this PLR?

A: No. The published ruling bound the Department only for the addressed taxpayer and the truthful, complete facts of the proposed transaction.

Citations and references

• La. R.S. 47:305(D)(1)(g) — state sales and use tax exemption for natural gas
• LAC 61:I.4301(A) — undefined words construed according to common usage
• LAC 61:III.101 — Private Letter Ruling authority and reliance limits

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA PLR 10-027

Original ruling text

Private Letter Ruling No. 10-027
Redacted Version
Sales Tax
Is Liquefied Natural Gas (LNG) Eligible for the Sales Tax Exemption Provided by R.S.
47:305(D)(1)(g) for “Natural Gas”?
October 18, 2010
Facts
Liquefied natural gas (“LNG”) is natural gas that has been converted into liquid form through a process of
"liquefaction". LNG takes up approximately 1/600th the volume of natural gas. LNG is used for transporting
natural gas to markets, via LNG tankers, because of its cost and volume efficiencies. Natural gas is not
useable in its LNG form. LNG is odorless, colorless, non-toxic and noncorrosive.
The liquefaction process involves the removal of certain components, such as dust, acid gases, helium, water
and heavy hydrocarbons. The natural gas is then condensed into a liquid at close to atmospheric pressure by
cooling it to approximately minus 260 degrees Fahrenheit. The reduction in volume makes it considerably
more cost effective to transport over long distances where pipelines do not exist. This transportation typically
occurs by specially designed cryogenic LNG tankers. The energy density of LNG is 60% of that of diesel fuel.
The regasification process is a purely physical process, not a chemical process. The LNG that is off-loaded
from the LNG tanker is first pumped into a storage tank. Once the owner requests its conversion into natural
gas, the LNG is then pumped through a series of vaporizers that warm the LNG and return it to its natural
gas state. Once the LNG is returned to natural gas, it exits the LNG terminal and is delivered to the owners
via pipeline.
Issue
Whether the sale at retail, the use, the consumption, the distribution, or the storage to be used or consumed
in Louisiana of LNG is eligible for the exemption provided by R.S. 47:305(D)(1)(g) for “natural gas”?
Department Analysis
The term “natural gas” is not defined in the sales tax law. In accord with section 61:I.4301(A) of the
Louisiana Administrative Code, the term “natural gas” shall be construed in accord with the common usage
of the language. The term “natural gas” is defined in Webster's Ninth New Collegiate Dictionary as "gas issuing
from the earth's crust through natural openings or bored wells; a combustible mixture of methane and higher
hydrocarbons used chiefly as a fuel and raw material; gas manufactured from organic matter (as coal).”
LNG is derived from natural gas by the cooling of the gas to a temperature of minus 260 degrees Fahrenheit,
at which point the gas condenses to a liquid, and is reduced to a volume that is 1/600th the volume of natural
gas. This change from gas to liquid is done solely to facilitate the storage or transportation of the product.
LNG is unusable as a fuel source. A purchaser who would acquire the LNG is effectively purchasing natural
gas for re-sale or consumption. The purchaser of LNG for consumption effectively bears the burden of
regasification of the LNG into natural gas before the product can be used.
The question to be answered in determining the taxability of the LNG is whether the liquefaction of the
natural gas to create LNG effectively creates a product that is commercially recognized as being different
from natural gas, the purposes and uses of which are different from those of natural gas.
The department concluded on the basis of the information furnished in connection with the request for the
Private Letter Ruling that LNG has no purposes or uses different from those of natural gas, other than to be
in a form that facilitates more efficient storage and transport of the product.

Private Letter Ruling No. 10-027
Redacted Version
Page 2 of 2
The change of the natural gas from a gaseous state to a liquid state can be compared to changes to other
materials that are rendered by heating, boiling, cooling, or freezing the materials, but which do create
recognizable products that are different from the materials which existed prior to the changes made by the
heating, boiling, cooling, or freezing. For example, ice and steam are viable and usable commercial products
that are different from the water from which the products are derived.
Ruling
The Louisiana state sales and use taxability of liquefied natural gas (“LNG”), which is produced from natural
gas solely to facilitate the storage and transport of the natural gas, and which must be re-gasified before any
effective use of the gas, will be the same as that of natural gas. The state sales and use tax exemption
provided by R.S. 47:305(D)(1)(g) for the sale at retail, the use, the consumption, the distribution, and the
storage to be used or consumed of natural gas was fully or partially suspended for periods between July 1,
1986, and June 30, 2009. During those periods, transactions for LNG bore the same taxability rates as were
applicable to natural gas.
Sincerely,
Cynthia Bridges
Secretary
By:

Raymond E. Tangney
Senior Policy Consultant
Policy Services Division
(225) 219-2780

This constitutes a private letter ruling (PLR) by the Louisiana Department of Revenue, as provided for by section 61:III.101 of the
Louisiana Administrative Code. A PLR provides guidance to a specific taxpayer at the taxpayer's request. It is a written statement
that applies principles of law to a specific set of facts or a particular tax situation. A PLR does not have the force and effect of law,
and is not binding on the person who requested it or on any other taxpayer. This PLR is binding on the department only as to the
taxpayer to whom it is addressed, and only if the facts presented were truthful and complete and the transaction was carried out as
proposed. It continues as authority for the department's position unless a subsequent declaratory ruling, rule, court case, or statute
supersedes it.