Is a fuel additive like cold flow improver (CFI) subject to Missouri sales tax when the terminal operator only charges customers an injection fee, not for the additive itself?

Plain-English summary

The Missouri Department of Revenue ruled that an Oklahoma-based petroleum terminal operator's purchases of cold flow improver (CFI), a fuel additive, are fully subject to Missouri sales tax -- they do not qualify as a tax-exempt "sale for resale," and they are not excused just because the terminal's customers separately pay Missouri motor fuel tax.

Applicant transports, stores, and distributes refined petroleum products and crude oil, and also offers additive injection services at its distribution terminals. One additive it provides is CFI, which is added to diesel fuel to keep it from gelling in cold weather by modifying the wax crystals that would otherwise clog a vehicle's fuel filter. Applicant does not charge customers for the cost of the CFI itself -- it only charges an injection fee for performing the service.

Three questions were addressed, all resolved against exemption. First, Applicant's in-state purchases of CFI are subject to Missouri sales tax under Section 144.020, RSMo. Second, those purchases are not exempt as a "sale for resale" under Section 144.010.1(13), RSMo, because Applicant never actually transfers ownership of the CFI to its customers for a price -- it only charges an injection fee for the service, not a sale price for the additive as tangible personal property. Third, the sales tax due on Applicant's CFI purchases is not offset or excused by the fact that Applicant's customers separately pay Missouri's motor fuel tax under Section 142.803, RSMo -- the Department explained that motor fuel tax and sales tax are two separate, unrelated taxes, so one being paid does not affect the other.

What this means for you

Petroleum terminal operators and additive injection service providers

If you buy fuel additives (like cold flow improver, cetane boosters, or similar products) to inject into customers' fuel and only charge an injection or service fee -- without separately billing customers for the cost of the additive itself -- this ruling indicates your purchase of that additive is treated as a taxable retail purchase, not a tax-exempt purchase for resale. To claim a resale exemption in Missouri, you generally need to actually transfer ownership of the tangible personal property to the customer for a price; charging only a service fee for injecting the additive does not accomplish that transfer.

Businesses whose customers also pay motor fuel tax

Don't assume that your customers' payment of Missouri motor fuel tax on the fuel itself has any bearing on your own sales tax liability for additives, chemicals, or other tangible personal property used to service that fuel. This ruling confirms the Department treats motor fuel tax (Section 142.803, RSMo) and sales tax (Section 144.020, RSMo) as entirely separate tax regimes that don't offset one another.

Accountants and tax professionals

When evaluating whether a "sale for resale" exemption applies under Section 144.010.1(13), RSMo, focus on whether there is an actual transfer of ownership of tangible personal property to the purchaser for a price. A pure service fee -- here, an injection fee -- without a corresponding charge for the underlying product does not satisfy that definition, even if the product ends up incorporated into what the customer ultimately buys (fuel).

Common questions

Q: Why are the CFI purchases taxable if Applicant doesn't sell the CFI to customers separately?
A: Because Applicant only charges an injection fee for the service of adding CFI to the fuel, and never charges customers for the CFI itself, Applicant isn't "selling" the CFI as tangible personal property. Since there's no retail sale of the CFI to a customer, the purchase doesn't qualify for the "sale for resale" exemption in Section 144.010.1(13), RSMo, and instead is subject to sales tax under Section 144.020, RSMo.

Q: Would the answer change if Applicant charged customers separately for the cost of the CFI?
A: The ruling doesn't address that scenario directly, since Applicant's actual practice is to charge only an injection fee. The ruling's reasoning turns specifically on the fact that Applicant does not charge for the CFI itself.

Q: Does it matter that Applicant's customers already pay motor fuel tax on the fuel?
A: No. The Department held that Missouri's motor fuel tax under Section 142.803, RSMo, and Missouri's sales tax under Section 144.020, RSMo, are unrelated taxes. Customers paying motor fuel tax on fuel consumed in Missouri has no effect on how much sales tax Applicant owes on its own CFI purchases.

Q: Can another petroleum distributor or terminal operator rely on this ruling?
A: Not automatically. This is a Missouri letter ruling, binding on the Department only with respect to the requesting Applicant, only for three years from its date (issued February 24, 2023), and only so long as the facts and law remain unchanged. A different business should confirm its own facts match and consult a tax professional.

Q: What law governs the sales tax analysis here?
A: Section 144.020, RSMo, imposes sales tax on retail sales of tangible personal property in Missouri, and Section 144.010.1(13), RSMo, defines a "sale at retail" as requiring a transfer of ownership of tangible personal property to a purchaser for use or consumption (not resale). Applicant's arrangement -- charging only a service fee, not a sale price for the CFI -- did not meet the resale definition.

Source

• Landing page: Missouri DOR Rulings Search
• Ruling: LR 8233

Original ruling text

Dear Applicant:

This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated January 12, 2023.

The facts as presented in your letter ruling request and from your website are summarized as follows:

Applicant primarily transports, stores, and distributes refined petroleum products and crude oil and is based in Oklahoma. In addition, Applicant provides additive injection services at their distribution terminals. A terminal may have multiple pipelines entering and exiting the facility, carrying products from point A to point B and further. One additive that Applicant might provide is called "cold flow improver (CFI)." CFI is added to the diesel fuel to keep it from gelling up in cold weather. It is a required additive that modifies the size and structure of the wax crystals that precipitate out of the fuel at low temperatures, permitting their passage through the fuel filter of vehicles. Applicant does not charge their customers for the cost of the CFI, but does charge an injection fee for the service performed at the terminals.

ISSUE 1 :

Are Applicant's CFI purchases subject to Missouri sales tax?

RESPONSE 1 :

Yes. Applicant's in-state purchases are subject to Missouri sales tax.

Section 144.020, RSMo, imposes a sales tax on the privilege of making retail sales of tangible personal property or providing certain taxable services in this state.

However, section 144.010.1(13), RSMo, provides:

"'Sale at retail' means any transfer made by any person engaged in business as defined herein of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale in any form as tangible personal property..."

Here, Applicant is not charging their customers for the sale of CFI, only a fee for their injection services. Applicant is not selling the CFI as tangible personal property. Therefore, Applicant's in-state purchases would be subject to sales tax.

ISSUE 2:

Are Applicant's purchases of CFI exempt from Missouri sales tax as a 'sale for resale?'

RESPONSE 2:

No. Applicant's purchases of CFI are not exempt from Missouri sales tax as a "sale for resale."  See Response 1.

ISSUE 3:

Are Applicant's CFI purchases exempt from Missouri sales tax because motor fuel taxes are paid by their customers?

RESPONSE 3:

No. Applicant's CFI purchases are not exempt from Missouri sales tax because motor fuel taxes are paid by their customers.

Section 144.020, RSMo, imposes a sales tax on the privilege of making retail sales of tangible personal property or providing certain taxable services in this state.

Missouri's motor fuel tax is imposed by section 142.803, RSMo, and is levied and imposed on all motor fuel used or consumed in this state. The imposition of motor fuel tax under section 142.803, RSMo, does not relate to the imposition of sales tax under section 144.020, RSMo, Applicant's customers paying tax on motor fuel consumed in this state does not affect the amount of sales tax Applicant should pay on their purchases of CFI.

This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals.  If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change.  For this reason, the interpretation set forth above should be reviewed on a regular basis.  Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.

Should additional information be needed, please contact Legal Counsel J. Ross Shelton, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.

Sincerely,

Wayne Wallingford

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