Can a retail gas-station operator claim the prepaid sales-tax credit for motor fuel lost to shrinkage and evaporation?

Plain-English summary

The petitioner owns convenience stores with gas stations across New York. It buys motor fuel from in- and out-of-state suppliers, and because it imports fuel it's registered as a motor-fuel distributor (Article 12-A). It has no bulk storage -- imported fuel goes directly into the underground retail station tanks for sale to customers. After an audit, it asked whether it can take the prepaid sales-tax credit for gallons lost to shrinkage, evaporation, and handling (up to 2%).

The Office of Counsel concluded the operator cannot take the credit for its retail fuel.

• The credit is for bulk storage, not retail. Tax Law 1132(h)(1)(ii) allows a distributor to reduce taxable gallons for shrinkage/evaporation/handling (max 2%) -- but, like the identical Article 12-A excise credit (285-a(2)), it applies only to fuel held in bulk as a distributor, not fuel held for retail sale (rationale of Uni-Marts).
• Same administration across articles. Articles 12-A and 28 are jointly administered (Tax Law 289-f) and use the same statutory language, so the prepaid sales-tax credit is administered the same way as the excise credit -- there's no separate, looser rule for sales tax.
• Registration doesn't help. The operator is a distributor only for importing fuel for retail sale; its losses occur at the retail level. It can't use its distributor registration to claim a credit that ordinary retailers can't.

What this means for you

Convenience-store and gas-station operators

Being registered as a distributor doesn't unlock the shrinkage/evaporation credit if your fuel goes straight into retail pumps. The credit follows bulk storage held as a distributor, not the losses inherent in running retail tanks -- so retail evaporation/handling losses aren't creditable against prepaid sales tax (or the motor-fuel excise).

Fuel-tax compliance

Don't assume the sales-tax (Article 28) and excise (Article 12-A) credits work differently -- they're jointly administered with identical language. If you actually hold fuel in bulk as a distributor, the up-to-2% credit can apply there; retail-level losses do not qualify.

Common questions

Q: We're a registered distributor -- why can't we take the 2% shrinkage credit?
A: The credit is for fuel held in bulk storage as a distributor. Your imported fuel goes directly into retail tanks, so the losses are at the retail level and don't qualify.

Q: Is the sales-tax credit different from the motor-fuel excise credit?
A: No. They use identical language and are jointly administered (Tax Law 289-f), so both are limited to bulk-stored fuel under the Uni-Marts rationale.

Citations and references

• Tax Law section 1132(h)(1)(ii) (prepaid sales tax shrinkage/evaporation/handling credit, max 2%)
• Tax Law section 285-a(2) (parallel motor-fuel excise tax shrinkage credit)
• Tax Law section 1102(a)(2) (prepaid sales tax on motor fuel)
• Tax Law section 289-f (joint administration of Articles 12-A and 28)
• Uni-Marts, Inc., DTA No. 812177 (credit only for bulk storage, not retail)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2009.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a09_39s.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-09(39)S
Sales Tax
September 1, 2009

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S090421B

Petitioner name redacted, asks whether it is allowed to take credits for prepaid sales tax on the
number of gallons of motor fuel lost due to shrinkage, evaporation and handling (not to exceed 2% of the
fuel stored) in the underground retail gasoline station tanks at its retail gasoline stations and convenience
stores. We conclude that Petitioner, acting in its retail capacity, cannot take a credit for prepaid sales tax on
the number of gallons of gasoline lost due to shrinkage, evaporation and handling at its retail stores.
Facts
Petitioner owns and operates neighborhood convenience stores throughout New York State. In
addition to selling food and other assorted products, many of the stores are also gas stations, where motorists
can purchase various grades of gasoline (motor fuel) and diesel fuel for their vehicles. Petitioner purchases
motor fuel from both New York and non-New York-based suppliers to sell at retail. Since Petitioner
purchases some of its motor fuel from a non-New York distributor, Petitioner is licensed as a distributor of
motor fuel under the provisions of Article 12-A of the New York State Tax Law. Petitioner does not have
any bulk storage facilities in New York. The motor fuel is imported and placed directly into the underground
retail gasoline station tanks for Petitioner to sell at retail.
The Department of Taxation and Finance recently conducted an audit of Petitioner’s Petroleum
Business and Sales and Use Tax Returns. During the audit, a question was raised regarding whether credits
for shrinkage, evaporation, and handling were taken into consideration for purposes of calculating sales tax
credits.
Analysis
Distributors are responsible for the payment of the Article 12-A excise taxes, Article 13-A petroleum
business tax, and prepaid sales taxes on motor fuel that is imported into or caused to be imported into
New York by a distributor for use, distribution, storage, or sale in New York as well as on motor fuel that is
produced, refined, manufactured, or compounded by a distributor in New York. (Tax Law sections 284[1],
1102[a][2] and 301-a[b]). There is an identical credit allowed by statute for both the motor fuel excise taxes
and the prepaid sales tax for gallons lost due to shrinkage, evaporation and handling. (Tax Law sections 285a[2] and 1132[h][1][ii]). Under the prepaid sales tax, a distributor is allowed an adjustment in the gallons
subject to the taxes imposed if the distributor establishes that these gallons were lost due to shrinkage,
evaporation and handling. That allowance cannot exceed two percent of the fuel stored. The burden of
proving that any motor fuel is not subject to tax because of these allowances is on the person responsible for
the prepaid tax with respect to such fuel. (Tax Law section 1132 [h][1][ii]).
Petitioner is asserting that it is entitled to a credit against the prepaid sales tax based on gallons
imported but lost, allegedly due to shrinkage, evaporation, or handling when placed into, held, or dispensed
from tanks located at Petitioner’s retail stations. As Petitioner acknowledges, this issue has already been
addressed with regard to Article 12-A. The Department has consistently interpreted the credit under
Article 12-A to be applicable only to fuel held for bulk storage and not to fuel stored for sale at retail. This
issue was addressed in the Division of Tax Appeals determination in Uni-Marts, Inc., DTA No. 812177

-2-

TSB-A-09(39)S
Sales Tax
September 1, 2009

(May 4, 1995). While this determination is not precedential, it accurately describes the Department’s
rationale for this position. In that case, it was determined that a motor fuel distributor who operated a chain
of retail gasoline stations was not entitled to an inventory loss allowance under Article 12-A for the
difference between the gallons it imported and the gallons it sold since the fuel was only held at retail. The
Department noted that a distributor has to be holding fuel in its capacity as a distributor to be entitled to the
motor fuel tax credit, which means that the distributor would have to be holding the gallonage in bulk for
resale at the wholesale level. In its petition, Petitioner states that “[t]here is no language in the tax law,
regulations or other written guidance indicating that the same distinction, between gallons held in bulk
storage and gallons held for sale in retail, applies for Article 28, sales and compensating use taxes.”
However, section 289-f of the Tax Law provides for the joint administration of Articles 12-A and 28 of the
Tax Law, as well as the joint collection of taxes on motor fuel. Further, the statutory language describing the
credit is the same in both section 285(a)(2) of Article 12-A and section 1132 (h)(1)(ii) of Article 28. Thus,
the Department administers the credit for prepaid sales taxes in the same way it administers the credit for
motor fuel excise taxes.
Although Petitioner is registered as a distributor, Petitioner is not entitled to claim the section 1132
[h][1][ii] credit under Article 28 for its activities as a retailer. Petitioner is solely a distributor for purposes of
importing motor fuel for retail sales at its retail locations. Petitioner does not store motor fuel in bulk
storage; rather, it holds motor fuel for sale at retail. Upon importation, Petitioner is placing the motor fuel in
the underground retail gasoline station tanks at its retail locations for sale to its retail customers. Petitioner,
as a retailer, cannot use its registration as a distributor to allow it to get a credit that retailers not registered as
distributors would not be allowed. Any gallons lost by Petitioner at its retail locations due to shrinkage,
evaporation, and handling are lost at the retail level, and Articles 12-A and 28 do not allow for a credit as a
retailer.

DATED: September 1, 2009

NOTE:

/S/
Jonathan Pessen
Director of Advisory Opinions
Office of Counsel

An Advisory Opinion is issued at the request of a person or entity. It is
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or entity fully and accurately describes all relevant facts. An Advisory
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of the date the Opinion is issued or for the specific time period at issue in the
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