Is unenhanced diesel motor fuel used to manufacture industrial gases like oxygen and nitrogen exempt from New York's diesel motor fuel, petroleum business, and sales taxes as fuel used to produce tangible personal property for sale?

Plain-English summary

A company that manufactures industrial gases — oxygen, nitrogen, and the like — buys unenhanced diesel motor fuel and burns it in a heating process used directly to make those gases. The fuel is delivered into a tank with a dedicated pipe running straight to the manufacturing equipment, and 100% of it is consumed in production (never on the highway). The company asked which exemption box on Form FT-1012 (Manufacturing Certification for Diesel Motor Fuel) fits its use.

The answer: it qualifies for the full manufacturing exemption — the correct box is Part I (Unenhanced diesel motor fuel used to produce tangible personal property for sale).

• Three separate taxes each exempt fuel used directly and exclusively, off-highway, to produce tangible personal property (TPP) for sale: the diesel motor fuel tax (§ 282-a.3(b)(i)), the petroleum business tax on "manufacturing gallonage" (§ 301-a(f)(4), § 300(m)), and the sales and use tax (§ 1115(c)(1), subject to § 1115(j)).
• The whole question reduced to one issue: are the industrial gases "tangible personal property"? Tax Law § 1101(b)(6) generally excludes "gas" from TPP — but that exclusion is aimed at utility-type gas service.
• Under 20 NYCRR 527.2(b)(3), industrial gases sold in containers or in bulk for purposes other than heating, cooking, or lighting are tangible personal property, regardless of whether the container holds 100 pounds or more. The regulation's own example treats a welding shop's tank of oxygen as a purchase of TPP (see also Airgas East, Inc., TSB-A-03(16)S).
• Because the gases are TPP and the fuel is consumed 100% off-highway in production, the company gets all three exemptions and should certify with Form FT-1012, box Part I.

What this means for you

A manufacturer's own fuel can ride the same "used in production" exemption as its raw materials. New York lets a producer buy unenhanced diesel free of the diesel motor fuel tax, the petroleum business tax, and sales/use tax when that fuel is consumed directly and exclusively — and off the highway — to make a product it sells.

The pivot here is a product-classification point that trips people up: "gas" isn't automatically outside "tangible personal property." The § 1101(b)(6) carve-out is about metered utility gas service (like heating/cooking/lighting gas), not about industrial gases sold as a product in cylinders or bulk. Oxygen, nitrogen, argon, acetylene and similar gases sold for industrial use are TPP.

Paperwork is the mechanism. The exemption isn't automatic at the pump — the buyer certifies eligibility to its registered distributor on Form FT-1012, checking the Part I box for unenhanced diesel used to produce TPP for sale. Two conditions are baked into every one of these exemptions: all the fuel must be consumed off the highways, and the sale must not be a delivery at a filling station or into a repository that can dispense fuel into a motor vehicle's tank.

Common questions

Q: Are oxygen and nitrogen "tangible personal property" in New York, even though they're gases?
A: Yes, when sold as industrial gases in containers or in bulk for purposes other than heating, cooking, or lighting. The Tax Law's exclusion of "gas" from TPP targets utility-type gas service, not industrial product gases (20 NYCRR 527.2(b)(3)).

Q: Which taxes does the Form FT-1012 Part I exemption cover?
A: All three that ride together — the Article 12-A diesel motor fuel tax, the Article 13-A petroleum business tax, and the Article 28/29 state and local sales and use taxes — because those articles are jointly administered (Tax Law §§ 315, 289(f)).

Q: What are the conditions for the exemption?
A: The unenhanced diesel must be used directly and exclusively to produce TPP for sale by manufacturing, processing, or assembly; all of it must be consumed off the highways; and it can't be delivered at a filling station or into a repository able to dispense fuel into a vehicle's tank.

Q: How does a manufacturer actually claim it?
A: By giving its registered diesel motor fuel distributor a completed Form FT-1012 with the Part I (Unenhanced diesel motor fuel) box checked.

Citations and references

Statutes and regulations:

• Tax Law § 282-a.3(b)(i) — diesel motor fuel tax exemption for unenhanced diesel used directly and exclusively to produce TPP for sale, consumed off-highway
• Tax Law § 301-a(f)(4) and § 300(m) — petroleum business tax exemption for "manufacturing gallonage"
• Tax Law § 1115(c)(1) and § 1115(j) — sales/use tax exemption for fuel used directly and exclusively in producing TPP for sale
• Tax Law § 1101(b)(6) — definition of tangible personal property (excludes gas/electricity/refrigeration/steam, except for § 1105(b))
• Tax Law §§ 315 and 289(f) — Articles 12-A, 13-A, and 28 are jointly administered
• 20 NYCRR 527.2(b)(3) — industrial gas in containers or bulk is TPP (welding-shop oxygen example); 20 NYCRR 526.8(b)

Related guidance cited: Airgas East, Inc., Advisory Opinion, TSB-A-03(16)S (Apr. 4, 2003).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/gasoline_ao.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a09_4m_63s.pdf

Original ruling text

TSB-A-09(4)M
Motor Fuel Tax
Petroleum Business Tax
TSB-A-09(63)S
Sales Tax
December 30, 2009

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z090129A

Petitioner name redacted requests an Advisory Opinion explaining which category of exemption on
form FT-1012, Manufacturing Certification for Diesel Motor Fuel and Residual Petroleum Product, applies
to its use of unenhanced diesel motor fuel under the circumstances described below. We conclude that the
correct category of exemption is box “Part I-Unenhanced diesel motor fuel,” which pertains to fuel used in
the production of tangible personal property for sale.
Facts
Petitioner submitted the following facts as the basis for this Advisory Opinion. Petitioner
manufactures industrial gases such as oxygen and nitrogen. It purchases unenhanced diesel motor fuel from
a New York State Registered Distributor of Diesel Motor Fuel (Distributor) for a heating process used
directly in the production of industrial gas products at its plant in name of city redacted, New York. The
unenhanced diesel motor fuel is delivered into a tank with a dedicated delivery pipe going directly to the
manufacturing equipment, where 100% of the purchased fuel is used in the production process.
Analysis
The question Petitioner asks can be resolved by determining whether the industrial gases produced
by Petitioner are tangible personal property, such that Petitioner’s purchase of unenhanced diesel motor fuel
to produce these gases qualifies for exemption from the taxes imposed by Articles 12-A (Tax on Gasoline
and Similar Motor Fuels), 13-A (Tax on Petroleum Businesses), 28, and 29 (State and Local Sales and
Compensating Use Taxes) of the Tax Law.
In Petitioner’s view, these gases are tangible personal property. Petitioner states that it provided its
Distributor with a form FT-1012 on which Petitioner checked off box Part I, claiming an exemption from the
diesel motor fuel tax, the petroleum business tax, and New York State and local sales tax on the basis that
100% of the unenhanced diesel motor fuel it was purchasing would be used directly and exclusively in the
production of tangible personal property for sale, by manufacturing, processing, or assembly, and not on the
highways of this State. Petitioner maintains that Part I is the appropriate box, inasmuch as the gases that it
produces are industrial gases, not fuel gases.
Tax Law §282-a.3(b)(i) exempts from the Diesel motor fuel tax “[t]he sale to or use by the consumer
of previously untaxed Diesel motor fuel which is not enhanced Diesel motor fuel and which is used
exclusively … for the purpose of use or consumption directly and exclusively in the production of tangible
personal property, … for sale, but only if all of such fuel is consumed other than on the highways of this
state; provided, however, this exemption shall in no event apply to a sale of Diesel motor fuel which involves
a delivery at a filling station or into a repository which is equipped with a hose or other apparatus by which
such fuel can be dispensed into the fuel tank of a motor vehicle . . . .”

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TSB-A-09(4)M
Motor Fuel Tax
Petroleum BusinessTax
TSB-A-09(63)S
Sales Tax
December 30, 2009

Tax Law §301-a(f)(4) exempts from the petroleum business tax “manufacturing gallonage,” which is
defined as “residual petroleum product or diesel motor fuel (which is not enhanced diesel motor fuel) used
and consumed directly and exclusively in the production of tangible personal property for sale by
manufacturing, processing or assembly, but only if all of such fuel or product is delivered on the
manufacturing site and is consumed other than on the highways of this state. ‘Manufacturing gallonage’ shall
in no event include diesel motor fuel delivered at a filling station or into a repository which is equipped with
a hose or other apparatus by which such fuel can be dispensed into the fuel tank of a motor vehicle…” (Tax
Law §300(m)).
Tax Law §1115(c)(1) exempts from sales and use tax the “[f]uel, gas, electricity, refrigeration and
steam, and gas, electric, refrigeration and steam service of whatever nature for use or consumption directly
and exclusively in the production of tangible personal property, gas, electricity, refrigeration or steam, for
sale, by manufacturing, processing, assembling, generating, refining, mining or extracting…” This
exemption applies to the sale and use of unenhanced diesel motor fuel only if all of such fuel is consumed
other than on the highways of this state, and does not involve a sale of diesel motor fuel delivered at a filling
station or into a repository that is equipped with a hose or other apparatus by which such fuel can be
dispensed into the fuel tank of a motor vehicle (See Tax Law § 1115(j)).
According to Petitioner, 100% of the unenhanced diesel motor fuel it purchases is delivered into a
tank with a dedicated delivery pipe going directly into the manufacturing equipment, and is consumed in a
heating process used to produce industrial gases. Therefore, in order for Petitioner to qualify for the
exemptions noted above, the industrial gases it produces must be tangible personal property as that term is
defined by the Tax Law. Tax Law §1101(b)(6) provides that tangible personal property is corporeal personal
property of any nature and, except for purposes of the tax imposed by subdivision (b) of section eleven
hundred five, such term shall not include gas, electricity, refrigeration and steam. Thus the question is
whether the industrial gases produced by Petitioner are gases excluded by this provision from the definition
of tangible personal property.
We conclude that they are not excluded, and are tangible personal property for the purposes of the
exemptions in question. The petroleum business tax imposed by Article 13-A is jointly administered with
the sales and compensating use tax imposed by Article 28 of the Tax Law and with the excise tax on gasoline
and similar motor fuel imposed by Article 12-A of the Tax Law (See Tax Law §§ 315 and 289(f)).
Therefore, it is appropriate to look at the Sales and Use Tax Regulations to resolve questions as to the
definition of tangible personal property. Section 527.2(b)(3) of the Sales and Use Tax Regulations provides
that “[s]ales of gas in containers or cylinders having a capacity of less than 100 pounds of gas are considered
to be sales of tangible personal property subject to tax under subdivision (a) of section 1105 of the Tax Law
and not the sale of gas service or gas for the purposes of this section.” However, industrial gases sold in
containers or in bulk for purposes other than heating, cooking or lighting are considered tangible personal
property, regardless of whether the container has a capacity of 100 pounds or more. See Example 5 of
section 527.2(b)(3): “A welding shop purchases a tank of oxygen and a tank of acetylene. The transaction is
not the purchase of a gas service but is the purchase of tangible personal property.” See also Airgas East,
Inc., Adv Op Comm T & F, April 4, 2003, TSB-A-03(16)S and 20 NYCRR 526.8(b).
Based upon the foregoing, we conclude, assuming that the industrial gases produced by Petitioner
are not used for the purpose of heating, cooking, or lighting, that these gases constitute tangible personal
property. Therefore, the use of unenhanced diesel motor fuel as described by Petitioner to produce these

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TSB-A-09(4)M
Motor Fuel Tax
Petroleum BusinessTax
TSB-A-09(63)S
Sales Tax
December 30, 2009

industrial gases would entitle Petitioner to claim an exemption from the diesel motor fuel tax, the petroleum
business tax, and the New York State and local sales taxes. Accordingly, Petitioner may claim these
exemptions by providing its Distributor with a Form FT-1012, Manufacturing Certification for Diesel Motor
Fuel and Residual Petroleum Product, on which it checks off box Part I.

DATED: December 30, 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 limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion.