Can a petroleum distributor claim a credit or refund of the petroleum business tax, motor fuel excise tax, or prepaid sales tax it already paid on fuel, when the customer who bought that fuel on credit never pays and the debt is written off as uncollectible?

Plain-English summary

Cargill, Incorporated asked on behalf of its Northeast Petroleum division -- a Chelsea, Massachusetts-headquartered marketer of home heating oil, industrial fuel oil, and gasoline across New England -- whether it can claim a credit or refund of three separate New York taxes already paid when a customer who bought motor fuel on credit never pays and the debt is written off as uncollectible.

Petroleum business tax (Article 13-A). For periods before September 1, 1990, this tax was based on gross receipts from petroleum shipped into or imported into New York, computed "without any deduction" for costs, interest, discounts, or "any other expense whatsoever." For periods after August 31, 1990, it switched to a monthly gallonage tax. The Department found no provision in Article 13-A, under either base, allowing a refund when the corresponding receivable is later written off as a bad debt.

Motor fuel excise tax (Article 12-A). This tax (a combination of basic, additional, and supplemental excise-tax components per gallon on non-diesel and diesel motor fuel, plus a local tax in the largest cities) has its refund circumstances specifically enumerated in section 289-c. The Department found no provision there, or elsewhere in Article 12-A, for a refund or credit tied to a distributor's bad-debt write-off -- section 289-c's stated intent to place the tax's ultimate burden on highway/waterway users is just explanatory preamble, not an independent basis for relief.

Prepaid sales tax on motor fuel (section 1102). Distributors must prepay sales tax on each gallon of motor fuel imported into New York, based on the regional average retail price. Section 1120 sets out the specific circumstances for refunds and credits of this prepaid tax, and again, bad-debt write-offs aren't among them. The Department also confirmed that the general retail-vendor bad-debt relief provisions (section 1132(c) and Regulations section 534.7(b)) don't help here, because a distributor paying the prepaid tax under section 1102 is not a "retail vendor" for purposes of that relief.

Bottom line: all three taxes stay non-refundable regardless of whether the underlying fuel sale ever gets paid for.

What this means for you

Petroleum and motor fuel distributors selling on credit in New York

Unlike ordinary retail sales tax (where vendors often get bad-debt relief when a sale goes unpaid), New York's petroleum-specific tax regime -- the Article 13-A petroleum business tax, the Article 12-A motor fuel excise tax, and the section 1102 prepaid sales tax on imported fuel -- has no bad-debt refund or credit mechanism at all. Price your credit risk into your terms accordingly; the tax cost is sunk once paid, win or lose on collection.

Accountants and tax professionals

Don't assume general sales-tax bad-debt relief (section 1132(c)) extends to fuel distributors -- it's expressly limited to retail vendors, and a distributor prepaying tax under section 1102 falls outside that category. Each of the three fuel-related tax regimes here has its own closed list of refund/credit circumstances, and uncollectible receivables simply aren't on any of the three lists.

Common questions

Q: Can a fuel distributor get sales tax relief the way an ordinary retailer can when a customer doesn't pay?
A: No. The retail-vendor bad-debt relief provisions don't apply to distributors who prepay sales tax on imported motor fuel under section 1102.

Q: Did the 1990 switch from a gross-receipts to a gallonage base for the petroleum business tax change the bad-debt answer?
A: No -- the Department found no bad-debt refund provision under either the old gross-receipts base or the new monthly gallonage base.

Q: Is there any tax relief at all for a distributor when a fuel-sale debt goes bad?
A: Not under Article 13-A, Article 12-A, or the section 1102 prepaid sales tax regime, per this ruling -- none of the three has a bad-debt refund or credit mechanism.

Citations and references

Statutes:

• Tax Law Article 13-A, section 303(a) (pre-September 1990 gross receipts base); section 301-a (post-August 1990 monthly gallonage base)
• Tax Law Article 12-A, section 289-c (motor fuel excise tax refund circumstances)
• Tax Law section 1102 (prepaid sales tax on imported motor fuel)
• Tax Law section 1120 (refunds/credits for prepaid motor fuel sales tax)
• Tax Law section 1132(c); Sales and Use Tax Regulations section 534.7(b) (retail-vendor bad-debt relief, inapplicable to distributors)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a90_55s_23c_2m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(55)S
Sales Tax
TSB-A-90(23)C
Corporation Tax
TSB-A-90(2)M
Miscellaneous Tax
November 7, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z900725A

On July 25, 1990 a Petition for Advisory Opinion was received from Cargill, Incorporated,
P.O. Box 9300, Loc. #26, Minneapolis, Minnesota 55440.
The issues raised by Petitioner, Cargill, Incorporated, are whether Northeast Petroleum, a
division of Petitioner may claim a credit or refund of sales tax imposed under Article 28 of the Tax
Law, motor fuel tax imposed under Article 12-A of the Tax Law and the gross receipts tax imposed
under Article 13-A of the Tax Law when a debt attributable to the sale of motor fuel has been
ascertained to be uncollectible.
Petitioner is a Delaware corporation with its principal place of business in Minneapolis,
Minnesota. Northeast Petroleum, a division of Cargill, is headquartered in Chelsea, Massachusetts.
Northeast Petroleum is a marketer of petroleum products in New England. Its main products are
home heating oil, industrial grade fuel oil, and gasoline.
From time to time, Northeast Petroleum makes sales of petroleum or motor fuels on credit
to customers in New York who subsequently do not pay the debts owed.
Article 13-A of the Tax Law imposes a tax on petroleum businesses for the privilege of doing
business, employing capital, owning or leasing property or maintaining an office in New York State.
For taxable years or portions of taxable years terminating prior to September 1, 1990, the tax is based
on the gross receipts from sales of petroleum shipped to points within New York and the
consideration given or contracted to be given on sales of petroleum products imported into New
York. For taxable months commencing after August 31, 1990, a monthly gallon age tax is imposed
and is the sum of the motor fuel component, the automotive-type diesel motor fuel component, the
nonautomotive-type diesel motor fuel component and the residual petroleum product component.
With respect to the gross receipts tax from sales of petroleum, section 303(a) of Article 13-A
of the Tax Law, in effect prior to September 1, 1990, provided that gross receipts from sales of
petroleum means all receipts from sales of petroleum where shipments are made to points within
New York State, whether in cash, credits or property of any kind or nature, without any deduction
therefrom on account of the cost of the property sold, the cost of the materials used, labor or services,
of other costs, interest or discount paid or any other expense whatsoever.
With respect to the monthly gallon age tax, section 301-a of Article 13-A of the Tax Law
provides that for taxable months commencing on or after September 1, 1990 the tax based on the
gallon age of motor fuel imported, caused to be imported, or produced, refined, manufactured or
TP-9 (9/88)

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TSB-A-90(55)S
Sales Tax
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Corporation Tax
TSB-A-90(2)M
Miscellaneous Tax
November 7, 1990
compounded in New York during the month and the gallon age of automotive-type diesel motor fuel,
nonautomotive-type diesel motor fuel and residual petroleum product sold or used in New York
State during the month.
There is no provision, in Article 13-A of the Tax Law, under either the old gross receipts tax
base or the new gallon age tax base to allow for a refund of taxes paid on sales where the
corresponding receivable is subsequently written off as uncollectible.
Article 12-A of the Tax Law imposes an excise tax on the sale and use of motor fuel and
diesel motor fuel in New York State.
On the sale of nondiesel motor fuel there is a basic excise tax of four cents per gallon, an
additional excise tax of three cents per gallon, a supplemental excise tax of one cent per gallon and
a local tax of one cent per gallon on leaded fuel which is imposed by cities with populations of one
million Or more.
On the sale of diesel motor fuel there is a basic excise tax of six cents per gallon, an
additional excise tax of three cents per gallon and a supplemental tax of one cent per gallon.
Section 289-c of the Tax Law sets forth the circumstances under which refunds may be
obtained for taxes paid pursuant to Article 12-A. There are no provisions in Section 289-c or
elsewhere in Article 12-A for refund or credit of taxes paid where the claim for credit or refund
arises as the result of bad debt write-offs by a distributor.
The language contained in Section 289-c(2) of the Tax Law, indicating that the intention of
Article 12-A is to place the ultimate burden resulting from the tax upon those operating motor
vehicles on state highways or using state waterways is merely a preamble explaining the rationale
of the specific refund or credit provisions contained in said section.
Section 1102 of the Tax Law requires every distributor to prepay sales tax on each gallon of
motor fuel which it imports into New York State for use, distribution, storage or sale in New York
State. The prepaid tax is based upon the regional average retail sales price prescribed for the region
in which the motor fuel is imported.
Section 1120 of the Tax Law sets forth the circumstances under which refunds and credits
may be obtained for sales taxes paid with respect to motor fuels pursuant to Section 1102 of the Tax
Law. There are no provisions in Section 1120 allowing a distributor a refund or credit of taxes paid
where the claim for refund or credit arises as the result of bad debt write-offs by a distributor.

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TSB-A-90(55)S
Sales Tax
TSB-A-90(23)C
Corporation Tax
TSB-A-90(2)M
Miscellaneous Tax
November 7, 1990
Section 1132(c) of the Tax Law and Section 534.7(b) of the Sales and Use Tax Regulations
are not applicable to a distributor paying sales tax pursuant to Section 1102 of the Tax Law since
such distributor is not a retail vendor and thus is not entitled to the relief granted by such sections.

DATED: November 7, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.