We're a state public authority, exempt from the Supplemental Petroleum Business Tax. Our electric utility shows a separate line item on our bill for the Supplemental Petroleum Business Tax it paid on the fuel it used to generate our electricity. Since we're tax-exempt, can we get a refund of that amount?

Plain-English summary

The Suffolk County Water Authority is a New York State public authority, and as such is exempt from the Supplemental Petroleum Business Tax under Tax Law § 13-a. The Authority purchased electricity from Long Island Lighting Company (LILCO) and paid its invoiced bills for that electricity. LILCO, a registered petroleum business, pays the Supplemental Petroleum and Aviation Fuel Business Tax (Tax Law § 301-j -- an extra 4.5 cents per gallon layered on top of the base Petroleum Business Tax under § 301-a) on the petroleum products it burns to generate electricity for its customers. On its invoices, LILCO showed a separate line item disclosing the amount of that Supplemental Petroleum Business Tax it had paid on the fuel used to produce the electricity it sold.

The Authority reasoned: since I'm exempt from this tax, and this line item on my bill represents that exact tax, I should be entitled to a refund. The Department rejected that reasoning. The Supplemental Petroleum Business Tax under § 301-j is legally imposed on the PETROLEUM BUSINESS (here, LILCO) for the privilege of selling covered petroleum products like #2 oil for nonresidential purposes -- it is not, as a matter of law, imposed on LILCO's electricity customers, and nothing in the statute requires LILCO to pass it through to them. LILCO isn't prohibited from itemizing this tax as a component of its invoiced selling price -- it's simply part of LILCO's own cost of doing business, no different in principle from disclosing any other input cost -- but that itemization doesn't convert the Supplemental Petroleum Business Tax into a tax legally imposed on the Authority.

Critically, the Authority itself is neither a "petroleum business" (it doesn't import, produce, refine, or sell petroleum products) nor a direct purchaser of petroleum products from LILCO (it purchased ELECTRICITY, a different product entirely, generated using petroleum as an input). Since the tax was never legally imposed on the Authority to begin with, there was simply nothing for the Authority's own § 13-a exemption to exempt it FROM. The Department held there was no basis under §§ 301-a, 301-c, or 301-j for any refund or reimbursement to the Authority.

What this means for you

Public authorities and other tax-exempt entities purchasing utility services

Your own tax exemption doesn't automatically reach every tax embedded somewhere in your utility's underlying cost structure -- it only reaches taxes legally imposed ON YOU, for purchases YOU actually make. Buying electricity is legally distinct from buying the petroleum used to generate it, even if the fuel tax shows up as a line item on your bill.

Utility customers who spot itemized tax line items on their bills

An itemized tax component on an invoice doesn't necessarily mean that tax is legally imposed on you as the customer -- it may simply be the seller disclosing (voluntarily or as a business practice) a cost it bears itself and is passing along as part of its price, which your own tax exemption may not reach.

Accountants and tax professionals advising exempt organizations

When evaluating a refund claim tied to an itemized utility tax line item, trace WHO the tax is legally imposed on (check the specific statute -- here, § 301-j names "every petroleum business," not the business's customers) before assuming a client's exemption applies; the product actually purchased (electricity vs. petroleum) also matters.

Common questions

Q: If a utility itemizes a tax on my bill, does that mean I'm the one legally paying that tax?
A: Not necessarily. Here, the Supplemental Petroleum Business Tax was legally imposed on LILCO as the petroleum business, not on its electricity customers -- itemizing it on the invoice was just a disclosure of LILCO's own cost, not a pass-through tax obligation on the customer.

Q: Does a public authority's tax exemption cover taxes embedded in the cost of goods and services it purchases?
A: Only to the extent those taxes are legally imposed on the authority itself for its own purchases. It doesn't reach taxes imposed on a supplier for THAT supplier's own upstream inputs (like the fuel a utility burns to generate electricity it then sells).

Q: Would the answer differ if the Authority had purchased petroleum products directly from LILCO instead of electricity?
A: Potentially -- this ruling turns partly on the fact that electricity, not petroleum, was the product purchased; a direct petroleum purchase by an exempt entity would raise a different analysis under §§ 301-a and 301-c.

Q: Can another exempt public authority rely on this specific ruling?
A: No. It binds the Department only as to the Suffolk County Water Authority and these facts, though the underlying "tax incidence follows the statute's literal language, not invoice itemization" principle is of general application.

Citations and references

Statutes:

• Tax Law § 13-a (public authority exemption from Supplemental Petroleum Business Tax)
• Tax Law § 301-a (Petroleum Business Tax imposition)
• Tax Law § 301-c (reimbursement provisions for subsequent purchasers, including sales to New York State/federal government)
• Tax Law § 301-j (Supplemental Petroleum and Aviation Fuel Business Tax; imposition, farming and manufacturing carve-outs)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/petrol_bus_ao.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/petroleum/a94_2m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (2) M
Petroleum
Business Tax
March 22, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M931206A

On December 6, 1993, a Petition for Advisory Opinion was received from Suffolk County
Water Authority, 4060 Sunrise Highway, 0akdale, New York 11769.
The issue raised by Petitioner, Suffolk County Water Authority, is whether Petitioner is
entitled to a refund of the Supplemental Petroleum Business Tax imposed under Article 1B-a,
Section 301-j as a result of tax being paid as a specific component part of the electric bills paid to
the Long Island Lighting Company (hereinafter "LILCO").
Petitioner is an Authority of the State of New York, and, as such, is exempt from the
Supplemental Petroleum Business Tax as imposed under Section 13-a of the Tax Law.
Petitioner purchased electricity from LILCO, and subsequently paid the invoiced amount for
such electricity. Petitioner is not, however, a petroleum business and is not purchasing petroleum
products from LILCO.
LILCO is a registered petroleum business and the Supplemental Petroleum Business Tax has
been imposed and collected from LILCO on petroleum products purchased and used by it to generate
electricity for its customers. LILCO on its invoices shows a separate line accounting of the
Supplemental Petroleum Business Tax it paid on petroleum products purchased to generate the
electricity.
Section 301-a of the Tax Law provides, in part, that:
Sec. 301-a. Imposition of tax. - - (a) General.- - Notwithstanding any other
provision of this chapter, or of any other law, for taxable months commencing on or
after the first day of September, nineteen hundred ninety, there is hereby imposed
upon every petroleum business for the privilege of engaging in business, doing
business, employing capital, owning or leasing property, or maintaining an office in
this state, a monthly tax for each or any part of a taxable month equal to the sum of
the motor fuel component determined pursuant to subdivision (b) of this section, the
automotive-type diesel motor fuel component determined pursuant to paragraph one
of subdivision (c) of this section, the nonautomotive-type diesel motor fuel
component determined pursuant to paragraph two of subdivision (c) of this section
and its residual petroleum product component determined pursuant to subdivision (d)
of this section. In no event shall the tax imposed by this article be less than twenty­
five dollars for each or any part of the taxable month. (emphasis added)

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TSB-A-94 (2) M
Petroleum
Business Tax
March 22, 1994
Section 301-c of the Tax Law provides, in part, that:
Sec. 301-c. Reimbursement.-- A subsequent purchaser shall be eligible for
reimbursement of tax with respect to the following gallonage, subsequently sold by
such purchase in accordance with subdivision (a) or (b) of this section or used by such
purchaser in accordance with subdivision (c) or (d) of this section, which gallonage
has been included in the measure of the tax imposed by this article on a petroleum
business:
*

*

*

(b) Sales to New York state and the federal government. Motor fuel and
diesel motor fuel purchased in this state and sold by such purchaser in this state to an
organization described in paragraph one or two of subdivision (a) of section eleven
hundred sixteen of this chapter where (i) such motor fuel or diesel motor fuel is for
such organization's own use or consumption, (ii) the tax imposed pursuant to this
article has been paid with respect to such motor fuel or diesel motor fuel and the
entire amount of such tax has been absorbed by such purchaser and, (iii) such
purchaser possesses documentary proof satisfactory to the commissioner of taxation
and finance evidencing the absorption by it of the entire amount of the tax imposed
pursuant to this article. Provided, however, that the commissioner of taxation and
finance shall require such documentary proof to qualify for any reimbursement of tax
provided by this section as the commissioner deems appropriate, including the
expansion of any certification required pursuant to section two hundred eighty-five-a
or two hundred eighty-five-b of this chapter to cover the taxes imposed pursuant to
this article. (emphasis added)
Section 301-j of the Tax Law provides, in part, that:
Sec. 301-j. Supplemental petroleum and aviation fuel business tax.-- (a)
Imposition of tax. In addition to the taxes imposed by sections three hundred one-a
and three hundred one-e of this article, for taxable months commencing on or after
July first, nineteen hundred ninety-one there is hereby imposed upon every petroleum
business subject to tax imposed under section three hundred one-a of this article and
every aviation fuel business subject to the tax imposed under section three hundred
one-e of this article, a supplemental monthly tax for each or any part of a taxable
month at a rate of four and one-half cents per gallon with respect to the products
included in each component of the taxes imposed by such sections three hundred one­
a and three hundred one-e of this article. Such tax shall be calculated in the same
respective manner as the taxes imposed by section three hundred one-a and section
three hundred one-e of this article. Except for section three hundred one-d and
except as otherwise provided in this section, all the provisions of this article

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TSB-A-94 (2) M
Petroleum
Business Tax
March 22, 1994
applicable to the taxes imposed by sections three hundred one-a and tree hundred
one-e of this article, shall apply with respect to the supplemental tax imposed by this
section to the same extent as if it were respectively imposed by such sections.
Provided, however, there shall be exempt from the measure of the supplemental
petroleum business tax imposed by this section a sale or use consisting of no more
than four thousand five hundred gallons of diesel motor fuel in a thirty-day period to
or by a consumer who purchases or uses such fuel for use or consumption directly
and exclusively in the production for sale of tangible personal property by farming
but only if all of such fuel is delivered on the farm site and is consumed other than
on the highways of this state (except for the use of the highway to reach adjacent
farmlands) provided, however, a farmer may purchase more than four thousand five
hundred gallons of diesel motor fuel in a thirty-day period for such use or
consumption exempt from the tax in accordance with prior clearance given by the
commissioner of taxation and finance. A subsequent purchaser shall be eligible for
reimbursement of the supplemental tax imposed by this section with respect to
gallonage of diesel motor fuel, subsequently sold by such purchaser for use or
consumption directly and exclusively in the production for sale of tangible personal
property by farming under the circumstance described in the preceding sentence,
which gallonage has been included in the measure of the supplemental tax imposed
by this section on a petroleum business and the entire amount of such tax has been
absorbed by such purchaser.
(b) Manufacturing reimbursement (or credit). (1) Amount eligible for
reimbursement (or credit). On and after September first, nineteen hundred ninety-one,
a manufacturer shall be entitled to a reimbursement of the tax imposed by this section
with respect to residual petroleum product and diesel motor fuel (which is not
enhanced diesel motor fuel) purchased in this state on and after such date by such
manufacturer where the tax imposed by this section with respect to such residual
petroleum produce or diesel motor fuel was paid and such manufacturer absorbed
such tax in the purchase price of such residual petroleum product or diesel motor fuel
and where such residual petroleum product of diesel motor fuel is used or consumed
by such manufacturer directly and exclusively in the production of tangible personal
property for sale of manufacturing processing or assembly. A credit shall be available
to a manufacturer which is registered as a petroleum business for such diesel motor
fuel or residual petroleum product so used or consumed directly and exclusively in
the production of tangible personal property for sale with respect to gallonage which
is imported into the state by such manufacturer where the tax liability under this
section is imposed on such manufacturer. (emphasis added)
The Supplemental Petroleum Business Tax is levied on a petroleum business that sells #2
oil for nonresidential purposes. It is not levied on the business's customers and is not required to be
passed through to its customers.

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TSB-A-94 (2) M
Petroleum
Business Tax
March 22, 1994
While there is no need for a petroleum business to include the amount of the Supplemental
Petroleum Business Tax on a bill or invoice, it is also not precluded as part of its practice to indicate
the amount of this tax on bills as part of an itemization of the selling price of the product. The tax
is component of the cost of doing business for LILCO.
Accordingly, since the Supplemental Petroleum Business Tax is not a tax on Petitioner as
a consumer and Petitioner is neither a petroleum business nor is purchasing petroleum products from
LILC0, pursuant to Sections 301-a, 301-c and 301-j of the Tax Law, Petitioner is not entitled to a
reimbursement or refund of any Supplemental Petroleum Business Tax paid by LILC0.

DATED: March 22, 1994

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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