Can a New York fuel dealer import 'high sulfur diesel' from Canada and sell it for residential heating without New York fuel and sales taxes, and is any tax owed when it is imported?

Plain-English summary

Oneida Lake Petroleum Corp. planned to import a diesel product labeled "high sulfur diesel" from Canada — a fuel similar to No. 2 fuel oil but with a higher cetane level, used in Canada mainly to run machinery — using its own trucks to bring it into New York. It would then sell some of that product in New York for residential heating. Oneida Lake asked whether it must pay tax when it imports the fuel and then claim a refund on the heating sales, or whether the transactions are simply exempt when the product is sold for residential heating, under Articles 12-A, 13-A, and 28 of the Tax Law.

The answer: importing the fuel triggers no tax; tax attaches at the first non-exempt New York sale or use, and residential heating sales can be made exempt outright.

• The product is "enhanced diesel motor fuel." High-sulfur diesel is a variety of No. 2 diesel fuel (sulfur above 0.05% by weight), and Tax Law § 282(16) specifically designates No. 2 diesel fuel as enhanced diesel motor fuel.
• No tax at importation. None of the Article 12-A (excise), 13-A (petroleum business), or 28 (sales) taxes arise when Oneida Lake imports the product from Canada. Any applicable tax is imposed at the first non-exempt sale or use of the product in New York, not at importation.
• Residential heating sales are exempt from all three taxes. Sales to consumers for residential heating may be made exempt under § 282-a(3)(b)(iii) (excise), § 301-b(d)(2) (petroleum business), and § 1105-A(a) (prepaid sales) — although local sales and use taxes may still apply depending on where the sale occurs.
• Non-residential heating is treated less favorably. Sales for non-residential heating may be exempt under Article 12-A (§ 282-a(3)(b)), but are fully taxable under Article 13-A and Article 28.
• No inter-distributor exemption here. Because the product is enhanced diesel motor fuel and must be sold as such, the exemption for inter-distributor sales does not apply (§ 282-a(3)(b)(ii), § 301-b(e)(1), § 1102(a)(2)).
• The tax follows the fuel. If any of these taxes has not yet been imposed, it will be imposed whenever the product is sold and delivered to a filling station or other repository equipped to dispense fuel into a motor vehicle's tank, or is otherwise sold or used in a way not exempt under those articles.

What this means for you

Bringing fuel across the border into New York is not, by itself, a taxable event. New York's diesel taxes are structured to fall on the first non-exempt sale or use in the state, so an importer does not pay tax simply for importing — which also means there is usually no need to "pay now and claim a refund later" if the fuel is destined for an exempt residential-heating sale. The exemption can be applied at the point of the qualifying sale.

"Residential" versus "non-residential" heating is the dividing line that matters. Fuel sold to consumers for residential heating can come through free of the state excise, petroleum business, and prepaid sales taxes. The moment the heating use is non-residential, the petroleum business tax and the sales tax apply in full (only the Article 12-A excise exemption survives). And remember that even exempt residential heating sales can still attract local sales and use tax depending on the locality.

Watch the delivery point. The favorable treatment assumes the fuel stays in the heating channel. If enhanced diesel is delivered to a filling station or into any repository that can dispense fuel into a vehicle's tank — or is otherwise used in a non-exempt way — the taxes attach regardless of how the product was labeled or originally intended.

Common questions

Q: Do we owe New York tax the moment we truck this fuel in from Canada?
A: No. No Article 12-A, 13-A, or 28 tax arises at importation. Tax is imposed at the first non-exempt sale or use of the fuel in New York.

Q: Is a residential heating sale exempt, or do we pay and then get a refund?
A: It can be made exempt at the point of sale under § 282-a(3)(b)(iii), § 301-b(d)(2), and § 1105-A(a) — no pay-then-refund is required for qualifying residential heating sales. Local sales and use taxes may still apply.

Q: What if the fuel is used for non-residential heating?
A: It may be exempt from the Article 12-A excise tax, but it is fully taxable under Article 13-A (petroleum business tax) and Article 28 (sales tax).

Q: Can we move this fuel tax-free to another distributor as an inter-distributor sale?
A: No. Because the product is enhanced diesel motor fuel and must be sold as such, the inter-distributor exemption does not apply (§ 282-a(3)(b)(ii), § 301-b(e)(1), § 1102(a)(2)).

Citations and references

Statutes:

• Tax Law § 282(16) — defines "enhanced diesel motor fuel"; No. 2 diesel fuel is enhanced
• Tax Law § 282-a(1) — Article 12-A diesel motor fuel excise tax on the first sale or use
• Tax Law § 282-a(3)(b) — excise-tax exemptions, including inter-distributor sales (ii) and residential heating (iii)
• Tax Law § 301-a and § 301-j — Article 13-A base and supplemental petroleum business tax on diesel motor fuel
• Tax Law § 301-b(d)(2) — Article 13-A exemption for residential heating; § 301-b(e)(1) — inter-distributor provision
• Tax Law § 1102 — Article 28 prepaid sales tax on diesel motor fuel; § 1105 — sales tax on retail sales of tangible personal property
• Tax Law § 1105-A(a) — prepaid sales tax exemption for sales to consumers for residential heating

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/misc/a98_1m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-98(1)M
Miscellaneous Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M970806I

On August 6, 1997, the Department of Taxation and Finance received a
Petition for Advisory Opinion from Oneida Lake Petroleum Corp., P.O. Box 680,
Mallory Road, Central Square, New York 13036. On March 12, 1998, Oneida Lake
Petroleum Corp. submitted additional information related to the Petition.
The issue raised by Petitioner, Oneida Lake Petroleum Corp. is whether it
may import "high sulfur diesel" fuel from Canada into New York State and sell
such fuel for residential heating purposes without tax consequences under
articles 12-A, 13-A and 28 of the Tax Law.
Petitioner presents the following facts. Petitioner intends to import a
diesel product labeled "high sulfur diesel" (the "product") from Canada.
According to Petitioner, high sulfur diesel is similar to No. 2 fuel oil, but has
a higher cetane level and is used in Canada primarily to operate machinery.
Petitioner would use its own trucks to take delivery of the product in Canada and
import the product into New York State. Petitioner would then sell some of the
product in New York State for residential heating purposes. Petitioner asks
whether it must pay tax on the importation of the product and then apply for a
refund on the heating sales, or if the transactions are exempt if the product is
sold for residential heating purposes.
Applicable Law
Subdivision (16) of section 282 of Article 12-A of the Tax Law provides,
in part:
"Enhanced Diesel motor fuel" shall mean the combined or blended
product which has resulted from the act of enhancement (not the
purchase of the ingredients to make the blend) and any product
specifically designated "Diesel fuel" or "No. 1 Diesel fuel" or "No.
2 Diesel fuel" or any like industry designation commonly used to
refer to a fuel used in the operation of a motor vehicle engine of
the Diesel type which meets standard industry specifications for
such fuel. . . .
Section 282-a(1) of Article 12-A of the Tax Law states, in part:
There is hereby levied and imposed with respect to Diesel motor fuel
an excise tax of four cents per gallon upon the sale or use of
Diesel motor fuel in this state. The excise tax is imposed on the
first sale or use of Diesel motor fuel to occur which is not exempt
from tax under this article. . . .

-2­
TSB-A-98(1)M
Miscellaneous Tax

Section 282-a(3)(b) of Article 12-A of the Tax Law provides, in part:
The tax on the incident of sale or use imposed by subdivision one of
this section shall not apply to: (i) the 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 heating
purposes or for the purpose of use or consumption directly and
exclusively in the production of tangible personal property, gas,
electricity, refrigeration or steam, for sale, but only if all of
such fuel is consumed other than on the highways of this state . . .
(iii) a sale or use of enhanced Diesel motor fuel to or by a
consumer exclusively for the purposes of heating specified in
subparagraph (i) of this paragraph but only if such enhanced Diesel
motor fuel is delivered into a storage tank which is not equipped
with a hose or other apparatus by which such fuel can be dispensed
into the fuel tank of a motor vehicle and such storage tank is
attached to the heating unit burning such fuel, provided that each
delivery of such fuel of over four thousand five hundred gallons
shall be evidenced by a certificate signed by the purchaser stating
that
the
product
will
be
used
exclusively
for
heating
purposes. . . .
Sections 301-a and 301-j of Article 13-A of the Tax Law impose a base tax
and a supplemental tax, respectively, on diesel motor fuel. Section 1102 of
Article 28 of the Tax Law imposes a prepaid sales tax on diesel motor fuel.
Additionally, section 1105 of Article 28 imposes a sales tax on retail sales of
tangible personal property, including diesel motor fuel.
Section 301-b(d)(2) of article 13-A of the Tax Law contains an exemption
from tax for sales of enhanced diesel motor fuel to consumers for residential
heating purposes similar to that contained in section 282-a(3)(b)(iii) of article
12-A.
However, sales of enhanced diesel fuel for non-residential heating
purposes are not exempt from tax under article 13-A.
Section 1105-A(a) of article 28 of the Tax Law contains exemptions from the
prepaid sales tax for sales to consumers for residential heating purposes similar
to that contained in section 282-a(3)(b)(iii) of article 12-A.
Sales for
residential heating purposes may be subject to local sales and use taxes
depending on the locality in which the sales take place.
Sales for
non-residential heating are not exempt under article 28.
Opinion
We reach
Petitioner.

the

following

conclusions

regarding

the

issue

raised

by

The product is designated as a diesel product and is considered to be
enhanced diesel motor fuel for purposes of the Tax Law. High sulfur diesel fuel
is a variety of No. 2 diesel fuel possessing a sulfur level above 0.05 percent
by weight (Glossary, Energy Information Administration/Petroleum Marketing
Monthly, May 1998). Section 282(16) of Article 12-A specifically designates No.
2 diesel fuel as enhanced diesel motor fuel.

-3­
TSB-A-98(1)M
Miscellaneous Tax

There are no tax consequences under articles 12-A, 13-A and 28 of the Tax
Law that would arise at the time of Petitioner's importation of the product from
Canada. Any applicable taxes imposed under these articles would be imposed at
the time of the first non-exempt sale or use of the product in New York State,
not at the time of its importation. It is noted that, since the product is
enhanced diesel motor fuel and must be sold as such, the provisions of the Tax
Law allowing an exemption from tax for interdistributor sales are not applicable
(Tax Law, §§ 282-a(3)(b)(ii), 301-b(e)(1) and 1102(a)(2)).
Sales of the product to consumers for residential heating purposes may be
made exempt from the taxes imposed by articles 12-A, 13-A and 28, in accordance
with sections 282-a(3)(b)(iii), 301-b(d)(2) and 1105-A(a), respectively.
However, these sales may be subject to local sales and use tax depending on the
locality in which the sales take place.
Sales of the product to consumers for non-residential heating purposes may
be made exempt from tax under Article 12-A in accordance with section
282-a(3)(b). However, sales of the product for non-residential heating purposes
would be fully taxable under articles 13-A and 28.
It should be noted that if any applicable taxes under articles 12-A, 13-A
and/or 28 have not yet been imposed, such taxes would be imposed any time the
product was sold and delivered to a filling station or other repository equipped
with a hose or other apparatus by which the product could be dispensed into the
fuel tank of a motor vehicle, or if the product were otherwise sold and/or used
under any circumstances not exempt from tax under such articles.

DATED: July 1, 1998

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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