How do South Carolina sales tax and the motor fuel user fee apply to compressed or liquefied natural gas used in motor vehicles?

Plain-English summary

South Carolina Revenue Ruling 17-3 coordinates two tax systems for compressed natural gas (CNG) and liquefied natural gas (LNG) used to power motor vehicles. The qualifying motor fuel is exempt from sales and use tax, but the motor fuel user fee applies when CNG or LNG is used to propel vehicles in South Carolina.

When a gas company sells raw natural gas to a fueling station for resale, that transaction is a nontaxable wholesale sale and is not yet subject to the motor fuel user fee. After the station compresses or liquefies the gas and sells it to an end user as vehicle fuel, the retail sale qualifies for the sales-tax exemption but is subject to the motor fuel user fee.

When an end user buys raw gas and converts it on site for its own vehicles, the raw-gas purchase qualifies for the sales-tax exemption only if the buyer has the miscellaneous motor fuel user fee license required by Section 12-28-1139 and will remit the user fee. The gas company's sale of uncompressed or unliquefied gas is not itself subject to the motor fuel user fee; the end user owes the fee when it converts and uses the CNG or LNG as vehicle fuel.

The ruling also states the conversion factors enacted in 2016 for calculating gallon equivalents: LNG used 6.06 pounds per diesel gallon equivalent, and CNG used 126.67 cubic feet—or 5.66 pounds through a mass-flow meter—per gasoline gallon equivalent. These technical figures should be checked against current law before use.

What this means for you

Public and private fueling stations

Treat the upstream purchase of raw natural gas as a resale purchase, then account for the motor fuel user fee when the finished CNG or LNG is sold for vehicle propulsion. The finished-fuel sale is exempt from sales and use tax because it is subject to the motor fuel user fee.

Fleets with on-site refueling equipment

The sales-tax exemption for raw gas depends on holding the specified miscellaneous motor fuel user fee license and remitting the fee on the fuel you produce. Without the stated license condition, the ruling does not grant that exemption.

Common questions

Q: Is retail CNG or LNG for vehicles subject to sales tax?
A: No, under the ruling it qualifies for the motor-fuel sales-tax exemption because it is subject to the motor fuel user fee.

Q: Is the fueling station's purchase of raw gas taxable?
A: No. It is a wholesale purchase for resale and the raw gas is not yet subject to the motor fuel user fee.

Q: Can a fleet exempt raw gas that it converts on site?
A: Yes, if it holds the Section 12-28-1139 miscellaneous motor fuel user fee license and remits the user fee on the CNG or LNG it produces for vehicle use.

Q: Who owes the user fee when an end user makes its own fuel?
A: The end user that compresses or liquefies the gas for its vehicles.

Citations and references

• S.C. Code Ann. Sections 12-28-110, 12-28-120, 12-28-310, and 12-28-970 (alternative fuel, gallon equivalents, and motor fuel user fee)
• S.C. Code Ann. Section 12-28-1139 (miscellaneous motor fuel user fee license)
• S.C. Code Ann. Section 12-36-2120(15)(a) and (e) (qualifying sales-tax exemptions)
• Act No. 160 of 2016 (effective April 21, 2016)

Subject

Natural Gas Compressed or Liquefied for Use in a Motor Vehicle

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR17-3.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 12265, Columbia, South Carolina 29211

SC REVENUE RULING #17-3

SUBJECT:

Natural Gas Compressed or Liquefied for Use in a Motor Vehicle
(Motor Fuel User Fee and Sales and Use Tax)

EFFECTIVE DATE: April 21, 2016 1
REFERENCES:

S.C. Code Ann. Section 12-28-110(1) (2014)
S.C. Code Ann. Section 12-28-110(73) and (74) (Act No. 160 of 2016)
S.C. Code Ann. Section 12-28-120 (Act No. 160 of 2016)
S.C. Code Ann. Section 12-28-310 (2014)
S.C. Code Ann. Section 12-28-970 (2014)
S.C. Code Ann. Section 12-36-2120(2) and (9) (2014)
S.C. Code Ann. Section 12-36-2120(15) (2014; Act No. 160 of 2016)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public. It
is an advisory opinion issued to apply principles of tax law to a set of facts
or general category of taxpayers. It is the Department’s position until
superseded or modified by a change in statute, regulation, court decision,
or another Department advisory opinion.

OVERVIEW
Domestic use of compressed natural gas as an alternative fuel for transportation is on the rise due
to its low cost, clean burning properties, and abundant domestic supply. Natural gas is not
commonly or commercially sold or known as a fuel suitable for vehicles unless it is compressed
or liquefied. Compressed natural gas and liquefied natural gas vehicles can either be refueled at
fueling stations or refueled using on-site refueling appliances.
This advisory opinion addresses questions related to how South Carolina’s motor fuel user fee
and sales and use tax provisions apply to the sale and use of compressed natural gas and
liquefied natural gas used in motor vehicles in South Carolina.

1

Act No. 160 of 2016, which added several sales and use tax and motor fuel user fee provisions concerning natural
gas compressed or liquefied for use in a motor vehicle, became effective on April 21, 2016.

1

QUESTIONS

1. What are the sales and use tax and motor fuel user fee implications if a gas company sells
   natural gas to a fueling station at wholesale and the fueling station compresses the natural
   gas and makes a retail sale of the compressed natural gas to an end user for use in its
   motor vehicles in South Carolina?
2. What are the sales and use tax and motor fuel user fee implications if a gas company sells
   natural gas to a fueling station at wholesale and the fueling station cools the natural gas
   and makes a retail sale of the liquefied natural gas to an end user for use in its motor
   vehicles in South Carolina?
3. What are the sales and use tax and motor fuel user fee implications if a gas company sells
   natural gas to an end user, which uses an on-site vehicle refueling appliance to compress
   (or otherwise compresses) natural gas for use in its motor vehicles in South Carolina?
4. What are the sales and use tax and motor fuel user fee implications if a gas company sells
   natural gas to an end user, which uses an on-site vehicle refueling appliance to cool
   natural gas to make liquefied natural gas for use in its motor vehicles in South Carolina?

CONCLUSIONS

1. Sales of Natural Gas to be Compressed by Fueling Stations for Sale as Compressed
   Natural Gas
   Sales and Use Tax
   The sales and use tax implications when a gas company sells natural gas to a fueling station
   at wholesale and the fueling station compresses the natural gas and makes a retail sale of the
   compressed natural gas to an end user for use in its motor vehicles in South Carolina are:
   (a) The sale by a gas company of natural gas to a fueling station for resale is a wholesale sale
   and is therefore not subject to sales or use tax.
   (b) The retail sale of compressed natural gas by a fueling station to an end user for use in its
   motor vehicles in South Carolina qualifies for the exemption from sales and use tax
   provided in Code Section 12-36-2120(15)(a).
   Motor Fuel User Fee
   The motor fuel user fee implications when a gas company sells natural gas to a fueling
   station at wholesale and the fueling station compresses the natural gas and makes a retail sale
   of the compressed natural gas to an end user for use in its motor vehicles in South Carolina
   are:
   (a) The sale of natural gas by the gas company to a fueling station is not subject to the motor
   fuel user fee pursuant to Code Section 12-28-310.
   2

(b) The retail sale of compressed natural gas by a fueling station to an end user for use in its
motor vehicles in South Carolina is subject to the motor fuel user fee pursuant to Code
Sections 12-28-310 and 12-28-970.

2. Sales of Natural Gas to be Cooled by Fueling Stations for Sale as Liquefied Natural Gas
   Sales and Use Tax
   The sales and use tax implications when a gas company sells natural gas to a fueling station
   at wholesale and the fueling station cools the natural gas and makes a retail sale of the
   liquefied natural gas to an end user for use in its motor vehicles in South Carolina are:
   (a) The sale by a gas company of natural gas to a fueling station for resale is a wholesale sale
   and is therefore not subject to sales or use tax.
   (b) The retail sale of liquefied natural gas by a fueling station to an end user for use in its
   motor vehicles in South Carolina qualifies for the exemption from sales and use tax
   provided in Code Section 12-36-2120(15)(a).
   Motor Fuel User Fee
   The motor fuel user fee implications when a gas company sells natural gas to a fueling
   station at wholesale and the fueling station cools the natural gas and makes a retail sale of the
   liquefied natural gas to an end user for use in its motor vehicles in South Carolina are:
   (a) The sale of natural gas by the gas company to a fueling station is not subject to the motor
   fuel user fee pursuant to Code Section 12-28-310.
   (b) The retail sale of liquefied natural gas by a fueling station to an end user for use in its
   motor vehicles in South Carolina is subject to the motor fuel user fee pursuant to Code
   Sections 12-28-310 and 12-28-970.
3. Sales of Natural Gas to be Compressed by an End User for use as Compressed Natural
   Gas
   Sales and Use Tax
   The gas company’s sale of natural gas (not compressed natural gas) to an end user to
   compress (or otherwise compresses) natural gas for use in its motor vehicles in South
   Carolina qualifies for the exemption from sales and use tax pursuant to Code Section 12-362120(15)(e), provided the end user purchasing the natural gas has a miscellaneous motor fuel
   user fee license pursuant to Section 12-28-1139 for the purpose of remitting the motor fuel
   user fee on the compressed natural gas.
   Motor Fuel User Fee
   The motor fuel user fee implications when a gas company sells natural gas to an end user,
   which uses an on-site vehicle refueling appliance to compress (or otherwise compresses)
   natural gas for use in its motor vehicles in South Carolina are:
   3

(a) The sale of natural gas by the gas company to an end user is not subject to the motor fuel
user fee pursuant to Code Section 12-28-310.
(b) The end user compressing natural gas for use in its vehicles is subject to the motor fuel
user fee pursuant to Code Sections 12-28-310 and 12-28-970.

4. Sales of Natural Gas to be Cooled by an End User for use as Liquefied Natural Gas
   Sales and Use Tax
   The gas company’s sale of natural gas to an end user to cool natural gas for use in its motor
   vehicles in South Carolina as liquefied natural gas qualifies for the exemption from sales and
   use tax pursuant to Code Section 12-36-2120(15)(e), provided the end user purchasing the
   natural gas has a miscellaneous motor fuel user fee license pursuant to Code Section 12-281139 for the purpose of remitting the motor fuel user fee on the liquefied natural gas.
   Motor Fuel User Fee
   The motor fuel user fee implications when a gas company sells natural gas to an end user,
   which uses an on-site vehicle refueling appliance to cool natural gas for use in its motor
   vehicles in South Carolina as liquefied natural gas are:
   (a) The sale of natural gas by the gas company to an end user is not subject to the motor fuel
   user fee pursuant to Code Section 12-28-310.
   (b) The end user cooling natural gas for use in its vehicles as liquefied natural gas is subject
   to the motor fuel user fee pursuant to Code Sections 12-28-310 and 12-28-970.

DISCUSSION
Sales and Use Tax:
Code Section 12-36-910 imposes a sales tax on the gross proceeds of sales on every person
engaged or continuing within this State in the business of selling tangible personal property at
retail. Code Section 12-36-1310 imposes a use tax on the use, storage, or consumption of
tangible personal property purchased at retail for storage, use, or consumption in South Carolina,
regardless of whether the retailer is engaged in business in South Carolina.
Code Section 12-36-60 defines the term “tangible personal property” and states, in part:
“Tangible personal property” means personal property which may be seen, weighed,
measured, felt, touched, or which is in any other manner perceptible to the senses.
Code Section 12-36-110 defines the terms “retail sale” and “sale at retail” to mean, in part:
Sale at retail and retail sale mean all sales of tangible personal property except those
defined as wholesale sales. The quantity or sales price of goods sold is immaterial in
determining if a sale is at retail.
4

Code Section 12-36-120 defines the terms “wholesale sale” and “sale at wholesale” to mean, in
part, the sale of:
(1) tangible personal property to licensed retail merchants, jobbers, dealers, or
wholesalers for resale, and do not include sales to users or consumers not for
resale[.]
Code Section 12-36-2120(15)(a) provides an exemption from sales and use tax for the gross
proceeds of sales or sales price of “motor fuel, blended fuel, and alternative fuel subject to tax
under Chapter 28, Title 12.”
Code Section 12-36-2120(15), effective April 21, 2016 (Act No. 160 of 2016), provides
additional exemptions from sales and use tax for the gross proceeds of sales or sales price of:
(e) natural gas sold to a person with a miscellaneous motor fuel user fee license
pursuant to Section 12-28-1139, who will compress it to produce compressed natural
gas, or cool it to produce liquefied natural gas, for use as a motor fuel and remit the
motor fuel user fees as required by law; and
(f) liquefied petroleum gas sold to a person with a miscellaneous motor fuel user fee
license pursuant to Section 12-28-1139, who will use the liquefied petroleum gas as a
motor fuel and remit the motor fuel user fees as required by law[.]
Based on the above, a retail sale of compressed natural gas used to propel a motor vehicle on the
highways is exempt from sales and use tax under Code Section 12-36-2120(15)(a) since it is an
“alternative fuel” subject to a motor fuel user fee under Code Section 12-28-310. In addition, the
retail sale of natural gas to a person with a miscellaneous motor fuel user fee license pursuant to
Code Section 12-28-1139, who will compress it to produce compressed natural gas, or cool it to
produce liquefied natural gas, for use as a motor fuel is exempt from the sales and use tax.
Note: While this advisory opinion only concerns natural gas compressed or liquefied for use in a
motor vehicle, it should be noted that Act No. 160 of 2016 also added a sales and use tax
exemption (Code Section 12-36-2120(15)(f)) for “liquefied petroleum gas sold to a person with a
miscellaneous motor fuel user fee license pursuant to Section 12-28-1139, who will use the
liquefied petroleum gas as a motor fuel and remit the motor fuel user fees as required by law.”
Motor Fuel User Fee:
Code Section 12-28-310 imposes a motor fuel user fee on:
… all diesel fuel, substitute fuels, or alternative fuels, or blended fuels containing
diesel fuel that are used or consumed in this State in producing or generating power
for propelling motor vehicles. 2
(emphasis added).

2
Code Section 12-28-110(41) defines “motor vehicle” as “a vehicle that is propelled by an internal combustion
engine or motor and is designed to permit the vehicle’s mobile use on highways.”

5

Code Section 12-28-970(A) establishes a backup motor fuel user fee to Code Section 12-28-310
that is imposed upon delivery of certain motor fuels, including alternative fuels, in South
Carolina into the fuel supply tank of a motor vehicle. Code Section 12-28-970(B) further
provides:
The ultimate vendor of motor fuel subject to the user fee is jointly and severally liable
for the user fee imposed by subsection (A) if the ultimate vendor knows or has reason
to know that the motor fuel, as to which the user fee imposed by this chapter has not
been paid, is or will be consumed in a nonexempt use.
Code Section 12-28-970(C)(2) establishes a backup motor fuel user fee to Code Section 12-28310 for any liquid or gas not otherwise taxed pursuant to Chapter 28 of Title 12, which is
commonly or commercially known or sold as fuel for use in a motor vehicle. The fee is due upon
the first sale or use of the product when produced in South Carolina and is imposed on the
producer of the product.
Code Section 12-28-110(1) defines “alternative fuel” as:
… a liquefied petroleum gas, liquefied natural gas, compressed natural gas product,
or a combination of liquefied petroleum gas and a compressed natural gas product
used in an internal combustion engine or motor to propel any form of vehicle,
machine, or mechanical contrivance. It includes all forms of fuel commonly or
commercially known or sold as butane, propane, or compressed natural gas.
(emphasis added).
Code Section 12-28-110(69) defines “substitute fuel” as:
… a liquid that is commonly and commercially known or sold as a fuel that is suitable
for use in a highway vehicle. The fuel meets this requirement if, without further
processing or blending, the fuel is a fluid and has practical and commercial fitness for
use in the propulsion of a highway vehicle. This includes all liquids regardless of
temperature or pressure.
Finally, effective April 21, 2016 (Act No. 160 of 2016), the following definitions concerning the
imposition of the motor fuel user fee on compressed natural gas, liquefied natural gas, and
liquefied petroleum gas were added to Code Section 12-28-110:
(73) “Diesel gallon equivalent” or “DGE” means the amount of liquefied natural gas
containing the same energy content as one gallon of diesel. For purposes of
calculating the motor fuel user fee on liquefied natural gas that is used or consumed
in this State in producing or generating power for propelling a motor vehicle, each
6.06 pounds of liquefied natural gas equals one gallon of motor fuel.

6

(74) “Gasoline gallon equivalent” or “GGE” means the amount of compressed natural
gas or liquefied petroleum gas containing the same energy content as one gallon of
gasoline. For purposes of calculating the motor fuel user fee on compressed natural
gas or liquefied petroleum gas that is used or consumed in South Carolina in
producing or generating power for propelling a motor vehicle, each 126.67 cubic feet
of compressed natural gas, or 5.66 pounds if the compressed natural gas is dispensed
via a mass flow meter, equals one gallon of motor fuel and each gallon of liquefied
petroleum gas equals .73 of a gallon of motor fuel.
Code Section 12-28-120 was also enacted effective April 21, 2016 (Act No. 160 of 2016) to
state:
For purposes of this chapter, any reference to the term gallon with respect to liquefied
natural gas means diesel gallon equivalent (DGE) and any reference to the term
gallon with respect to compressed natural gas or liquefied petroleum gas means
gasoline gallon equivalent (GGE). For any gaseous product for which a conversion
factor is not provided for in this chapter, based on the best information available, the
department shall establish a temporary conversion factor to determine the gallon
equivalent. The department shall subsequently submit to the General Assembly a
recommended legislative change for this conversion factor.
Therefore, a motor fuel user fee is imposed on compressed natural gas products and liquefied
natural gas products used or consumed in South Carolina to propel a motor vehicle. 3 Natural gas
(not compressed or not liquefied) is not subject to the motor fuel user fee imposed by Code
Section 12-28-310.
Note: While this advisory opinion only concerns natural gas compressed or liquefied for use in a
motor vehicle, it should be noted that Act No. 160 of 2016 also added provisions to the motor
fuel user fee law that clarify that the sale or use of liquefied petroleum gas as a motor fuel in
motor vehicles in South Carolina is subject to the motor fuel user fee.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
March 10
, 2017
Columbia, South Carolina

3

Code Section 12-28-320 provides “a presumption that all motor fuel subject to the user fee delivered in this State
into a motor vehicle fuel supply tank is to be used or consumed on the highways in this State.”

7