Does the Texas motor fuels tax apply to kerosene bought in bulk for use in space heaters, even when it's delivered into storage marked for heating and cooking use only?

Plain-English summary

The Texas Department of Criminal Justice (TDCJ) bought kerosene in bulk for use in space heaters and asked the Comptroller's office three questions about whether it could buy that kerosene without paying the state motor fuels tax. The Comptroller's answer, in short: no, not as things stood, because kerosene is legally treated as diesel fuel for motor fuels tax purposes.

A "diesel fuel bulk delivery" is any delivery of more than five gallons. Bulk deliveries can be made tax-free only if the buyer holds a Supplier, Bonded User, Prepaid User, or Aviation Fuel Dealer diesel fuel tax permit, or if the buyer gives the supplier a Signed Statement. TDCJ held no such permit. And because TDCJ also operates diesel-powered motor vehicles, it could not issue a Signed Statement to the supplier — so all of its kerosene purchases had to include the state motor fuels tax, regardless of how it stored or labeled the kerosene.

That held true even when the seller delivered the kerosene into storage tanks marked "KEROSENE-FOR HEATING, COOKING, AND LIGHTING PURPOSES ONLY." The letter explains that a permitted supplier can sell kerosene tax-free only when it is delivered into a storage facility at a retail outlet that resells the kerosene to ultimate customers, in quantities of five gallons or less, for heating, cooking, lighting, and similar non-highway uses. That retail exemption is for the retailer's resale, not for an end user like TDCJ buying in bulk for its own space heaters.

The letter also addressed low-sulphur diesel fuel: even if a seller labeled an invoice "Kerosene-For Heating, Cooking, and Lighting Purposes Only" for a bulk delivery of low-sulphur diesel fuel, TDCJ still could not buy it tax-free (for the same permit/Signed Statement reasons), and the Comptroller noted it would be improper for a seller to describe an invoice's product as kerosene when the product sold is actually low-sulphur diesel fuel.

In each scenario, the Comptroller pointed TDCJ to the same remedy: pay the tax up front, then file a Texas Claim for Refund of Gasoline or Diesel Fuel Taxes to recover the tax paid on kerosene used in space heaters (and on diesel fuel used in off-highway equipment).

What this means for you

Businesses and agencies buying bulk kerosene or diesel fuel

If you buy kerosene or diesel fuel in bulk (more than five gallons per delivery) for uses like heating or off-highway equipment, you cannot avoid the state motor fuels tax at the pump or at delivery unless you hold the appropriate diesel fuel tax permit or can give the supplier a valid Signed Statement. If your organization also operates diesel-powered motor vehicles, you generally cannot use a Signed Statement, even for fuel that will be used solely for non-highway purposes like space heaters.

Buyers who paid tax on non-highway-use fuel

If you paid the motor fuels tax on kerosene or diesel fuel that was actually used for a non-taxable purpose (such as heating, cooking, lighting, or off-highway equipment), your recourse is to seek a refund through a Texas Claim for Refund of Gasoline or Diesel Fuel Taxes rather than to seek an up-front exemption at the time of purchase.

Retailers selling kerosene to end users

The tax-free retail exemption described in this letter is narrow: it applies only to a permitted supplier selling kerosene into a retail-outlet storage facility from which all sales go to ultimate customers, in quantities of five gallons or less, for heating, cooking, lighting, or similar non-highway use. It does not extend to bulk sales to institutional end users.

Common questions

Q: Is kerosene taxed differently from diesel fuel in Texas?
A: No. For motor fuels tax purposes, kerosene is treated as diesel fuel, so the same permit, Signed Statement, and bulk-delivery rules apply to it.

Q: Can labeling a storage tank "for heating, cooking, and lighting only" avoid the tax on a bulk delivery?
A: No. Labeling the storage tank does not change the tax treatment of a bulk delivery (over five gallons) to an end user. The tax-free treatment described in the letter applies only to a permitted supplier's retail sales of five gallons or less to ultimate customers.

Q: What if a buyer operates diesel-powered motor vehicles?
A: A buyer that operates diesel-powered motor vehicles cannot issue a Signed Statement to a supplier, even to buy kerosene intended solely for space heaters, so tax must be paid on the bulk purchase and recovered later through a refund claim.

Q: How can a buyer recover motor fuels tax paid on fuel used for heating or off-highway equipment?
A: By filing a Texas Claim for Refund of Gasoline or Diesel Fuel Taxes for the tax paid on kerosene used in space heaters and on diesel fuel used in off-highway equipment.

Citations and references

No specific statutes or administrative rules are cited in the text of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9410525L

Original ruling text

October 4, 1994

Dear *****:

I am writing in response to our telephone conversation concerning the purchase
of kerosene used in space heaters by the Texas Department of Criminal Justice
(TDCJ). I apologize for the delay in my response. You have asked three
questions concerning the taxability of kerosene.

First you asked whether TDCJ can purchase kerosene minus the state motor fuels
tax when the kerosene is purchased in 55 gallon drums at the seller's place of
business?

Answer: Kerosene is a diesel fuel and can be purchased in a bulk quantity minus
the state tax only with a Supplier, Bonded User, Prepaid User, or Aviation Fuel
Dealer diesel fuel tax permit or with the issuance of a Signed Statement. A
"diesel fuel bulk delivery" means a delivery in excess of five gallons.
Presently TDCJ does not hold a permit to allow the tax free purchase of diesel
fuel. Because TDCJ operates diesel powered motor vehicles, a signed statement
cannot be issued to the supplier. All purchases of kerosene must be made with
the state motor fuels tax included. You may file for a refund of the tax on
kerosene used in space heaters along with the diesel fuel used in off-highway
equipment by submitting a Texas Claim for Refund of Gasoline or Diesel Fuel
Taxes.

Also you asked, can TDCJ purchase kerosene minus the state motor fuels tax when
the seller delivers the kerosene into TDCJ's storage tanks marked KEROSENE-FOR
HEATING, COOKING, AND LIGHTING PURPOSES ONLY ?

Answer: TDCJ would be required to pay the motor fuels tax on these bulk
deliveries for the same reasons stated above. You may file a request for
refund of the tax on the kerosene used in space heaters in the same manneras
previously addressed. A permitted supplier may sell kerosene without including
the state diesel fuel tax when it is delivered into a storage facility at a
retail outlet from which all sales are to the ultimate customer for heating,
cooking, lighting and similar non-highway use. This exemption applies only to
retailers purchasing kerosene for resale, not to end users like TDCJ.
Retailers can then sell kerosene for cooking, heating, lighting, and
non-highway use in quantities of five gallons or less minus the state motor
fuel tax. A diesel fuel tax permit or a Signed Statement would not be required
for these retail sales.

Finally, you asked whether low-sulphur diesel fuel can be purchased in bulk
deliveries minus the state tax if the seller writes on the invoice
"Kerosene-For Heating, Cooking, and Lighting Purposes Only ?"

Answer: TDCJ does not hold a permit to allow the tax free purchase of diesel
fuel. Because TDCJ operates diesel powered motor vehicles, a signed statement
cannot be issued to the supplier. You should file the appropriate request for
refund of tax paid on the kerosene used in space heaters. It would be improper
for the seller to identify on an invoice the product sold as kerosene when the
product is actually a low-sulphur diesel fuel.

This opinion is based on the facts presented. If there are additional or
different facts the opinion may change.

If I can be of further help, please call me at 1-800-252-1383, extension
3-3849, toll free. The regular number is 512-463-3849. You may also write me
at the Tax Administration Division. [FAX - (512) 475-0900]

Sincerely,

Kirk J. Davenport
Tax Administration Division