Does a company owe Utah's oil recycling fee on motor oil bottles shipped through its Utah distribution center for resale outside the state, and does the environmental assurance fee apply to its packaged automotive products?

Plain-English summary

A Florida-based manufacturer of aerosol and liquid-fill automotive products (brake/carburetor cleaners, glass cleaners, fuel additives, etc.) operated a Utah distribution center used mainly to support delivery of its products to the West Coast -- with essentially none of its own products actually sold within Utah. The company began outsourcing 32-ounce bottles of motor oil from Mobil, delivered directly to its Utah warehouse. Mobil charged the company a $0.16-per-gallon Utah oil recycling fee on that purchase. The company asked whether the fee was appropriately charged (and if not, how to seek a refund), and separately whether Utah's "environmental assurance fee" applied to any of its own product line, including stock shipped in from its Florida plant.

The oil recycling fee was properly charged at the first Utah sale, but out-of-state-bound oil qualifies for a refund. Utah's oil recycling fee (§ 19-6-714) is imposed on the FIRST sale in Utah of lubricating oil by a lubricating oil vendor. The Commission confirmed that if the company's purchase from Mobil was the first Utah sale of that oil, Mobil was correctly required to collect the fee and remit it to the state. However, there's an exception for oil that gets shipped OUT of Utah: because the company routes most of its distribution-center inventory to West Coast destinations outside Utah, any bottles of oil it subsequently ships out of state entitle it to a refund of the fee already collected, claimed using Form TC-535. Bottles the company instead sells within Utah do NOT qualify for a refund -- the fee stays properly assessed on those.

The environmental assurance fee doesn't apply to packaged consumer products passing through the distribution center. Utah's environmental assurance fee (§ 19-6-410.5) applies to the first sale or use of petroleum products in the state, but the Commission clarified that, in practice, the fee is meant to be collected only when the petroleum product is stored in a TANK that voluntarily participates in the environmental assurance program. Because the company's automotive products all arrive already packaged (aerosol cans, plastic bottles) and are not stored in a program-participating tank, the fee does not need to be collected when those products are sold in Utah -- covering both the outsourced motor oil and the company's own manufactured product line shipped from Florida.

What this means for you

Manufacturers and distributors using a Utah warehouse as a pass-through hub for other states

If you route inventory through a Utah distribution center primarily for onward shipment to other states, track which units are ultimately sold in Utah versus shipped elsewhere -- fees like the oil recycling fee that attach at "first sale in Utah" are refundable on the portion that leaves the state, via the appropriate refund form (here, Form TC-535), but not on units you ultimately sell within Utah.

Companies purchasing petroleum products (lubricants, motor oil, fuel additives) for resale or distribution

Confirm with your vendor whether a fee like the oil recycling fee has already been charged as part of your purchase price, and if you're re-exporting that product out of state, file for a refund rather than assuming the fee is a sunk cost.

Businesses selling packaged (non-bulk) petroleum-based consumer products

The environmental assurance fee is specifically tied to tank storage participating in the state's environmental assurance program -- pre-packaged retail products like aerosol cans and bottles generally fall outside that fee's scope, regardless of where they're manufactured or distributed from.

Common questions

Q: Is Utah's oil recycling fee owed on motor oil purchased and warehoused in Utah but ultimately shipped to other states?
A: The fee is correctly charged at the first in-state sale, but oil subsequently shipped out of Utah qualifies for a refund of the fee already collected, via Form TC-535.

Q: Can I get a refund on the oil recycling fee for oil I end up selling within Utah?
A: No. The refund is only available for oil that is shipped out of state; oil sold within Utah keeps the fee.

Q: Does Utah's environmental assurance fee apply to packaged automotive products like aerosol cleaners or bottled fluids?
A: Generally no, since that fee is meant to apply to petroleum product stored in a tank participating in the state's environmental assurance program, not to pre-packaged consumer products.

Q: Does this ruling apply to my distribution or manufacturing business?
A: No. It binds the Commission only for the requesting taxpayer and the facts described, and can't be relied on by another taxpayer, though it illustrates how the Commission applies the oil recycling fee's out-of-state refund exception and the environmental assurance fee's tank-storage limitation.

Citations and references

Statutes:

• § 19-6-714 (oil recycling fee on first sale of lubricating oil in Utah)
• § 19-6-410.5 (environmental assurance fee on first sale/use of petroleum products)

Forms referenced:

• Form TC-535 (refund request for oil recycling fee on out-of-state shipments)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/98-069.pdf

Original ruling text

98-069

Response October 30, 1998

REQUEST LETTER

October 6,1998

RE: Request for Advisory Opinion

Dear Ms. Hendrickson;

As we briefly discussed on the phone this evening, I am seeking your advice regarding my company�s tax liability in the State of Utah. COMPANY , Inc. rnanufactures aerosol and liquid fill automotive products at Our plant in Jacksonville Florida. These formulated

products are packaged in aerosol cans or plastic bottles that typically range in size from 4 oz to 32 oz. Examples of our products would be aerosol Brake and Carburetor Cleaners, Leather and Vinyl Cleaners, Glass Cleaners, Fuel System Additives, etc .COMPANY A has a distribution center in CITY. Utah which helps support the delivery of these goods to the West Coast. Essentially none of these products are sold in the State of Utah.

COMPANY recently began purchasing Mazda Motor Oil (32 oz. Bottles) as an outsorced product from Mobil and had it delivered directly to the Utah warehouse (see attached invoice). COMPANY B is charging COMPANY A a $0.16 per gallon state recycling tax which raised the following

questions:

1. Is this tax appropriate? If not, how can COMPANY A seek a refund for the tax amount?

2. Does the environmental assurance fee apply to any part if COMPANY A product line? If so, would the tax apply to stock deliveries from our Jacksonville manufacturing plant?

Please call meat (904)981-4148 if you need additional information to answer these questions. My fax number is (904)388-3065 and I look forward to receiving your

advice on these matters.

Sincerely,

NAME

RESPONSE LETTER

October 30, 1998

NAME

COMPANY

RE: Advisory Opinion Request Concerning Environmental Assurance Fee

Dear NAME,

We have received your request for an advisory opinion concerning the application of Utah�s oil recycling fee to your company�s purchase of motor oil in 32 ounce bottles from a Utah seller (Mobil). You also ask if the environmental assurance fee applies to products you ship into the state from Florida. Let us address these questions separately.

Oil Recycling Fee. The oil recycling fee is set forth under Utah Code Ann. 19-6-714, which imposes the fee on the first sale in Utah of lubricating oil by a lubricating oil vendor. If your company�s purchase of the motor oil represents its first sale in Utah, then Mobil is required to collect the fee and remit to the state.

One exception to the collection of this fee is for oil shipped out of the state. You have had Mobil deliver this oil to your distribution center in Utah. Should your company subsequently ship these bottles of oil out of the state, then it is entitled to a refund of the fee previously collected. You may remit Form TC-535 to request a refund of those fees that were collected on oil shipped out of state. On any bottles that you subsequently sell in Utah, you may not receive a refund of the fee.

Environmental Assurance Fee. The environmental assurance fee is set forth under Utah Code Ann. �19-6-410.5, which requires the fee to be imposed on the first sale or use of petroleum products in the state. However, the fee is one that should ultimately be collected only in those instances when the petroleum product is stored in a tank that is voluntarily part of the environmental assurance program.

All the products you ship into Utah appear to be already packaged and, we assume, will not be stored in a tank subject to the program. If this is the case, then the fee does not need to be collected when these products are sold in Utah.

Please contact us if you have any other questions.

For the Commission,

Joe B. Pacheco, CPA

Commissioner

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