Were a Virginia wholesaler's purchases of fuel-grade ethanol exempt from retail sales and use tax when customers would blend it into motor fuel subject to the Fuels Tax?

Subject

Fuel grade ethanol is subject to the Fuels Tax; Fuels Tax is administered by the Department of Motor Vehicles

Plain-English summary

Virginia ruled that the wholesaler could purchase fuel-grade ethanol exempt from retail sales and use tax because the ethanol would be subject to the Virginia Fuels Tax after its customers blended it with motor fuel. Va. Code § 58.1-609.1(1) exempted fuels subject to the separate Fuels Tax.

The wholesaler bought all of the ethanol for resale and made no retail sales. Va. Code § 58.1-2201 included fuel-grade ethanol within gasoline for Fuels Tax purposes, and the ruling said the Fuels Tax would be collected when the ethanol was blended with motor fuel or used directly in a highway vehicle.

The taxpayer also asked whether it needed a Department of Taxation registration number to give its supplier Form ST-10. The operative analysis established the exemption but did not separately answer that documentation question. It also expressly declined to decide any Fuels Tax issue because that tax was administered by the Department of Motor Vehicles.

What this means for you

• Fuel-grade ethanol can qualify for the sales-and-use-tax exemption when it will be subject to Virginia's Fuels Tax.
• The exemption analysis depends on the later taxable fuel use described in the ruling.
• This determination did not decide Fuels Tax liability or administration.
• Confirm current exemption-certificate and registration requirements directly; the source did not resolve that part of the request.

Common questions

Q: Why was the ethanol exempt from retail sales tax?
A: The customers would blend it into motor fuel subject to Virginia's Fuels Tax.

Q: Did the Tax Commissioner decide the amount or administration of Fuels Tax?
A: No. The ruling expressly left Fuels Tax matters to the Department of Motor Vehicles.

Q: Did the ruling say whether Form ST-10 required a registration number?
A: No. Although the taxpayer raised that question, the operative analysis did not separately decide it.

Citations and references

• Va. Code § 58.1-609.1(1), § 58.1-2200 et seq., and § 58.1-2201.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-65

Original ruling text

May 19, 2008

Re: Ruling Request: Retail Sales and Use Tax

Dear *:

This is in response to your letter requesting a ruling on (1) the application of the Retail Sales and Use Tax to purchases of fuel grade ethanol for resale and (2) whether a certificate of registration number is needed to purchase the ethanol for resale exempt from the Retail Sales and Use Tax.

FACTS

* (the "Taxpayer") is located in Virginia. The Taxpayer purchases fuel grade ethanol from Virginia suppliers for resale to motor fuel retailers and wholesalers. All of the ethanol purchased by the Taxpayer is resold. The ethanol sold by the Taxpayer is blended with gasoline by its customers and is subsequently subject to the Fuels Tax administered by the Department of Motor Vehicles. As Taxpayer does not sell any products at retail, it has not registered with the Department of Taxation ("TAX") for a sales tax account in Virginia and does not have a certificate of registration.

The Taxpayer asserts that it may purchase ethanol exempt from the Retail Sales and Use Tax under the Retail Sales and Use Tax exemption for fuels subject to the Fuels Tax. A new supplier of ethanol to the Taxpayer asserts that the ethanol is subject to the Retail Sales and Use Tax unless purchased using Form ST-10, Sales and Use Tax Certificate of Exemption, and the supplier will not accept a certificate of exemption from the Taxpayer without a certificate of registration number for the Taxpayer.

ANALYSIS

Va. Code § 58.1-609.1(1) provides an exemption from the Retail Sales and Use Tax for fuels that are subject to the Fuels Tax imposed by Chapter 22 (§ 58.1-2200 et seq. ) of Title 58.1 of the Va. Code . The Fuels Tax is imposed on gasoline at the rate of seventeen and one-half cents per gallon. Va. Code § 58.1-2201 provides that the term "gasoline" includes fuel grade ethanol for the purposes of the Fuels Tax. The Fuels Tax is collected on fuel grade ethanol when it is blended with a motor fuel or used directly in highway vehicle.

In this situation, because Taxpayer's customers will pay the Fuels Tax on the fuel grade ethanol when it is blended with a motor fuel, the fuel grade ethanol is subject to the Fuels Tax. Accordingly, purchases of fuel grade ethanol by this Taxpayer are exempt from the Retail Sales and Use Tax under Va. Code § 58.1-609.1(1).

As the Fuels Tax is administered by the Department of Motor Vehicles and not TAX, nothing in this letter should be construed as providing any determination as to the Fuels Tax.

The Code of Virginia sections, along with other reference documents, are available on-line in the Tax Policy Library section of TAX's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact * in the Office of Policy and Administration, Policy Development Division, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

PD/1-1862929077