Does propane sold to individuals for grills, temporary residential heating, patios, or recreational vehicles qualify for Virginia's domestic-consumption exemption?

Subject

Propane for household cooking and heating qualified as domestic use

Plain-English summary

Virginia held that propane used by individuals for grilling, outdoor cooking, temporary household heating, patio heat, and recreational-vehicle cooking or heat qualified as domestic consumption. The regulation did not limit domestic use to indoor activity; the key was use for something other than business, commercial, or industrial purposes.

The Department generally treated a filled portable cylinder of 20 or 34 pounds or less as a small quantity. For small-quantity sales, a dealer could substantiate the exemption with receipts or daily records showing the quantity sold and number of purchasers.

Larger residential-tank sales generally required Form ST-15 unless the invoice clearly identified domestic use. For this audit only, Virginia allowed the customer's name and complete home address on the invoice in place of an exemption certificate. The assessment was ordered revised accordingly.

What this means for you

• Outdoor household cooking can qualify as domestic consumption; indoor use is not required.
• Domestic use includes temporary heat for garages, sheds, patios, and recreational vehicles when it is nonbusiness use.
• Dealers bear the burden of proving each untaxed sale is exempt.
• Keep exemption certificates for larger sales and quantity-specific records for small portable-cylinder sales.

Citations and references

• Va. Code § 58.1-609.10 1.
• 23 VAC 10-210-630.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-3

Original ruling text

January 13, 2014

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you request correction of the retail sales and use tax assessment issued to * (the "Taxpayer") as a result of an

audit for the period November 2009 through October 2012.

FACTS

The Taxpayer sells propane gas and home heating oil for commercial and residential use. An audit resulted in the assessment of use tax on untaxed purchases of tangible personal property and the assessment of sales tax on various sales of propane gas.

The Taxpayer contests the sales tax assessed on propane sold to those customers who refilled small portable cylinders. The Taxpayer maintains that such propane was used for grills to cook food or provide heat to houses and should qualify for the domestic consumption exemption set out in Va. Code § 58.1-609.10 1.

RULING

Virginia Code § 58.1-609.10 1 provides an exemption from the retail sales and use tax for:

Artificial or propane gas, firewood, coal or home heating oil used for domestic consumption. "Domestic consumption" means the use of artificial or propane gas, firewood, coal or home heating oil by an individual purchaser for other than business, commercial or industrial purposes. The Tax Commissioner shall establish by regulation a system for use by dealers in classifying individual purchases for domestic or nondomestic use based on the principal usage of such gas, wood, coal or oil. Any person making a nondomestic purchase and paying the tax pursuant to this chapter who uses any portion of such purchase for domestic use may, between the first day of the first month and the fifteenth day of the fourth month following the year of purchase, apply for a refund of the tax paid on the domestic use portion.

Interpreting this exemption is the regulation set out in Title 23 of the Virginia Administrative Code 10-210-630. Subsection B of this regulation sets out some examples of what constitutes domestic consumption. Although propane gas for outdoor grilling purposes is not specifically included in those examples, the regulation does indicate that domestic consumption includes heating purposes as well as cooking and heating water. The regulation also does not restrict domestic consumption to only indoor usage. Rather, domestic consumption applies to the use of propane gas for other than business, commercial or industrial usage.

To substantiate domestic consumption usage, the exemption certificate, Form ST-15, must generally be completed by individuals buying propane gas, fuel oil, kerosene or firewood from a dealer. The regulation, however, makes two exceptions, as follows:

A dealer is not required to obtain a certificate of exemption for each transaction if the record of the sale is clearly identifiable as a sale of fuel for domestic consumption. However, this should not be construed as altering the fact that the burden of proof is on the dealer to demonstrate that each untaxed transaction is legitimately exempt from the tax.

Dealers will not be required to obtain a certificate of exemption on sales of small quantities of kerosene, firewood, or other fuels, provided sales receipts or daily sales records are available which clearly indicate the number of gallons (or other measure) of the specific type of fuel sold and the number of purchasers. [Emphasis added.]

While the regulation does not indicate exactly what amount is considered a small amount, I would generally deem a small portable propane gas cylinder (such as a 20 or 34 pound tank or smaller) that is filled to capacity to contain a small quantity of propane gas. In the case of larger propane tanks located at a person's residence where the propane (LPG) must be delivered by truck, the sales invoice must clearly identify the fuel as primarily or solely used for domestic consumption if an exemption certificate is not used.

Based on the foregoing and the facts of this case, I find that propane gas used for grilling or other outdoor cooking purposes constitutes domestic consumption. Domestic consumption also includes propane gas used to temporarily heat spaces, such as garages or sheds or to provide a source of heat on a patio. In addition, domestic consumption includes propane gas used in connection with recreational vehicles for cooking or heating purposes.

I understand that the Taxpayer obtained no exemption certificates from individuals for the sale of propane gas. If these sales were made in small quantities as defined above, they may be removed from the audit. If any of these sales were made for more than a small quantity of propane gas as discussed above, then an exemption certificate is generally required from the customer. In lieu of the exemption certificate (for this audit only), I will accept evidence of the individual's name and complete home address on the invoice as sufficient to establish domestic consumption. Otherwise, in the absence of such name and home address or exemption certificate, the sale must remain in the audit.

CONCLUSION

The assessment will be revised in accordance with this determination. After the adjustment is made, a revised bill, with interest accrued to date, will be sent to the Taxpayer for any amount that is owed. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges. The Taxpayer should remit its payment to the address shown on the revised bill.

For the future, the Taxpayer should obtain and retain exemption certificates from all new and past customers who purchase more than a small quantity of propane gas. For sales of small quantities of propane gas, sales receipts or daily sales records should clearly indicate the number of pounds sold and the number of purchasers.

The Code of Virginia section and regulation cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this determination, please contact * in the

Department's Office of Tax Policy, Appeals and Rulings, at *.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5521932204.R