Topic:
GASOLINE TAX; PETROLEUM; LEGISLATION; STATISTICAL INFORMATION; TAX EXEMPTIONS; CORPORATION TAX;
Location:
TAXATION;

OLR Research Report


July 25, 2006

 

2006-R-0466

PETROLEUM PRODUCTS GROSS EARNINGS TAX

By: Judith Lohman, Chief Analyst

You asked for a description of the petroleum products gross earnings tax. You also asked how current petroleum products gross earnings tax revenue estimates for FY 06 and FY 07 compare to the 2005 estimates for those years.

SUMMARY

The petroleum products gross earnings tax was first enacted in 1980. It applies to petroleum products distributors and covers their earnings from their first sale into Connecticut of taxable petroleum, petroleum products, and products made from petroleum and petroleum derivatives. The tax is payable quarterly. Certain types of products or products used for certain things are exempt, including home heating fuels, certain fuel used by manufacturers, certain kinds of marine fuels, and specified types of petroleum-based alternative fuels.

In 2005, the General Assembly enacted a schedule of rate increases in the petroleum product gross earnings tax. Under this schedule, tax rates will increase gradually from 5% before July 1, 2005 to 8.1% as of July 1, 2013. Two of these increases have already taken effect and the tax rate for FY 06 is 6.3%.

A specified portion of the revenues from the tax are allocated to the Special Transportation Fund (STF) and used to repay state bonds to finance specified transportation infrastructure improvements approved by the General Assembly. Other tax revenue goes to the Underground Storage Tank and the Emergency Spill Response accounts.

FY 06 and FY 07 revenue estimates for the petroleum products gross earnings tax have increased from amounts projected in 2005, according to Rob Wysock of the Office of Fiscal Analysis. The current estimate for FY 06 is nearly $83 million higher and the estimate for FY 07 is $87 million higher than the estimates for those years adopted in 2005.

DESCRIPTION OF THE TAX

Taxable Products

The tax is levied on the gross earnings from the first sale of petroleum products in Connecticut by petroleum products distributors. Taxed products include gasoline, aviation fuel, kerosene, diesel fuel, benzol, distillate fuels, residual fuels, and crude oil. The tax also applies to products made from petroleum or petroleum derivatives, such as paint, detergents, antiseptics, fertilizers, nylon, asphalt, and plastics (CGS 12-587). The tax is payable quarterly. According to the Department of Revenue Services, 700 distributors are subject to the tax.

Exemptions

Revenue from sales of the following types of petroleum products are exempt from the tax.

● Products sold for export and use exclusively outside the state.

● Number 2 heating oil used exclusively for heating, in a commercial fishing vessel, or in a vessel primarily engaged in interstate commerce.

● Bunker fuel oil, intermediate fuel, marine diesel oil, and marine gas oil used in vessels displacing over 4,000 dead weight tons.

● Kerosene used exclusively for heating, when delivered by a truck with a metered delivery ticket or to a centrally metered system servicing a group of homes.

● Propane gas used exclusively for heating or, until July 1, 2008, used a fuel for a motor vehicle.

● Paraffin and microcrystalline waxes.

● Number 6 fuel oil used by manufacturers.

● Until July 1, 2008, petroleum products used as fuel for a fuel cell.

● Any commercial heating oil blend containing no less than 10% of alternative fuels made from agricultural produce; food waste; waste vegetable oil; or municipal solid waste, including biodiesel and low-sulfur dyed diesel fuel (CGS 587(b)(2), as amended by PA 06-143).

Tax Rates

In 2005, the General Assembly enacted a series of increases in the petroleum products gross earnings tax scheduled to take effect between July 1, 2005 and July 1, 2013, as shown in Table 1 below (PA 05-4, June Special Session). Prior to July 1, 2005, the tax rate was 5%.

Table 1: Petroleum Products Gross Earnings
Tax Rate Increases Enacted in 2005

Effective Date

Tax Rate

July 1, 2005

5.8%

July 1, 2006

6.3%

July 1, 2007

7.0%

July 1, 2008

7.5%

July 1, 2013

8.1%

Revenue Transfers

The Department of Revenue Services is required to transfer a specified amount of petroleum products gross earnings tax revenue to the Special Transportation Fund (STF) each quarter. Until 2006, only tax revenue generated from motor fuel sales was subject to transfer. But in 2006, the General Assembly increased the amount of quarterly tax revenue transfers and made the tax revenue from all types of products available for transfer (PA 06-136 and PA 06-187). The quarterly transfer amounts are shown in Table 2, below.

Table 2: Petroleum Products Gross Earnings Tax Revenues Transferred to the Special Transportation Fund

Fiscal Year

Quarterly STF Transfer (millions)

Annual STF Transfer (millions)

2006

$10.875

N/A

2007

35.25

$141.0

2008

41.0

164.0

2009

45.225

180.9

2010

45.225

180.9

2011

50.225

200.9

2012

50.225

200.9

2013

50.225

200.9

2014 and after

54.85

219.4

In addition to the STF transfers, for FYs 06 and 07, $12 million per year, per account is to be transferred to the Underground Storage Tank account and the Emergency Spill Response account.

TAX REVENUE ESTIMATES

The Finance Committee's petroleum products gross earning tax revenue estimates for FYs 06 and 07 were originally adopted in 2005 and revised in 2006. Table 3 shows the original and revised revenue estimates for the two years, according to the Office of Fiscal Analysis.

Table 3: Petroleum Products Gross Earnings
Tax Revenue Estimates

 

2005 Estimate

2006 Estimate

Increase

FY 06

$199.8 million

$282.5 million

$82.7 million

FY 07

$220.8 million

$307.8 million

$87.0 million

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