Topic:
FUEL (GENERAL); GASOLINE TAX; PETROLEUM; PUBLIC UTILITIES; SALES TAX; TAX EXEMPTIONS;
Location:
TAX EXEMPTIONS; TAXATION;

OLR Research Report


September 18, 2008

 

2008-R-0525

BACKGROUNDER: STATE FUEL TAXES AND TAX EXEMPTIONS

By: Judith Lohman, Chief Analyst

Connecticut has four state taxes that apply to some or all types of fuel (petroleum fuels, electricity, and natural gas) or petroleum products. They are the (1) sales tax, (2) motor vehicle fuels tax, (3) petroleum products gross earnings tax, and (4) public service company tax. This report explains the types of goods or situations to which each tax generally applies followed by a list of the fuels or petroleum products or uses that are exempt from each one. Products or uses not specifically exempted are taxable.

SALES TAX

Sales tax applies to retailers' gross receipts from (1) the sale of tangible personal property at retail (including fuel and petroleum products), (2) renting or leasing tangible personal property, or (3) rendering specified services. The tax rate is generally 6%. Table 1 shows the fuel-related sales tax exemptions. Only statutory exemptions that expressly mention either “fuel” in general or a particular type of fuel, such as gas or electricity, are listed.

TABLE 1: SALES TAX EXEMPTIONS FOR FUEL

( 12-412)

Gas or electricity for residential use or for direct use in (a) agricultural production, (b) making a finished product for sale, and (c) a manufacturing plant ( 12-412 (3) (A))

If not otherwise exempt under the above provision, $150 of electricity service per month ( 12-412 (3) (D))

Gas or electricity directly used to furnish gas, water, steam, or electricity delivered to customers through mains, lines, or pipes (12-412 (3) (E))

Motor vehicle fuel used (a) in vehicles licensed to operate on a public highway or (b) for any other use, if state motor fuel tax has been paid and not refunded under the motor vehicle fuel tax law (see Table 2B below) ( 12-412 (15))

Fuel used for heating in a residential dwelling or in any building or other location used (a) for agricultural production, (b) for making a finished product for sale, or (c) as a manufacturing plant (12-412 (16))

Fuel to be used directly (a) in the fishing industry; (b) as a component or ingredient in making a finished product for sale; (c) in furnishing power to a manufacturing plant; or (d) to deliver gas, water, steam, or electricity to customers through mains, lines, or pipes (12-412 (18))

Fuel for high-occupancy commuter vehicles (12-412 (37))

Aviation fuel used exclusively and directly in the experimental testing of any product (12-412 (59))

Aviation fuel used exclusively for aviation purposes (12-412 (75))

Fuel for an aircraft manufacturing facility (12-412 (78))

Marine fuel for vessels with displacements greater than 4,000 dead weight tons or primarily engaged in interstate commerce (bunker fuel oil, intermediate fuel, marine diesel oil, and marine gas oil) (12-412 (79))

Fuel used directly in the biotechnology industry (12-412 (89))

Diesel fuel used exclusively in portable generators larger than 150 kilowatts ( 12-412 (107))

Fuel used in a fuel cell manufacturing facility (12-412 (113))

50% exemption for fuel used as an ingredient or component part of tangible personal property that will be used or consumed in manufacturing or producing products for sale ( 12-412i)

MOTOR VEHICLE FUELS TAX

The motor vehicle fuels tax applies to motor vehicle fuel used or sold in Connecticut. The per-gallon tax is 25 for gasoline and gasohol; 43.4 for most diesel fuel; and 26 for natural gas, propane, and any diesel fuel sold exclusively for use in portable power generators larger than 150 kilowatts. The 43.4 diesel tax rate applies for 2008-09 only. By law, Department of Revenue Services (DRS) must recalculate the diesel tax rate annually based on the average wholesale price.

Tax exemptions and exclusions are shown in Table 2A. Fuel uses eligible for motor fuel tax refunds are shown in Table 2B. The motor fuel tax refund provisions require a purchaser to pay the tax and then file for a refund from DRS. A motor fuel tax exemption or refund triggers imposition of sales or use tax on the fuel purchase unless the person or entity receiving the refund is otherwise exempt from sales and use taxes.

TABLE 2 A: MOTOR FUEL TAX EXEMPTIONS AND EXCLUSIONS

( 12-455a (c) and 12-458)

Fuel for aircraft, motorboats, road rollers, baggage trucks used in railroad stations, electric battery-operated wheelchairs operated by a physically handicapped person at speeds of 15 mph or under, agricultural tractors, farm implements, and vehicles that run only on rails or tracks

Fuel for a Connecticut motorbus company deriving at least 75% of its revenue from operation in Connecticut

Fuel sold to the U.S. government

Fuel used by a contractor performing services for a municipality under a contract

Fuel sold to municipalities, transit districts, or the state for use in vehicles owned or leased and operated by them

Fuel sold for use in a school bus

Fuel sold to licensed fuel distributors

Fuel transferred from storage in the state to a location outside the state

Fuel used for farming by a farmer with a farming sales tax exemption permit

Fuel for industrial fabrication or the fishing industry

Heating fuel

Fuel to furnish gas, water, steam, or electricity delivered through pipes, mains, or lines

Fuel for aviation purposes sold to an aircraft owner or operator or to a licensed dealer with a business location on an established airport in Connecticut

Diesel sold exclusively for use in portable power generators larger than 150 kilowatts

TABLE 2 B: MOTOR FUEL TAX PAYMENTS ELIGIBLE FOR REFUNDS

( 12-459)

Fuel used in vehicles, other than farming vehicles, not licensed or required to be licensed to operate on public highways (refund is limited to 26 per gallon - 12-458h (c))

Fuel used by Connecticut motorbus companies

Fuel used by licensed livery services

50% refund for fuel used by taxicabs, airport livery services, and airport motorbuses

Fuel used in hospital-owned ambulances

Fuel used in ambulances owned by nonprofit civic groups

Fuel used in high-occupancy motor vehicles

Fuel used by Meals on Wheels programs

Fuel used by the U.S. government

Fuel used in any school bus

Fuel used by the state, a municipality, or a transit district

Fuel used in farming

Fuel used by a contactor to haul waste for the Connecticut Resources Recovery Authority's Mid-Connecticut plant

PETROLEUM PRODUCTS GROSS EARNINGS TAX

This tax applies to companies distributing petroleum products in Connecticut. The tax is 7% of the gross revenue from the first sale of a taxable petroleum product in the state. Petroleum products are those that contain or are made from petroleum or a petroleum derivative, including gasoline, aviation fuel, kerosene, benzol, distillate fuels, residual fuels, and crude oil. Petroleum derivates include paint, detergents, antiseptics, fertilizers, nylon, asphalt, and plastics. Exemptions are listed in Table 3.

TABLE 3: PETROLEUM PRODUCTS GROSS EARNINGS TAX EXEMPTIONS

(12-587, 2008 SUPPLEMENT TO THE GENERAL STATUTES)

Petroleum products sold for export out of state

#2 heating oil used for heating

#2 heating oil used in commercial fishing vessels

Kerosene used for residential heating

Propane gas used for heating

Bunker fuel oil, intermediate fuel, marine diesel oil, and marine gas oil used in vessels displacing more than 4,000 dead weight tons

# 6 fuel oil used by manufacturers

# 2 heating oil used in vessels primarily engaged in interstate commerce

Paraffin and microcrystalline waxes

Petroleum products used in fuel cells

Commercial heating oil blends containing at least 10% alternative fuel derived from agricultural produce, food waste, waste vegetable oil, or municipal solid waste including biodiesel and low-sulfur-dyed diesel

Diesel fuel other than diesel fuel used in an electric generating facility

PUBLIC SERVICE COMPANY TAX

The tax applies to gross earnings from sales by gas, electric, and power companies and electric distribution companies. Tax rates are:

1. for gas, electric and power companies, 4% on earnings from sales to residential customers and 5% for all other sales and

2. for electric distribution companies, 6.8% on earnings for sales to residential and 8.5% on sales to nonresidential customers other than manufacturers.

Fuel-related public service company tax exemptions are shown in Table 4.

TABLE 4: PUBLIC SERVICE COMPANY TAX EXEMPTIONS FOR FUEL

( 12-264)

Sales for resale of steam, gas, and electricity to public service corporations and municipal utilities

Natural gas sold to out-of-state users or entities

Gas and electric sales to manufacturers

Retail sales of steam

Sale of natural gas to an existing combined cycle generating plant consisting of three gas turbines with a total generating capacity of 775 MW and used to generate electricity

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