Ruling 95-5, Petroleum Products Gross Earnings Tax
FACTS:
The Company purchases petroleum products outside Connecticut from vendors who ship them to the Company's warehouses located outside of Connecticut. Thereafter, the Company transports the petroleum products into Connecticut and sells them to consumers at retail at its department stores in Connecticut.
ISSUES:
Whether the Company "distributes" petroleum products within the meaning of Conn. Gen. Stat. §12-587(b) so that the petroleum products gross earnings tax is imposed on the "earnings derived from the first sale within this state of a petroleum product."
Whether the Company imports petroleum products or causes petroleum products to be imported within the meaning of Conn. Gen. Stat. §12-587(c), so that the petroleum products gross earnings tax is imposed on the "consideration given or contracted to be given" for a petroleum product.
DISCUSSION:
The petroleum products gross earnings tax, Conn. Gen. Stat. §12-587 et seq., provides that "[a]ny company which is engaged in the refining or distribution or both, of petroleum products, and which distributes such products in this state shall pay a quarterly tax at the rate of five percent of its gross earnings derived from the sale of petroleum products within this state." Conn. Gen. Stat. §12-587(b). With certain exceptions, "petroleum products" are those products which contain or are made from petroleum or a petroleum derivative; Conn. Gen. Stat. §12-587(a)(4); more specifically, those products that are described in Major Group 29 of the Standard Industrial Classification Manual of 1972. Conn. Agencies Regs. §12-602-1a(b). "Gross earnings" means "those earnings derived from the first sale within this state of a petroleum product." Conn. Gen. Stat. §12-587(a)(3).
As the Connecticut Supreme Court explained in Texaco Refining and Marketing Company, Inc. v. Commissioner of Revenue Services, 202 Conn. 583 (1987), the petroleum products gross earnings tax is to "be treated as an item of operating overhead measured by gross earnings derived from the sale of petroleum products in Connecticut." Id. at 596. See also Mobil Oil Corp. v. Dubno, 492 F. Supp. 1004, 1006 (Conn. 1980). The court in Texaco held that in the absence of a specific statutory exemption for tax receipts, Conn. Gen. Stat. §12-587 includes within "gross earnings" the amounts collected by the plaintiff as taxes passed through to its customers. Accordingly, a company that is subject to the petroleum products gross earnings tax may collect the tax from its customers, but it must include the amount collected in its gross earnings.
In contrast, for sales and use tax purposes, the definition of "gross receipts" expressly excludes some taxes and expressly includes "all receipts . . . of any kind." There is no specific statutory exclusion that extends to petroleum products gross earnings tax receipts. Thus, following Texaco, supra, "gross receipts" includes the amount of petroleum products gross earnings tax payments that a retailer has collected from its customers. See Conn. Gen. Stat. §§12-408(1) and 12-407(9).
The question of who is subject to the petroleum products gross earnings tax was presented in George E. Warren Corp. v. Groppo, Super. CT., No. 86-0319672 (1989). In that case the George E. Warren Corp. purchased petroleum products in Connecticut from a company that was not required to be registered to do business in Connecticut, and then resold the petroleum products in Connecticut. The George E. Warren Corp. challenged the Department's contention that it was liable for petroleum products gross earnings tax on the gross earnings from its sale in Connecticut of those petroleum products.
First, the court found that the definitions of "distributor" found in Conn. Gen. Stat. 12-455a and 14-318 were inapplicable for purposes of the petroleum products gross earnings tax. The court pointed out that "nowhere in the statute is there a limitation on the imposition of the tax to one who is a 'distributor.' The tax is imposed on one who distributes the petroleum product." Id., at 5 (emphasis added).
Ultimately the court held that the Department was precluded from collecting the tax on the gross earnings derived from the George E. Warren Corp.'s sale of petroleum products in Connecticut because "the first sale," the only sale that may be taxed, was the sale by the unregistered company to George E. Warren Corp. The court was unpersuaded that the first sale should mean the first sale by a registered company. Id.
Although George E. Warren Corp. stands for the proposition that any company that distributes petroleum products within Connecticut is subject to the petroleum products gross earnings tax imposed by Conn. Gen. Stat. §12-587(b), the term "distribute" is not defined in the Petroleum Products Gross Earnings Tax Act or in the regulations promulgated thereunder. However, for purposes of the petroleum products gross earnings tax, it has been the longstanding practice of the Department to interpret "distribute" as having the same meaning as "sell," making it unnecessary to determine whether the company making the sale is a distributor (ordinarily defined as one who supplies goods to retailers), or a retailer (ordinarily defined as one who sells goods in small quantities directly to consumers). Accordingly, because the Company sells petroleum products in Connecticut, it falls within the scope of Conn. Gen. Stat. §12-587(b).
Conn. Gen. Stat. §12-587(c) provides in part:
Any company which imports or causes to be imported into this state petroleum products for its use and consumption, other than a company which is subject to and which has paid the tax on such petroleum products in accordance with subsection (b) of this section, shall pay a quarterly tax at the rate of five percent of the consideration given or contracted to be given for such petroleum product if the consideration given or contracted to be given for all such deliveries during the quarterly period for which such tax is to be paid exceeds one hundred thousand dollars. For the purposes of this subsection, "use" includes the sale of imported petroleum products in the regular course of business . . .
Conn. Gen. Stat. §12-587(c) was adopted by 1991 Conn. Pub. Acts 3, §146 (June Spec. Sess.), in response to the outcome in George E. Warren Corp. v. Groppo and, because the tax was imposed only if a sale was in Connecticut; New England Petroleum Corporation v. Groppo, 214 Conn. 444, 449-450, 572 A. 2d 970 (1990); to eliminate the incentive to purchase petroleum products out-of-state for consumption within the state. Accordingly, Conn. Gen. Stat. §12-587(c) applies in two situations.
It follows, therefore, that Conn. Gen. Stat. §12-587(b) and (c) operate to create alternative liability for the tax. For example, Conn. Gen. Stat. §12-587(b) and (c) would impose liability on the buyer and the seller in a situation like that in George E. Warren Corp. Thus, a company that causes the petroleum products to be imported (the buyer) is liable for tax on the consideration it paid by virtue of Conn. Gen. Stat. §12-587(c), unless the seller is subject to and has paid the tax, and, in the alternative, the seller is liable for tax on its gross earnings by virtue of Conn. Gen. Stat. §12-587(b).
Thus, even though the Company imports petroleum products into this state for sale in the regular course of business, Conn. Gen. Stat. §12-587(c) was not intended, and does not apply, to such circumstances. See SN 91(11).
The intent of Conn. Gen. Stat. §12-587(c) was reflected in the examples set out in SN 91(11), which are restated below.
Example 1. A company purchases outside Connecticut petroleum products that it imports into Connecticut. The consideration given or contracted to be given by the company for its purchases during the calendar quarter exceeds $100,000. The purchased products are consumed by the company inside Connecticut. The company is subject to the petroleum products gross earnings tax. SN 91(11), Ex.1.
Example 2. The facts are the same as in Example 1except that the company sells the products in the regular course of its business during the same calendar quarter. The company is subject to and pays the petroleum products gross earnings tax on its gross earnings derived from such sales. The company's importation of the petroleum products will not also be subject to the tax. SN 91(11), Ex.2.
Example 3. The facts are the same as in Example 1 except that the company purchases inside Connecticut the petroleum products that it causes to be imported. Unless the seller is subject to and has paid the petroleum products gross earnings tax on the products, the company is subject to the petroleum products gross earnings tax. SN 91(11), Ex.3.
RULING:
Any company that distributes petroleum products within Connecticut and makes the first sale of those products in Connecticut is subject to the petroleum products gross earnings tax imposed by Conn. Gen. Stat. §12-587(b). "Distributes" is interpreted to mean the same as "sells." Accordingly, regardless of its status as a "retailer" or a "distributor," the Company is subject to the petroleum products gross earnings tax imposed by Conn. Gen. Stat. §12-587(b).
Moreover, where a company imports into, and sells, petroleum products in Connecticut, subsection (b) of Conn. Gen. Stat. §12-587 applies to the seller and, in the alternative, subsection (c) of Conn. Gen. Stat. §12-587 applies to the buyer. Thus, because the Company sells petroleum products in Connecticut, Conn. Gen. Stat. §12-587(b) applies and the measure of the tax is the gross earnings derived from the first sale of such petroleum products, i.e., the Company's sale of petroleum products to consumers from its Connecticut department stores. Even though the company imports the petroleum products that it sells, the measure of the tax is not the consideration paid by the company because subsection (c) of Conn. Gen. Stat. §12-587 does not apply to that type of transaction.
LEGAL DIVISION
April 20, 1995