In my daily routine of reading state and local tax cases across the country, I recently inquired to the State of Florida for the status of an innovative sales tax case unique to the gasoline and petroleum industry this week. As many of you know, I have had the pleasure of growing up and assisting in my family’s petroleum business that has owned, operated, and distributed petroleum and gasoline in South Florida for over 30 years. Therefore, cases like Gate Fuel Services & Gate Petroleum, catch my attention and I really root for innovative and aggressive taxpayers like the one in these cases.
I brought this concept up to several gas station owners at the 2012 Florida Petroleum Marketers Association (“FPMA”) Fuel Expo and many met my suggestion with criticism or disbelief. It is still difficult for me to understand how a room full of dozens of Florida’s gas station owners, operators, and distributors, would rather discuss the latest developments with their beer vendors over a tall cold one, rather than sit and listen to me rant about Florida sales tax. For all of the naysayers out there, I have recently received word from the State of Florida, that the Gate cases were recently settled.
Many of you may recall, I wrote an article for my law firm’s blog in May 2012, about two companion sales and use tax cases. Both cases Gate Petroleum Co. v. Florida Department of Revenue, Case No. 12-CA-381 (2d Cir. Ct. 2012), andGate Fuel Service v. Florida Department of Revenue, 12-CA-379 (2d Cir. Ct. 2012),were filed in Leon County, home of the Florida Department of Revenue. The Gate cases centered around a refund denial for sales and use tax in the amounts of $160,935 and $ $45,071, respectively. In both cases, the Florida Department of Revenue (“DOR”) admittedly opposed the refund claims based essentially the same innovative theory of recovery.
For the uninformed, the retail gas station taxpayers in the cases alleged that they made certain equipment purchases that were exempt from Florida sales and use tax. Specifically, the Taxpayers argued that fuel storage equipment which holds regular and premium-grade fuel in underground tanks, mixes the two at the dispenser, and creates a mid-grade gasoline for sale at its retail locations. Being that this is the pump system at most modern gas stations, how come every gas station that has purchased taxable equipment in the last three years are not going for the refund? in short, they all should.
Like most states, Florida law exempts machinery and equipment purchased for use to create tangible personal property. This stems from the notion that in a sales and use tax regime, business inputs, such as purchases used to create tangible personal property for sale, should be exempt and the ultimate consumer should bear the burden of the tax. Specifically, under Florida law, section 212.051, Florida Statutes (“F.S.”) provides for an exemption for equipment that is 1) used primarily for the control or abatement of pollution or contaminants and 2) in the manufacturing, processing, compounding, or producing for sale items of tangible personal property. While most states have this basic concept, it is worth pointing out that each state has distinct exemption requirements that should be examined by the Taxpayer and its advisor.
In order to satisfy the requirements in Florida, the gas station operators argued the first prong of the statute was satisfied because the gas stations are subject to regulation by the Florida Department of Environmental Protection’s (“DEP”) “Storage Tank Program.” Therefore, the taxpayers’ allege that the tanks are used primarily for the control of pollution/contaminants–the gasoline. Further, the equipment is used for manufacturing, processing, or producing tangible personal property (the fuel) because the equipment is producing a new and distinct fuel grade for sale at the gas station. Therefore, both prongs of the statute are met.
Despite the Department’s argument that the primary purpose of the storage tanks and pumps is for the storage and delivery of gasoline, not for the control of pollution, and that bledning gasoline is not “manufacturing,” the case was settled. It remains a mystery as to the amount and terms of the settlement and whether Gate believes this case be a victory. However, a settlement seems to suggest that the taxpayer was given at least something in order to drop the case.
From the state and local tax professional’s perspective, it seems obvious that more refund claims should be filed. Most states have a three year statute of limitations for sales and use tax. Therefore, if you or your client has purchased new tanks or fuel dispensers that arguably “manufactures” fuel, there is no downside to filing a refund claim. Unlike a tax assessment, interest does not run and the tax at issue does not have to paid in order to file suit if and when the refund claim is denied. From a financial perspective, there are many tax professionals that will handle a case on a contingency basis, which eliminates any cost hurdle for the taxpayer. In tough economic times, I urge everyone to be innovative and get back sales taxes paid if the state is not entitled to it!
About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law firm Moffa, Gainor, & Sutton, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email or phone listed on this page.