By: Judith Lohman, Chief Analyst
You asked the several questions about state taxes on, and tax exemptions for, fuel and other petroleum products. Questions and answers appear separately below.
WHY IS COMMERCIAL HEATING OIL SUBJECT TO STATE SALES TAX?
Sale of heating fuel is currently exempt from the sales tax only if it is used in a residential dwelling or if at least 75% of the fuel for any building, location, or premise is used directly (1) in agricultural production, (2) for fabricating finished products for sale, or (3) in an industrial manufacturing plant (CGS § 12-412 (16)). Thus, sale of any other heating oil for commercial purposes is subject to sales tax.
The General Assembly first enacted the state sales tax in 1947. The original sales tax law exempted sales of fuel used exclusively for domestic purposes from the tax. Thus, the original 1947 sales tax applied to sales of fuel for commercial and industrial purposes (§ 334i (p), 1947 Supplement to the Connecticut General Statutes).
In 1971, the General Assembly specified that sale of gas and electricity, as well as fuel, for domestic purposes was tax-exempt (PA 8, June 1971 Special Session, § 7).
In 1974, the General Assembly limited the exemption to heating fuel but expanded the heating fuel exemption to cover commercial and industrial as well as domestic uses. It also eliminated the 1971 references to gas and electricity from the heating fuel exemption (these fuels were and still are covered by other exemptions), thus limiting the exemption to heating oil (PA 74-4)
The General Assembly enacted the current law in 1989, as part of a massive $684 million emergency certified revenue bill (SB 1068, PA 89-251). The bill contained extensions and increases in many state taxes and fees, including
an increase in the sales tax rate from 7.5% to 8%. One part of the bill limited the heating fuel exemption to residential dwellings and to agricultural, manufacturing, and industrial buildings. In summarizing the bill on the Senate floor, the Finance Committee ' s co-chairperson, Senator DiBella, mentioned that it contained “a tax on business utilities, including oil and excluding the manufacturing process,” which was expected to raise $75 million. An amendment to eliminate the change along with several other tax increases (Senate “F”) was defeated by a vote of 15 to 21 (Senate Proceedings, May 25, 1989).
WHAT TYPES OF FUEL AND PETROLEUM PRODUCTS OR TYPES OF USES FOR SUCH PRODUCTS ARE SUBJECT TO AND EXEMPT FROM STATE SALES AND FUEL TAXES?
Connecticut has four state taxes that apply to some or all types of fuel (petroleum fuels, electricity, and natural gas) or petroleum products. These taxes are the (1) sales tax, (2) motor vehicle fuels tax, (3) petroleum products gross earnings tax, and (4) public service company tax. For each tax, we show below the types of goods or situations to which they generally apply 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 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 general tax rate is 6%. The table below 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