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Florida Sales Tax Exemption and Refund Opportunity for the Petroleum Industry


Growing up and helping out in my family's business that has owned, operated, and distributed petroleum in South Florida for more than over 30 years, I am always on the lookout for new tax savings opportunities that are applicable to this industry. Earlier this month two cases caught my attention that make for an innovative refund opportunity for businesses in the Petroleum industry.

In early May 2012 two companion cases were filed in Leon County, Gate Petroleum Co. v. DOR, Case No. 12-CA-381 (2d Cir. Ct. 2012), and Gate Fuel Serv. Inc. v. DOR, 12-CA-379 (2d Cir. Ct. 2012), which can be downloaded at the end of this article. Both cases involved a refund denial in the amounts of $160,935 and $ $45,071, respectively, by the Florida Department of Revenue ("DOR") and both are based on essentially the same theory of recovery.

In each case, the retail gas station taxpayer is alleging that it made certain equipment purchases that were exempt from Florida sales and use tax. Specifically, the fuel storage equipment 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.

Section 212.051, Florida Statutes ("F.S.") provides for an exemption for equipment 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.

The gas station operators argue that the gas stations are subject to regulation by the Florida Department of Environmental Protection's ("DEP") "Storage Tank Program." 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.

Based on the DOR's Notice of Decision ("NOD"), which can be downloaded at the end of this article, the DOR is concedes that gasoline and its vapors qualify as a "pollutant" under chapter 62-252, Florida Administrative Code ("F.A.C."). In order for equipment to be used for the "control or abatement of pollution" it must be used, installed, or constructed to meet the DEP's regulations. The DOR has also conceded on this issue.

Conversely, the Department argues that the primary purpose of the storage tanks and pumps is for the storage and delivery of gasoline, not for the control of pollution. The DOR also argues that based on the Legislative history of the statute, the DEP regulates service station equipment for pollution prevention in products sold to consumers rather than for the control of pollution in manufacturing.

In its third argument the Department contends that "manufacturing, processing, compounding, or producing" means raw materials must be put through a series of steps in an "industrial operation," to change the composition or physical nature of the raw material. It maintains that the premium-grade and regular-grade fuel are already refined versions of the same fuel and the gas station is not refining fuel from crude oil. As such, a new, distinct item is not created from raw materials that would constitute "manufacturing, processing, compounding, or producing."

The primary legal analysis on the competing views is sparse to say the least. One example is Technical Assistance Advisement ("TAA") 12A-001, in which a manufacturing facility generated wastewater in its production process. The wastewater management of the company was regulated by the EPA and the DEP and each required the taxpayer to relocate the wastewater. In order to do so the taxpayer constructed large underground pipes to remove the water from the facility. The Department granted the exemption because the system was required by the DEP. Further, without providing any analysis, the DOR conceded this was in the manufacturing of tangible personal property.

In TAA 08A-015, a cement manufacturer was required by the DEP to make certain improvements to the property. While the DOR did not opine on whether the company manufactured tangible personal property, it stated that "items qualifying for exemption must be purchased to meet required provisions of law implemented by, or a condition of a permit issued by the DEP."

Based on the DOR's TAA's it seems the equipment at issue meets the control of pollution requirement because the equipment purchased is required by the DEP. Whether the gas station manufactures, produces, or compounds items of tangible personal property for sale falls into a grayer area of the law, however, the equipment at least arguably does process two grades of fuel into a third grade. It is worth pointing out that at least one court in Texas ruled that similar equipment purchased in Texas qualified as equipment used in "manufacturing" gasoline.

From a practical perspective, if you or your clients have purchased gas station equipment that mixes different fuel grades to produce new grades of fuel, it may be advisable to file for a refund claim and follow the Gate cases. There is little to no downside to file for a refund and by waiting companies that purchased potentially exempt and expensive equipment may be barred for filing for a subsequent refund by the statute of limitations.

Moffa Gainor Sutton PA, Jerry Donnini

About the author: Mr. Donnini is a Florida Attorney and an associate in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A., in Fort Lauderdale, Florida. Mr. Donnini's primary practice is Florida tax controversy. Mr. Donnini worked as an accountant for a public REIT prior going to law school and is currently pursuing his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact the firm by phone or email via the links at the top of the page


§ 212.051, F.S.

Chap. 62-252, F.A.C.


Gate Petroleum, Notice of Decision – Dec. 12, 2011

Gate Petroleum Co. v. DOR, Case No. 12-CA-381 (2d Cir. Ct. 2012)

Gate Fuel Service, Inc., Notice of Decision – Dec. 12, 2011

Gate Fuel Service, Inc. v. DOR, 12-CA-379 (2d Cir. Ct. 2012)

TAA 12A-001 (manufacturing facility generating wastewater in its production process held to be a manufacturer of tangible personal property).

TAA 08A-015 (in dicta, DOR stated items qualifying for manufacturing exemption must be purchased to meet required provisions of law implemented by, or a condition of a permit issued by the DEP).