Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2015
Sales and Use Tax Annotations
275.0000 GAS, ELECTRICITY AND WATER
(a) DELIVERY THROUGH MAINS, LINES OR PIPES
275.0175.500 Propane. A sale of propane delivered to the customer through a tank at the customer's location qualifies for the exemption provided by section 6353 only if the seller retains title to and possession of the propane until the propane is delivered in vapor form to the customer's premises through mains or pipes. This occurs only where the seller controls the tank, as discussed below, and where the contract contains an explicit provision whereby the seller retains title to the propane until it is delivered into the customer's premise in a gaseous form. When the sale satisfies these conditions, it is exempt from tax.
Where a customer leases the tank from either the seller or some other person, or where the customer owns the tank (and does not lease it to the seller as discussed below), the sale of propane is subject to tax because the sale of the propane occurs upon delivery into the tank, while in liquid form. A seller controls the tank only where it owns the tank (and does not lease it to the customer or a third party) or it leases the tank from the customer. If the seller leases the tank from the customer, it must be a bona fide lease, and the seller cannot increase its charge for the propane to recover its cost of leasing the customer's tank. If it does so, the "lease" will be disregarded and the sale will be regarded as having occurred no later than when the propane is placed in the tank in liquid form, regardless of any title provision in the contract to the contrary.
If the sale satisfies the conditions for exemption discussed above, pre-billing the customer for the amount of liquid propane delivered into the tank, with a credit upon termination of the contract for any propane remaining in the tank, will not affect that exemption, nor will calculating the charge for the propane by converting the amount of liquid gallons delivered into the tank to cubic feet for purposes of billing. 2/6/97.