In my daily endeavor of readings state and local tax cases across the country and in Florida, I recently came across companion Florida cases in which I wrote about in the summer of 2012. The cases dealt with an innovative sales tax concept unique to the gasoline and petroleum industry. 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 cause me to really cheer for innovative and aggressive taxpayers.
I brought up the Gate cases to several of the group members at the 2012 Florida Petroleum Marketers Association ("FPMA") and many met my suggestion with criticism or disbelief. It is still difficult for me to understand how many of the FPMA members 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 this case was recently settled.
Many of you may recall, the cases, 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),were filed in Leon County, home of the Florida Department of Revenue in 2012. 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 those of you who do not recall, the 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 is not going for the refund?
Under Florida law, 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.
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, the case was settled. It remains a mystery as to the amount of the settlement and whether Gate believes this case to 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 professional fees 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, like we are in, 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 the Law Offices of Moffa, Sutton, & Donnini, P.A., 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.
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