Illinois Appellate Court Finds Motor Fuel Tax Did Not Apply to Compressed Natural Gas

The Illinois First District Appellate Court reversed an earlier order by the Illinois Independent Tax Tribunal. The Tax Tribunal’s order granted summary judgment in favor of the Illinois Department of Revenue and denied summary judgement to the taxpayer, Waste Management, on the basis that the Motor Fuel Tax Law applied to the company’s use of compressed natural gas (CNG).

Waste Management of Illinois, Inc. calculated and paid taxes under the Motor Fuel Tax Law for its use of compressed natural gas (CNG) to operate some of its vehicles. Afterwards, the company sought a tax refund for taxes paid on CNG with the understanding that CNG was not taxable under the Motor Fuel Tax Law.

After Waste Management filed a petition for administrative review with the Appellate Court, the Court reversed the Tax Tribunal’s decision and sided with the taxpayer. The Appellate Court’s reasons for reversal centered around the definition of what constitutes a taxable “motor fuel.”

Among other things, “motor fuel” includes “special fuel” – both of which are statutorily defined as liquids. The Appellate Court determined that the legislature made it explicitly clear that it excluded “gasoline” and “all combustible gases” from being considered a taxable motor fuel. Thus, the Appellate Court held that CNG, as a “combustible gas,” does not fall within the Motor Fuel Tax definition of “motor fuel” or “special fuel” and is not subject to tax (Waste Management of Illinois, Inc. v. Illinois Dependent Tax Tribunal, Appellate Court of Illinois, First District, No. 1-16-2830, December 29, 2017).

Posted on March 14, 2018