Washington Addresses Taxation of Compressed and Liquefied Natural Gas used for Transportation

Washington has passed legislation that provides an exemption from public utility tax (PUT) for sales by gas distributors of compressed natural gas or liquefied natural gas that is to be sold or used as a transportation fuel. Additionally, business and occupation (B&O) tax provisions defining the term “to manufacture” are amended to include the production of compressed natural gas or liquefied natural gas for use as a transportation fuel.”Transportation fuel” is fuel for the generation of power to propel a motor vehicle, a vessel, or a locomotive or railroad car.

If a consumer uses natural gas, compressed natural gas, or liquefied natural gas as transportation fuel, the gas is not subject to the state and local brokered natural gas tax. Rather, natural gas used as transportation fuel is subject to local sales and use tax. In addition, the sales and use tax exemption for machinery and equipment used by a gas distribution business in the production of compressed natural gas and liquefied natural gas has been turned into a refund. A gas distribution business claiming the manufacturing machinery and equipment exemption must pay the state and local sales tax and later file a claim for refund. Claims may be filed beginning July 1, 2017. Businesses may not file a claim more than once per quarter, and records must be maintained to assist the Department of Revenue in determining whether the business is entitled to the exemption. The records should include invoices, proof of tax paid, and documents describing the machinery and equipment. The refund is available until July 1, 2028.

For the sale of liquefied natural gas to a business operating as a private or common carrier by water in interstate or foreign commerce, the purchaser is entitled to a partial sales tax exemption from state and local sales taxes. The exemption is for the state and local retail sales taxes on 90% of the amount of the liquefied natural gas transported and consumed outside Washington by the buyer. Sellers don’t need to collect the tax from registered taxpayers if they receive an exemption certificate or capture the relevant data elements permitted by the Streamlined Sales and Use Tax Agreement. Buyers can either pay the full amount of the tax to the seller and claim a refund or pay tax on liquefied natural gas consumed in Washington and on 10% of the gas consumed outside the state. The partial exemption does not apply to the sale of liquefied natural gas on or after July 1, 2028, for use as fuel in any marine vessel. (S.B. 6440, Laws 2014, effective July 1, 2015)

Posted on April 10, 2014