The Ohio Department of Taxation (“Department”) has issued an information release (PAT 2014—07, 9/1/2014) to provide guidance to suppliers who receive gross receipts from a sale of motor fuel back into a distribution system. The Petroleum Activity Tax (PAT) is assessed when a supplier receives gross receipts that are included in the supplier’s PAT base from the initial sale of motor fuel outside a distribution system in Ohio. Effective July 1, 2015, R.C. 5736.01(B), which defines “distribution system”, will be modified to make it clear that the transportation of motor fuel back into a distribution system is not the first sale of motor fuel “outside the distribution system”. Furthermore, the Department recommends a prescribed form to assist taxpayers in proving that a sale was not the initial sale of motor fuel outside of the distribution system.
The Department recognized a need for a clarification in the law because many additives or blend stocks, such as ethanol, are transported from a production facility of the product and delivered back into a terminal or different refinery for blending purposes. Ohio’s statute as currently written is silent as to the transportation of motor fuel back into a distribution system. The Department stated that it does not regard “a sale of motor fuel with the destination and sale of the motor fuel to a point in the distribution system” as a sale outside of the distribution system. Consequently, based on the Department’s interpretation, the PAT base does not include gross receipts received from the sale of motor fuel until it is initially sold to a destination outside a distribution system in Ohio. The Department explains that the revised statute codifies its interpretation of the law and “makes it clear” that the transportation of motor fuel back into a distribution system is not the first sale of motor fuel “outside the distribution system” for purposes of calculating the PAT.