Blended gasoline raises question of tax exemption

A convenience store’s process for mixing two grades of gasoline left too many questions unanswered for the Indiana Tax Court to determine if the equipment used in the blending process was tax exempt.

Crystal Flash Petroleum LLC, which operated 25 convenience stores in Indiana during the years at issue, was assessed a sales/use tax on certain ice production, food preparation and mid-grade gasoline equipment. The company paid the assessment but then filed a refund claim with the Indiana Department of Revenue.

When the department denied the refund, Crystal Flash appealed to the Tax Court, claiming the equipment was exempt from the tax under Indiana Code 6-25.5-3.  

The Tax Court affirmed summary judgment in favor of the department in regards to the ice production and food production equipment in Crystal Flash Petroleum, LLC v. Indiana Department of State Revenue, 49T10-1104-TA-00025. However, Judge Martha Wentworth denied the department’s motion for summary judgment in regards to the gasoline equipment.

Crystal Flash blended the mid-grade gasoline from hi- and low-grade gasolines then sold the fuel to customers. The department argued mixing pre-existing grades of gasoline is not production because the end fuel is not substantially different. But the Tax Court agreed with the company that there is a genuine issue of material facts as to whether Crystal Flash used its mid-grade gasoline equipment in an integrated production process.

The Tax Court noted from the taxpayers’ point of view, the mid-grade gasoline was different from the hi- and low-grade gasolines individually. Yet while the differing compositions of the gasoline suggests that Crystal Flash used its mid-grade gasoline equipment within an integrated production process, the undisputed material facts did not help the court in determining whether the change in composition was a substantial change for purposes of the department’s equipment exemption.