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Ezel / Tax Rulings / CT
CT Ruling 90-65 Sales and Use Taxes 1990-09-24

Were leases of industrial-gas bulk storage and vaporization tanks exempt as utility delivery equipment or manufacturing machinery in Connecticut?

Short answer: No. The gas producer delivered liquid oxygen, hydrogen, helium, or nitrogen by tank truck into customer-site tanks that vaporized the product before a short pipeline carried it into the plant. The tanks did not qualify under the mains-lines-or-pipes exemption because the producer did not deliver gas through those systems. They also were not manufacturing machinery because manufacturing ended when air was separated into its elements; later liquefaction and revaporization were natural processes. The tank rentals were taxable tangible-personal-property leases.

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This page answers the general question as of 1990. Ezel answers yours, under current Connecticut tax law, with citations.

Currency note: this ruling is from 1990
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Ruling of the Connecticut Department of Revenue Services (DRS), typically issued to a specific taxpayer in response to that taxpayer's request and based on the specific facts presented and the Connecticut tax law in effect when it was issued. DRS may later declare a Ruling obsolete or supersede it by a subsequent Ruling, Policy Statement, or Announcement, so a taxpayer with different facts should not assume it still applies. Taxpayer-identifying details are redacted. Connecticut imposes its sales and use tax solely at the state level: there are no local or municipal sales taxes. This summary is informational only and is not legal or tax advice. Consult a licensed Connecticut tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
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Plain-English summary

An industrial-gas manufacturer separated air into products such as oxygen, hydrogen, helium, and nitrogen, liquefied them for tank-truck delivery, and transferred them into rented bulk tanks at customer plants. A converter at each tank changed the liquid back into gas before a short pipe carried it into the customer's manufacturing process.

DRS held the tank rentals were taxable leases of tangible personal property. The utility-delivery exemption did not apply because the producer did not deliver the gas through mains, lines, or pipes. The manufacturing-machinery exemption also failed because DRS treated manufacturing as ending when air was separated into the elements; later liquefaction and revaporization were natural processes.

What this means for you

Customer-site equipment used after production and delivery may not qualify as the seller's manufacturing machinery. The exact delivery method also matters for exemptions tied to mains, lines, or pipes.

Common questions

Did the short customer-site pipeline satisfy the delivery exemption? No. The product arrived by tank truck in liquid form.

Was vaporization manufacturing? No under the ruling; DRS called it a natural process after manufacturing ended.

Citations and references

  • Conn. Gen. Stat. §§ 12-412(18) and (34).
  • Conn. Gen. Stat. § 12-407(2)(J).

Source

Original ruling text

Ruling 90-65, Manufacturing Exemption

Ruling 90-65

Manufacturing Exemption

ISSUE:

Whether a manufacturer (M) of industrial gases, must charge sales tax on the lease of its bulk storage tanks to customers in this state.

FACTS:

Products are manufactured at an air separation plant. Through the process of cooling air drawn from the atmosphere to various temperatures, it is possible to extract from the air various elements, such as, oxygen, hydrogen, helium and nitrogen. After production is completed, these products are stored at the plant. Tank trucks are used to deliver the product in a liquid state from storage facilities at the plant site, to smaller bulk storage tanks at the customers place of business.

At the delivery point the product, still in liquid state, is transferred from the tank truck into a bulk storage tank which (M) rents to the customer. At the base of the storage tank is a converter which vaporizes the liquid product into a gaseous state. The product, now in a gaseous state, is then pumped through a short pipeline into the customers plant where it is consumed in his manufacturing process.

RULING:

The rental of the bulk storage tanks do not meet the requirements for exemption under Section 12-412(18). Although the taxpayer does furnish gas, it does not deliver the gas "through mains, lines or pipes" as required by the exemption.

Similarly, the rental of the bulk storage tanks are not exempt under Section 12-412(34) which allows an exemption for machinery used directly in a manufacturing production process. Assuming that a manufacturing production process is involved in "air separation", it is the Department's position that the manufacturing production process ends with the separation into the various elements. The subsequent liquefaction and revaporization of the gas is a natural process.

Accordingly, M is leasing tangible personal property to its customers in the form of bulk storage facilities. The rental payments for such facilities are subject to sales and use tax under Section 12-407(2)(J) and are not exempt under Sections 12-412(18) or 12-412(34).

LEGAL DIVISION

September 24, 1990

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