Can a bus company get a New York sales tax refund on the portion of its diesel fuel purchase price that corresponds to federal excise tax the IRS later refunds to it?

Plain-English summary

Greyhound Lines is authorized by the IRS to buy untaxed "dyed" diesel fuel for its intercity buses, paying a reduced federal excise tax rate. But because some of its suppliers can't provide dyed fuel, Greyhound sometimes buys ordinary "clear" (federally taxed) diesel, whose price includes the full federal excise tax. Since Greyhound would otherwise qualify for the lower rate, it's entitled to file with the IRS for a partial refund of the difference — and it argued that once the IRS refunds that federal excise tax portion, it should also get back the New York sales tax it paid on that same portion, since the fuel's "real" cost turned out to be lower.

The Department said no. New York sales tax is a "transactions tax" — it's computed once, on the price actually charged and received by the vendor at the time of sale, and federal excise taxes (like the one on diesel fuel) are specifically included in that taxable receipt by regulation. A refund or credit of sales tax is only available under § 1139(a) when the tax was erroneously, illegally, or unconstitutionally collected in the first place — and here, it wasn't: the vendor correctly charged sales tax on the full price it actually received, federal excise tax and all, at the time of sale. The fact that Greyhound later gets some of that embedded federal tax back from the IRS is a separate transaction between Greyhound and the federal government; it doesn't unwind or retroactively reduce the receipt on which New York sales tax was properly based.

What this means for you

Businesses that get partial refunds of embedded taxes or fees

A later refund from a third party (here, the IRS) of a tax or cost embedded in your original purchase price generally doesn't retroactively reduce the receipt on which state sales tax was correctly computed at the time of sale. Sales tax refunds require the original tax to have been erroneously, illegally, or unconstitutionally collected — a subsequent refund of one cost component doesn't create that kind of error retroactively.

Fleet operators buying a mix of tax-advantaged and standard fuel

If your fleet sometimes has to buy standard fuel because tax-advantaged fuel isn't available from every supplier, plan around the fact that sales tax will apply to the full purchase price (including embedded federal excise tax) with no refund path tied to your separate federal excise tax refund.

Accountants and tax professionals

This is a clean, narrow illustration of the transactions-tax principle (20 NYCRR § 525.2(a)(2)) combined with the specific rule that federal excise taxes are included in the taxable receipt (20 NYCRR § 526.5(b)) — the § 1139(a) refund standard requires an error in the original collection, not merely a later economic adjustment to the underlying cost.

Common questions

Q: Can a business get a New York sales tax refund when it later gets a federal excise tax refund on the same purchase?
A: No — sales tax is computed on the price actually received by the vendor at the time of sale, and a later, separate federal refund doesn't retroactively reduce that receipt.

Q: Why is federal excise tax included in the sales tax base in the first place?
A: New York regulations specifically include federal manufacturers' excise taxes (like the one on diesel fuel) within the taxable receipt, even if separately stated to the purchaser.

Q: When can a business actually get a New York sales tax refund?
A: Only when the sales tax itself was erroneously, illegally, or unconstitutionally collected or paid — not simply because a related but separate cost was later refunded by another party.

Q: Does it matter that the fuel purchase was a mix of dyed and clear diesel?
A: No — the ruling addresses only the clear (fully taxed) diesel purchases; the dyed fuel purchases were already taxed at the reduced federal rate to begin with.

Q: Can another company relying on a similar embedded-tax refund argument cite this ruling?
A: No. It's binding only on Greyhound's specific facts, though the underlying transactions-tax principle is a general one.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3), (8)(i)(A) (receipt; vendor)
• Tax Law § 1132(a)(1) (collection of tax)
• Tax Law § 1139(a) (refund/credit standard)
• 20 NYCRR § 525.2(a)(2) (transactions tax)
• 20 NYCRR § 526.5(b) (federal excise taxes included in receipt)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2002.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a02_3s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-02(3)S
Sales Tax
April 3, 2002

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S010301A

On February 27, 2001, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Greyhound Lines Inc., 15110 North Dallas Parkway, Dallas, Texas, 75248.
The issue raised by Petitioner, Greyhound Lines Inc., is whether it is eligible for a refund or
credit of sales tax paid on the portion of the receipt for its purchases of diesel fuel attributable to the
portion of the Federal excise tax on diesel fuel which is subsequently refunded to it by the Internal
Revenue Service.
Petitioner submits the following facts as the basis for this Advisory Opinion.
Petitioner is authorized by the Internal Revenue Service of the United States (IRS) to
purchase dyed (federally untaxed) diesel fuel which is used to propel Petitioner’s intercity buses.
Petitioner is required to file a return and pay a reduced rate of federal excise tax (FET) of $.074 per
gallon to the IRS on these purchases. However, Petitioner also purchases clear (federally taxed)
diesel fuel because some of Petitioner’s suppliers cannot supply it with dyed diesel fuel. The
amount paid by Petitioner to its suppliers for clear diesel fuel includes $.244 per gallon FET.
Petitioner is exempt from the FET to the extent of $.17 per gallon (the difference between the $.074
FET per gallon it would be required to pay if it had purchased and used untaxed fuel in its buses and
the $.244 per gallon included in the price of clear diesel fuel) and may file for a refund of the $.17
per gallon with the IRS on Form 8849. Petitioner is currently paying New York sales tax to its
suppliers on the entire receipt for the clear diesel motor fuel, including the $.244 per gallon FET on
all purchases in New York State. Since Petitioner is exempt from the FET to the extent of $.17 per
gallon, it contends that it should be entitled to a refund of sales tax paid on the portion of the FET
on diesel fuel ($.17 per gallon) for which it receives a refund from the Internal Revenue Service.
Applicable Law and Regulation
Section 1101(b)(3) of the Tax Law defines the term “receipt,” in part, as:
The amount of the sale price of any property and the charge for any service
taxable under this article . . . valued in money, whether received in money or
otherwise, including any amount for which credit is allowed by the vendor to the
purchaser, without any deduction for expenses or early payment discounts and also
including any charges by the vendor to the purchaser for shipping or delivery . . .
regardless of whether such charges are separately stated in the written contract, if
any, or on the bill rendered to such purchaser and regardless of whether such

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April 3, 2002

shipping or delivery . . . is provided by such vendor or a third party, but excluding
any credit for tangible personal property accepted in part payment and intended for
resale. . . .
Section 1101(b)(8)(i)(A) of the Tax Law defines the term “vendor” as:
A person making sales of tangible personal property or services, the receipts
from which are taxed by this article;
Section 1132(a)(1) of the Tax Law provides:
Every person required to collect the tax shall collect the tax from the
customer when collecting the price, amusement charge or rent to which it applies.
If the customer is given any sales slip, invoice, receipt or other statement or
memorandum of the price, amusement charge or rent paid or payable, the tax shall
be stated, charged and shown separately on the first of such documents given to him.
The tax shall be paid to the person required to collect it as trustee for and on account
of the state.
Section 1139 (a) of the Tax Law provides, in part:
In the manner provided in this section the tax commission shall refund or
credit any tax, penalty or interest erroneously, illegally or unconstitutionally
collected or paid if application therefor shall be filed with the tax commission . . . .
Section 525.2(a)(2) of the Sales and Use Tax Regulations provides, in part:
Except as specifically provided otherwise, the sales tax is a "transactions
tax," with the liability for the tax occurring at the time of the transaction. Generally,
a taxed transaction is an act resulting in the receipt of consideration for the transfer
of title to or possession of (or both) tangible personal property or for the rendition
of an enumerated service. The time or method of payment is generally immaterial,
since the tax becomes due at the time of transfer of title to or possession of (or both)
the property or the rendition of such service. . . .
Section 526.5 of the Sales and Use Tax Regulations provides, in part:
Receipt. (a) Definition. The word receipt means the amount of the sale price
of any property and the charge for any service taxable under articles 28 and 29 of the
Tax Law, valued in money, whether received in money or otherwise. . . .

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(b) Other taxes.
(1) Inclusions. (i) Generally, excise taxes which are imposed on
manufacturers, importers, producers, distributors or distillers are included in the
receipts on which sales tax is computed. Among these taxes, by way of example, and
not by way of limitation, are:
*

*

*

(c) The Federal manufacturers excise taxes imposed pursuant to chapter 32
of title 26 of the U.S. Code, on the sale or lease of, for instance, certain automobiles
(gas guzzlers); tires weighing more than 40 pounds; gasoline; coal; sporting goods,
such as rods, reels, bows and arrows, etc.; firearms, shells and cartridges; and diesel
fuel.
*

*

*

(iii) Excise taxes of the kind described in subparagraphs (i) and (ii) of this
paragraph are included in the receipts on which sales tax is computed even though
such excise taxes may be separately stated to the purchaser.
*

*

*

(e) Expenses. All expenses, including telephone and telegraph and other
service charges, incurred by a vendor in making a sale, regardless of their taxable
status and regardless of whether they are billed to a customer are not deductible from
the receipts.
Opinion
The federal excise tax of $.244 per gallon imposed on clear diesel fuel is imposed pursuant
to Chapter 32 of Title 26 of the U.S. Code, and is not imposed on Petitioner. Accordingly, the
amount of such tax is included in the taxable receipts from the sale of such fuel. See Section
526.5(b)(1)(i)(c) of the Sales and Use Tax Regulations. The seller of the diesel fuel is a vendor as
defined in Section 1101(b)(8)(i)(A) of the Tax Law and, as such, is required to collect sales tax on
the receipt subject to tax at the time of sale, pursuant to Section 1132(a) of the Tax Law. A refund
or credit of sales tax may be made under Section 1139(a) of the Tax Law only when the tax was
erroneously, illegally or unconstitutionally collected or paid. Although any refund subsequently
paid by the IRS to Petitioner ultimately effectuates a reduction in the cost of the diesel fuel to
Petitioner, such refund does not reduce the receipt received by the vendor of the diesel fuel. The
sales tax must be computed and collected upon the amount received by the vendor from the sale of

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the property. Accordingly, a refund of sales tax paid on diesel fuel is not allowed where the only
basis for claiming such refund is a refund of a portion of the federal excise tax on the diesel fuel
made by the IRS.

DATED: April 3, 2002

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.