Can a car dealership get a refund of the sales tax it paid on gasoline used to fill a new vehicle's tank before delivery to the customer?

Plain-English summary

A New York car dealership delivers new vehicles with a full tank of gas, buying the gasoline itself from a retail service station (paying sales tax at the pump, since the dealer has no pumps of its own). A sample manufacturer's window sticker listed a full tank of fuel as one of the items included in the vehicle's MSRP. Some manufacturers also give the dealer a flat, per-model credit for filling tanks — applied to the dealer's account after the vehicle is sold, and not tied to the actual cost of gas used. The dealer's accountant asked whether the dealer can recover, as a refund or credit, the sales tax it already paid on that gasoline.

The Department's answer turns on documentation, not on the practice itself. Ordinarily, a dealer buying a component part destined for resale (like a car part) can buy it tax-free as a purchase for resale. Gasoline is different: New York requires sales tax to be paid up front on every purchase of motor fuel, with no tax-free resale purchase allowed at the pump — so the dealer always pays tax when it buys the gas, regardless of what happens to it later. The only question is whether the dealer can get that tax back afterward. If the dealer can point to something showing the full tank is genuinely part of what the customer is buying — the manufacturer's MSRP sticker, the dealer's own advertising, or a signed sales document referencing it — the gasoline counts as a component part of the vehicle sold to the customer, and the dealer can apply for a refund or credit of the tax it paid at the pump. But if the dealer can't show that kind of commitment, filling the tank is treated as a mere promotional giveaway (like handing out a free branded item), which never qualifies for a resale-related refund — the dealer simply eats the tax with no ability to recover it. Separately, the manufacturer's flat per-model reimbursement to the dealer is just an ordinary rebate/incentive between manufacturer and dealer — it isn't itself a taxable transaction, since no gasoline actually changes hands between them.

What this means for you

Auto dealerships providing a full tank of gas with new vehicles

Document that a full tank is part of what you're selling — reference it in advertising, on the invoice, or in the sales agreement — if you want to preserve the ability to claim a refund or credit for the sales tax you paid on that gas. Without that paper trail, you can't get the tax back.

Dealerships receiving manufacturer credits for fuel fill-ups

Treat a flat per-model manufacturer credit for filling tanks as an ordinary dealer incentive/rebate — it has no independent sales tax consequences of its own, separate from whatever refund you may or may not be entitled to on the underlying gas purchase.

Accountants advising dealership clients

Keep detailed records distinguishing gasoline purchased and documented as part of vehicle sales (potentially refundable) from gasoline consumed by the dealership itself or given away without documentation (never refundable) — the Department specifically flagged that the dealer must substantiate the actual use of every gallon it buys.

Common questions

Q: Can a car dealer buy gasoline tax-free since it's reselling it as part of the car?
A: No. Motor fuel must always be purchased with sales tax paid at the time of purchase — there's no tax-free resale purchase at the pump, regardless of what the fuel is later used for.

Q: How does the dealer recover that tax if the full tank really is part of the sale?
A: By applying for a refund or credit after the vehicle is sold, once it can show (through MSRP documentation, advertising, or signed sale paperwork) that the gasoline is a component part of the vehicle transferred to the customer.

Q: Is the manufacturer's flat credit to the dealer for gas fill-ups itself taxed?
A: No — it's treated like an ordinary dealer rebate or incentive with no separate sales tax consequence, since no actual transfer of gasoline occurs between the manufacturer and the dealer.

Citations and references

Statutes and rules:

• Tax Law § 1101(b)(4)(i), (ii) (retail sale definition; motor fuel prepayment carve-out)
• Tax Law § 1105(a) (retail sales of tangible personal property)
• Tax Law § 1139(a) (refund/credit for erroneously, illegally, or unconstitutionally collected tax)
• 20 NYCRR 526.6(c) (resale exclusion; promotional/giveaway property doesn't qualify)

Prior advisory opinions relied on:

• The American Tobacco Company, TSB-A-95(16)S (promotional giveaway property doesn't qualify for the resale exclusion)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2004.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a04_9s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-04(9)S
Sales Tax
April 7, 2004

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S021001B

On October 1, 2002, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Steven J. Rosenblatt, CPA, Rosenblatt, Kiman, Levittan, & Levine & Co.
LLP, 1700 Jericho Tpke., New Hyde Park, NY 11040. Petitioner, Steven J. Rosenblatt, CPA,
furnished additional information with respect to the Petition on August 22, 2003, and September 11,
2003.
The issue raised by Petitioner is whether an automobile dealership is entitled to a credit for
the sales tax paid on gasoline used to provide a full tank of gas with the purchase of a new vehicle.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
An automobile dealership (hereinafter “dealer”) selling a new motor vehicle to its customer
provides the vehicle to the customer with a full tank of gasoline. Petitioner asserts that the dealer
must sell the vehicle with a full tank of gas. Petitioner provided a sample vehicle manufacturer’s
window sticker which lists a full tank of fuel as one of the items included in the manufacturer’s
suggested retail price (MSRP) of the vehicle. The automobile manufacturers do not transport the
motor vehicles to the dealers with full tanks of gas. The dealer does not have its own gas pumps and
does not sell gasoline in its ordinary course of business. Therefore, gasoline must be purchased by
the dealer. The dealer purchases the gasoline from a retail service station. The dealer pays sales tax
on the gasoline when it is purchased.
Certain automobile manufacturers provide a credit to the dealer for filling up the tanks of
new vehicles with gasoline. This credit is allowed to the dealers on the sale of new vehicles. The
amount of the credit is a flat fee established by the manufacturer based on the car model sold. The
credit is not a direct reimbursement of a dealer’s actual cost for the amount of gasoline necessary
to fill the tank of any particular vehicle sold. Petitioner supplied sample statements which show that
the credit is applied to the dealer’s account with the manufacturer. Petitioner further states that the
credit is applied after the car has been sold.
Applicable law and regulations
Section 1101(b)(4) of the Tax Law provides, in part:
Retail sale. (i) A sale of tangible personal property to any person for any purpose,
other than (A) for resale as such or as a physical component part of tangible personal
property, or (B) for use by that person in performing the services subject to tax under
paragraphs (1), (2), (3), (5), (7) and (8) of subdivision (c) of section eleven hundred five
where the property so sold becomes a physical component part of the property upon which

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Sales Tax
April 7, 2004
the services are performed or where the property so sold is later actually transferred to the
purchaser of the service in conjunction with the performance of the service subject to tax. . . .
(ii) Notwithstanding the provisions of subparagraph (i) of this paragraph, no motor
fuel or diesel motor fuel shall be sold or used in this state without payment, and inclusion
in the sales price of such motor fuel, of the tax on motor fuel required to be prepaid pursuant
to the provisions of section eleven hundred two of this article except where a provision of
this article relating to motor fuel or diesel motor fuel specifically provides otherwise and
except in the case of a sale or use subject to tax under section eleven hundred five or eleven
hundred ten, respectively, of this article. Provided, however, except for such requirement
of prepayment of tax required by section eleven hundred two of this article, the provisions
of this subparagraph shall not otherwise modify the meaning of the term "retail sale" as used
in this article. . . .
Section 1105(a) of the Tax Law imposes sales tax upon, "The receipts from every retail sale
of tangible personal property, except as otherwise provided in this article."
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 (i) in the case of tax paid by the
applicant to a person required to collect tax, within three years after the date when the tax
was payable by such person to the tax commission as provided in section eleven hundred
thirty-seven, or (ii) in the case of a tax, penalty or interest paid by the applicant to the tax
commission, within three years after the date when such amount was payable under this
article. . . .
Section 526.6(c) of the Sales and Use Tax Regulations provides, in part:
Resale exclusion. (1) Where a person, in the course of his business operations,
purchases tangible personal property or services which he intends to sell, either in the form
in which purchased, or as a component part of other property or services, the property or
services which he has purchased will be considered as purchased for resale, and therefore
not subject to tax until he has transferred the property to his customer.
*

*

*

(4)(i) Tangible personal property which is purchased and given away without charge,
for promotion or advertising purposes is not purchased for resale. It is a retail sale to the
purchaser thereof, and is not a sale to the recipient of the property. (Emphasis supplied)

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(ii) Tangible personal property which is purchased for promotional or advertising
purposes and sold for a minimal charge which does not reflect its true cost, or which is not
ordinarily sold by that person in the operation of his business, is a retail sale to the purchaser
thereof, and not a sale to the recipient of the property.
(iii) A resale certificate may not be used by the person making the purchases
described in subparagraphs (i) and (ii) of this paragraph for such purchases.
Opinion
An automobile dealer is in the business of selling motor vehicles to customers. Petitioner
states that the motor vehicles are sold with a full tank of gas, which fuel the dealer has purchased
from a retail service station. Petitioner states that pursuant to the dealer’s agreement with various
vehicle manufacturers, the vehicle must be delivered to the retail customer with a full tank of gas.
The fact that the manufacturer’s window sticker which designates the items included in the
MSRP of the vehicle indicates that along with listed standard equipment and installed optional
equipment a full tank of gas is also included at sale is one factor indicating that the gasoline is a
component part of the vehicle being sold. Similarly, though the contract of sale entered into
between the dealer and the customer may or may not specify that the dealer is required to provide
the customer with a full tank of gas as a condition of sale, the fact that the dealer’s printed
advertisements and other written representations, or the dealer’s invoice or other documents signed
and agreed to by the dealer and the customer, refer to the fact that a full tank of gas is provided the
customer at sale likewise would indicate that the gasoline is sold as a component part of the vehicle
being sold.
Where it appears that the gasoline is property provided to the customer by the dealer as part
of the sale of the new vehicle to the retail customer, the gasoline is considered a constituent
component part of the vehicle so sold. Were the property a commodity other than motor fuel, the
dealer would be able to make a purchase of the property without payment of sales tax as a purchase
for resale. However, in accordance with sections 1101(b)(4)(ii) and 1105(a) of the Tax Law, motor
fuel, including gasoline, may not be purchased by persons at a retail service station without payment
of the sales tax. Thus the dealer must, at the time of its purchase of the gasoline, pay to the retail
service station vendor the sales tax imposed on the cost of the gasoline under section 1105(a).
In these described circumstances, where the gasoline has become a component part of the
vehicle being sold and is transferred by the dealer to the customer as a constituent part of the
customer’s purchase of such vehicle, the dealer may claim a refund or credit for the tax that it paid
to the retail service station on its purchase of the gasoline.
However, if the dealer cannot show that its agreements with, or representations to, the
customer provide that the customer will receive a full tank of gas upon the purchase of the vehicle,
it would appear that the dealer includes a full tank of gas with the sale of a vehicle not as a

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component part of the vehicle being purchased but rather as a promotional good will gesture on the
dealer’s part. In these circumstances, the dealer’s purchase of gasoline provided to customers with
the purchase of motor vehicles is a promotional purchase of tangible personal property as described
in section 526.6(c)(4)(i) of the Sales and Use Tax Regulations. Such purchases do not qualify for
the resale exclusion set forth in section 1101(b)(4)(i) of the Tax Law. See The American Tobacco
Company, Adv Op Comm T&F, May 23, 1995, TSB-A-95(16)S. Therefore, the dealer’s purchase
of gasoline provided in vehicles, for which there is no agreement or representation to provide the
gasoline, is subject to the sales tax imposed pursuant to section 1105(a) of the Tax Law, and the
dealership is not entitled to a refund or credit of the tax paid on such purchase.
It should be noted that any purchases of gasoline which are otherwise consumed by the
dealer are also subject to sales tax. Accordingly, since the dealer will be making purchases at retail
of gasoline all of which are subject to sales tax at the time of its purchase, and only some of the
gasoline purchased may be eligible for refund or credit upon a qualifying transfer and sale of such
fuel to the customer as a component part of the sale of a new vehicle, the dealer must keep detailed
records substantiating the actual uses of the gasoline it purchases.
The credit provided by certain manufacturers to the dealer for providing customers with a
full tank of gas is similar in nature to a dealer incentive or dealer rebate. There is no sales tax
imposed upon such transaction. Such sales tax as may be due is imposed on the sale of the vehicle
by the dealer to the retail purchaser thereof, the gasoline being included as a component part of such
sale. There being no transfer of title or possession of gasoline between the manufacturer and the
dealer, the manufacturer does not purchase the gasoline from the dealer. Similarly, the manufacturer
is not selling gasoline to the retail purchaser of the vehicle, either as such or as a physical component
part of the new vehicle, or providing the gasoline to the retail purchaser of the vehicle as a gift or
promotional gesture.

DATED: April 7, 2004

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.