When a petroleum business passes its Article 13-A gross receipts tax through to customers in the price they charge, does that passed-through tax amount itself get folded back into the company's own taxable gross receipts, creating an additional tax liability?

Plain-English summary

Carbo Fuel Oil Company, Inc. asked the Department to what extent it may pass on to its customers the full amount of the Article 13-A gross receipts tax imposed on petroleum businesses. That tax applies to all receipts from petroleum sales (with exceptions not relevant here), with NO deductions allowed for any cost or expense.

The Department explained that the gross receipts tax is simply treated as another cost of doing business, and the Tax Law neither prohibits nor requires passing it through to customers -- that's a private business decision. But there's a catch: whatever amount of the tax IS passed through to a customer -- regardless of whether it's invoiced as a separate line item or simply folded into the product's price -- itself becomes part of the seller's taxable gross receipts, because it's still money received "from the sale of petroleum." That pushes the seller's own taxable gross receipts higher, which increases the seller's own tax liability, creating a small residual "pyramiding" effect each time the tax is passed along. The Tax Law contains no rule about how much of the tax a business must or may pass through -- the exact amount is left entirely to what the seller and customer agree on when setting the purchase price.

What this means for you

Petroleum businesses (gasoline, heating oil, and similar fuel sellers)

If you pass the Article 13-A gross receipts tax through to customers, remember that the passed-through amount itself counts as taxable gross receipts -- it doesn't just flow through tax-free. Whether you separately itemize the tax on the invoice or simply build it into your price, the Department treats it the same way for purposes of computing your own tax liability.

Businesses pricing fuel sales

There's no statutory cap or formula for how much petroleum tax you can pass through -- that's purely a matter of commercial negotiation with your customer. But be aware that fully passing through 100% of the tax as calculated will still leave a small additional tax liability on the passed-through amount itself, since it becomes part of your own taxable receipts.

Common questions

Q: Is a petroleum business required to pass the Article 13-A gross receipts tax on to customers?
A: No -- the Tax Law neither requires nor prohibits passing the tax through; it's the seller's choice.

Q: If I pass the tax through as a separately stated line item instead of building it into the price, does that avoid the pyramiding effect?
A: No -- the Opinion is explicit that it makes no difference whether the passed-through amount is invoiced separately or included in the product price; either way it becomes part of taxable gross receipts.

Q: Can another petroleum business rely on this Opinion?
A: No. It binds the Department only as to Carbo Fuel Oil's own facts and cannot be relied upon by other taxpayers, though the underlying gross-receipts-tax mechanics described here apply generally to Article 13-A.

Citations and references

Statutes:

• Tax Law, Article 13-A (petroleum business gross receipts tax)

Date note: The document header reads "March 28, 1985," while the sign-off line reads "DATED: March 22, 1985" -- a six-day gap consistent with internal signing before the header/publication date; issued_date uses the header date without correction.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a85_1c.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-85 (1) C
Corporation Tax
March 28, 1985

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C841126A

On November 26, 1984, a Petition for Advisory Opinion was received from Carbo Fuel Oil
Company, Inc., 1 Bay Blvd., Lawrence, New York 11559.
The issue raised is to what extent a petroleum business is permitted to pass on to its
customers the full amount of the gross receipts tax imposed under Article 13-A of the Tax Law.
The gross receipts tax is a tax imposed on any business which qualifies as a petroleum
business as defined in Article 13-A of the Tax Law. The tax is imposed on all receipts from the sale
of petroleum (with exceptions not here relevant) without any deductions for any cost or expense
whatsoever. This tax is considered to be another cost of doing business and, as such, may be passed
on to the customer of the petroleum business. No provision of the Tax Law either prohibits or
requires such pass through. However, to the extent that any amount of tax is passed on to a customer,
such amount must be included in the taxable gross receipts of the petroleum business, whether it is
invoiced separately or included in the product price. Accordingly, the taxable gross receipts of the
petroleum business must be increased by the amount of the tax passed through, causing an additional
tax liability to the petroleum business.
The Tax Law has no provision regarding the amount of tax to be passed through to a
customer. This is a matter to be agreed upon by the petroleum business and its customer when the
purchase price of the petroleum is set.

DATED: March 22, 1985

FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR