Are industrial gasses like oxygen, acetylene, argon, nitrogen, and carbon dioxide exempt from Utah sales and use tax when used in a manufacturing process?

Plain-English summary

A manufacturer used several industrial gasses — oxygen, acetylene, argon, nitrogen, and carbon dioxide — in its production process, and asked the Utah State Tax Commission whether these gasses were exempt from sales tax as manufacturing "fuel." The company had also been assessed sales tax on its oxygen purchases in an audit and sought a refund.

The Commission split the gasses into two groups:

• Oxygen and acetylene are "fuel" gasses and are exempt when used in a manufacturing process. The Commission specifically instructed its Auditing Division to amend the company's audit report to remove the tax assessed on oxygen, consistent with the Commission's then-current policy (which it noted "may change in the future"). The Commission also said it intended to amend its administrative rule (R865-19-35S) to more clearly define which gasses qualify as exempt fuel.
• Argon, nitrogen, and carbon dioxide are NOT fuel gasses and remain taxable even though they're consumed in the very same manufacturing process. The ruling makes clear that a gas being "used in manufacturing" doesn't automatically make it exempt — only gasses that qualify as fuel get that treatment. It also doesn't matter that the manufacturer collects sales tax when it later sells its finished product; the non-fuel gasses it buys as inputs are still separately taxable.

What this means for you

Manufacturers using industrial gasses

Don't assume that every gas consumed in your manufacturing process is tax-exempt just because it's essential to making a taxable product. Utah's manufacturing fuel exemption turns specifically on whether the gas itself qualifies as "fuel" — historically, oxygen and acetylene did, while argon, nitrogen, and carbon dioxide did not. Check current Commission guidance, since the Commission itself flagged this policy could change and intended to clarify its rule.

Accountants handling manufacturing sales/use tax audits

If a client is assessed use tax on industrial gas purchases, this ruling shows the exemption analysis is gas-by-gas, not process-by-process — a mixed cart of manufacturing inputs (some fuel gasses, some not) needs to be broken out and taxed accordingly. Collecting sales tax on the manufacturer's own outbound sales doesn't offset or exempt taxable inbound gas purchases.

Common questions

Q: Is oxygen used in manufacturing exempt from Utah sales tax?
A: Under this ruling, yes — oxygen was treated as an exempt fuel gas, and the Commission had the taxpayer's audit amended to remove tax on oxygen purchases.

Q: Are argon, nitrogen, and carbon dioxide exempt when used in manufacturing?
A: No — this ruling found none of the three are fuel gasses, so they remain taxable even when consumed directly in the manufacturing process.

Q: Does collecting sales tax on my finished product exempt the gasses I buy to make it?
A: No. The ruling is explicit that non-fuel gasses consumed in manufacturing are taxable "even though you may collect tax on the sale of your products" — the two are separate tax events.

Q: Is this policy still current?
A: Not necessarily — this is an early-1990s ruling, and the Commission itself said it intended to amend the underlying rule and that its fuel-gas policy "may change in the future." Verify current guidance before relying on this.

Citations and references

Rules (1990-era numbering — since renumbered/amended):

• Utah Admin. Rule R865-19-35S (1990) (manufacturing fuel-gas exemption definitions)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/90-013.htm

Original ruling text

90-013

March
6, 1991

XXXXX

Re:
Sales Tax on Gasses & Fuels

Dear
XXXXX:

This
letter is in response to your recent request for a Tax Commission ruling on
whether gasses such as acetylene, argon, nitrogen and carbon dioxide are exempt
from sales tax when used in a manufacturing process. You stated that all of
these gasses used go into the manufacturing process of the products you sell
and collect tax on. Also, you have requested a refund of sales tax paid on oxygen
purchases as assessed in an audit of your company.

The
Tax Commission policy is to refer such requests to the division most qualified
to analyze the request and make recommendations concerning it. As such, your
request was referred to the Tax Commission's Auditing Division for their
analysis and recommendation. The Division's recommendation is as follows:

The
Auditing Division has been instructed to amend the audit report to eliminate
the tax on oxygen in accordance with present Tax Commission policy. This policy
may change in the future.

It
is the Tax Commission's intention to amend its administrative rule R865-19-35S
to more clearly define which gasses qualify as a fuel, and therefore, be exempt
when used in a manufacturing process.

Acetylene
is a fuel, but argon, nitrogen and carbon dioxide are not fuel gasses and would
not be exempt from sales tax even when used in a manufacturing process.

4.
Non-fuel gasses which are consumed in a manufacturing process are taxable even
though you may collect tax on the sale of your products.

Based
upon the facts presented in your letter, we are in agreement with the Auditing
Division's recommendations. Obviously,
if there are deviations from these facts, this opinion may be negated.

If
you do not agree with this determination, you may appeal to the Tax Commission
for a formal hearing. The results of that hearing would constitute a
declaratory judgment and be appealable to the Utah State Supreme Court. A
Notice of Appeal Rights is attached.

For
the Commission,

Joe
B. Pacheco

Commissioner

Utah
State Tax Commission

160
East 3rd South, Fifth Floor

Salt
Lake City, UT 84134

Attn:
Commissioner R. H. Hansen

Dear
Commissioner Hansen:

Per
your letter of August 6, 1990, I have not been contacted by your auditing
division with regard to a refund of use tax we paid on oxygen and other gasses.

I
have attempted to do some work of my own on this, but became confused about the
other gasses that go into the manufacture of our product; such as acetylene,
argon, nitrogen and carbon dioxide. All of these gasses used go into the
manufacturing process of our product for which we charge sales tax to our
customers.

If
you will clarify this for me, I will be able to continue to find out what taxes
we paid to our suppliers since October of 1988.

Yours
sincerely,

XXXXX

XXXXX

President