What Is The Petroleum Activities Tax and How Does It Affect My Business?

David Shallenberger | March 10th, 2014

Remember the CAT—the Commercial Activity Tax? Well, there’s another acronym you’ll need to get familiar with – the PAT, the Petroleum Activities Tax. Starting July 1, any receipts from the sale of motor fuel will be excluded from Commercial Activity Tax (CAT) receipts. That means if you’re a supplier of motor fuel, you’ll have to pay the replacement Petroleum Activities Tax (PAT), measured by your gross receipts for first sales of motor fuel outside of the distribution system in Ohio. 

So what does this all mean? It means that if you previously paid CAT on sales of motor fuel, you will no longer do so. However, if you’re a supplier and you make certain kinds of sales of motor fuel, you will pay the PAT. The PAT is levied at a rate of 0.65 percent — two and a half times the CAT rate. There’s no annual minimum tax, nor a $1,000,000 exclusion either.

Some Important Terms Defined

So who is a supplier? What is considered motor fuel? Good questions.

As defined by the Ohio Department of Taxation, “A ‘supplier’ of motor fuel is any person that meets one of the following requirements:

  1. Sells, transfers, or otherwise distributes motor fuel from a terminal or refinery rack to a location in this state and that point is outside of a distribution system; or
  2. Imports or causes the importation of motor fuel for sale, exchange, transfer, or other distribution by the person to location in this state and that point is outside of a distribution system.”

The point at which the sale of motor fuel is marked for delivery to Ohio is considered the “first sale of motor fuel within this state.” A terminal, refinery rack, or position holder is generally the supplier of the motor fuel that is sold for delivery to Ohio. This may not be true in the case of importation into the state. As a starting point, the Ohio Department of Taxation will look to the shipping documents when determining whether the motor fuel was sold for delivery in Ohio.

The State of Ohio defines motor fuel as “gasoline, diesel fuel, K-1 kerosene, or any other liquid motor fuel, including, but not limited to, liquid petroleum gas or liquid natural gas, but excluding substances prepackaged and sold in containers of five gallons or less.”

The Petroleum Activities Tax in Practical Terms

Confused? Let’s use a river as an example (this is an imaginary river of gas, not an actual river). The river is like the stream of commerce where gas is produced and transported to places all throughout the country and the world. A refiner in Ohio might feed gas into the river, but that actual gas might be drawn out of the river anywhere – maybe in Ohio, but maybe in Florida or other places. Ohio is taxing the business that first takes gas out of the river for eventual sale in Ohio. It used to be that Ohio would tax (via CAT) the person taking the gas out of the river, transporting it to a holding station, and then the local distributors of the gas that would dispense it through convenience stores and the like.

The PAT is looking to tax only the person who draws the gas from the river – who pulls it out of that stream of commerce and doesn’t put it back. If you were to draw gas out of the river, only to put it back in the river (the multistate/multinational river) further downstream, you aren’t subject to the PAT.

Petroleum Activities Tax Help

If this is new to you or your business, and you need assistance in making sense of the PAT, contact Rea & Associates. Our Ohio oil & gas professionals can help you sift through the details of the PAT and ensure that you’re in compliance.

Author: David Shallenberger, CPA (Wooster office)

 

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