Preliminary information for the Wholesale Marihuana Tax is now available.
Approved: June 1, 2017
Replaces Revenue Administrative Bulletin 2015-11
Pursuant to MCL 205.6a, a taxpayer may rely on a Revenue Administrative Bulletin issued by the Department of Treasury after September 30, 2006, and shall not be penalized for that reliance until the bulletin is revoked in writing. However, reliance by the taxpayer is limited to issues addressed in the bulletin for tax periods up to the effective date of an amendment to the law upon which the bulletin is based or for tax periods up to the date of a final order of a court of competent jurisdiction for which all rights of appeal have been exhausted or have expired that overrules or modifies the law upon which the bulletin is based.
RAB 2017-12. This Revenue Administrative Bulletin (“RAB”) updates the discussion of the environmental protection regulatory fee contained in RAB 2015-11 to reflect the enactment of 2016 PA 467 (“PA 467”), which is effective March 29, 2017.
1989 PA 152 amended the Michigan Underground Storage Tank Financial Assurance Act (“MUSTFAA”) and established an environmental protection regulatory fee to fund the federally-mandated cleanup of leaking underground storage tanks. This fee is applied to petroleum products refined or imported into Michigan for resale or consumption within Michigan. Beginning August 1, 1989, refiners of petroleum and importers of refined petroleum were required to pay a regulatory fee of 7/8 of 1 cent on each gallon of refined petroleum sold in Michigan. RAB 1990-33 discussed the environmental protection regulatory fee established by the MUSTFAA.
The Natural Resources and Environmental Protection Act, 1994 PA 451, MCL 324.101 et seq., (“NREPA”) expressly repealed MUSTFAA and also imposes an environmental protection regulatory fee (“Fee”) on each gallon of refined petroleum sold for resale or consumption in Michigan, MCL 324.21508(1). Prior to the enactment of PA 467, the Fee rate was equal to 7/8 of one cent per gallon. Under PA 467, the Fee rate is 1 cent per gallon beginning March 29, 2017. In general, the Fee is to be collected by the Department of Treasury (“Department”) from persons who refine petroleum in Michigan or import petroleum into Michigan for resale or consumption in Michigan at the same time as the prepaid sales tax on gasoline and diesel fuel under MCL 205.56a. MCL 324.21508(2). Even though this statute is amended by 2016 PA 380 (“PA 380”), effective March 22, 2017, because PA 467 was signed by the Governor subsequent to PA 380, the changes made by PA 380 will effectively be repealed as of March 29, 2017 when PA 467 becomes effective. Therefore, this RAB does not reflect the temporary changes made by PA 380. As previously explained in RAB 2015-11, the Fee does not apply to a bulk transfer or a 2-party exchange beginning January 1, 2015 as a result of the enactment of 2014 PA 416 (“PA 416”). The Fee is to be reported and paid by refiners, terminal operators and importers to the Department on Form 173, Report of Fuel Sales Tax Prepayment and Environmental Protection Regulatory Fee for Refiners, Terminal Operators and Importers (Rev. 3/17). Under PA 416, which established the Underground Storage Tank Cleanup Fund (“USTCF”) under MCL 324.21506b, the first $20 million collected by the Department from the Fee each fiscal year is to be deposited into the USTCF with the remainder deposited into the Refined Petroleum Fund established by MCL 324.21506a, MCL 324.21508(4).
Prior to the enactment of PA 416, the Fee was scheduled to sunset on December 31, 2015. Under PA 416, the sunset was repealed so the Fee remains in effect indefinitely. Enacting section 1 of PA 416 repealed MCL 324.21550, which contained the sunset provision.
In general, the Fee is charged against “all refined petroleum products” sold by the refiner or importer for resale or consumption in Michigan “so as not to exclude any products that may be stored in a refined petroleum underground storage tank at any point after the petroleum is refined.” MCL 324.21508(1). Because an ethanol plant does not qualify as a “refiner” when producing ethanol, the Fee is not imposed on sales of denatured ethanol (which constitutes refined petroleum) by an ethanol plant in Michigan, including sales to a refiner, pipeline terminal operator, or marine terminal operator for blending with gasoline. The Fee will be collected when the gasoline blended with the denatured ethanol is removed from (or across) the “rack.” As noted above, “refined petroleum” means aviation gasoline, middle distillates, jet fuel, kerosene, gasoline, residual oils, any oxygenates that have been blended with any of these products, refined petroleum products and transmix. The references to refined petroleum products and transmix were added by PA 416. However, refined petroleum does not include an “excluded liquid.” MCL 324.21503(e).
In general, a “middle distillate” comprises a range of products from the middle fraction of crude oil. For purposes of the Fee, this includes any such product used as a heating fuel, internal combustion engine fuel or turbine engine fuel. Examples include No. 1 and No. 2 distillate fuel oils or diesel fuels. Products commonly referred to as middle distillates, but not used as heating fuel, internal combustion engine fuel, or turbine engine fuel are not subject to the Fee. For purposes of the Fee, “residual oils” means fuels commonly known as No. 4—light, No. 4—heavy, No. 5—light, No. 5—heavy and No. 6 fuel oils.
Gasoline blendstocks must be evaluated on a case-by-case basis depending on the nature of the blendstock in order to determine whether the Fee is to be imposed on the sale or importation of the blendstock. To the extent the blendstock constitutes “refined petroleum,” the Fee would apply. On the other hand, if the blendstock constitutes an “oxygenate,” defined under the NREPA as “an organic compound containing oxygen and having properties as a fuel that are compatible with petroleum, including, but not limited to, ethanol, methanol, or methyl tertiary butyl ether (MTBE),” MCL 324.21502(x), then the Fee would not apply so long as the blendstock has not been blended with “refined petroleum.” The Fee also does not apply to an “excluded liquid.”
1. Raffinate (i.e., a substance remaining after a refining process has been completed to distill, extract or otherwise remove a desired compound, fuel or substance from petroleum) which is sold for resale or consumption in Michigan as a fuel is subject to the Fee. If raffinate is sold solely as a feed stock for a refined petroleum product, it is not subject to the Fee. However, the Fee must be charged against the resulting refined petroleum product for which the raffinate was used as a feed stock.
2. Butane and propane, although commonly used as fuels, are not subject to the Fee because neither constitutes “refined petroleum” under the NREPA.
3. Motor oil, which is derived from lubricating oils, does not fall within the definition of “refined petroleum” and is not subject to the Fee.
4. Ethanol produced or refined in (or imported into) Michigan is not subject to the Fee until it is blended with aviation gasoline, a middle distillate, jet fuel, kerosene, gasoline or residual oils because it is expressly defined in the NREPA as an oxygenate. Therefore, denatured ethanol is subject to the Fee.
5. Pure biodiesel (e.g., B100) and certain biodiesel blends (e.g., B99.9) are not subject to the Fee because they fall within the definition of an excluded liquid. At the point where a biodiesel product is blended with a sufficient quantity of refined petroleum (e.g., diesel fuel) so that the final blend contains at least 4 percent normal paraffins (or meets the other qualifications), the product ceases to be an excluded liquid, and becomes subject to the Fee.
With the enactment of PA 416, the Fee is not imposed on a “bulk transfer” or “2-party exchange” involving refined petroleum or refined petroleum products beginning January 1, 2015, MCL 324.21508(1). MCL 324.21508(1) excludes a “2-party exchange” from the imposition of the Fee. The defined term in MCL 324.21503(u) is in regard to a “two-party exchange.” The Department is interpreting this difference as a non-substantive drafting error and will administer the Fee as if the referenced “2-party exchange” and the defined term “two-party exchange” are synonymous. For example, a supplier imports refined petroleum into Michigan for resale or consumption in Michigan, but delivers the refined petroleum to a refiner’s refined petroleum product storage tanks as a bulk transfer. Under MCL 205.21502, a “bulk transfer” occurs “through pipeline tender or marine delivery, including pipeline movements ….” Accordingly, if a refined petroleum product is not transferred through the aforementioned methods (e.g., is moved by truck or rail), the transfer would not fall within the “bulk transfer” definition and would be subject to the Fee. The Fee does not apply to the refined petroleum until the refined petroleum is removed across the rack.
The volume of oil fluctuates due to changes in temperature. “Light” petroleum products are sold on the basis of gross gallons or metered gallons. Therefore, the Fee shall be calculated and paid on the gross or metered gallons with respect to all “light” petroleum products, MCL 324.21509(l). “Light” petroleum products include gasoline, aviation gasoline, middle distillates, jet fuel, and kerosene and any oxygenates that have been blended with any of these products.
“Heavy” petroleum products (No. 4, No. 5 and No. 6 residual oils) are sold on a “temperature-corrected” basis. The Fee shall be calculated and paid upon the net or temperature-corrected gallons with respect to “heavy” petroleum products, MCL 324.21509(l). “Heavy” petroleum products mean residual oils and any oxygenates that have been blended with any of these products.
The NREPA requires the Department to collect the Fee from persons who refine petroleum in Michigan for resale or consumption in Michigan, MCL 324.21508.
A product exchange agreement is defined as “an agreement between buyers and sellers of refined petroleum products in which refined petroleum products in bulk quantity are made available to a person solely in consideration of that person making available a like volume of refined petroleum products to the other party at some other location.” MCL 324.21509(2).
Until January 1, 2015, a person receiving refined petroleum products in Michigan for resale or consumption in Michigan under a product exchange agreement was considered the taxpayer and must report and pay the Fee, MCL 324.21509(2). Effective January 1, 2015, the provisions governing 2-party exchanges added by PA 416 effectively govern these types of transactions.
Except for a bulk transfer or 2-party exchange, the NREPA requires the Department to collect the Fee from persons who import refined petroleum into Michigan for resale or consumption in Michigan, MCL 324.21508(2). For the purpose of administering the Fee, the Department considers an importer to be the person having legal ownership (including, but not limited to, title) of the refined petroleum at the time it is brought into Michigan.
The examples that follow assume that the transaction is neither a bulk transfer nor a 2-party exchange.
1. Company A produces denatured ethanol in another state and sells it to a purchaser in Michigan. Company A will constitute the importer when title to the denatured ethanol passes to the Michigan purchaser in Michigan under any of the following (non-exhaustive) situations:
2. The Michigan purchaser is considered to be the importer of refined petroleum when title passes to the Michigan purchaser in another state under any of the following (non-exhaustive) situations:
Under the NREPA, the Department collects the Fee from refiners and importers of refined petroleum, MCL 324.21508. Accordingly, the Department may not collect the Fee directly from wholesale distributors or retailers of refined petroleum products. However, suppliers may pass the Fee on to wholesale distributors and retailers.
MCL 324.21508(1) imposes the Fee on refined petroleum sold for resale or consumption in Michigan. Sales of refined petroleum for immediate export are not subject to the Fee. When the customer is claiming exemption from the Fee because the refined petroleum being purchased is for immediate export, the purchaser must provide an exemption claim to the seller identifying the specific load by invoice number or load number. A statement that the load being purchased is for immediate export to a specific destination outside Michigan and that the refined petroleum will not be returned to Michigan must be included. This exemption claim must be made for each load of refined petroleum being exported. In lieu of a paper statement and exemption claim, an exemption from the Fee based on sales of refined petroleum for immediate export may also be claimed through the use of a card system at the terminal rack which verifies that the specific load being purchased and removed from the terminal is for immediate export to a destination outside Michigan.
Sales made to an out-of-state purchaser and delivered by the seller to the out-of-state location are sales in interstate commerce and are not subject to the Fee.
A public utility with more than 500,000 Michigan customers is exempt from the Fee if the petroleum is used by the public utility for the generation of steam or electricity, MCL 324.21508(3). The NREPA defines “petroleum” as “crude oil, crude oil fractions, and refined petroleum fractions including gasoline, kerosene, heating oils, and diesel fuels.” MCL 324.21503(b).
To claim this exemption, a public utility must present an exemption certificate to the seller at the time of the purchase. The exemption certificate shall be in the form as follows:
The undersigned hereby claims exemption from the Environmental Protection Regulatory Fee imposed under MCL 324.21508 on the purchase of “refined petroleum,” as defined in MCL 324.21503(e), from the Seller listed below:
Seller’s Name and Address:
The undersigned hereby certifies, under penalty of perjury, that the refined petroleum being purchased by the public utility identified below is to be used by the public utility for the generation of steam or electricity, and that the public utility has more than 500,000 customers in the State of Michigan. In the event this claim is disallowed, the transferee promises to reimburse the Seller for the amount of the environmental protection regulatory fee involved. This certifies that this exemption claim is based upon the purchaser’s proposed use of the refined petroleum and the status of the purchaser as a public utility with more than 500,000 customers in the State of Michigan.
Name of Public Utility:
Business Address:
City, State, Zip Code:
Business Telephone Number (include Area Code):
Name of Officer or Authorized Representative (Print):
Signature and Title:
Date of Purchase:
Date Signed:
