Motor Fuels Tax Minute, Episode 61: Pipeline Trading

In this week’s episode of Motor Fuels Tax Minute, our hosts discuss pipeline trading.

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Detailed Description of Weaver’s Motor Fuels Tax Minute, Episode 61

00:00:00
Kelly: Welcome back to our Motor Fuels Tax Minute where we talk all things motor fuel. Now, Leanne’s definitely been on a kick with these licensing, I love it. We’re going to keep the movement going.

Leanne, what do you have for us today?

00:00:12
Leanne: Okay, today it’s pipeline trading. I feel like I could talk about licenses forever. Maybe I’ve got to do something different with my life, but these are the questions that are coming up. There has just been a lot recently, and it’s led us right back to licensing. That’s such a big thing in motor fuels.

We’ve talked about renewing licenses in the states, about 637 licenses and we’ve talked about notifying counterparties about licenses. Another question that comes up a lot is buying and selling in a pipeline. The fuel is moving in interstate commerce. It’s not staying in this state because it’s flowing straight along the pipeline, that’s certain of any of the major pipelines or minor pipelines in the United States. I’m not injecting it. I’m not taking it off at the flange. I’m not putting it in a storage tank. Do I need a license? And the answer is maybe.

I get a lot of interested looks when I say maybe, because a lot of taxpayers just assume if I’m moving fuel interstate commerce in a pipeline, just in the pipeline, I don’t need any kind of state license. That would seem to be a reasonable conclusion you might draw, but it’s simply not the case, and the states take all manner of different positions on this.

Let’s think about the Colonial Pipeline. If you’re buying and selling in the pipeline in North Carolina or South Carolina, you don’t need any kind of license. Those states and some others, but I’m just going to pick those two for today, take the position and they don’t track it until it comes to rest in the terminal. So, if you’re not licensed, you manage to get wide space on the Colonial Pipeline and you take title— it’s title that’s key here, not possession— you take title in the pipeline. North Carolina and South Carolina, they don’t worry about it.

It is a different case in Alabama, Georgia, Maryland and Louisiana, to name a few. Again, there’s others, but I’m just sticking with some states on the Colonial Pipeline. They take the position that if you are transacting in the pipeline, you need to have a license. If you don’t have a license, then you could be subject to the state’s taxes. If you are the one in the middle that doesn’t have a license, you may be left holding those taxes if your supplier asks for that license packet and you don’t have it, and they sell to you with the tax and you try to pass it on to your customer who’s maybe licensed, they might push back. So, it’s really important to understand which states require you to be licensed within the pipeline and which do not, and to keep up with that because every so often something does change.

00:02:52
Kelly: This is a huge topic, and I know, I’m not sure if our listeners noticed, a lot of these are rack states. So, when you think about them, you don’t even think about bulk activity.

00:03:01
Leanne: That’s right. You might consider it for Maryland or Georgia. Those are your distributor states, and Maryland has some slightly different rules. Maybe another topic for another day. They have their class A, class B, etc. registrations that determine how the tax is imposed. But for those rack states like Alabama and Louisiana, you’re probably thinking, well, they’re all going to follow the same rules and they don’t. That is where it’s important just to take each state on its own and understand your obligations in each state, regardless of the type of business that you’re doing.

00:03:34
Kelly: Excellent. That’s something we do a lot at Weaver. We have a lot of clients just getting into the fuel tax business who’ve never touched it before, and they come to us for guidance, and we do a review of their activity so we can help them understand where they need to be licensed.

00:03:47
Leanne: Absolutely.

00:03:48
Kelly: We all know we do a lot of license applications as well.

00:03:51
Leanne: Yes, we do. And apparently, I can talk about licensing for weeks.

00:03:55
Kelly: I love it, I love it. Well, thank you everyone again for joining us for this week’s Motor Fuels Tax Minute. We’ll see you next time.