Wyoming Disallows Exemption for Oil Refinery Purchases

An oil refinery did not qualify for a manufacturing exemption from Wyoming sales tax on purchases of certain chemicals, catalysts, oils, lubricants, and other materials, because the items were not used directly in, and consumed or destroyed during, the taxpayer’s manufacturing processes.

A threshold requirement for the exemption is that the purchased item must physically interact with or become an ingredient or component of the manufactured product at some point. Thus, an exemption was denied for chemicals, lubricants, and like materials that were used in the taxpayer’s manufacturing facility, but did not physically interact with the refined petroleum products or derivatives.

Also, spent oil and lubricants that did not initially interact with the refinery’s production, but were later salvaged and disposed of through recycling into the taxpayer’s crude oil supply did not qualify for exemption. Whether an item is exempt depends on the original form, purpose, and use of the item in the manufacturing process.

Here, an opportunity to dispose of waste lubricants by adding them to the manufacturing process after they became waste did not qualify their initial purchase for an exemption. The recycling of waste lubricants into crude oil feed stock for refining into gasoline and diesel did not render the original purchase tax-exempt.

On the other hand, the taxpayer offered sufficient evidence that six categories of purchased chemicals physically interacted with its production of petroleum or derivatives and were destroyed or consumed during the process. The Department or Revenue conceded that these items were probably exempt, and the State Board rejected the Department’s argument that the evidence was not timely presented.

In the Matter of the Appeal of Frontier Refining, Inc., Wyoming State Board of Equalization, Nos. 2015-42 and 2015-45, July 5, 2017

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