Finding that a tax-exempt religious organization failed to meet the requirements of the statute providing for exemptions from the motor fuel tax for exempt organizations, a New York State Administrative Law Judge has upheld the Department of Taxation and Finance’s denial of a refund. Matter of Watchtower Bible and Tract Society of New York, Inc., DTA Nos. 827916 & 828547 (N.Y.S. Div. of Tax App., Sept. 26, 2019).

Facts. Petitioner Watchtower Bible and Tract Society of New York, Inc. (“Watchtower”) is a New York not-for-profit corporation exempt from sales and use taxes under Tax Law § 1116(a)(4). Its purposes are religious and charitable, and it supports the activities of Jehovah’s Witnesses by, among other activities, printing and distributing religious material, supporting religious education, and building and owning facilities where religious activities are performed.

Construction of Watchtower’s world headquarters in Warwick, New York, began in 2013 and concluded in 2017. The construction site presented unique challenges, since it was small but occupied by many workers and pieces of equipment working under a tight deadline. At the site, approximately 108 pieces of equipment owned by Watchtower were fueled with diesel motor fuel, which was transfered first into fuel tanks, primarily a 4,500 gallon tank carried on a fuel truck. For most of the project, Watchtower dispensed the diesel from its fuel tanks into a smaller 600 gallon tank that could easily navigate the construction site and was used to deliver fuel to the various pieces of equipment on site. Each tank was equipped with a diesel nozzle that was capable of fueling the equipment used by Watchtower. Although the nozzles were too large to fuel most on-road vehicles such as passenger cars and trucks, they could be used to fuel buses and tractor trailers. Watchtower did not permit any of the fuel to be used for on-road vehicles, and implemented policies and security procedures—such as securing all tanks and nozzles with keys kept in a secure location, limiting access to the keys, and hiring security guards—to prevent the fuel tanks from being used to fuel anything other than its off-road construction vehicles.

The Law and the Dispute. Article 13-A of the Tax Law imposes tax on petroleum products sold or used in the State, which is passed through to the purchaser by the seller as part of the selling price. Tax Law § 301-b(h) provides an exemption for non-highway diesel motor fuel, known as “dyed diesel,” sold to nonprofit organizations, if the fuel is delivered to the premises of the exempt organization, used exclusively for exempt activities, and consumed other than on State highways. The statute also explicitly provides that the exemption does not apply “to a sale of non-highway diesel motor fuel which involves a delivery at a filling station or into a repository which is equipped with a hose or other apparatus by which such non-highway . . . fuel can be dispensed into the fuel tank of a motor vehicle.” While all other requirements of the statute were met, the disputed issue was whether Watchtower’s acceptance of the dyed diesel into fuel trucks and tanks equipped with nozzles disqualified it from receiving the exemption.

The Determination. The ALJ denied the refund. He rejected the argument made by Watchtower that the statute should be interpreted to allow the exemption because the dyed diesel was not permitted to be dispensed into vehicles other than construction vehicles, and had not been actually used for other purposes, finding that tax exemptions are to be strictly and narrowly construed, with a presumption against the taxpayer and in favor of the taxing authority. The ALJ held that the statute does not “look to whether the exempt organization permits dyed diesel to be dispensed into motor vehicles but whether the repository . . . can fuel a motor vehicle.” (Emphasis added.)

Watchtower had argued that the strict interpretation made the exemption impossible because there are no fuel nozzles in existence capable of filling exempt road building machinery but not ordinary motor vehicles, so there was no way for Watchtower to comply with the statutory requirement. However, the ALJ found that Watchtower could have qualified for the exemption if, instead of accepting delivery into intermediary repositories and then fueling its equipment, it had directed its supplier to directly fuel the construction vehicles.

ADDITIONAL INSIGHTS

It is a familiar principle that tax exemptions are strictly and narrowly construed, so any party seeking an expansive definition of an exemption will have an uphill battle. Some taxpayers have argued that an exemption should not be interpreted so narrowly that the intended purpose is thwarted, but that argument does not seem to have been raised here, and the determination does not discuss any legislative history, or delve into the reasons why the exemption was crafted with the specific language governing the nature of the equipment rather than the actual use made of the product. It is always important to closely examine the exact requirements of an exemption statute in structuring a transaction in which a party hopes to take advantage of any tax exemption.