Propane tax could affect thousands of previously exempt homes and businesses

Thousands of people and businesses that previously used propane for heating and then bought a generator to prepare for long-term power outages like those that occurred during storms of the past few years, would now see a tax levied on the entire tank of fuel, the president of the Connecticut Emergency Management Association said.

The law taxing propane has existed for 20 years, but it exempts fuel for heating, including heating a house, heating water or heating food.

But the exemption is strictly for heat, and because of this, if a homeowner or business bought a propane-fueled generator and attached it to the same tank, the entire tank of fuel becomes taxable at 8.8 percent, said Joseph Sastre, the director of the Office of Emergency Management in Groton and president of the state emergency management association.

People started getting letters from their propane dealers in July, he said.

"This tax affects only those people and businesses who have taken our suggestion and have spent their hard-earned dollars to protect themselves when the power goes out," Sastre said. "Then instead of rewarding their efforts, the state in its infinite wisdom taxes them for doing what we have suggested."

The measure could also affect municipalities since the tax is paid by the distributor, he said.

State Sen. Paul Formica, R-East Lyme, said Monday that he and Rep. Devin Carney, R-Old Saybrook, are working on legislation to introduce during the short session in February to end the state's propane tax.

"It's unfair to the people who are trying to be proactive," Formica said. "After the large storms we have experienced in recent years, many people bought generators in case of another catastrophic event. Now, they are finding out that they are getting taxed for thinking ahead." 

The propane tax is a "gross receipts tax", which means it's a tax on the seller, or the propane supplier, then passed along to the consumer as a price increase.

Joe Rose, president of the Propane Gas Association of New England, said he believes the tax would affect 25,000 to 40,000 customers in Connecticut. The association has 65 member companies that sell propane in the state.

"Just to help you understand, those people who only had a generator have been paying the tax all along. This affects people who previously had a (propane tank) only for heating and then added a generator," he said. At a cost of about $3 a gallon, a delivery on a large propane tank that holds about 300 gallons would cost $900, for example. The tax applied to the full delivery would add $79.20 to that cost, he said.

Rose said some suppliers started charging the tax to their customers who bought generators years ago and in at least one instance, were told by the state to refund the money. In November 2013, he said, the association asked the state Department of Revenue Services to clarify a number of tax issues, including the propane tax, and were told in September 2014 that suppliers had to start charging the tax.

He said he argued this was a change in how the law was interpreted. He said he then met with representatives from revenue services and was told that unless the legislature changed the law in its last session, that tax applied.

Kevin Sullivan, state commissioner of revenue services, said an audit two to four years ago discovered a propane company was not charging the tax. The association then asked for advice on the tax issue, he said.

"This issue has come up before, and I'm not sure why there has been as little awareness of this," he said. The department of revenue isn't arguing the wisdom of the law and has no authority to grant an exemption, he said.

"From our standpoint, this is not a revenue issue. It is a policy issue," Sullivan said. If the legislature wants to change the law, it may, he added.

"It is what it is," he said. "And it's very clear when it says 'exclusively' (heat), that's the magic word."

Twitter: @DStraszheim





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