Published: February 4, 2020 |

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Arizona dodged a major financial loss after the state Court of Appeals overturned a lower court ruling that said diesel fuel used in mining operations should not be subject to sales tax.

Thursday’s ruling involved a relatively small refund request by an oil company that supplied a Clarkdale quarry with dyed diesel fuel for trucks and machinery not used on state roads.

Lawyers for the state told the Court of Appeals in November that leaving the lower court ruling intact could trigger more than $100 million in refund requests from the state’s huge mining industry. Carter Oil Co. sought less than $12,000 in refunds for taxes it paid from January 2011 through June 2013.

“The dollar amount of (taxes) on fuel and natural gas burned in exempt generation equipment ... will boggle the mind if that hits,” Assistant Attorney General Scot Teasdale told the court. “This court may want to think twice before it blows an incalculable hole through the state budget.”

Dyed diesel fuel is identical to street-use diesel but is exempt from per-gallon excise taxes used to fund roads. It is, however, subject to sales taxes and can only be used in off-road equipment such as farm tractors, dump trucks and other machinery used by the mining industry.

Carter’s lawyer called the $100 million number “gross speculation.” The company argued that an earlier court decision that said lubricants and grease were exempt because they were considered part of mining machinery meant that fuel should also be exempt. Arizona exempts mining equipment from sales tax to create incentives for the industry.

“There seems to be a denialism by the Department of Revenue ... of not dealing with inconvenient common law decisions,” attorney Brian LaCorte told the court. ”The department seems to suggest that fuel in machinery or equipment is not used in mining. There’s no question that the equipment at issue is mining equipment or processing equipment.”

But Teasdale argued that the Legislature rejected exempting fuel by not writing a specific carve-out for diesel used in mining as it had in several other instances. Those include power plant use and a 2018 exemption for coal used in a now-shuttered power plant on the Navajo Nation added to try to save the plant. The appeals court agreed.

Source: Associated Press

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