Tax & Accounting Blog

PA – The Atmosphere is Not Taxable

Indirect Tax, ONESOURCE, Sales and Use Tax June 8, 2011

You can breathe a little easier in Pennsylvania after an April ruling by the Commonwealth Court of Pennsylvania. In Air-Serv Group, LLC v. Commonwealth, No. 459 F.R. 2008 (2011), the Court concluded that air from the atmosphere is not subject to Pennsylvania sales tax.

The taxpayer in this case, Air-Serv, provides coin operated air vending machines to gas stations and convenience stores. Once activated by the insertion of a coin these air vending machines pump air from the atmosphere through a compressor and into the customer’s tires or other inflatable objects. Air-Serv pays nothing for the air it harvests from the atmosphere and in time that air returns to the atmosphere to perhaps be reused in another air vending transaction.

The Pennsylvania Department of Revenue and the Board of Finance and Revenue concluded that the atmospheric air was subject to sales tax. However, on review, the Court reversed concluding that air from the atmosphere does not fit within one of the following two categories of “tangible personal property” and agreeing with Air-Serv’s argument that the atmosphere is not taxable personal property:

1)   Steam, electricity and fuel oil, when not purchased directly by the user solely for his own residential use.
2)  Natural, manufactured or bottled gas when not purchased directly by the user solely for his own residential use.

The Court also concluded that dispensing air from the atmosphere was not a “sale at retail” that was subject to sales tax, because the taxpayer did not receive payment for a service to repair tangible property. It received payment for the use its machines.