Michigan – Taxability of Compressed Natural Gas and Liquefied Natural Gas

SALT Report 2613 – The Michigan Department of Treasury issued a letter ruling regarding whether compressed natural gas (CNG) or liquefied natural gas (LNG) are considered gasoline, diesel fuel, or liquefied petroleum gas and therefore subject to the taxes imposed under the Motor Fuel Tax Act.

In its ruling the Department stated that neither compressed natural gas nor liquefied natural gas are subject to the motor fuel tax because CNG and LNG do not constitute gasoline, diesel fuel, or liquefied petroleum gas for the following reason:

  • To constitute diesel fuel or gasoline, a substance not sold for blending with diesel fuel must be a liquid and neither CNG nor LNG qualifies as a liquid. Furthermore, the Act imposes tax on diesel fuel and gasoline on a per gallon basis – a unit of liquid measure, and does not provide for the conversion of a substance in a gaseous state into a “gallon” for tax purposes. Therefore, neither CNG nor LNG constitutes diesel fuel or gasoline as defined in the Act.
  • To constitute Liquefied Petroleum Gas, a gas must have the ability to be maintained in a “liquid” state “at normal atmospheric temperatures” by suitable pressure. Because natural gas consists primarily of methane, it cannot be converted into a liquid until it is cooled to minus 260 degrees Fahrenheit, and once converted it must be maintained at minus 117 degrees Fahrenheit to remain in a liquid form. Therefore, neither CNG nor LNG constitutes Liquefied Petroleum Gas under the Act.

However, the Department warns that if the CNG or LNG have been mixed or blended with any other fuel or substance they may be taxable under the Act.

For Further Information

Michigan Department of Treasury – Letter Ruling #LR 2013-2