On November 18, 2024, the New York Tax Appeals Tribunal (TAT) determined that Sunoco, Inc. (R&M) Combined Affiliates (Sunoco) was not entitled to include receipts from buy/sell agreements in its New York receipts factor because they were derived from inventory exchanges, not bona fide sales for monetary consideration.

Sunoco refined and marketed oil, and entered into buy/sell transactions to alleviate costs associated with the transportation of oil to a customer’s location. Between 2007 and 2010, Sunoco included the sell side of these transactions in the denominator of its New York receipts factor on the basis that it constituted sales of tangible personal property to third parties for a price and, therefore, bona fide sales for purposes of calculating the company’s business allocation percentage (BAP). The New York Division of Taxation disagreed at audit.

On appeal, the TAT determined that the buy/sell transactions constituted exchanges of inventory, followed by a sale to an end customer.  The TAT stated that the transactions were not sales for purposes of Sunoco’s BAP calculation, “as they lacked independent economic substance separate from the end customer sale” and that Sunoco “would not have agreed to sell oil in a buy/sell transaction unless oil was to be acquired in return.”  Further, the TAT held that net-out agreements demonstrated the buy/sell transactions were actually inventory exchanges and not bona fide sales for monetary consideration. Accordingly, the TAT denied the refund.

In re Sunoco, Inc. (R&M) Combined Affiliates, No. 829399 (N.Y. Tax App. Trib., Nov. 18, 2024).