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RULE §3.324Oil, Gas, and Related Well Service

property would be sandblasting and repainting 1000 barrel tanks. Examples of nontaxable services performed at well sites include cutting weeds, covering oil spills and mowing grass.

  (3) All welding in the field will be presumed to be taxable unless billings clearly indicate the labor was performed as part of new construction as defined in §3.357 of this title or third-party installation (initial only) of customer-owned equipment.

(f) Lost or damaged items.

  (1) Any charges by the service company for items lost or damaged beyond repair while providing the well service will not be considered a sale of such items but a reimbursement of cost by the customer. The transaction should not be labeled as a "sale" on the invoice. The service company may be reimbursed for the sales or use tax it paid by including the sales or use tax on the invoice to the customer as a part of the charge for such item. The reimbursement of sales or use tax may not be separately stated as tax.

  (2) When a service company actually rents items to a customer, their charges are taxable. This includes any charges for damage waiver or repair to the items after their return.

(g) All process licenses are intangible items, and the fees paid by the service company to the holder of the patents are nontaxable where there is a service only.

(h) Chemicals, brine water, potassium chloride (KCL), CO2--sales versus service.

  (1) Because maintenance to tangible personal property is taxable, the injection of maintenance-type chemicals such as corrosion inhibitors, bactericides, etc., into the wellbore is considered a taxable service. Since certain chemicals are oil soluble and remain in the product flow after injection, the well operator may purchase those chemicals separately from the service provider and issue a resale certificate in lieu of tax on the charge for the chemicals. All charges associated with the injection would be taxable including mileage, standby, pump truck, and labor.

  (2) The injection of chemicals to stimulate production or remove impurities from the product being removed such as acid, emulsifiers, or nitrogen is a nontaxable service. The service company is the consumer of all chemicals pumped down hole and must pay tax at the time of purchase.

  (3) Excluding that which may be purchased to provide nontaxable well services identified in subsection (b) of this section, CO2 used to stimulate production may be purchased, exempt from tax, by the well operator for injection provided the well operator issues a properly completed exemption certificate in lieu of paying the tax.

  (4) Kill charges will be taxable or nontaxable depending on the overall purpose. All kill charges will be presumed taxable until the contrary is established. The service company should bill tax if it is not known at the time of billing what the overall purpose was. The operator must then pay the tax or provide either a direct payment exemption certificate or a statement that the purpose was to facilitate a nontaxable service. The statement must be definite in the purpose claimed. Statements such as "to stimulate production" are insufficient and will be disallowed.

  (5) A service company will be considered to be providing services if they do the actual injection into the well. Delivery into a frac tank or other storage unit will be considered a sale of tangible personal property. If it is unclear from the invoice, the presumption will be that if a high pressure pump truck is used, a service has occurred; if a vacuum truck is used to deliver the fluids or CO2, then a sale of tangible personal property has occurred. The service company may purchase all components of the fluids tax free when making a sale or providing a taxable service.

Source Note: The provisions of this §3.324 adopted to be effective August 19, 1985, 10 TexReg 2550; amended to be effective November 25, 1988, 13 TexReg 5577; amended to be effective March 28, 2013, 38 TexReg 2019

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