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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.
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| 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 |
