Was a well-drilling charge taxable, and who owed tax on casing and other materials?

Plain-English summary

The charge for drilling the well was not subject to sales tax as a retail sale.

The drilling contractor was the consumer of casing and other materials used in the contract. Sales tax or use tax therefore applied to the sale of those materials to the contractor.

Because the requester was an out-of-state concern assumed to have bought materials outside California, the letter directed use-tax reporting on material purchase price. The stated three-percent rate and quarterly filing deadline reflect 1953 law, not current requirements.

Common questions

Was the drilling service itself taxable?

No, under the letter's contractor analysis.

Who consumed the casing?

The well-drilling contractor.

Is the three-percent rate current?

No. It is the historical rate printed in the 1953 source.

Citations and references

• Former California Sales and Use Tax Ruling 11 — contractor-consumer treatment of casing and other materials applied; identified as enclosed, but the separate copy is not reproduced in the official PDF
• December 29, 1953 requester telegram, Western Union correction call, and Board reply telegram — municipal-well facts and preliminary answer quoted or described; no separate copies are reproduced in the official PDF
• Consumers use tax return form and instructions — identified as enclosed for reporting the historical three-percent tax; not reproduced in the official PDF

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/190-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/190-1140.pdf

Original ruling text

190.1140

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

December 30, 1953

--- --- ----- --- ----- ---, --Gentlemen:
This is with reference to your telegram received yesterday as corrected by a telephone call from Western Union. As corrected, your telegram reads, “Well drilled for City --- ---. Advise if City subject sales tax. If so percentage”. We assume from this that you drilled a well for the City of --- ---, furnishing casing and perhaps other materials. On this assumption we answered your telegram as follows: “Correction to your telegram changes our reply as follows: Charge for drilling wells no subject to sales tax. Drilling contractor is consumer of casing, etc., and subject to use tax at 3% of cost of material. Letter follows.” As a well drilling contractor you are regarded under Sales and Use Tax Ruling 11, copy enclosed, as the consumer of the casing and other materials used. Thus, the sales tax or the use tax, as the case may be, applies with respect to the sale to you of materials used in the performance of your contract. As you are an out-of-state concern we presume you acquired the materials out of State and, thus, the use tax would be the applicable tax at three per cent of the purchase price to you of the materials in question. In order to return the tax to the State you should use the enclosed form of consumers use tax return. The return should be made out and filed with this Board, together with a remittance of the tax, on or before the last day of the month following the calendar quarter in which the property was first stored or used in this State. For further information see the instructions on the return form. Very truly yours,

E. H. Stetson
Tax Counsel
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