Is the rental of a swab tank used at a well subject to Kansas sales tax?

Plain-English summary

A taxpayer asked the Department whether renting a swab tank — a portable holding tank used at wells — is subject to Kansas sales tax, noting they had been told the rental is taxable on a new well.

The Department confirmed the rental is taxable. Rentals of tangible personal property are subject to Kansas sales tax, because a rental transfers property to another person for that person's use and operation. On top of that, equipment used during drilling operations is taxable in Kansas, so a swab tank rented for use at a well — including a new well — carries sales tax.

What this means for you

Oilfield equipment rental companies and well operators

Renting out portable tanks and other equipment used at wells is a taxable rental of tangible personal property. Collect Kansas sales tax on swab-tank rentals; there's no drilling-use exemption that removes the tax here.

Well operators renting tanks

Expect sales tax on swab-tank rentals, whether the tank is used on a new or existing well.

Common questions

Q: Is renting a swab tank taxable in Kansas?
A: Yes. It's a rental of tangible personal property, which is taxable, and drilling-operation equipment is taxable as well.

Q: Does it matter that the tank is used on a new well?
A: No. The rental is taxable regardless of whether the well is new.

Citations and references

• Kansas sales tax on rentals of tangible personal property — a rental transfers property to another for their use and is taxable; the ruling applies this general rule to swab-tank rentals and notes that equipment used during drilling operations is taxable. (No specific statute section is cited in the ruling.)

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: P-2011-005

Original ruling text

Private Letter Ruling

Body:

Office of Policy & Research

July 1, 2011

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Dear XXXXXXXXXXX:

We wish to acknowledge receipt of your recent inquiry regarding the application of Kansas Retailers’ Sales tax. You inquired regarding rental of a swab tank. You indicated you were told the rental of a swab tank is taxable on a new well.

It is our understanding that a swab tank is a generally a portable holding tank unit used at wells. The units can be a various capacities. Rentals of tangible personal property are subject to sales tax. A rental involves the transfer of property to someone else for that person’s use and operation. When a tank is used during drilling operations, the rental of the tank is taxable since sales of equipment used during drilling operations are subject to sales tax.

This private letter ruling is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to make an accurate determination by the department, this ruling is null and void. This private letter ruling will be revoked in the future by operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or a published revenue ruling, that materially affects this private letter ruling.

Sincerely,

Jack Smith
Policy and Research

Date Composed: 07/07/2011 Date Modified: 07/07/2011

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