How did Louisiana tax hydraulic-fracturing labor and sand proppant used in oil and gas wells?

Plain-English summary

Louisiana Revenue Ruling 10-003 separated nontaxable hydraulic-fracturing services from taxable sand proppant.

Completing a new oil or gas well was not an enumerated taxable service. Reworking or fracturing an existing well was a repair, but it restored an immovable well rather than tangible personal property, so the service was also nontaxable.

The sand proppant remained movable tangible personal property and was taxable. Labor had to be separately stated; combining it with the taxable proppant made the entire charge taxable.

Well completion and rework services

The company provided pressure-pumping services to complete new wells and rework existing wells to increase or restore production.

Louisiana taxed only services specifically listed in La. R.S. 47:301(14). New-well completion and hydraulic fracturing were not among the enumerated services, so the ruling treated them as nontaxable.

Reworking an existing well fit the general meaning of a repair because it reconditioned, cleaned, or restored production. But La. R.S. 47:301(14)(g) taxed repairs to tangible personal property.

Oil and gas wells were “other constructions” permanently attached to the ground and therefore immovable property under La. R.S. 47:301(16)(l). Repairing or fracturing the well was consequently outside the taxable repair-service category.

Separately stated labor was nontaxable

The ruling said separately billed and accounted-for labor or installation charges were excluded from the taxable sales price.

If labor was combined with a taxable item instead of separately stated, the entire amount became taxable. The invoice structure therefore directly affected the result.

Sand proppant was taxable property

Hydraulic fluid was pumped under high pressure to create fractures in the underground formation. Most fluid was recovered, but sand proppant stayed in the fractures to hold them open so oil or gas could flow into the well bore.

The sand's shape did not change and it did not become permanently affixed to the well. The ruling classified it as movable tangible personal property.

There was no general exemption for materials used to construct or repair immovable property. As the contractor and user of the proppant, the service company owed sales or use tax on the material.

Invoice result

The company separately stated time and proppant charges, with proppant generally representing about 25% of the fracturing-service charge.

Under the ruling:

• separately stated service and labor charges were nontaxable;
• the proppant charge was taxable; and
• a combined labor-and-proppant charge made the entire bill taxable.

What this means for you

Oilfield service companies

Separately state nontaxable well-service labor from taxable proppant and other materials. Treat materials used as a contractor as taxable unless a specific exemption applies.

Well operators

Review invoices for a clear split between service labor and tangible materials. A bundled price carried a materially different tax result in the ruling.

Accountants and tax professionals

Classify both the property being worked on and the material used. The well was immovable, but the sand remained movable tangible personal property.

Common questions

Q: Was hydraulic-fracturing labor taxable?

A: No, when separately stated. The service repaired or completed an immovable oil or gas well.

Q: Why was sand proppant taxable if it stayed underground?

A: The ruling found that the sand did not change shape or become permanently affixed, so it remained tangible personal property.

Q: Who owed tax on the proppant?

A: The contractor was treated as the purchaser or user of material used in constructing or repairing immovable property.

Q: What if labor and proppant were billed together?

A: The full combined charge was taxable under the ruling.

Citations and references

• La. R.S. 47:301(14) — specifically enumerated taxable services
• La. R.S. 47:301(14)(g) — repairs to tangible personal property
• La. R.S. 47:301(16)(l) — wells as permanently attached immovable constructions
• La. R.S. 47:301(13)(a) — sales price and separately stated installation charges
• La. R.S. 47:301(16)(a) — tangible personal property definition
• La. R.S. 47:302(A), 47:321(A), and 47:331(A) — sales and use tax on tangible personal property
• La. R.S. 47:342(3) — oil field service contractors
• McNamara v. Stauffer Chemical Co., 506 So.2d 1252 (La. Ct. App. 1987) — broad meaning of repair
• Department of Revenue v. Baton Rouge SMSA Limited Partnership, No. 423,577 (La. Dist. Ct. June 18, 1998) — separately stated installation charges
• LAC 61:I.4301(C) — taxable services and sales price
• LAC 61:III.101(C) — Revenue Ruling authority and reliance statement

Source

• Landing page: Louisiana Department of Revenue Policies
• Original PDF: LA Revenue Ruling 10-003

Original ruling text

Revenue Ruling
No. 10-003
November 10, 2010
Sales Tax
Oil and Gas Well Fracturing Services
Purpose
The purpose of this Revenue Ruling is to provide guidance to Department of Revenue employees
and taxpayers to clarify the taxability of the services and materials provided by a company in the
business of oil and gas well completion and well rework services, including a process call “frac
service.”
Statement of Facts
Advice has been requested by an attorney, on behalf of his client “Company A,” to determine
their sales and use tax liability on oil and gas well fracturing and the materials used to provide
this service.
Company A is in the business of providing well completion
and well rework services. Company A is headquartered
outside Louisiana. Company A provides pressure pumping
services to oil and gas companies, including some companies
that operate in Louisiana. Company A’s services are used in
completing new oil and gas wells and in reworking existing
wells in order to enhance production of oil and gas.
One of Company A's services is a process called hydraulic
fracturing (or “frac service”). Hydraulic fracturing is a
method of well stimulation in which a thick fluid is pumped
into a well under extremely high pressure. When the well is
pressurized, the fluid is forced through the formation,
creating new fractures through which oil or gas can flow.
Although the fluid is recovered when the pressure is released,
one of the constituents in the hydraulic fluid, the “proppant,”
remains in the formation after the procedure. The proppant
Company A uses in its frac service is sand. The shape of the
sand does not change during the hydraulic fracturing process
and it does not become permanently affixed to the
subsurface. The purpose of placing the proppants in the
subsurface fractures is to prop them open so that oil will flow
through them and into the well bore where the oil will travel
to the surface.

Revenue Ruling No. 10-003
Page 2
November 10, 2010
Company A separately states the charges for time and
materials (proppants) on its invoices to its customers. The
separately-stated charge for the proppants generally runs
about twenty-five (25) percent of the charge for the well frac
service.
Issue
Whether the state of Louisiana imposes sales tax or gross receipts tax on the separatelystated labor charges for performing well fracturing services?
Whether Louisiana imposes a sales tax or gross receipts tax on the separately-stated charge
for proppants (i.e., sand) which remain in the formation as part of the frac service?
If the separately-stated charges for proppants to “Company A’s” customers aren’t taxable,
is Company A liable for paying tax on its purchase of proppants?
Legal Analysis/Discussion:
Sales of Services and Labor
Well Completing
The taxability of services is governed by La. Revived Statute Ann. 47:301(14), which levies a
sales tax on specifically enumerated services.1 This tax is presently addressed in La R.S. 47:302
C, 47:321 (C), and 47:331(C) which provides in part: "There is hereby levied a tax upon all sales
of services, as herein defined, in this state…" Unless specifically designated or defined in the
statute as taxable, sales of services are exempt from state sales tax.
Based upon the facts provided, Company A is classified as a contractor. 2 The services provided
by Company A comprise of completing new oil and gas wells and reworking existing wells,
including a process called hydraulic fracturing, in order to enhance production of oil and gas.
Such services are not among specifically enumerated services defined under La. R.S. 47:301(14),
and therefore will not be subject to state sales tax.
1

La R.S. 47:301 (14) statutorily defines the following services as taxable “sales of services”:
 the furnishing of sleeping rooms, cottages or cabins by hotels;
 the sales of admissions to amusement places, athletic entertainment, and recreational events;
 the furnishing of storage or parking privileges by auto hotels and parking lots;
 the furnishing of printing or overprinting, photostating, or similar services of reproducing written or
graphic matter;
 the furnishing of laundry, cleaning, pressing, and dyeing services;
 the furnishing of cold storage space and the service of preparing tangible personal property for cold
storage;
 the furnishing of repairs to tangible personal property, such as automobiles, machinery, and equipment;
 the furnishing of telecommunication services for compensation.
2
La. R.S. 47:342 (3) As such, the word, "contractor" shall include oil field service contractors, which shall consist
of those contractors performing general oil well servicing, maintenance, and construction when conducted as a
single company unit. "General oil well servicing" shall include welding, pipe coating, pipe inspection, wireline
service, automation, workover, logging, analysis, seismograph, installing and servicing equipment, packing,
platform work, perforating, and completion.

Revenue Ruling No. 10-003
Page 3
November 10, 2010

Well Rework
La. R.S. 47:301(14)(g) further defines taxable sales of services to include the furnishing of
repairs to tangible personal property. The regulation on repairs to tangible personal property,
LAC 61:I.4301.C. Sales of Services, (i), adds that “both repair and routine servicing of all kinds
of tangible personal property are included as taxable services.” However services, repair, or
routine work are not taxable upon immovable property, as immovable property is not classified
as tangible personal property. Accordingly, La. Rev. Stat. Ann. § 47:301(16)(l) provides that for
purposes of state and local sales tax in Louisiana, “other constructions” permanently attached to
the ground shall be treated as immovable property, and not as tangible personal property, without
regard to the nature of the ownership of the ground on which the other construction is located.
Tangible personal property does not include immovable property or “other constructions”
permanently attached to the ground. Pursuant to La. R.S. 47:301(16)(l), oil and gas wells are
classified as “other constructions” and therefore treated as immovable property.
Although the service explained and provided by Company A does not specifically use the term
“repair,” reworking existing wells or fracturing should be considered a repair service. Black’s
Law Dictionary defines repair as follows: “[t]o mend, remedy, restore, renovate. To restore to a
sound or good state after decay, injury, dilapidation, or partial destruction.” The First Circuit
Court of Appeals in McNamara v. Stauffer Chemical, 506 So. 2d. 1252, looked to the definition
of “repair” in Black’s Law Dictionary ruling “it is our opinion it was well within the purpose and
objective of the legislature for the word ‘repair’ to be given a general and liberal meaning, and
not to be construed in a highly limited sense, and that such word clearly encompasses the
‘restoration of tangible personal property’ in a process, or service which ‘restores’ the thing
(spent sulfuric acid) to the condition in which it originally existed (usable sulfuric acid).”3
Reworking means reconditioning, cleaning out, or otherwise attempting in good faith to
establish, increase, or restore production in an existing well by downhole operations. Therefore
reworking or fracturing existing wells is a “repair” service, but a “repair” service which restores
functionality to an immovable property and is consequently not subject to state sales tax.
Labor services
As previously stated, sales of services are exempt from state sales tax, unless specifically
designated or defined in the statute as taxable. Generally, labor or installation charges are not
included as taxable services, when the charge is separately billed and accounted for at the time of
the installation. However, labor charges included in the sales price will be subject to taxation.
La. R. S. 37:301(13).4 According to LAC 61:I.4301(C) “Sales Price” (a) (iv) all instances where
3

McNamara v. Stauffer Chemical, 506 So. 2d. 1252 (La. App. 1st Cir. 1987) addressed the definition of repair,
finding the chemical treatment process of regenerating or restoring spent sulfuric acid was found to be a repair
service because the process restored the acid to a sound and usable state.
4
La. R.S. 37:301 (13) states the sales price shall includes the total amount for which tangible personal property is
sold, but excludes finance charges, cash discounts allowed and taken, installation charges, and any taxable repair or
remodeling charges incurred by the seller to enhance the value of the property to be sold

Revenue Ruling No. 10-003
Page 4
November 10, 2010
an expense, such as labor, is required to be separately stated, the effect of combining the charge
with another taxable item included in the sales price will subject the entire amount to sales tax.
Further, in the case of Department of Revenue v. Baton Rouge SMSA Limited Partnership d/b/a
th

BellSouth Mobility, No. 423,577 (19 Judicial District Court Jun. 18, 1998), the court ruled that
separately stated installation charges are services explicitly excluded from the definition of sales
price under La. Rev. Stat. Ann. § 47:301(13)(a). Based upon the foregoing, Louisiana shall not
impose a sales tax on “separately” stated labor charges.
Material/Proppant Used
La. Rev. Stat. Ann. § 47:302(A), § 47:321(A), and § 47:331(A) imposes a tax on the sale at
retail, the use, the consumption, the distribution, and the storage for use or consumption in this
state, of each item or article of tangible personal property. The sale or use of tangible personal
property is generally presumed taxable, unless expressly exempt. There is no statutory exemption
or exclusion from sales tax upon materials used in construction or repair of immovable property.
The sales or use tax is payable by the contractor, who is held to be the purchaser or user of all
materials used in the construction, restoration, maintenance or repair of immovables.
To address the issue of whether materials used by Company A, such as a “proppant” or sand, are
subject to tax, it is important to determine whether that material is classified as tangible personal
property. La. R. S. 47:301(16)(a) defines tangible personal property as personal property that
can be seen, weighed, measured, felt, touched, or is perceptible to the senses. The Louisiana
Supreme Court has ruled that “tangible personal property” is equivalent to corporeal movable
property as defined in Article 471 of the Louisiana Civil Code. The Louisiana Civil Code
describes corporeal movable property as things that physically exist and normally move or can
be moved from one place to another. If property is movable and meets the definition of tangible
property, it is tangible personal property.
The material or sand proppant used by Company A, props the fractures open to allow the oil to
flow freely, restoring proper function to the oil well. The shape of this proppant does not change
nor does it make up or become permanently affixed to the well structure. The proppant classifies
as a movable and further meets the definition of tangible personal property. A tax shall be
imposed upon the sale or use of the material, sand proppant.
Conclusion
Although La. Rev. Stat. Ann. § 47:301(14)(g) defines taxable “sales of services” to include
repair and routine servicing transactions, the tax is limited to transactions related to “tangible
personal property.” The service and repair performed on a well is not within the scope of “sales
of services,” as immovable property is not classified as tangible personal property. For that
reason, the services offered by “Company A,” well completion or reworking existing wells,
including the process called hydraulic fracturing are considered nontaxable services.

Revenue Ruling No. 10-003
Page 5
November 10, 2010
Accordingly, Louisiana will not impose a sales tax on “separately” stated service charges or
labor charges. However, service or labor charges combined with taxable materials, such as the
proppants purchased and used by “Company A,” will subject the entire bill to taxation.
Cynthia Bridges
Secretary
By:

Leticia Jackson-Mabry
Attorney
Policy Services Division

A Revenue Ruling is issued under the authority of LAC 61III.101.C. A Revenue Ruling is written to provide
guidance to the public and to Department of Revenue employees. It is a written statement issued to apply principles
of law to a specific set of facts. A Revenue Ruling does not have the force and effect of law and is not binding on
the public. It is a statement of the department's position and is binding on the department until superseded or
modified by a subsequent change in statute, regulation, declaratory ruling, or court decision.