Was pumping hot oil down a Texas well bore to remove paraffin or another obstruction taxable?

Plain-English summary

The Texas Comptroller ruled that pumping hot oil down a well bore to dissolve paraffin or remove another obstruction was taxable. The tubing was tangible personal property, and clearing an obstruction from it was maintenance.

The letter explained that, as of October 2, 1984, services to repair, remodel, maintain, or restore tangible personal property were subject to sales tax. The same services were not taxable when performed on real property, but the Comptroller classified this work as maintenance of the tubing rather than work on real property.

What this means for you

Oilfield service providers

Under this 1985 ruling, a hot-oil treatment used to clear well tubing was a taxable maintenance service, even though the work occurred down a well bore.

Well operators

The classification of the item being serviced mattered. The Comptroller treated the tubing as tangible personal property.

Accountants and tax professionals

The ruling is tied to the sales-tax changes effective October 2, 1984. Verify current oilfield-service rules before applying its historical classification today.

Common questions

Q: Did the Comptroller treat the tubing as real property?
A: No. The letter expressly classified the tubing as tangible personal property.

Q: What made the hot-oil treatment taxable?
A: Dissolving paraffin or removing another obstruction was maintenance of the tubing.

Q: Were repair and maintenance services on real property taxable under the rule described?
A: No. The letter distinguished services on real property, but held that this treatment involved tangible personal property.

Citations and references

The letter did not cite a specific statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8501L0612E06

Original ruling text

January 23, 1985

Dear ***:

Thank you for your January 14, 1985, letter concerning the effect of the
October 2, 1984, changes in the sales tax law on your business.

As of October 2, 1984, the services to repair, remodel, maintain and
restore tangible personal property are subject to the sales tax. The sales tax
does not apply when these services are performed on real property.

Pumping hot oil down a well bore to dissolve paraffin or to remove any
obstruction is taxable. The tubing is tangible personal property and the
removal of an obstruction from it is considered maintenance.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may write to the Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division