Which downhole well services were taxable in Texas, including logging, perforating, and pipe recovery?

Plain-English summary

The Comptroller classified several downhole oil-and-gas services differently. Profile-caliper services were nontaxable inspection charges when separately stated, and logging and perforating services were also nontaxable.

Pipe-recovery work was taxable when it removed tubing, rods, or pumps, with tax collected on the total customer charge. Removing drill pipe or casing was nontaxable instead, but the service provider had to pay tax on the materials, equipment, and tools it used.

If work on the mineral-bearing formation, such as acidizing or fracturing, or a casing repair was performed together with the otherwise taxable recovery service, the whole job became nontaxable. The invoice had to state clearly what was done at the well site. Setting a plug was also nontaxable, although the provider had to pay tax on materials incorporated into the well other than cement.

Common questions

Were logging and perforating taxable? No.

When was pipe recovery taxable? When the service removed tubing, rods, or pumps.

What pipe-recovery work was nontaxable? Removal of drill pipe or casing.

Could related well work change the result? Yes. The letter said qualifying formation work or casing repair performed with the taxable service made the entire job nontaxable.

Citations and references

The reproduced letter refers generally to the well-servicing tax rule but does not identify its number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8604L0712E09

Original ruling text

April 1, 1986

Dear ***:

Thank you for your letter regarding the taxability of down hole
services. You specifically mentioned pipe recovery services,
profile caliper service and logging and perforating services.

The profile caliper services are not taxable as inspection charges if
they are separately stated to the customer. The logging and perforating
services are also non-taxable (see well Servicing Tax).

Regarding the pipe recovery services, when you perform these services to
remove tubing, rods, or pumps from down hole it is considered a taxable
service. You would collect tax from your customer on the total charge.

When you perform these services to remove drill pipe or casing it is
considered a non-taxable service to your customer. You should pay tax
on all materials and equipment or tools used in providing these services.

In the event work on the mineral bearing formation (acidize, fracture)
or a repair to the casing is accomplished in conjunction with the
taxable service, defined previously, the whole job will be treated as a
non-taxable service. You should clearly indicate on your invoice what
is actually being done at the well site.

Your charge for setting a plug would not be taxable. You would pay tax
on any materials (except cement) incorporated into the well. I am
enclosing an appropriate rule for your reference.

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

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division