Did land-based equipment used mainly for oil-and-gas workover activities qualify for the drilling-rig exemption merely because it could also perform completion services?

Plain-English summary

The body of the letter is dated August 27, 1986. It addressed equipment capable of performing completion services but used primarily for workover activities.

Under the policy stated at the time, only the drilling rig and its component accessories qualified under Section 151.324(b). The fact that the submitted equipment could perform necessary completion activities was not enough to exempt equipment used mainly for workovers.

The letter identified two separate routes to exemption: seller shipment of the equipment to a point outside Texas under Section 151.330, or use offshore beyond Texas's territorial limits under the broader Section 151.324(a) exemption.

Common questions

Did the equipment qualify under Section 151.324(b)? No, because it was primarily workover equipment rather than the drilling rig or its component accessories.

Did the ability to perform completion services change the result? No.

What other exemptions did the letter identify? Seller shipment outside Texas under Section 151.330 and qualifying offshore use under Section 151.324(a).

Citations and references

• Tex. Tax Code § 151.324(a) — offshore use outside state territorial limits.
• Tex. Tax Code § 151.324(b) — drilling-rig and component-accessory exemption described in the letter.
• Tex. Tax Code § 151.330 — seller shipment to a point outside Texas.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8608L0788B07

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

August 27, 1986

Dear **:

Thank you for your letter requesting clarification on whether your
equipment
qualifies for exemption under Sec. 151.324 (b) of the Tax Code.

The policy at this time is only the drilling rig and its component
accessories
qualify for exemption under 151.324 (b). The equipment descriptions you
submitted indicate they are capable of performing completion services;
however, they are primarily for use in workover activities. The
completion
activities, though necessary, are not sufficient to qualify the equipment
for
exemption under 151.324(b) of the Tax Code. They would have to be
shipped by the seller to a point outside this state to be exempt (see
151.330
of the Tax Code). The equipment would, however, be exempt under
151.324(a), a much broader exemption, when used offshore outside the
territorial limits of the state.

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

Please feel free to contact me if you have additional questions. You may
write me, call toll-free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,
F. Wayne McDonald
Tax Policy Section
Tax Administration Division