Were natural-gas compression charges a taxable compressor rental or a nontaxable service?

Plain-English summary

An independent natural-gas producer used another party's compressor station so its gas could enter a pipeline. The station owner labeled the usage-based charges as compressor rentals and added state and local sales tax.

The Comptroller drew the line based on access to the station. A community-type station serving several users for fees based on use provided a nontaxable service. If the producer had exclusive use, the arrangement was a taxable rental.

Common questions

Was a usage-based compression fee always taxable? No. At a community station serving several users, it was a nontaxable service.

When did the arrangement become a taxable rental? When the producer had exclusive use of the compressor station.

Did the invoice label alone decide the result? The letter's answer focused on shared versus exclusive use, not merely whether the invoice called the charge a rental or a service.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8609L0754C13

Original ruling text

September 10, 1986

Dear ***:

Thank you for you recent letter which is restated with the response
below.

We respectfully request a written clarification of the following:

As an independent natural gas producer, it is sometimes necessary for
us to utilize a compressor station owned by a second party in order for
our product to access a pipeline system. We have enclosed a copy of an
invoice from COMPANY A for compression charges on which both state and
local sales tax was added. COMPANY A bills these as compressor rentals
even though the charges are for a service based on the number of MCF
processed. If we were billed for compression charges and not compression
rentals would the tax still apply? Please cover the various aspects of
when similar charges would be taxable and when they would be exempt.

Response:

If this is a community type station that provides service to several
users who pay a fee based on use, it is a non-taxable service. If your
company has exclusive use then it is a taxable rental.

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. The regular number is
512/463-4600. You may write us at the Tax Administration Division.

Sincerely,

Tax Policy
Tax Administration Division