How did Texas tax barge rentals, tug and crew charges, crane charges, transportation, and marine oilfield services across six invoice scenarios?

Plain-English summary

The Texas Comptroller classified six marine-equipment invoice scenarios:

• Case 1: A barge-only transaction was a taxable rental.
• Case 2: Barge rentals, transport to the site, and services connected with the rental were taxable. Tug-and-crew work unrelated to the rental and barge transport after the rental were nontaxable only if separately stated and clearly identified; otherwise the charges were presumed taxable.
• Case 3: The barges, tug, and crew were all part of the taxable rental.
• Case 4: Tax applied to the barges, the tug and crew moving them to the well site, and the crane.
• Case 5: The invoice showed a taxable well service, so tax applied to the total charge. The provider also owed tax on equipment and materials used. If barges or tugs had been bought tax-free for resale, the provider had to accrue tax on their fair-market rental value unless Section 151.329(2) applied.
• Case 6: The transaction also appeared to be well servicing, and the provider was told to charge tax on the invoice price.

The ruling repeatedly emphasized invoice clarity. In Case 2, the submitted invoice did not make it easy to distinguish post-rental transportation from tug services unrelated to the barge rental.

What this means for you

Providing a tug or crew did not automatically turn a barge rental into a nontaxable service. Texas followed how each charge connected to the rental or well-service job, when transportation occurred, and whether nontaxable work was separately and clearly identified.

Common questions

Were bare barge rentals taxable? Yes.

Was transportation to the rental site taxable? Yes, when connected with the rental.

Could unrelated tug work or post-rental transport be nontaxable? Yes, if clearly identified and separately stated.

Were crane charges taxable in the well-testing rental scenario? Yes.

How were well-service invoices treated? Tax applied to the total charge in Cases 5 and 6.

Citations and references

• Comptroller Rule 3.324 — oil, gas, and related well services.
• Tex. Tax Code § 151.329(2) — possible exemption referenced for barges or tugs otherwise subject to fair-market-rental self-use tax.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8701L0795F08

Original ruling text

January 19, 1987

Dear **:

I have received your letter along with pictures and examples of your client's
marine equipment operations.

The answers below are based on your client's invoices.

Tax on Case 1: This situation is a rental of the barge. Your client should
collect tax on that rental.

Tax on Case 2: This transaction is a rental of barges. Your client should
collect tax on the rental and all costs associated with transportation to the
site and services connected with the rental. Tax is not due on charges for the
tug and crew when the service they, perform is not connected with the rental of
the barge or for transportation of the barge after the rental. Your client's
invoices should clearly reflect charges for services not connected to the
rental and charges for transportation after the rental.

Looking at this invoice, I find it difficult to determine which tug charges are
for transportation after the rental and which tug charges are for services not
associated with the rental, i.e., not taxable. Charges for non taxable services
should be separately stated and clearly identified or their will be presumed
taxable.

Tax on Case 3: This transaction is also a rental and tax is due on all charges
associated with the rental including the charge for tug with crew.

Tax on Case 4: Tax is due on the rental of the barges, the charge for the tug
and crew to move the barges to the well site, and the charge for the crane.

Tax on Case 5: The invoice indicates that your client is providing a taxable
service, and tax is due on the total charge. Please note under Rule 3.324, Oil,
Gas, and Related Well Services, your client owes tax on all equipment and
materials used to provide the service. If your client purchased the barges
and/or tugs tax free under a resale certificate, then your client should accrue
tax on the fair market rental value of the barges, unless the purchase were
exempt under Sec. 151.329(2).

Tax on Case 6: This transaction also appears to be well servicing and your
client should charge tax on the invoice price. Please see enclosed Rule 3.324,
for your client's tax responsibilities.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,

Adina Whittemore
Tax Policy Section
Tax Administration Division

cc: Noel Lopez
** Audit

December 4, 1986

Comptroller of Public Accounts
Sales Tax Division-State of Texas
Capitol Station
Austin, Texas 78774

Attn: Tax Policy

Gentlemen:

Enclosed is a summary of facts and circumstances relating to rental of marine
equipment.

We are submitting this information for your review and ask that you give us
your opinion as to the Texas Sales and Use Tax consequences of the various
cases/examples presented.

Your consideration in this matter is appreciated. Please let us know if you
have any questions or if you require additional Information.

Very truly yours,

SUMMARY OF FACTS AND CIRCUMSTANCES
MARINE EQUIPMENT RENTAL

The purpose of this inquiry is to seek clarification of the applicability and
responsibility for charging use tax relative to two specific types of marine
rentals.

The first issue concerns the renting of barges. The barges in question are 301
X 110' X 7' steel deck barges with no superstructure above the deck (see
Picture 1). Based upon our understanding of the use tax rules, the rental of a
barge(s) would be taxable because:

1. A barge is a vessel in its own right, albeit without crew , even though it
   requires a tug with crew to move it to and from the job site and to shift it
   around a job site as needed (i.e. , the barge is not a component part of the
   tug maneuvering it.).

2. The primary purpose of this type of barge is to transport men and/or
   equipment and/or material to and from a job site, to provide a work surface,
   and to act as a storage platform for materials and equipment while at the site.

3. Barge rental charges are itemized separately on all billings regardless of
   other equipment or owner personnel that may also be contracted for and utilized
   on the job.

4. The actual control and supervision of the barge rests with the customer who
   rents the vessel. The customer: (1) makes the decision to rent the barge; (2)
   determines the cargo, whether men and/or equipment and/or material, that is to
   be transported (subject only to the capacities/limitations imposed by the
   owner); (3) directs placement of the barge while at the job-site; and

(4) releases the barge when determined (by the customer) that it is no longer
required. Further, movement of the barge by the tug boat to and from the job
site, and while at the job site, is at the direction of the customer,
regardless of whether the owner or another vendor is supplying the tug.

The following six cases set out typical and representative types and uses of
barges by customers.

CASE 1: Customer rents only a barge from ** (hereafter referred to
as COMPANY). If a tug with crew is needed to move the barge to or at its
location, it is provided by another vendor (see Example 1). Whatever was borne/
transported by the barge, whether men and/or equipment and/or material, was
supplied by the customer or provided by customer's vendor. The employees of
COMPANY are involved.

CASE 2: Customer rents barges and tugs from COMPANY. During the rental period
tugs with crew takes barges to the site (see Example 2). On one day out of the
two week rental period, COMPANY tug is used to move COMPANY barge around the
location to various work stations. All aboard the barges, whether men and/or
equipment and/or material (including the cherry picker cited in the Example 2
invoice), were supplied by the customer or provided by another vendor (see
Picture 2). During the rental period COMPANY barges were on the location for
the entire time while COMPANY tugs were rented intermittently. Except for one
day, the rented tugs were utilized for other duties not associated with the
same uses the customer had for the barges. (see Pictures 3 & 4) . The only
personnel provided by COMPANY were tug-boat captains and deckhands. The tugs
and barges were at all times under direct control and supervision of the
customer.

CASE 3: Customer rents three barges and a tug with crew from COMPANY for the
purpose of rig tending (see Example 3). During rig tending operations one barge
carried pipe, one carried drilling mud, and one carried drilling water. All
aboard the barges, Whether men and/or equipment and/or material, were supplied
by the customer or provided by another vendor. The tug moved the barges back
and forth to the rig and also shifted the barges around the rig as necessary.
However, the predominant assignment of the tug was not attached to the barges,
but was associated with servicing and supplying customer's rig locational needs
(see Picture 5). COMPANY provided only a tug-boat captain and one tug-boat
deckhand. The tug and barges were under direct control and supervision of
customer's engineer or other similar supervisory personnel.

CASE 4: Customer rents barges and a tug from COMPANY (see Example 4). As shown
in this example, COMPANY rented tug and barges to customer (or the customer's
vendor) as necessary for customer to test his well. COMPANY is not in the
well-testing business and was not involved in the testing procedures. All
aboard the barges, whether men and/or equipment and/or material, was supplied
by the customer or provided by another vendor (see Picture 6). The tug was
utilized only to move the barges out to the well, to ferry the customer and/or
customer's vendors equipment and personnel to and from the test-site, and to
return the barges back to the dock when testing was completed. Only a tug
captain and deckhand were provided by COMPANY for purposes of operating the tug
during testing operations. After the testing was completed and the barges
returned to dock, COMPANY employees and equipment were used only to unload
customers and/or vendors equipment from the barges. The testing job and all
equipment and personnel were under the direct control and supervision of the
customer.

CASE 5: As in Case 4 above, customer rents a tug and barges for the purpose of
providing a platform at the well for their swabbing unit (see Example 5). The
difference between this case and Case 4 above is that additional equipment and
a cherry picker with operator were also rented/provided to customer by COMPANY.
As I all other cases, the tug with crew was utilized for other shuttle duties
away from the barge. The only COMPANY employee, other than the tug crew, was
the operator of the cherry picker, whose physical presence on the barge was
strictly limited to operating the cherry picker and in no way related to the
supervision and control of the barge. All other men and/or equipment and/or
material was supplied by the customer or provided by another vendor. The
swabbing job and all equipment and personnel utilized on the job were under
direct control and supervision of the customer.

CASE 6: Customer arranges for COMPANY to provide the men and equipment to
repair a leak in a pipeline (see Example 6). In addition to the repair crew and
equipment, barges are rented from COMPANY to carry customer's materials to the
repair site. The barges remain at the site until the materials are used, at
which time barges are returned to COMPANY docks. During the job the deck barges
are used to hold materials (e.g., pipe) supplied by customer (see Picture 7).
The decision to retain or release a particular barge is made by the customer.
The repair job and all equipment and personnel are under direct control and
supervision of the customer.

The second issue concerns rental of a crane. The crane in question rests upon a
large barge. The barge is non-motorized and is not otherwise self-propelled,
but it does contain a cabin structure for housing work crews (see Picture 8).
The purpose of this crane/barge configuration is to provide a stable platform
in the water from which a crane can perform heavy lifting functions necessary
for marine oilfield construction.

Customer rents crane/barge from COMPANY. Customer rents crane/barge from
COMPANY (with crane operator) along and in conjunction with other equipment
and/or men as necessary to complete a job (see Example 6). Customer determines
placement of crane/barge at job site and dictates any relocation while at the
site. Customer determines if, when and how crane/barge is utilized at job site
and when it is to be released from the job for return to COMPANY docks.
Customer is present at job site, and during the entire job phase physically
directs the job/equipment/crews. Accordingly, the job, all equipment and all
personnel are under direct control and supervision of the customer. Also, the
crane/barge is set-out as a separate line item on billing to customer, as shown
in Example 6.