Were normally taxable tubing-removal services nontaxable when performed to enable an oil-well acid job?

Plain-English summary

The Comptroller revisited an earlier response that had treated tubing-and-rod removal as taxable. Looking at the entire well-site job, the agency found that the service company's work was performed to enable COMPANY A's acid job.

Because the normally taxable down-hole services facilitated the acid job, they became nontaxable. The letter said the same overall-purpose treatment could apply when taxable down-hole work facilitated acidizing, fracturing, perforating casing, squeeze jobs, workovers, casing-string repair, or completion services.

What this means for you

The individual service description did not control by itself. The Comptroller looked at what the combined work at the well was intended to accomplish.

Common questions

Was removing the tubing and rods normally taxable? Yes.

Why was it nontaxable here? It facilitated an acid job.

What other operations did the letter identify? Fracturing, casing perforation, squeeze jobs, workovers, casing-string repair, and completion services.

Does the body decide a sale-versus-service issue? No. It decides the taxability of down-hole services based on the overall job.

Citations and references

• No statute or rule number is cited in the ruling text.
• The letter clarifies a March 10, 1986 response that is not reproduced in this STAR record.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8706L0840C12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

June 22, 1987

Dear ****:

This letter is meant to clarify an answer provided to you by Ms. Dot
Burchard, on March 10, 1986 by letter.

While the answer provided by Ms. Burchard is not entirely incorrect, I
must clarify our position.

Services performed down-hole at a well site must be viewed as a whole to
determine taxability. The premise behind this policy is that certain taxable
services must be performed in order to accomplish certain nontaxable services

For example on your invoice, #****, your crew was called out to a well
site to remove tubing and rods. This is normally a taxable service and Ms.
Burchard so indicated in her letter. However, day 3 at the well site indicates
that COMPANY A performed an acid job. It is now apparent, when viewed as a
whole, that the purpose for your crews' work was to facilitate an acid job.
Because of this, it renders your taxable down-hole services nontaxable.

Down-hole taxable services are only rendered nontaxable when done to
facilitate jobs such as: acidizing, fracturing, perforating casing, squeeze job
work over, repair to casing string or completion services.

I hope this clarifies the situation for you and regret any inconveniences
it may have caused.

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,
F. Wayne McDonald
Tax Policy Section
Tax Administration Division