When did Texas treat oil-spill cleanup as taxable or nontaxable based on the spill's location and regulatory setting?

Plain-English summary

The Comptroller said an oil-spill cleanup was nontaxable when the spill resulted from activities associated with exploring for, developing, or producing oil, gas, or geothermal resources and involved material regulated by the Railroad Commission under Texas Natural Resources Code § 91.101. Cleanup at a well site was also nontaxable.

By contrast, an in-plant cleanup or other land cleanup away from the well site was a taxable service when performed on property other than the cleanup company's property.

The letter also treated cleanup of material in domestic sewage, irrigation return flows, or industrial discharges regulated by a Texas Water Code Chapter 26 permit as nontaxable. It said waterway oil-spill cleanup would be nontaxable if the spill was subject to that regulation.

What this means for you

The historical answer was not a single rule for every oil spill. It depended on the spill's source and location, whose property was cleaned, and whether the material or discharge fell under the named regulatory programs.

Common questions

Was well-site oil-spill cleanup taxable? No, according to the letter.

What about cleanup inside a plant or elsewhere on land away from the well site? The letter called it taxable when performed on property other than the cleanup company's property.

Were regulated industrial-discharge cleanups taxable? The letter said cleanup of industrial discharges subject to a Chapter 26 permit was nontaxable.

How did the letter treat waterway spills? It said cleanup would be nontaxable if the oil spill was subject to the regulation it described.

Citations and references

• Texas Natural Resources Code § 91.101 — cited for Railroad Commission regulation of specified oil-and-gas-related substances or materials.
• Texas Water Code Chapter 26 — cited for permitted industrial discharges and related water regulation.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8712L0855C05

Original ruling text

December 9, 1987

Dear **:

Thank you for your inquiry regarding the taxability of oil spill
control/clean-up operations.

You stated that you perform clean-up operations throughout Texas to refineries,
pipelines, chemical plants and other business entities. This service is
performed on land surfaces and waterways of the State.

A clean-up operation for an oil spill which results from activities associated
with the exploration, development, or production of oil, gas or geothermal
resources, and any substance or material regulated by the Railroad Commission
of Texas pursuant to Section 91.101, Natural Resources Code, is not taxable.
Oil spill clean-ups at the well-site are not taxable.

A clean-up of an oil spill performed in-plant or elsewhere on land away from
the well site is a taxable service. This service is taxable if performed on
property other than the company's property.

Services to clean up solid or dissolved material in domestic sewage, or solid
or dissolved material in irrigation return flows, or industrial discharges
subject to regulation by permit issued pursuant to Chapter 26 of the Water Code
are not taxable. If oil spills in waterways is subject to this regulation, the
clean-up service would not be taxable.

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 Policy Division.

Sincerely,

(Mrs.) Jo Ann Dieck
Tax Policy Division