Which oil-and-gas repair, remodeling, maintenance, and well services did Texas treat as taxable in February 1988?

Plain-English summary

This February 1988 guidance separated oil-and-gas property and services into several historical tax categories:

• Labor to restore, remodel, or repair listed real property was taxable. The list included pump and booster stations, casing in place, large storage facilities, underground gathering lines, permanently embedded offshore platforms, processing plants not easily moved, pipelines, service-station structures, permanently attached car-wash equipment, and attached manufacturing components.
• Scheduled or periodic maintenance of operating real property was not taxable if it met the document's Rule 3.357 definition.
• Restoring, remodeling, repairing, or maintaining tangible personal property was taxable. Listed examples included Christmas trees and wellhead components, above-ground gathering lines, pumpjacks, field-processing equipment, small storage tanks, movable power systems, field compressors, and items inside well casing.
• Labor on something inside the well bore was taxable, but work to start or increase production was not. Replacing a worn item while performing nontaxable formation or stimulation work did not by itself make the labor taxable.

The guidance stressed invoices. Crews needed to identify the work actually performed because trip charges, mileage, and other expenses followed the tax treatment of taxable labor. General lease-site maintenance was presumed taxable unless the invoice identified otherwise. Field welding was presumed taxable unless the bill clearly showed third-party installation rather than repair or remodeling.

What this means for you

The historical answer depended on the property's classification, its capacity or movability, where the work occurred, and the actual purpose of the job. A broad label such as “well service” or “maintenance” was not enough.

Common questions

Was every service performed inside a well taxable? No. Work on items inside the well bore was taxable, but work to start or increase production was not.

Could replacing a worn part make production work taxable? Not when the replacement was incidental to otherwise nontaxable work on the mineral-bearing formation or production stimulation.

How were permanently attached car-wash systems classified? The guidance listed car-wash buildings and equipment permanently attached to the building as real property.

Why did invoice detail matter? The guidance presumed general maintenance and field welding taxable unless the bill clearly established a different treatment.

Citations and references

• 34 Tex. Admin. Code Rule 3.357 — cited for the historical real-property maintenance definition.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8802L0944B05

Original ruling text

TAXABLE SERVICES
February 1, 1988

As They Relate To The Oil And Natural Gas Industry

Equipment in the field:

In an oil or natural gas field, the labor to restore, remodel or repair the
following items will be taxable:

Real property in the field:

Pump stations, booster stations.

Casing in place.

Enhanced production-injection and recovery systems (which cannot be moved
intact).

Storage facilities (stock tanks or tank batteries) with a storage capacity each
of more than 500 barrels.

Vapor Recovery Systems at Service Stations.

Underground gathering lines.

Compressors at compressor stations, other than leased compressors.

Production platforms with their supports permanently embedded in the sea bed.

Water Disposal Systems - Same guidelines as storage facilities.

Aids to navigation attached to the platform.

Gas processing plants not easily moved.

Real property located elsewhere:

Underground storage facilities

Pipeline transmission lines.

Microwave facilities.

Service station buildings and structures.

Permanent lighting.

Lifts at service stations.

Islands and canopies at service stations.

Car wash buildings and equipment permanently attached to the building.

Gas pumps at company-owned service stations.

Machinery, equipment and fixtures which are attached components of processing
or manufacturing facilities. Items which are free-standing or which are bolted
down but are readily removed without damage are tangible personal property.

Maintenance of real property will not be taxable if it meets the following
definition: All scheduled, recurring, or periodic work on operational and
functioning improvements to real property necessary to sustain or support safe,
efficient, continuous operations or to keep in good working order by preventing
the decline, failure, lapse or deterioration of the improvement. (See Rule
3.357 of this title.)

Labor to restore, remodel, repair or maintain tangible personal property is
taxable.

In an oil or natural gas field, the following items will be treated as tangible
personal property. The labor to restore, repair, remodel or maintain these
items will be taxable.

Christmas trees, wellhead and well components, flow lines.

Storage facilities (stock tanks or tank batteries) with a storage capacity of
500 barrels or less.

Gathering lines which are above the ground.

Oil field pumping systems (pumpjacks).

The rig or production package attached to offshore platforms.

Separation and dehydration and other field processing equipment.

Electric power systems which are easily movable.

Compressors located in the field (between the wellhead and booster stations).

Everything inside the casing of a well. This includes, but is not limited to,
tubing, pipe, pumps, sucker rods, packers, gas-lift equipment, pumps, packers.

It is not unusual for two separate work crews to be used to maintain a well.
One crew will pull the rods, tubing, etc., as needed. Another crew will perform
the actual maintenance or repair. The charge for the crew's labor will be
taxable or nontaxable depending upon what is being done to the well.

If work is being done to something inside the well bore (inside the casing),
the labor charge is taxable. Examples of taxable labor include steam-cleaning
tubing, sand control, repairing or replacing tubing, pumps, rods or any other
items inside the casing.

Work inside the well bore for the purpose of starting on increasing production
is not taxable. Work to repair the casing string, i.e. squeeze job, is now
taxable.

When the tubing, etc., is being pulled to work on the mineral bearing formation
or to stimulate production, the crew will replace any worn or damaged items
that are found. The act of replacing an item (supplied by the well owner) while
performing a nontaxable service will not cause the labor to become taxable.

It is important that the crew(s) note on their invoices what is being done to
the well so that it can be established whether or not the labor is taxable. If
the labor charge is taxable, trip charges, mileage charges, or any other
charges or expenses will also be taxable.

If a crew is called out to do one type of job, such as sand control and the
customer deduces something else is necessary, such as acidizing, the crew's
labor will be taxable or not taxable depending on what is actually done. If the
work started out inside the well bore but ended up as work on the formation,
the crew's labor will not be taxable.

General maintenance at the lease site includes taxable as well as nontaxable
services. Charges for general maintenance should identify the type of work done
to clearly show taxable from nontaxable service. Maintenance of tangible
personal property is taxable including service to flow lines and to storage
tanks 500 barrels or less. Some real property services such as land surveying
or structural pest control by a licensed exterminator are taxable. Cutting
weeds, covering oil spills, and waste removal from the lease site are not taxed
under real property services. Sandblasting and repainting tanks over 500
barrels is taxed as a real property repair and remodeling service. General
maintenance charges are presumed taxable unless identified otherwise.

All welding in the field will be presumed to be taxable unless the welder
clearly indicates on his billings that the work was performed as a third-party
installer and is not part of a repair or remodel.