Did steam generators and distribution lines used for tertiary oil recovery become improvements to Texas real property?

Plain-English summary

An oil-recovery system used steam generators resting on gravel and insulated steel distribution pipe hung from bracket arms attached to the ground. The equipment was expected to stay through the steam-injection phase, but the generators could later be disassembled and moved.

The Comptroller said the steam generators and distribution lines retained their identity as tangible personal property. Their size, weight, and capacity did not control the classification, and removing them would not extensively damage the equipment or the realty.

The steel bracket arms could become improvements to realty if they were attached so that removal would extensively damage the arms and the real property.

What this means for you

Long-term placement and heavy industrial use did not alone turn the equipment into real property. The letter focused on whether each component kept its identity and could be removed without extensive damage.

Common questions

Were the steam generators improvements to realty? No.

Were the steam distribution lines improvements to realty? No.

Did the equipment's size or weight control? No.

Could the support brackets be real-property improvements? Yes, if their attachment made removal extensively damaging to the brackets and realty.

Citations and references

• 34 Tex. Admin. Code Rule 3.347 (distinguishing tangible personal property from real property)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9011L1059B03

Original ruling text

November 30, 1990

Dear ***:

I am responding to your letter questioning whether the construction of
the generators and distribution lines utilized in the cyclic steam and
steam drive methods of tertiary recovery of oil is considered construction
of an improvement to realty or whether these components of the system
remain tangible personal property.

You provided size, weight, and capacity, information relative to these
components. You stated that the steam generator, when assembled, rests
on a gravel bed. The steam distribution lines are comprised of 2" to 8"
diameter insulated steel pipe which is hung from steel bracket-arms
permanently attached to the ground. Each system is designed to remain
on site during the steam injection phase which should extend into 1998
for the current project. However, once the steam injection phase is
completed, the generators can be disassembled and moved, in pieces, to
another site as required.

The components (steam generator and steam distribution lines) of this
system maintain their identity as tangible personal property and do not
become improvements to real property. The size, weight, and capacity of
an item are not controlling factors when distinguishing tangible personal
property from improvements to realty. The units will not cause extensive
damage to the realty nor to the unit when removed. Please see Rule 3.347,
enclosed.

The steel bracket-arms may become improvements to realty, if they are affixed
in such a way that removal will cause extensive damage to the arms and realty.

This opinion is based on the facts presented. If there are additional
or different facts, the opinion may change. You may also write to Tax
Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence