Was monthly microbial treatment that prevented paraffin buildup in oil-well equipment taxable in Texas?

Plain-English summary

An oil-well service company injected living organisms into tubing and casing annuli. The organisms broke down hydrocarbons, prevented paraffin buildup in tubing, rods, and flow lines, and sometimes increased production. Customers received the treatment as a monthly maintenance program.

The Comptroller classified the service as maintenance because it limited deterioration or further deterioration of the well equipment. Tubing strings, rods, flow lines, and similar equipment inside well casings were tangible personal property.

The treatment charge was taxable. The letter noted that maintenance, repair, restoration, and remodeling of tangible personal property had become taxable on October 2, 1984.

What this means for you

The biological nature of the treatment did not control. Its function—maintaining tangible well equipment by preventing buildup and deterioration—made the service taxable under the ruling.

Common questions

Was the monthly microbial treatment taxable? Yes.

Why was it maintenance? It prevented buildup and limited deterioration of tubing, rods, and flow lines.

Were those well components real property? The letter classified them as tangible personal property.

Did increased production make the service exempt? No exemption on that basis was stated.

Citations and references

The letter did not cite a specific statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9011L1061B01

Original ruling text

November 26, 1990

Dear **:

I am responding to your letter regarding the taxability of the oil well service
that your company provides.

You state that your company pumps a certain amount of living organisms into
the tubing and casing annulas which have a two fold effect on the wells. The
organisms work to break down the long chain alkane hydrocarbons. When this
occurs, impurities (paraffinic wax) are prevented from forming in the
tubulars, on the rods, and in flow lines. In many wells this results in more
production. This service is a maintenance program that is invoiced as a
monthly microbial treatment.

You also stated that in two phone calls you were told this is not a taxable
service and in another you were told to write for a ruling.

Services performed for the purpose of limiting deterioration or further
deterioration of the tubing string (tubulars), rods, and in flow lines
are, as you stated, maintenance services. Flow lines, tubing strings,
tubulars, rods, other such usual hardware and equipment located inside
the casings of oil and gas wells are tangible personal property.

The charge for these services are taxable. Maintenance, repair, restoration,
and/or remodeling of tangible personal property became taxable October 2,
1984.

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