Ezel / Tax Rulings / TX
TX 9012L1061E11 Sales and/or Use Tax (State,Local,MTA) 1990-12-07

Was removing a cement plug from existing well casing to reenter a plugged and abandoned Texas well subject to sales tax?

Short answer: No. Texas treated drilling cement out of existing casing to reenter a plugged well as a nontaxable well service.

Apply this to your situation

This page answers the general question as of 1990. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1990
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

A taxpayer asked about sales tax charged for removing cement from a well that had been plugged and abandoned.

The Comptroller said Rule 3.324(b)(2)(M) made drilling out a cement plug set in the wellbore nontaxable. Charges for drilling cement out of existing casing to reenter the plugged well therefore were not taxable.

The letter also said sales or use tax paid to a supplier in error had to be recovered from that supplier under the refund guidance in Rule 3.325(b).

What this means for you

The holding was limited to drilling cement out of existing casing to reenter a plugged well. It did not broadly classify every service involved in restoring an abandoned well.

Common questions

Was drilling out the cement plug taxable? No.

What physical work did the letter address? Removing cement from existing casing to reenter a plugged well.

How did the taxpayer recover tax paid in error? From the supplier that received it.

Citations and references

  • 34 Tex. Admin. Code Rule 3.324(b)(2)(M) (well services)
  • 34 Tex. Admin. Code Rule 3.325(b) (refunds)

Source

Original ruling text

December 7, 1990

Dear **:

Thank you for your recent letter concerning the sales tax charged by COMPANY A
and COMPANY B for removing cement from a well that had been plugged and
abandoned.

As stated in section (b)(2)(M) of Rule 3.324 on well services, drilling out a
cement plug set in the wellbore-is not taxable. Therefore, charges for drilling
cement out of existing casing in order to re-enter a plugged well are not
taxable.

Sales or use tax paid in error to a supplier on items on which tax is not due
must be recovered from the supplier. Please review section (b) of the enclosed
Rule 3.325 on refunds.

This opinion is based upon the facts you presented. If there are additional or
different facts, this opinion may change.

Please feel free to contact me if you have any additional questions. You may
write me, call toll free 1-800-252-5555 (ext. 3-4685) from anywhere in the
United States or phone 512/463-4685.

Sincerely,

Julie Pesl
Tax Correspondence

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