When did a crude-oil operator have to report and remit severance tax as oil moved from a lease into a pipeline or storage facility?

Plain-English summary

The Comptroller said Rule 3.35 required an operator to remit severance tax on crude oil the operator removed from a lease. Although the operator was not treated as the oil's first purchaser, the operator was shown as purchaser for tax-reporting purposes.

The same reporting method applied when a pipeline removed oil from the lease. If the pipeline moved oil only to a storage facility located on the producing lease, reporting waited until the oil was removed from that lease.

If production from other leases was commingled in the pipeline, tax became due on all oil as it entered the pipeline, again with the operator reported as purchaser.

What this means for you

The physical point at which oil left the producing lease—or became commingled with production from other leases—controlled the reporting timing described in this letter. Moving oil only into storage on the same lease did not yet trigger reporting.

Common questions

Who remitted the tax when the operator removed the oil? The operator.

How was the operator shown on the report? As purchaser, even though the Comptroller did not recognize the operator as the first purchaser.

Was oil moved to on-lease storage immediately reportable? No. Reporting waited until removal from the lease.

What if oil from several leases was commingled in the pipeline? Tax was due as all of that oil entered the pipeline.

Citations and references

• 34 Tex. Admin. Code Rule 3.35 — crude-oil severance-tax reporting by operators

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9107L1120C13

Original ruling text

July 23, 1991

Dear **:

Thank you for your letter concerning severance tax reporting
procedures for crude oil removed from leases by the operator.

Rule 3.35 requires tax to be remitted by the operator on all oil
removed from leases by operators. Although the Comptroller does
not recognize the operator as the first purchase of this oil, the
operator will be shown as the purchaser for tax reporting purposes.

This same procedure should be used for crude oil moved into a
pipeline by the operator, whenever the pipeline removes the oil
from the lease. If the pipeline simply transports the oil to a
storage facility located on the lease where the oil was produced,
the oil should not be reported for tax purposes until it is
removed from the lease. If oil production from other leases is
commingled in the pipeline, then tax is due on all oil as it
enters the pipeline. Again, the operator should be shown as
purchaser for severance tax reporting purposes.

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

Should you have additional questions or need more information
concerning this, please call me at our toll-free number
1-800-531-5441, extension 3-4623. For answers to general questions,
call 1-800-252-5555. The regular number is 512/463-4600.
You may write me by directing your letter to the attention of Tax
Administration Division.

Sincerely,

G. C. Edgar
Tax Administration Division