Was electricity used to pump salt water into oilfield disposal wells exempt from Texas sales tax?

Plain-English summary

The Comptroller distinguished electricity used by oilfield disposal wells according to the source of the salt water being pumped underground.

Electricity used to pump naturally occurring salt water was exempt under Hearing 5,510. Electricity used to pump man-made or artificially mixed salt water was taxable under Hearing 19,762.

The letter said there was no basis for overturning either hearing and told the recipient that collecting tax according to those two decisions was correct.

What this means for you

Saltwater disposal operators

The electricity classification turned on whether the water occurred naturally or was artificially mixed. Records supporting that distinction would be central under this historical ruling.

Accountants and tax professionals

The letter relied on two administrative hearings rather than reproducing their full reasoning. Review current law and the underlying decisions before applying the 1992 treatment today.

Common questions

Was electricity for naturally occurring salt water taxable? No, according to Hearing 5,510.

Was electricity for artificially mixed salt water taxable? Yes, according to Hearing 19,762.

Did the Comptroller change the earlier hearing results? No.

Citations and references

• Comptroller Hearing 5,510 (naturally occurring salt water)
• Comptroller Hearing 19,762 (artificially mixed salt water)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9202L1162D08

Original ruling text

February 24, 1992

Dear ***

Thank you for your recent letter asking about the collection of
Texas sales tax on a charge for electricity used by oilfield water
disposal wells.

I have searched our records and I can find no basis for overturning
either Hearing 5,510 or Hearing 19,762.

The electricity in question is that which is used to pump salt
water into disposal wells. The charge for electricity used to pump
naturally occurring salt water (as described in Hearing 5,510) is
exempt from tax. the charge for electricity used to pump man-made
(artificially mixed as described in Hearing 19,762) salt water is
taxable.

I have discussed my response with Mr. Dan Northern from the Audit
Office in Lubbock. Mr. Northern agrees with my response.

If you have been using the two hearings mentioned above as a basis
for collecting tax, you are handling the tax correctly.

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

If you have any additional questions or need more information, you
may call me toll free at 1-800-252-5555, extension 3-4633. The
regular number is 512/463-4633. You may also write to the Tax
Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division