Could an exempt oil-and-gas operator buy taxable goods and services for jointly owned properties without paying suppliers Texas tax?

Plain-English summary

An exempt authority operated oil-and-gas properties in which it shared working interests with nonexempt entities. It bought taxable goods and services for the jointly owned operations.

The Comptroller allowed the authority to issue suppliers a resale certificate and buy the joint-interest items without tax. The authority then had to maintain records allocating purchases between its own share and the amounts billed to other owners.

The authority's allocated share could be treated as exempt. It had to bill nonexempt joint-interest owners sales tax on taxable goods and services based on the price charged to them. A direct-payment permit holder could provide a direct-payment exemption certificate, and another exempt co-owner could provide an exemption certificate for its share.

What this means for you

Operators of jointly owned properties

An operator's exemption did not flow automatically to nonexempt partners. Resale treatment shifted the collection duty from suppliers to the operator's joint-interest billing.

Accountants and tax professionals

Maintain detailed allocation records and certificates for each owner. The ruling depended on separating exempt, nonexempt, and direct-payment shares.

Common questions

Could the exempt operator buy joint-interest items tax free? Yes, with a resale certificate.

Was the operator's own allocated share exempt? Yes.

What about nonexempt co-owners? The operator had to collect tax on the taxable amounts billed to them.

Could other owners provide certificates? Yes, direct-payment or exemption certificates as applicable.

Citations and references

The letter cited no specific statute or 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/9202L1176A05

Original ruling text

February 6, 1992

Dear **:

Thank you for your letter of November 1, 1991, regarding the tax exempt status
of the AUTHORITY when purchasing goods and services for oil and gas properties
in which the AUTHORITY is the operator.

As I understand it, AUTHORITY has assumed the role of operator on oil and gas
properties in which it does not own 100% of the working interest in the
property. AUTHORITY shares joint interest in the properties with nonexempt
entities. You question whether AUTHORITY may purchase goods and services for
these properties tax free.

As I mentioned in an earlier telephone conversation, this is an issue that has
not been previously addressed and required further review. We have concluded
that, in this situation, AUTHORITY may issue a resale certificate to its
suppliers for the taxable goods and services purchased for these jointly-owned
interests. This allows AUTHORITY to purchase the goods and services tax free.
AUTHORITY must keep records indicating the proportion of the goods and services
billed to nonexempt entities and the portion allocated to AUTHORITY. AUTHORITY
may show its portion of the goods and services to be exempt; however, AUTHORITY
must bill the nonexempt joint interest owners tax on the taxable goods and
services based on the price billed to them. AUTHORITY may accept a direct
payment exemption certificate in lieu of tax from direct payment permit
holders. Should another exempt entity hold an interest in the property,
AUTHORITY may accept an exemption certificate for that entity's portion of the
billed goods or services .

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

If you have any questions or need additional information, you can call toll
free l-800-252-5555 or the regular Austin number is 512-463-4600. You may also
write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division