How were swabbing, pressure testing, paraffin removal, and casing repair taxed when performed with an acidizing job?

Plain-English summary

The job was an acidizing service subject to the 2.42% oil-well-service tax under Texas Tax Code Chapter 191. Because the paraffin removal, casing-hole repair, pressure testing, and swabbing were all performed with that acidizing job, none of those services was also taxable under the limited sales tax.

The letter gave a different result if there had been no acidizing job. In that case, the total charge would have been subject to sales tax except for separately charged pressure testing and swabbing performed to bring fluid to the surface. Cleaning paraffin or repairing the casing hole without the acid job would have been taxable.

What this means for you

The surrounding job determined the tax category. Services bundled into an oil-well-service-taxed acidizing project were not taxed again under limited sales tax, while many of the same activities standing alone would have been sales-taxable.

Common questions

What tax applied to the acidizing job? The 2.42% oil-well-service tax under Chapter 191.

Were the related services also subject to limited sales tax? No, because they were performed with the acidizing job.

What charges could remain nontaxable without acidizing? Separately charged pressure testing and swabbing to bring fluid to the surface.

Would paraffin cleaning or casing repair alone be taxable? Yes.

Citations and references

• Texas Tax Code Chapter 191

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9204035L

Original ruling text

April 10, 1992

Dear **:

Thank you for your letter asking about the taxability of the swabbing and other
well services you perform.

You submitted nine invoices beginning on September 30, 1991, and ending on
October 10, 1991, when the job was completed. It appears that you performed an
acidizing job taxable under the 2.42% oil well service tax imposed under
Chapter 191 of the Tax Code. In preparing for the job, you pulled tubing,
scraped paraffin, set packers, pressure tested, found a hole in the casing,
circulated the well, repaired the hole in the casing with cement, drilled
through the cement, performed the acid job, and swabbed to restore production.

Because all of the services, the paraffin removal, repair of the casing hole,
and the swabbing were performed in conjunction with a taxable well service
acidizing job, none of the services you performed are taxable under the limited
sales tax. Had you not performed the acidizing job, then the total amount
(except for separate charges for pressure testing and swabbing to bring the
fluid to the surface) would have been taxable under the sales tax. The cleaning
of paraffin and/or repair of a hole in the casing without the acid job, would
have been taxable.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

If you have other questions or need more information please call or write. The
toll-free number is 1-800-531-5441; my extension is 3-4675. The regular number
is (512) 463-4675.

Sincerely,

Tom Soto
Tax Administration