If a Texas oil field well service company passes on its fuel costs and over-the-road trip permit costs to customers, is that reimbursed amount subject to Texas sales tax?

Subject

Gasoline/Fuel Charge — Part Of Sales Price Of Taxable Service

Plain-English summary

An oil field well service company asked the Texas Comptroller whether it had to charge sales tax on two specific costs it passed through to customers: (1) "over-the-road" permits (trip permits and similar) for its vehicles, and (2) actual fuel costs, on which the company had already paid fuel taxes.

The Comptroller's answer was that both of these pass-through costs are simply part of the company's overhead for providing oil or gas well services. The letter points to 34 Tex. Admin. Code Rule 3.324, which lists which oil and gas well services are taxable and which are not. The key rule: if the underlying service is a taxable service, then the fuel and trip-permit costs billed to the customer are included in the taxable sales price and are subject to Texas sales or use tax — regardless of the fact that fuel tax was already paid separately on the fuel itself.

The ruling is short and fact-specific, and the Comptroller noted the opinion is based on the facts presented and could change if the facts were different.

What this means for you

Oil and gas well service providers

If you perform a taxable oil or gas well service (as defined under Rule 3.324) and you separately itemize or pass through costs like fuel or trip/over-the-road permits to your customer's invoice, those amounts do not escape sales tax just because you already paid fuel tax on the fuel or a fee for the permit. They are treated as part of your overhead and folded into the taxable sales price of the service.

Accountants and billing staff

When invoicing for taxable well services, do not carve out fuel surcharges or permit-cost line items as nontaxable reimbursements. Under this ruling, they should be taxed the same as the rest of the service charge. Whether the underlying service itself is taxable or nontaxable is the threshold question — check Rule 3.324 for that determination first.

Common questions

Q: Does paying fuel tax on the gasoline mean the fuel charge is exempt from sales tax when billed to a customer?
A: No. The letter is explicit that even fuel costs on which fuel taxes were already paid are still included in the taxable sales price when the underlying service is taxable.

Q: What determines whether the well service itself is taxable?
A: 34 Tex. Admin. Code Rule 3.324, which the Comptroller enclosed with the original letter, distinguishes taxable from nontaxable oil and gas well services. This ruling only addresses how fuel and permit costs are treated once a service is taxable.

Q: Are "over-the-road" or trip permit costs treated any differently from fuel costs?
A: No. The ruling treats both the same way: both are overhead costs of providing the service and both are included in the taxable sales price when the service is taxable.

Q: Can this company rely on this letter if its facts change?
A: No. The Comptroller states the opinion is based on the facts presented, and the opinion may change if there are additional or different facts.

Citations and references

• 34 Tex. Admin. Code Rule 3.324 (taxable and nontaxable oil and gas well services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9208L1186G13

Original ruling text

August 17, 1992

Dear **:

Thank you for your letter questioning the taxability of "Over-the-road" permits
and fuel costs that are passed on to your customers when you perform oil field
well services.

The cost to your company for "over-the-road" permits (trip permits, etc.) and
actual fuel costs that you pass on to your customers and on which you have
already paid the fuel taxes are part of your company's overhead incurred to
provide oil or gas well services. I have enclosed a copy of Rule 3.324 that
discusses taxable and nontaxable oil and gas well services. When the service
you provide is identified as a taxable service the cost for "Over-the-road"
permits and fuel costs are included in the taxable sales price and are subject
to Texas sales or use tax.

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

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division