Ezel / Tax Rulings / TX
TX 9910673L Sales and/or Use Tax (State,Local,MTA) 1999-10-04

Is natural gas used to power a compressor that transports naturally occurring carbon dioxide (CO2) exempt from Texas sales tax?

Short answer: Yes. Natural gas used to operate a compressor that transports CO2 — whether the CO2 results from processing natural gas or other hydrocarbons, or occurs naturally in ground reserves — is exempt under Tax Code § 151.317, which exempts electricity and natural gas used in transporting a material extracted from the earth. An exemption certificate must be issued to the natural gas supplier stating the reason for the exemption.

Apply this to your situation

This page answers the general question as of 1999. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1999
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

A business asked the Comptroller about the taxability of natural gas used to power compressors that transport carbon dioxide (CO2).

The Comptroller confirmed the natural gas is exempt, whether the CO2 being transported results from processing natural gas or other hydrocarbons, or occurs naturally in underground reserves. This falls under Tax Code § 151.317, which exempts electricity and natural gas used in transporting a material extracted from the earth. To claim the exemption, the business must issue an exemption certificate to its natural gas supplier stating the reason the purchase qualifies.

What this means for you

Oil, gas, and CO2 transport/pipeline operators

If you use natural gas to power compressors that move an extracted material like CO2 (whether from hydrocarbon processing or a natural underground source), that natural gas purchase is exempt under § 151.317. Make sure to issue your supplier a proper exemption certificate identifying the § 151.317 basis for the exemption — the exemption isn't automatic without that paperwork.

Accountants and tax professionals

This is a short, clean citation for § 151.317's extraction-transportation exemption as applied specifically to CO2 compression, useful alongside the broader oil-and-gas compressor letters (e.g., 9910770L) that classify compressors as processing vs. transportation equipment for the separate manufacturing exemption analysis.

Common questions

Q: Is natural gas used to run a CO2-transport compressor taxable?
A: No — it's exempt under Tax Code § 151.317, regardless of whether the CO2 comes from hydrocarbon processing or occurs naturally underground.

Q: How do I claim this exemption?
A: Issue an exemption certificate to your natural gas supplier stating the reason the purchase qualifies under § 151.317.

Citations and references

Statute:

  • Tex. Tax Code § 151.317 (exemption for electricity/natural gas used in transporting an extracted material)

Source

Original ruling text

October 4, 1999

Dear ****:

Thank you for your recent letter concerning the taxability of natural gas used
to operate compressors to transport carbon dioxide (CO2).

The natural gas used to operate compressor to transport CO2 resulting from the
processing of natural gas or other hydrocarbons or for transporting CO2
occurring naturally in ground reserves is exempt. Texas Tax Code Section
151.317 exempts electricity and natural gas used in transporting a material
extracted from the earth. You must issue an exemption certificate to the
natural gas supplier giving the reason the natural gas purchases qualify for
exemption.

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

You may call me toll free 1-800-531-5441, extension 3-4683, if you have any
questions or need more information. My direct line is 512/463-4683. You may
also write to the Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Policy Division

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