For an oil-field equipment lessor and its affiliated delivery company, which of their many charges -- delivery, installation, disassembly, sewage pumping, garbage removal, water hauling -- are subject to Utah sales tax?

Plain-English summary

Two related companies asked the Commission to sort out the sales tax treatment of a bundle of services at oil drilling sites. "Company A" leases office trailers, water tanks, sewer tanks, garbage containers, and chemical toilets to drilling sites. "Company B" (hired by Company A and other oil companies) delivers, installs, disassembles, and services that equipment -- including pumping sewage, dumping garbage, and hauling drinking water. The Commission worked through each service separately:

• Delivery (common carrier). Intrastate delivery charges by a common carrier are exempt under § 59-12-104(17)(a) and § 59-12-102(5). Because Company B billed its delivery services separately from Company A's lease billing and the two companies used different mailing addresses, the Commission found Company B adequately insulated from Company A to qualify as a true common carrier -- so its delivery charges are exempt.
• Installing the equipment. Under Rule R865-19S-78(A), installing personal property to real property is exempt, but other installations are taxable. Since this leased equipment isn't installed to real property, installation labor is taxable. The Commission gave a concrete example: if a 4-hour visit includes half an hour of actual installation, only that half hour is taxable -- but the taxable and nontaxable time must be separated on the invoice, or the entire charge becomes taxable.
• Disassembling the equipment. No statute specifically addresses disassembly, but the Commission reasoned that when temporary/leased equipment is installed with removal already expected at lease-end, the future disassembly is "imminent at the time of installation" -- making the installation and disassembly a single related, taxable function. Company B's disassembly labor is therefore taxable and must be separately stated.
• Pumping sewage. Under Rule R865-19S-78(B)(1), labor to repair, renovate, wash, or clean tangible personal property is taxable -- but pumping sewage out of a tank is a waste-removal service, not repair/renovation/cleaning, so it is not taxable. (Actual repair or maintenance labor on the tanks themselves would be taxable and must be separately stated.)
• Dumping garbage. Same logic -- picking up garbage is waste removal, not restoration, so it's not taxable. (Charges for repairing or cleaning the containers themselves would be taxable.)
• Hauling water. As a common carrier service, transporting water to a drilling site is not taxable. But if Company B also charges for the water itself (as opposed to just the hauling), that charge is a taxable sale of tangible personal property -- illustrated by an invoice example where $25 charged for 2,000 gallons of water (separate from six hours of delivery time) was treated as a taxable sale of the water.

What this means for you

Equipment lessors using an affiliated delivery/service company

Structuring delivery through a genuinely separate company -- separate billing, separate mailing address -- can qualify that company as an exempt common carrier for delivery charges. But keep the corporate and billing separation real; the Commission looked at concrete facts (separate invoices, separate addresses) to decide Company B was "adequately insulated" from Company A.

Oilfield services, equipment rental, and similar delivery-plus-installation businesses

Break every invoice into its taxable and nontaxable components: delivery time (often exempt), installation/disassembly time (taxable), waste removal (not taxable), and any tangible goods sold along the way like water (taxable). Failing to separately state the taxable portions risks having the Commission treat the entire invoice as taxable.

Accountants and tax professionals

This ruling is a useful multi-service checklist cross-referencing three distinct rule frameworks in one transaction: the common-carrier delivery exemption, the real-property-installation exemption, and the repair/renovate/clean labor rule (with waste removal falling outside that last one). The "imminent disassembly at time of installation" reasoning for temporary/leased equipment is a notable interpretive gap-filler where no statute directly addresses disassembly.

Common questions

Q: Is delivery of leased equipment taxable in Utah?
A: Not if the delivery is genuinely performed by a separate common carrier business, billed separately from the lease itself.

Q: Is installing leased equipment at a job site taxable?
A: Yes, unless the equipment is installed to real property. Installation time must be separated from delivery time on the invoice.

Q: Is removing waste (sewage, garbage) from leased equipment taxable?
A: No -- waste removal isn't repair, renovation, washing, or cleaning. But actual repair or maintenance of the equipment itself is taxable.

Q: If I charge for hauling water, is that taxable?
A: The hauling itself isn't, as a common carrier service, but if you also charge for the water, that's a taxable sale of tangible personal property.

Q: Does this ruling apply to my business?
A: No. It binds the Commission only for the requesting companies and the facts described. Another taxpayer can't rely on it as binding, though it may carry some persuasive weight in a dispute with closely similar facts.

Citations and references

Statutes and rules:

• § 59-12-104(17)(a); § 59-12-102(5) (common carrier delivery exemption and definition)
• Utah Admin. Code R865-19S-78(A) (installation to real property vs. other installation)
• Utah Admin. Code R865-19S-78(B)(1) (repair/renovate/wash/clean labor taxable)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/98-031.htm

Original ruling text

98-031

Response
May 6, 1998

REQUEST
LETTER

April
20, 1998

Irene
Rees

Tax
Policy Analyst

Utah
State Tax Commission

210
North 1950 West

Salt
Lake City, Utah 84134

RE:
COMPANY A

In
regards to our telephone conversation with myself and Jeff Maclamear on
clarifying the issue of charging sales tax for services rendered.

COMPANY
A owns the office trailers, water tanks,
sewer tanks, garbage containers, and chemical toilets which they rent out.
COMPANY B is hired by COMPANY A, and other oil companies to dismantle the above
equipment and move to their different location sites and hook equipment back
up. While on location of moving this
equipment it takes COMPANY B drivers 1 -2 hours to dismantle and 1- 2 hours to
hook equipment back up and the remaining time is driving and moving equipment
cross country. COMPANY B is also responsible for pumping out sewage and dumping
garbage, and hauling drinking water to water tanks. Our question is does COMPANY B charge sales tax on these
services?

Please
send us a ruling and a letter to clarify this problem if one exists. Copies of our invoices are enclosed for you
to look at. Please let us know as soon
as possible.

Thank
you,

NAME

May
6, 1998

NAME

ADDRESS

CITY
STATE ZIP

RE: Advisory
Opinion - Taxable Services Associated with the Delivery of Personal Property

Dear
NAME,

We have received your request for an
advisory opinion concerning the total services you provide when delivering
personal property and whether these services are subject to sales tax. You operate two separate corporations:
(1)COMPANY A (�COMPANY A�), which leases personal property, such as office
trailers, water tanks, sewer tanks, garbage containers, and chemical toilets,
to oil drilling sites; and (2)COMPANY B (�COMPANY B�), which delivers,
installs, disassembles, and cleans the personal property leased by COMPANY A.

You specifically ask if COMPANY B�s
charges for installing, disassembling, and cleaning the leased personal
property are taxable. You also ask if
COMPANY B�s charges to haul drinking water to the sites are taxable. Let us address each of these situations
separately after first discussing whether or not the delivery charges
themselves are taxable.

Common Carrier. Intrastate delivery charges for the movement
of freight by common carrier are exempt from taxation. Utah Code Ann. �59-12-104(17)(a). Common carrier is defined in Utah Code Ann.
�59-12-102(5) as a �person engaged in or transacting the business of
transporting passengers, freight, merchandise, or other property for hire
within the state.

COMPANY A leases the personal
property and COMPANY B delivers it. If
COMPANY B is adequately insulated from COMPANY A to show that it separately
functions for hire to transport the personal property, then it would qualify as
a common carrier. The invoices supplied
by COMPANY B and COMPANY A show that COMPANY B does bill the lessee of the
personal property for its delivery services separately from the lease billing
sent to the lessee by COMPANY A. Also,
both companies have different mailing addresses. Because of these facts, it would appear that COMPANY B is
adequately insulated from COMPANY A administratively to be considered a
�person� engaged in the business of transportation of freight for hire. Accordingly, COMPANY B�s charges for
delivering the leased personal property are exempt from taxation.

Installing personal property. Utah Admin. Code R865-19S-78(A) provides
that

personal
property installed to real property is exempt from taxation, while other
installations of personal property are taxable. The leased personal property installed by COMPANY B is not
installed to real property; thus, COMPANY B�s installations are subject to
sales tax. Your invoices list the total
amount of time your drivers spend making the delivery and installation. Should the total time be four hours and the
time to install the property takes up � hour of the total, then the 3� hours
spent delivering the property would not be subject to sales tax, but the � hour
spent installing the property would be subject to sales tax.

Please remember that the taxable
charges would need to be separated on the invoice from the nontaxable
ones. Otherwise, the entire amount of
charges may be deemed taxable.

Disassembling personal property. While there is specific statutory authority
to apply sales tax when installing personal property, this authority does not
specifically refer to the disassembly of personal property. Nevertheless, labor must often be performed
on personal property either before or after delivery, where the extent of the
taxable charges for labor is dependent upon the intent of the installation
itself. Some personal property is
installed after its delivery without the intent to have it removed. The total labor associated with the
installation is taxable.

On the other hand, some personal
property is installed only temporarily, such as leased personal property, where
disassembly may be required at the end of the lease. In this case, the total labor involved for both the installation
and disassembly are taxable because the future disassembly was imminent at the
time of installation. Because of the
nature of the transaction, the installation and disassembly are related
functions, and both are taxable. The
disassembly labor provided by COMPANY B is directly related to the installation
of the leased property. Accordingly,
any hourly fees charged by XXXXX to disassemble the leased personal property
that it transports are subject to sales tax and would need to be separated on
the invoice from nontaxable charges.

Pumping out sewage. One of the services provided by COMPANY B is
pumping the sewage out of, presumably, the leased sewer tanks. Rule 865-19S-78(B)(1) provides that charges
for labor to repair, renovate, wash, or clean tangible personal property are
subject to sales tax. The labor
performed by COMPANY B (pumping the sewage out) is a service to remove waste and is not one to repair, renovate,
wash, or clean. As such, this service
is not taxable.

However, please be aware that any
labor that restores the sewage tanks to a renovated state would be a taxable
service. Maintenance, repair or
cleaning that may be needed to prolong the functional life of this equipment
would be the type of service subject to sales tax and would need to be
separated on the invoice as a taxable charge.

Dumping garbage. Picking up garbage from the leased garbage
containers is also a service to remove the waste product. It is not a service intended to restore the
property to a former state or prolong
its functional life. As such, charges
to dump garbage are not subject to sales tax.
However, please be advised that should your employees charge for time
spent repairing or cleaning the garbage containers, then these charges would be
taxable and should be stated separately.

Hauling water. Again, as COMPANY B is a common carrier,
charges to transport water to the drilling sites would not be taxable. However, if COMPANY B is also charging a fee
for the water itself, the price paid for the water is taxable. You have provided one invoice where 2000
gallons of water were transported to a site and pumped into an on-site
tank. You have charged the client for
six hours of delivery time plus an additional $25.00 charge for the water. As the delivery charges are listed
separately, it appears that you have made a sale of the water for $25.00. This sale of water is a taxable sale of
personal property and should be listed separately as such.

Please contact us if you have any
other questions.

For
the Commission,

Joe
B. Pacheco

Commissioner

^^