Is a chemical solvent that an oil and gas operator injects into a marginal well, and which stays in the produced oil/gas, exempt from Texas sales tax?

Plain-English summary

An oil and gas well operator asked the Comptroller about the taxability of buying "micelle mutual solvent" — a chemical used to increase production from marginal wells. The key fact: this product doesn't just do its job and get discarded — it becomes part of the hydrocarbons removed from the well and is sold together with the oil or gas that comes out.

The Comptroller confirmed that's exactly the kind of chemical Rule 3.324(h)(1) is designed to exempt: soluble chemicals that remain in the product flow after being injected into the well. Because the solvent stays in the produced oil/gas and is sold as part of it (rather than being consumed, filtered out, or left behind downhole), the operator doesn't pay sales tax on the purchase — instead, it issues a resale certificate to its supplier (validated with the operator's own sales tax permit number, per Rule 3.285 on sales for resale).

What this means for you

Oil and gas well operators buying production-enhancing chemicals

If a chemical you inject into a well remains in the product stream and gets sold along with the oil or gas (rather than being consumed in the well or left behind), you can likely buy it tax-free using a resale certificate under Rule 3.324(h)(1) — treat it the same way you'd treat a raw material that becomes part of a product you resell.

Chemical suppliers to the oil and gas industry

Be prepared to accept a validated resale certificate (with the buyer's sales tax permit number) from well operators purchasing chemicals that remain in the product flow, rather than collecting sales tax on those purchases.

Accountants and tax professionals

The controlling distinction under Rule 3.324(h)(1) is whether the chemical remains in the product flow after injection (exempt, resold as part of the oil/gas) versus being consumed or left downhole without ending up in the sold product (which would not qualify for this specific resale treatment). Confirm which category a given well-servicing chemical falls into before advising on tax treatment.

Common questions

Q: Is every chemical used in oil well servicing tax-exempt?
A: Not automatically — the exemption under Rule 3.324(h)(1) specifically covers soluble chemicals that remain in the product flow after well injection and get sold along with the produced oil or gas.

Q: How does an operator buy this chemical tax-free?
A: By issuing a resale certificate to the chemical supplier, validated with the operator's own sales tax permit number, per Rule 3.285 on sales for resale.

Q: What if the chemical doesn't end up in the sold product?
A: This letter doesn't address that scenario directly — it turns specifically on the fact that the solvent becomes part of the hydrocarbons sold from the well. A chemical that's consumed or left behind rather than sold with the product would need separate analysis.

Q: Can any well operator rely on this letter for a different chemical?
A: Not directly. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10). Confirm whether your own chemical remains in the product flow with a tax professional.

Citations and references

Statutes and rules:

• Comptroller Rule 3.324(h)(1) (oil, gas, and related well service — soluble chemicals remaining in product flow)
• Comptroller Rule 3.285 (sales for resale)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200101010L

Original ruling text

January 23, 2001

Dear **:

Thank you for your recent letter concerning the taxability of your purchase of
micelle mutual solvent, a product used to increase production from marginal
wells.

Your company is an oil and gas well operator. This product becomes a part of
the hydrocarbons removed from the well and is sold with the oil or gas produced
from the treated well.

Rule 3.324(h)(1) concerning oil, gas and related well service exempts soluble
chemicals that remain in the product flow after injection into the well. Your
company is required to issue a resale certificate to the supplier in lieu of
paying the sales tax. A resale certificate must be validated with the issuer's
sales tax permit number. Rules 3.285 concerning sales for resale and 3.324
are enclosed for your reference.

You may view or down load a sales and use tax application at
and then click on the following:

1. Tax Forms
2. Sales & Use Tax
3. 01-339 (Texas Resale/Exemption Certificate).

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 email address is
. You may write to Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3825.

Sincerely,

Eddie C. Washington
Tax Policy Division