Is injecting nitrogen into an oil/gas pipeline to create a safe environment for maintenance work a taxable service, and is the nitrogen itself taxed as a sale to the customer?

Plain-English summary

A company provides "point of connection" services on oil and gas pipelines: it hooks up equipment and injects hot nitrogen into a pipeline to purge it, creating a safe, clean environment so the customer can do pressure testing, expansion, or maintenance work. Its invoices list separate line items for equipment, personnel, nitrogen, and transportation, and it had been charging sales tax only on the nitrogen line item (not labor/equipment). It asked whether the service — and the nitrogen specifically — should be taxed at all.

The Comptroller ruled the entire charge is nontaxable:

• Not a real property service: services that clean the inside/outside of buildings are taxable, but pipelines aren't "buildings" — this has been longstanding Comptroller policy, and injecting nitrogen to create a safe operating environment doesn't fit the statutory definition.
• Not repair/remodeling: clearing the pipeline and possibly preventing corrosion doesn't rise to the level of taxable repair, remodeling, or restoration — that line is crossed only when the service removes blockages/paint/scaling causing diminished function, or when cleaning restores a pipeline that has actually stopped working properly.
• The nitrogen isn't sold: even though it's a separate invoice line item, the nitrogen is consumed in performing the service — no title or possession passes to the customer, and none remains after the job. That means it was never a taxable "sale" of tangible personal property to begin with (the taxpayer had been over-collecting tax on this line item).

Because the whole service is nontaxable, the provider itself owes sales/use tax on everything it buys or consumes to perform it — the nitrogen, equipment, and materials — the tax burden shifts to the provider's own purchases rather than its sale to the customer.

What this means for you

Pipeline service providers (purging, inerting, similar consumable-intensive services)

If your service doesn't clean a "building" and doesn't rise to repair/remodeling of real property, the whole charge can be nontaxable — even when you separately invoice a consumable like nitrogen. But that also means you can't collect tax on that line item from the customer; instead, you owe use tax yourself when you buy the consumable, since you're the one actually using it up.

Businesses billing consumables as separate invoice line items

A separately stated line item doesn't automatically make something a "sale" to the customer. What matters is whether title or possession of the item actually transfers. If it's consumed entirely in performing your service (nothing left behind, no transfer), it was never sold to the customer regardless of how your invoice is formatted.

Accountants and tax professionals

The "pipelines aren't buildings" rule traces to a chain of older STAR guidance (8811L0919F08 (1988), 9004L1018G08 (1990), 9105T1109G09 (1991), 200011897L) reaffirmed here. Also watch the diminished-function/restoration line from Rule 3.357(a)(7): removing blockages/scaling that caused reduced function, or restoring a pipeline that stopped working, IS taxable repair — this ruling's facts (routine purge, not restoring failed function) fell on the nontaxable side.

Common questions

Q: If my invoice lists a consumable material as a separate charge, do I have to collect sales tax on it?
A: Not necessarily — if the material is consumed while performing a nontaxable service and no title or possession transfers to the customer, it isn't a "sale" of that item, regardless of how the invoice is itemized.

Q: Would a similar nitrogen-purge service ever be taxable?
A: Yes, if the facts differ — e.g., if the work is actually removing blockages, scaling, or corrosion that caused the pipeline to function in a diminished capacity, or restoring a pipeline that had stopped working, that crosses into taxable repair/restoration under § 151.0047.

Q: Can another pipeline services company rely on this ruling?
A: No. It binds the Comptroller only for the taxpayer and facts in the request. A company whose service does restore diminished pipeline function, or that transfers material to the customer, could reach a different result.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051 (Sales Tax Imposed); § 151.010 (Taxable Item); § 151.009 (Tangible Personal Property)
• Tex. Tax Code § 151.0101(a)(11), (13) (real property services; repair/remodeling); § 151.0048 (real property service defined); § 151.0047 (repair/remodeling)
• Tex. Tax Code § 151.005(1) ("sale"/"purchase" — title/possession transfer)
• 34 Tex. Admin. Code § 3.356 (Real Property Services); § 3.357(a)(7), (11), (12), (14) (repair/remodeling/restoration standards)

Cited prior guidance:

• STAR Accession Nos. 8811L0919F08 (1988), 9004L1018G08 (1990), 9105T1109G09 (1991), 200011897L — pipelines aren't buildings
• STAR Accession No. 200712999L (2007) — purging doesn't rise to taxable repair
• STAR Accession No. 200107013L (2001) — materials consumed incidentally, not sold
• Comptroller's Decision No. 33,295 (1996)

Source

• Landing page (STAR search): https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202503014L

Original ruling text

March 7, 2025

RE: Private Letter Ruling No. 20240530095700

Dear**,

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated May 29th, 2024, additional information from a conference call held on June 6th, 2024, and contracts and invoices provided through email on July 25th and August 2nd, 2024. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of injecting nitrogen into a pipeline.

Facts Presented

The relevant facts are based on the documentation provided by ** (Taxpayer).

Taxpayer provides what is describes as point of connection services (Service). The Service creates an environment for safe and clean operations in an oil and gas pipeline by injecting nitrogen into the pipeline. The Service allows Taxpayers’ customers to perform pressure testing, pipeline expansion, and pipeline maintenance and repair.

Per Taxpayer’s internal document An Overview of: **, LLC (as of July 25, 2024), at the customer’s site, Taxpayer’s customer will direct Taxpayer to the injection point and advise where to set up equipment. Taxpayer will then connect pipe, arrange equipment to customer injection point, and then fuel and connect nitrogen transport to the pump truck to start the Service. Once Taxpayer has set up and connected all of the equipment, it releases hot nitrogen into the pipeline until it is purged, creating a safe and clean environment required for pipeline operations.

The type of job dictates the Service timeline. For example, downstream jobs can be from 1 to 30 days and in some cases several months, and pipelines can be 1 to 2 days. Once the Service is complete, Taxpayer disconnects all piping, pumpers, and transports from the customer’s injection point and leaves the site. Nothing provided by Taxpayer remains on customer’s site.

Taxpayer's invoice for the Service contains line-item charges for equipment, personnel, nitrogen, and transportation. Demonstrated by Taxpayer’s “Nitrogen Service Quote”, Taxpayer charges Texas sales and use tax on the charge to its nonexempt customers for the nitrogen provided during these services; Taxpayer does not collect tax on the labor or equipment charges.

Although Taxpayer’s invoice for the Service includes a line-item charge for nitrogen, Taxpayer asserts it does not transfer any nitrogen to its customer in the provision of its service as it is consumed within the Service.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Is Texas sales or use tax due on the sale of Taxpayer’s Service?

Ruling: No, the charge for Taxpayer’s Service is nontaxable. Taxpayer owes sales or use tax on all materials, supplies, and equipment used or consumed while providing its nontaxable service.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term “taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Section 151.009 (Tangible Personal Property) defines tangible personal property as personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any other manner. The term “taxable services” includes real property services and real property repair and remodeling. Section 151.0101(a)(11) and (13) (Taxable Services).

Services that keep the inside and outside premises of a building clean, orderly, and functional are real property services. [ENDNOTE 2] However, longstanding policy has held that pipelines are not buildings and cleaning services on pipelines and tanks, akin to Taxpayer’s Services, do not meet the definition of taxable real property services as defined in Section 151.0048 and Rule 3.356 (Real Property Service). [ENDNOTE 3] Taxpayer injects nitrogen into the pipeline to create an environment for safe pipeline operation, they are not providing a taxable real property service under Section 151.0101(a)(11).

Additionally, Taxpayer’s Service is not repairing, remodeling, or restoring nonresidential real property under Sections 151.0101(a)(13) and 151.0047 (Real Property Repair and Remodeling). See Rule 3.357(a)(11), (12), and (14) (Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance). While Taxpayer’s Service clears the pipeline, allows for new product to be transported, and may prevent eventual corrosion and deterioration, it does not rise to the level of taxable repair, remodeling, restoration, or modification. See STAR Accession No. 200712999L (2007). However, removing paint, scaling, or blockages that caused a pipeline to function in a diminished capacity is considered a taxable repair or restoration service under Section 151.0047 and Rule 3.357, unless performed on a scheduled and periodic basis. See Rule 3.357(a)(7). Also, cleaning a pipeline that has ceased to function properly is a taxable repair or restoration of real property under Section 151.0047 and Rule 3.357.

Taxpayer’s Service is not one of the taxable services enumerated in Section 151.0101. Accordingly, Taxpayer owes sales or use tax on all taxable items, including equipment and materials (e.g., nitrogen), used to perform the service. Section 151.051. See also Comptroller’s Decision No. 33,295 (1996).

Taxpayer’s use of nitrogen to perform the Service is not a sale of tangible personal property. Although Taxpayer includes the nitrogen as a line-item on the invoice, the nitrogen is consumed incidentally in providing Taxpayer’s Service. See STAR Accession No. 200107013L (2001). No transfer of title or possession of the nitrogen occurs during the service, and no nitrogen is left with the purchaser after performing Taxpayer’s Service. See Section 151.005(1) ("Sale" or “Purchase").

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. PLR20240530095700 .

Sincerely,

Tax Policy Division – Indirect Taxes

ENDNOTES

1 Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34

2 See Section 151.0048 (Real Property Service)

3 See, e.g., STAR Accession Nos. 8811L0919F08 (1988), 9004L1018G08 (1990), 9105T1109G09 (1991), 200011897L