How did Texas classify swabbing, paraffin cutting, fishing, offshore work, and swab-tank rentals?

Plain-English summary

The letter reached different results for each oilfield ticket:

• Swabbing to bring fluids to the surface was nontaxable, but the servicer owed tax on swab cups and oil savers used in the work. It could recoup that tax by increasing the materials charge by the tax paid.
• Running a paraffin scratcher downhole to cut buildup was fully taxable, and the servicer still owed tax on its materials. The letter made the servicer responsible from February 1, 1985 forward.
• Fishing junk and bailing sand were taxable unless performed with a fracturing or acid job. Fishing frac balls with a junk basket as part of a frac job was nontaxable. Materials used to provide these services remained taxable to the servicer.
• Fishing an obstruction would have appeared taxable from the unclear ticket, but the well was beyond Texas territorial limits, so the charge was not taxable. Consumables for services outside those limits could be bought tax-free with an exemption certificate.
• Fishing out tools lost during swabbing and then continuing the swabbing was nontaxable.
• A bare swab-tank rental was taxable, including mileage or delivery. Separately stated return mileage or pickup was not taxable.

Common questions

Was all fishing work treated the same? No. Ordinary fishing and sand-bailing were taxable, while fishing frac balls as part of a frac job and recovering tools during swabbing were nontaxable on the stated facts.

Did offshore location matter? Yes. Work at the described well beyond Texas territorial limits was not taxable, and qualifying consumables could be purchased with an exemption certificate.

Were materials used in nontaxable services automatically exempt? Generally no. The letter repeatedly made the servicer pay tax on materials used, subject to the stated offshore exception.

Was delivery on a bare swab-tank rental taxable? Yes. Mileage or delivery was taxable, but separately stated return mileage or pickup was not.

Citations and references

The reproduced letter cites no numbered statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8508L0653C14

Original ruling text

August 7, 1985

Dear ***:

Thank you for your letter requesting clarification of your tax
responsibilities as an oil well servicer.

Ticket #*** - This ticket indicates that you were swabbing in
order to bring fluids to the surface. This is considered a non-taxable
service. You are required to pay tax on your swab cups and oil savers
used to provide this service. You may recoup the tax by increasing the
charge for materials by the amount of tax paid. This is true both before
October 2, 1984 and after.

Invoice #*** and Ticket #***** - These tickets
indicate that you were running a paraffin scratcher down hole to cut
paraffin build-up. The entire job is taxable. You are still required
to pay tax on your materials used to provide this service. You are
responsible for the tax from February 1, 1985 forward.

Ticket #*** and Associated Machine Reports - These tickets
indicate that you were fishing junk and bailing sand from the wells.
These are considered taxable services, and unless a frac or acid job was
performed in conjunction with this service, you should collect tax on the
entire charge. Invoices should clearly indicate what is going on at the well
site. Again you are required to pay tax on all materials used to provide
this service.

Ticket #*** and Associated Machine Reports - These tickets indicate
that you were running a "junk" basket to fish out frac balls left after
a frac job. Since this service was in conjunction or part of a frac
job, it is considered non-taxable. Again you are required to pay tax on
all materials used to provide this service.

Ticket #*** and Associated Machine Reports - These tickets indicate
that you were fishing for an obstruction in the well-bore. Your tickets
do not clearly indicate exactly what is going on. Based on the tickets
I would say it was a taxable service, however the ticket indicates the
well is located offshore in block ** which is beyond our
territorial limits near ****. Therefore the charge would not be
taxable. You may purchase your consumable materials used to provide
services off-shore outside the territorial limits tax free by issuing an
exemption certificate.

Ticket #*** and Associated Machine Reports - The tickets indicate
that you were swabbing and lost your tools; then had to fish them out; then
continued swabbing. This is considered a non-taxable service.

Ticket #*** - This ticket indicates a bare rental of a swab tank.
The charge for the rental is taxable, including any mileage or delivery
charge. A separately stated charge for the return mileage or pick-up
would not be taxable.

Some of your working tickets really give no indication as to what is
actually occurring. You should try writing a short synopsis of the work on
your invoices or tickets as you did for me in your letter.

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

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Policy Section
Tax Administration Division