Which swabbing, tubing, drilling, testing, and acidizing-related well-service charges were taxable?

Plain-English summary

The Comptroller classified individual tasks from four oilfield invoices. Driving a rig to the site, rigging up, starting or pulling rods, and pulling and running tubing with a packer were taxable in the first two listed items.

The remaining described work was generally nontaxable: setting packers and waiting for acidizing, flow testing, drilling retainers, plugs, and cement, running magnets and tubing, swabbing wells and testing them, setting a plug and perforating, and related pressure work.

One swabbing entry depended on what the work accomplished. Running the swab was nontaxable if it brought fluids to the surface; otherwise it was taxable.

Common questions

Were all swabbing charges nontaxable? No. One entry depended on whether fluids were brought to the surface.

Were cement-drilling and plug-related tasks taxable? The listed items were nontaxable.

Which jobs were expressly taxable? The first two invoice items involving rigging, rods, tubing, and a packer.

Citations and references

The reproduced letter does not cite a 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/8603L0706E11

Original ruling text

March 10, 1986

Dear ***:

Thank you for your letter concerning sales tax applicable to your
business operations.

The following is a breakdown of the items listed on four invoices and
their taxability:

Invoice #***

Item #1 Drove rig to location. Rigged up. Started rods. Out of Hole.
Shut Down. Drove in. - Taxable

Item #2 Drove to location. Pulled rods and tubing. Unloaded tubing.
Ran 3 1/2" tubing with packer. Shut well in, shut down. - Taxable

Item #3 Drove to location. Set packer. Waited on *** to do acid
job. Shut well in 1 hr. Opened well up. Flow test rest of day. - Not taxable

Invoice #***

Item #1 Drill on retainer. Pull tubing out of hole. Rig up to run magnet to
catch tongs off bit. Run tubing and bit in hole. Start drilling. Finish
drilling retainer. Drill 66' cement. Wire hole. Clean shut down. - Not taxable.

Item #2 Trip tubing for plug bit. Drill cement. Drill 100' cement. Wire hole.
Clean. Shut down. - Not taxable.

Item #3 Drill cement and plug. Drill 415'. Not taxable

Item #4 Drill cement 192'. Cement drilled. Not taxable

Item #5 Finish drilling cement. Pull tubing. Lay collars down. Run packer and
tubing to pressure bottom perf. Rig up pres. Would not pres. Pull tubing out
of hole. - Not taxable

Invoice #***

Item #1 Drove to location. Ran swab. Swabbed well down. Swab tested rest of day.
Shut well in, shut down. - Not taxable

Item #2 Drove to location. Opened will up, no pressure. Ran swab fluid at 3100'.
Swabbed down. Swab test rest of day. Shut down. - Not taxable

Item #3 Drove to location. Ran swab. Fluid at 3150'. Swabbed down. Swab test.

• Not taxable

Item #4 Drove to location. Ran swab. - Not taxable if fluids are being brought
to the surface, otherwise taxable.

Item #5 Drove to location. Pan swab. Swab tested rest of day. Shut well in, shut
down. - Not taxable

Invoice #***

Item #1 Set plug and perf. Run tubing and packer. Set packer. Rig up ***
to acidize well. Shut well in for 1 hour. Bleed pressure off well 1/4 in opening.

• Not taxable

Item #2-5 Swab test well. - Not taxable

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