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Ezel / Tax Rulings / TX
TX 9011L1059A01 Sales and/or Use Tax (State,Local,MTA) 1990-11-19

Were nitrogen and carbon dioxide taxable when injected into a formation to maintain pressure during natural-gas production?

Short answer: Yes. The gases served no identified exempt function and were not resold, so Texas treated both nitrogen and carbon dioxide as taxable in the described use.

Apply this to your situation

This page answers the general question as of 1990. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1990
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

A producer asked about nitrogen or carbon dioxide injected into an oil-and-gas formation to maintain pressure while natural gas was produced.

The Comptroller found no statutory or other authority exempting the gases in that use. They appeared neither to perform an exempt function nor to be resold, so both nitrogen and carbon dioxide were taxable.

The letter noted that other opinions under review addressed carbon dioxide that mixed with oil and became part of oil later resold. Those different circumstances did not establish an exemption for pressure-maintenance gas in this request.

What this means for you

The result was limited to gas used to maintain formation pressure during natural-gas production. The letter expressly distinguished possible resale treatment where carbon dioxide physically became part of oil sold to customers.

Common questions

Was injected nitrogen taxable? Yes.

Was injected carbon dioxide taxable? Yes.

Why? Neither gas served an identified exempt function or was resold under the stated facts.

Did the letter decide the treatment of carbon dioxide that becomes part of oil for resale? No. It said other opinions discussing that situation were under review.

Citations and references

The letter said it found no statutory or other exemption authority and did not cite a specific provision.

Source

Original ruling text

COMPTROLLER of PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 19, 1990

Dear ***:

Tom Soto asked me to reply to your letter of November 7, 1990,
regarding taxability of nitrogen or carbon dioxide that is in-
jected into an oil and gas formation to maintain pressure as
natural gas is produced. He has reviewed my answer.

As of this writing I can locate no authority, statutory or oth-
erwise, that exempts nitrogen or carbon dioxide that is used
in the manner you describe. Opinions previously issued by this
office and currently under review discuss whether carbon diox-
ide that mixes with and becomes a part of oil that is resold
may be eligible for exemption under certain circumstances. But
in the situation you describe, the nitrogen or carbon dioxide
appears neither to serve an exempt function, nor to be resold.

Therefore, both nitrogen and carbon dioxide are taxable when
used in the manner you describe.

This opinion is based on the facts presented. Different facts,
though similar, might lead to different answers. If you have
further questions, feel free to write or call me at 1-800-531-
5441, ext. 3-3889. The regular number is (512)463-3889.

Sincerely,

John Christian
Taxability Section
Legal Services Division

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