Can a company that buys and sells a chemical used to clean up oil spills issue or accept a resale/exemption certificate on that chemical, and is the oil-spill clean-up service itself taxable?

Plain-English summary

The taxpayer here buys and sells a chemical used on oil spills, and asked the Comptroller two things: whether it could issue or accept a resale/exemption certificate when buying or selling that chemical, and (by extension) how the oil-spill clean-up services themselves are taxed.

The Comptroller drew a line based on who ends up with the chemical:

• If the taxpayer is a retailer buying the chemical only to resell it as-is, it can give its supplier a resale certificate.
• If the taxpayer is instead performing a clean-up service with the chemical, it must pay sales tax on the chemical, supplies, and equipment it uses -- unless the chemical or supplies actually pass into the care, custody, or control of the customer. Only in that case can the service provider buy those items tax-free and issue a resale certificate to its own supplier. Chemicals consumed by the service provider itself while performing the clean-up are not "resold," so a supplier should not accept a resale certificate for them.

The letter also addresses the clean-up service itself: an oil-spill clean-up tied to exploration, development, or production of oil, gas, or geothermal resources (or involving substances/materials regulated by the Railroad Commission) is not taxable, and clean-ups at the well site are not taxable. But a clean-up performed at a plant or elsewhere away from the well site is a taxable service, and it's also taxable if performed on someone else's property. Clean-ups of oil spills in waterways are not taxed when subject to Water Code Chapter 26.

What this means for you

Companies that sell clean-up chemicals

Whether you can accept a resale certificate depends on what your buyer actually does with the chemical. A buyer who resells the chemical unchanged can give you a resale certificate. A buyer who uses the chemical to perform a clean-up service is normally the end consumer of it and should pay tax -- unless that buyer's own customer ends up with care, custody, or control of the chemical, in which case the buyer may pass you a resale certificate for that portion.

Companies that perform oil-spill clean-up services

You generally owe tax on the chemicals, supplies, and equipment you use to do the job, because you're consuming them, not reselling them. The only way around that is if the chemicals or supplies you buy actually transfer to your customer's care, custody, or control -- then you can buy those tax-free and pass a resale certificate upstream. Separately, whether the clean-up service itself is taxable depends on location and cause: well-site clean-ups tied to oil, gas, or geothermal exploration/development/production (or Railroad-Commission-regulated substances) are not taxable, off-site or plant clean-ups generally are, and waterway clean-ups regulated under Water Code Chapter 26 are not taxed.

Accountants and tax professionals

This letter predates current Rule 3.285 (the version cited here has since been amended, per the STAR alert banner at the top of the letter), but the underlying care-custody-control principle for resale certificates on consumed-vs-transferred items is the same idea the rule still codifies. Confirm current Rule 3.285 language before relying on this 1993 letter for a live fact pattern.

Common questions

Q: I sell a chemical used for oil-spill clean-up. Can I accept a resale certificate from my buyer?
A: Yes, if the buyer is a retailer that will resell the chemical as-is. If the buyer is instead consuming the chemical to perform a clean-up service, you should not accept a resale certificate for it, because the chemical isn't being resold by the service provider.

Q: I run a clean-up service and buy chemicals to do the work. Do I owe tax on them?
A: Generally yes -- you must pay sales tax on supplies, materials, and equipment used to perform the clean-up. The exception is chemicals or supplies that actually transfer to the care, custody, or control of your customer; those you may buy tax-free and pass a resale certificate to your own supplier for.

Q: Is an oil-spill clean-up service itself taxable?
A: Not always. A clean-up tied to oil, gas, or geothermal exploration, development, or production (or involving Railroad-Commission-regulated substances), and clean-ups at the well site, are not taxable. A clean-up performed at a plant or elsewhere away from the well site is a taxable service, and it's also taxable if performed on someone else's property. Waterway clean-ups subject to Water Code Chapter 26 are not taxed.

Q: Does this letter apply directly to my situation?
A: This opinion is based on the facts the taxpayer presented, and the letter itself says other facts, even if similar, may lead to a different result. It's also a 1993 letter citing a rule that has since been amended -- confirm current Rule 3.285 and Comptroller guidance before relying on it.

Citations and references

Rules and statutes referenced:

• Rule 3.285, Resale Certificates; Sales for Resale (the version cited in the STAR alert banner has been amended since this 1993 letter was issued)
• Water Code, Chapter 26 (governs when waterway oil-spill clean-ups are not taxed)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9304L1234G12

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for Resale (amended 11/01/2017.

April 23, 1993

Dear ***:

This is in response to your letter concerning the taxability of a
chemical used to clean up oil spills. ***, buys and sells
a chemical used on oil spills and requests an opinion as to whether an
exemption/resale certificate may be issued/accepted when purchasing or selling
this chemical. I appreciate your patience and apologize for the delay in
responding.

A retailer may issue a resale certificate to its supplier on the purchase
of chemicals that will be resold as is.

A company providing a clean-up service must pay sales tax on its
supplies, materials, and equipment used to perform the clean-up. Only
chemicals or supplies that are transferred to the care, custody, or control of
the customer may be purchased tax-free by the service provider. The service
provider may issue a resale certificate to a retailer only for chemicals and
supplies that will be transferred to the care, custody, and control of the
service provider's customer. Chemicals used as part of a clean-up service are
not considered to be resold by the service provider, you should not accept a
resale certificate for the purchase of these chemicals in lieu of tax.

Services to clean up oil spills are not always exempt. A clean-up
operation for an oil spill which results from activities associated with the
exploration, development, or production of oil, gas, or geothermal resources
and any substance or materials regulated by the Texas Railroad commission is
not taxable. Oil spill clean-ups at the well site are not taxable.

A clean-up operation for an oil spill performed at a plant or elsewhere
on land away from the well site is a taxable service. This service is also
taxable if performed on property other than the company's property. The clean
up of oil spills in waterways are not taxed when the clean up is subject to the
requirements of Chapter 26 of the Water Code.

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

If you have other questions or need more information, you may call me at
1-800-531-5441, extension 3-4502. The regular number is 512/463-4600. You may
also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 93050109.L03