Does a 'Material Reimbursement Charge' (also called a 'Texas Price Adjustment' charge) that a well-services provider adds to its invoices to recover sales tax it paid on materials used in a nontaxable service violate Rule 3.324(b)(3)(4)?

Subject

Material Reimbursement Charge/"Texas Price Adjustment" Charge — When Providing Well Services

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306L1244D03

Plain-English Summary

This June 28, 1993 letter from the Comptroller's Tax Administration Division (signed by John Bolin) responds to a taxpayer who provides well services and adds a "Material Reimbursement Charge" — also referred to as a "Texas Price Adjustment" charge — to its sales invoices. The taxpayer explained that this charge is a way of recovering additional product costs it incurs when it pays sales tax on materials purchased for use in performing a nontaxable service, and asked whether the charge violates Rule 3.324(b)(3)(4).

The Comptroller's answer: it does not. The letter states that a detailed discussion of the issue appears in an enclosed copy of a letter written by Tom Soto of the Comptroller's office (Accession No. 1130E06), which is not reproduced in this document. The letter also flags that the Comptroller was, at that time, considering amendments to Rule 3.324, prompted by recent Administrative Decisions, and enclosed a copy of the proposed rule for the taxpayer's comment, with a comment deadline of July 6, 1993.

The Comptroller notes, as is standard, that this opinion is based on the facts presented and that different or additional facts could change the result. The letter also carries a note referencing a previous accession number (9308013L.2 and/or 9308013L), indicating this document was later re-indexed or cross-referenced under those numbers in the STAR system.

What This Means For You

If you provide well services and separately bill for sales-tax-on-materials recovery

A separately stated "Material Reimbursement Charge" (or "Texas Price Adjustment" charge) used to recover the sales tax cost a well-services provider incurs on materials purchased for use in a nontaxable service was found not to violate Rule 3.324(b)(3)(4). This letter's holding applied to the specific taxpayer who requested it, and reliance protection under STAR only extends to that taxpayer.

If you want the full legal reasoning

This letter itself does not walk through the Rule 3.324(b)(3)(4) analysis — it points to a more detailed enclosed letter (Accession No. 1130E06, written by Tom Soto) for that discussion, which is not part of this document.

If you are tracking Rule 3.324 changes

As of this June 1993 letter, the Comptroller was proposing amendments to Rule 3.324 in response to recent Administrative Decisions, with a public comment deadline of July 6, 1993. Because rules can change, and this letter itself notes it may not reflect current policy, confirm the current text of Rule 3.324 before relying on this letter's conclusion.

If you are an accountant or tax professional advising on this issue

The facts matter: the Comptroller expressly states the opinion is based on the facts presented and that different or additional facts may change the result. This letter should be read together with the underlying Rule 3.324(b)(3)(4) text and the enclosed Tom Soto letter (1130E06) referenced here, not relied on in isolation.

Q&A

Q: What is the "Material Reimbursement Charge" or "Texas Price Adjustment" charge?
A: Per the letter, it is a charge the taxpayer adds to its sales invoices to recover additional product costs it incurs when it pays sales tax on materials purchased for use in performing a nontaxable service.

Q: Does this charge violate Rule 3.324(b)(3)(4)?
A: No. The Comptroller states plainly: "You asked if the 'Material Reimbursement Charge' violates Rule 3.324(b)(3)(4). It does not."

Q: Where can I find the detailed reasoning behind this conclusion?
A: The letter says a detailed discussion of the issue appears in an enclosed copy of a letter written by Tom Soto of the Comptroller's office, Accession No. 1130E06 — that letter is not reproduced in this document.

Q: Were there any pending changes to Rule 3.324 at the time of this letter?
A: Yes. The letter notes the Comptroller was considering amendments to Rule 3.324 because of recent Administrative Decisions, enclosed a copy of the proposed rule, and set a comment deadline of July 6, 1993.

Q: Can other taxpayers rely on this letter for their own Material Reimbursement Charge?
A: The letter is based on the specific facts presented by this taxpayer, and the Comptroller notes different or additional facts may cause the opinion to change. Under STAR's reliance rules, detrimental-reliance protection applies only to the taxpayer the letter was issued to.

Q: Who signed this letter and what office issued it?
A: John Bolin of the Tax Administration Division signed the letter on behalf of the Texas Comptroller of Public Accounts.

Original ruling text

June 28, 1993

Dear *****:

I have reviewed your letter concerning the legality of the "Material
Reimbursement Charge" that appears on your sales invoices. You
stated that the charge is a way of recovering additional product costs
incurred when you pay sales tax on material purchased for use in
performing a nontaxable service.

You asked if the "Material Reimbursement Charge" violates Rule 3.324
(b) (3) (4). It does not.

A detailed discussion of this issue appears in the enclosed copy of a
letter written by Tom Soto of our of office.(1130E06) I would like to
also point out that we are considering amendments to Rule 3.324. The
amendments are being proposed because of recent Administrative Decisions.
I have enclosed a copy of the proposed rule and you are welcome to
make comments. The deadline for making comments is July 6, 1993.

This opinion is based on the facts presented. Different or additional
facts may cause the opinion to change.

If you have any questions or need more information, please call our
toll-freenumber 1-800-531 -5441, Ext. 34434. My regular number is
(512)463-4434, or youmay write me by directing you correspondence
to the Tax Administration Division.

Sincerely,

John Bolin
Tax Administration Division

NOTE: Previous Accession Number 9308013L.2 and/or 9308013L