Is sales tax owed on wireline services performed on oil/gas wells to obtain seismic or geological data in Texas?

Subject

Wireline Services on Oil/Gas Wells to Obtain Seismic/Geological Data — Subject to Well Servicing Tax, Not Sales Tax

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9312038L

Plain-English Summary

A taxpayer sent the Comptroller's office a fax asking how sales tax applies to wireline services performed on oil and gas wells to obtain seismic or geological data. The Comptroller's response, in full, is short and direct: these wireline services are not subject to sales and use tax. Instead, the receipts from performing the services are subject to a different tax entirely — the 2.42% well servicing tax imposed under Texas Tax Code 191.081, a copy of which the letter says was enclosed with the response.

The letter draws one more distinction: while the service itself isn't taxed under sales tax, sales tax still must be paid on the equipment used to perform the wireline work, or on the materials used to build that equipment. In other words, the service provider owes sales tax as a consumer of its own tools and materials, but does not charge sales tax to the customer for the wireline service itself — that revenue is instead taxed under the separate well servicing tax regime.

The Comptroller notes that the opinion "is based on the facts presented" and that "different facts, though similar, may result in different answers," signaling this is a narrow, fact-specific answer rather than a broad rule covering all oilfield services.

What This Means For You

If you provide wireline services on oil or gas wells to obtain seismic or geological data: According to this letter, you should not be charging or remitting Texas sales tax on those service receipts. Instead, those receipts fall under the 2.42% well servicing tax imposed by Texas Tax Code 191.081.

If you're the one buying or building the equipment used to perform wireline services: Sales tax is still owed — either on the purchase of the finished equipment or on the materials used to build it. The service being exempt from sales tax doesn't extend to the tools used to perform it.

Note on scope: This is a short-form response letter to a fax inquiry, and the Comptroller expressly cautions that different facts could produce a different answer. It applies specifically to wireline services performed to obtain seismic/geological data on oil/gas wells — the letter does not address other types of oilfield or wireline services.

Q&A

Q: Do I need to charge sales tax on wireline services performed to obtain seismic or geological data from an oil or gas well?
A: No. The Comptroller ruled these services are not subject to sales and use tax.

Q: If sales tax doesn't apply, is the revenue from these services untaxed?
A: No — the receipts are instead subject to the 2.42% well servicing tax under Texas Tax Code 191.081.

Q: Does the sales tax exemption also cover the equipment I use to perform the wireline service?
A: No. The letter specifically states that sales tax must be paid on the cost of the equipment, or on the materials used to build the equipment, even though the service itself is not taxed.

Q: Can I rely on this letter if my situation is a little different?
A: Use caution. The Comptroller explicitly states the opinion "is based on the facts presented" and that "different facts, though similar, may result in different answers."

Original ruling text

December 6, 1993

Dear ***:

This is in response to your fax transmission dated November 30,1993, regarding
sales tax as it applies to wireline services on oil/gas wells to obtain
seismic/geological data.

These services are not subject to sales & use tax. Sales tax must be paid on
the cost of the equipment or on the materials used to build the equipment.

The receipts are subject to the 2.42% well servicing tax, Texas Tax Code
191.081 (enclosed).

This opinion is based on the facts presented. Different facts, though similar,
may result in different answers. If you have any questions or need more
information, please write or call me at 1-800-531-5441, extension 50330, or
512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division