Is extracting core samples from new oil/gas well exploration sites taxable in Texas, and does the service provider owe tax on the equipment and materials used?

Subject

Coring Services — Extracting Core Samples From New Exploration For Oil/Gas Wells Is Nontaxable

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9312L1276G13

Plain-English Summary

A taxpayer wrote to the Comptroller on November 29, 1993, asking how sales tax applies to the business of extracting core samples from new exploration for oil/gas wells. In this brief letter dated December 10, 1993, the Comptroller answered directly: extracting core samples associated with exploration for new oil/gas well sites is a nontaxable service.

However, that nontaxable treatment doesn't extend to everything the coring company buys to do the job. The letter states that the service provider owes tax on all supplies, materials, and equipment used to provide the service. In other words, the coring company cannot bill sales tax to its customer for the coring service itself, but it must pay tax (as the end consumer) on the tools, supplies, and equipment it uses to extract the core samples.

The letter closes with the Comptroller's standard caveat that the opinion is based on the facts as presented, and that different facts — even if similar — could produce a different answer. A note at the bottom references a previous accession number (9311165L.2 and/or 9311165L), indicating this letter may relate to or restate an earlier ruling on the same or a similar request.

What This Means For You

If you provide coring or core-sampling services for new oil/gas well exploration: Under this letter, you should not charge your customer sales tax on the coring service itself — the Comptroller classified it as nontaxable. At the same time, you are on the hook for sales/use tax on the supplies, materials, and equipment you consume or use while performing that service, since the letter states you "owe tax" on those items.

If you're structuring pricing or contracts for coring work: Because the service is nontaxable to the customer but your own inputs are taxable to you, factor the tax on your supplies and equipment into your pricing — you generally cannot pass that cost along as a separately stated sales tax charge.

Note on scope: This letter addresses only coring services tied to exploration for new oil/gas well sites; it says nothing about coring or similar services performed on existing, producing wells, and it does not cite any specific statute or rule. The letter is fact-specific and explicitly warns that different facts could lead to a different answer, so it should not be read as covering every core-sampling scenario.

Q&A

Q: Do I have to charge sales tax on core-sampling services performed for a new oil/gas well?
A: No. This letter states that extracting core samples associated with exploration for new oil/gas well sites is a nontaxable service.

Q: If the coring service is nontaxable, does that mean the coring company pays no sales tax at all on the job?
A: No. The service provider still owes tax on all supplies, materials, and equipment it uses to provide the service — the nontaxable treatment applies to the service charge to the customer, not to the provider's own purchases.

Q: Does this ruling cover coring work on existing producing wells, not just new exploration?
A: The letter only addresses "extracting core samples from new exploration for oil/gas wells." It does not discuss coring on existing wells, so that scenario isn't answered here.

Original ruling text

December 10, 1993

Dear *****:

This is in response to your letter dated November 29,1993, regarding
sales tax as it applies to the extracting of core samples from new
exploration for oil/gas wells.

Extracting core samples associated with exploration for new oil/gas
well sites is a nontaxable service. The service provider owes tax on
all supplies, materials, and equipment used to provide the service.

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

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9311165L.2 and/or 9311165L