Is the charge/fee to dispose of produced salt water (brine) from oil/gas exploration in a saltwater disposal well subject to Texas sales tax as a waste removal service?

Plain-English summary

Someone asked whether the charge to dispose of produced salt water (brine) — a byproduct of oil and gas exploration — in a saltwater disposal well is subject to Texas sales tax as a waste removal service. The Comptroller said no. Rule 3.356(a)(3)(B) specifically excludes waste materials that result from the exploration, development, or production of oil, gas, geothermal resources, or any other substance or material regulated by the Railroad Commission of Texas from the rule's definition of taxable waste. Produced salt water from oil/gas exploration falls squarely within that exclusion, so the disposal charge is not taxable.

This is the same Railroad Commission carve-out that has come up in other oilfield waste rulings — Texas doesn't tax the removal/disposal of waste that's a byproduct of Railroad-Commission-regulated oil and gas activity, even though general waste removal services are otherwise taxable in Texas.

What this means for you

Saltwater disposal well operators and oilfield waste haulers

If you charge oil and gas operators to dispose of produced salt water (or other waste that results from Railroad Commission-regulated exploration, development, or production activity) in a saltwater disposal well, that disposal charge is not subject to Texas sales tax under Rule 3.356(a)(3)(B).

Oil and gas operators

You should not be charged sales tax on saltwater disposal well fees for produced brine — confirm your disposal vendor is applying this exclusion correctly.

Accountants and tax professionals

Rule 3.356(a)(3)(B)'s Railroad Commission exclusion is a recurring, well-established carve-out in Texas oilfield waste rulings — it applies specifically to waste from exploration/development/production activity regulated by the Railroad Commission, not to waste removal services generally.

Common questions

Q: Is a saltwater disposal well fee for produced brine from oil/gas exploration taxable in Texas?
A: No — Rule 3.356(a)(3)(B) excludes this type of Railroad Commission-regulated exploration/production waste from the definition of taxable waste.

Q: Does this exclusion cover all oilfield waste, or just produced salt water?
A: This letter addresses produced salt water specifically, but the rule's language covers waste from the exploration, development, or production of oil, gas, geothermal resources, or any other substance regulated by the Railroad Commission of Texas more broadly.

Q: Can I rely on this letter for my own saltwater disposal operation?
A: No — a Texas letter ruling can be the basis of a detrimental reliance claim only for the taxpayer it was issued to. However, the underlying rule (3.356(a)(3)(B)) is a general regulation that applies regardless of who requested this particular letter.

Citations and references

• 34 Tex. Admin. Code Rule 3.356(a)(3)(B) (excludes waste from Railroad Commission-regulated oil/gas/geothermal exploration, development, or production from the definition of taxable waste)

Subject

Brine/Saltwater — Produced As A Result Of Oil/Gas Exploration — Charge/Fee To Dispose In A Saltwater Disposal Well Is Not Taxable

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9711863L

Original ruling text

November 18, 1997

Dear **:

Thank you for your letter of November 10, 1997. You asked whether the charge
to dispose of produced salt water in a salt water disposal well is taxable.

The disposal of waste materials which result from activities associated with
the exploration, development, or production of oil, gas, geothermal resources,
or any other substance or material regulated by the Railroad Commission of
Texas is not taxable. Section (a)(3)(B) of Rule 3.356 excludes this type of
waste from the definition of taxable waste.

This opinion is based on the facts presented. If there are any additional or
different facts, the opinion may change.

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line is
512/475-0037. You also may write to Sales Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

Lindey Osborne
Sales Tax Policy Division

Enclosure

cc: Longview Enforcement Office