Texas Sales And Use Tax Implications Of Oil And Gas Well Servicing

In certain circumstances, services performed on oil and gas wells or related equipment may be subject to Texas sales or use tax. The taxability of these services is fraught with complexity, but is discussed briefly below.

General Taxability

At a high level, services performed on oil and gas wells are generally subject to tax as either (i) commercial repair and remodeling services (i.e., services performed on real property) or (ii) repair, remodeling, or maintenance of tangible personal property (i.e., services performed on portions of the well or related equipment). [1]

Nontaxable Services

Comptroller Rule § 3.324 carves out certain services as specifically nontaxable. This Rule lays out two general categories of nontaxable services.

First, no Texas sales or use tax is due on “[t]he labor to perform those services subject to the 2.42% oil well service tax imposed under Tax Code, Chapter 191”. [2] In this context, Chapter 191 applies “oil well services” which are defined to include:
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