94-018
Response
March 3, 1995
Request
Attention: XXXXX
Dear XXXXX:
We have received a
copy of your letter concerning the taxability of fracturing, acidizing and
cementing of oil and gas wells pursuant to the Utah Supreme Court ruling of
XXXXX Services versus State Tax Commission.
There are numerous
differences in the way that XXXXX operates versus this case. XXXXX lumps the material and service
charges on their billings and also includes the sales tax associated with the
materials in this amount. Our work
order contract states that we agree to sell the materials ordered by our
customer and provide a service if desired.
We separately state the
materials and services on the billing.
In addition, we do not include the sales tax in the price for the
materials, but separately state the applicable tax. XXXXX claims that they are a real property contractor as far as
cementing jobs are concerned while we claim to be a retailer of the materials
in the state of Utah.
We have been audited
by the State of Utah and they have accepted our methods of billing without
exception. We conclude that our
taxation of the above mentioned service jobs is correct as we would have to
change our entire billing procedure to include us tax in our prices to operate
as a contractor.
Please call XXXXX in
our Tax Department at XXXXX if you have any questions or wish to discuss this
matter further.
Thank you for using
XXXXX.
Very truly yours,
XXXXX
Sales Tax Supervisor
Utah State Tax
Commission
Attention: Mr. Joe Pacheco
160 East 3rd South
Salt Lake City, UT
84134
Resales Tax
Determination Fracture/Stimulation Jobs
Dear Mr Pacheco:
Per Utah Supreme Court
ruling No. 900368, XXXXX, XXXXX v State
Tax Commission, we should not pay sales tax on fracture/stimulation jobs for
Utah operations.
Our vendors of
fracture/stimulation services have changed their billings accordingly and
applied for refunds of overpaid sales tax with the exception of XXXXX. XXXXX response to our inquiry (copy
attached) was that they feel the ruling does not apply to their operation.
We request a
determination in this matter. We would
appreciate your expediting the determination as we are losing statute. Please contact me at XXXXX if you have any
questions Thank you.
Sincerely,
XXXXX
XXXXX
Re: Advisory Opinion - Sales Tax Application to
Oil Well Fracturing and Stimulation Service
Dear XXXXX:
You requested an
advisory opinion as to how sales tax applies to your purchases of
fracturing/stimulation services from the XXXXX.
Our research indicates
as follows:
1.
The Supreme Court of the State of Utah in the case of XXXXX v. State Tax
Commission, No. 900368, ruled that “the essence of XXXXX fracturing and
acidizing services is providing services, not tangible personal property.” The chemicals consumed were found to be
incidental to the services, and the charges by XXXXX for the services and
chemicals used were therefore ruled exempt from the tax. Consequently, XXXXX was considered to be
the consumer of the chemicals used and was liable for the tax on its cost of
those chemicals.
2.
In so far as XXXXX is providing
the same services (hydraulic fracturing and acidizing) and using similar
chemicals, the XXXXX case is controlling.
The claim by XXXXX in their letter to you dated XXXXX (copy attached)
that they “separately state the materials and services on the billing” and that
they “do not include the sales tax on the price for the materials, but
separately state the applicable tax,” does not change the application of the case. Neither the charges for the service nor the
chemicals are taxable. XXXXX is
considered the consumer of the chemicals so used and is liable for the tax on
its cost of those chemicals.
3.
It must be noted, however, that pursuant to Administrative Rule
R865-19S-16 (copy attached) if the tax has been collected, it is properly due
unless refunded to the customer.
This opinion is based
upon the facts presented in your letter.
Obviously, if there are deviations from these facts, this opinion may be
negated.
If you do not agree
with this determination, you may appeal to the Tax Commission for a formal
hearing. The results of that hearing
would constitute a declaratory judgment and be appealable to the Utah State
Supreme Court. A Notice of Appeal
Rights and a copy of the Utah Taxpayer Bill of Rights are attached.
Respectfully,
Alice Shearer
Commissioner