Texas Private Letter Ruling No. 202007009L
The Comptroller has provided guidance on a group of taxpayers who mine and sell sand to customers. Taxpayer 1, Taxpayer 2 and Taxpayer 3 are collectively referred to as Taxpayers.
Taxpayer 2 and 3 operate separate mines in Texas and are subsidiaries of Taxpayer 1. Taxpayer 2 and 3 sell sand directly to customers. Taxpayer 1 does not operate a mine, but it also sells sand from both mines directly to customers.
Taxpayer 2 and 3 mine sand in Texas, which is used for oil and gas well fracturing. The preceding entities use front-end loaders, bulldozers and excavators to extract and scoop the sand from the ground. No blasting or cutting is used to extract the sand. To prepare the sand for sale, the sand is placed on screeners to remove any unwanted foreign materials. On occasion, the extracted sand is piped to another location by adding water, thereby creating a water slurry. In other cases, the sand is mixed with water and placed in large tanks. Water slurries are eventually sent to a water plant for washing.
After the sand is sent to a water plant, the sand is separated by grade and size through screener systems. The two mines use different screening machines. Sand granules are not resized during separation. Separation only sifts the material to locate the correct size. Once the proper sand granules are selected, they are sent to attrition scrubbers for washing. The attrition scrubbers operate like washing machines, washing and agitating the sand slurry. The effect of the attrition cell scrubbers is the removal of organics, clay, silt and other contaminants. No chemicals or other materials besides water are added to the sand. The water used in the washing step contains no acids or other additives that would deteriorate the sand or organics.
The sand grains are then passed through the attrition scrubbers, the sand is dried by removing the water from the slurry, then transported via a conveyer belt where it is ultimately sent to dryers. After the sand dries, the sand is segregated once again by mesh and vibration screening equipment to reach an appropriate granule size requested by Taxpayers’ clients.
Washing, drying, screening for size, and sorting of sand, gravel and similar materials are not processing activities. See Private Letter Ruling No. 9212L1233B12 (Dec. 7, 1992). The sale of unprocessed sand, gravel, and similar materials is not taxable. SeeComptroller Decisions No. 44,432 (2005), 25,342 (1989).
Conversely, the sale and transportation of processed sand is taxable. See Comptroller Decision No. 27,940 (1992) and Private Letter Ruling No. 201902003L (Feb. 7, 2019). Prior guidance has classified cutting, crushing, or mixing of sand as processing. See Comptroller Decision No. 44,432 (2005) and Private Letter Ruling No. 200006438L (June 28, 2000).
As Taxpayers’ activities do not change the size or shape of the sand or involve the mixing of sand, the Comptroller found that this was not processing of sand. The sale of the sand is not subject to sales and use tax since it was unprocessed.
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