Texas Sales and Use Tax Implications of Oil and Gas Well Servicing

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Jason A. Hendrix

Jason A. Hendrix



Jason Hendrix primarily focuses on assisting individuals and businesses with a variety of state tax matters, including Texas sales and use tax, Texas franchise tax, mixed beverage taxes, and motor vehicle taxes. He has several years of experience assisting clients involving disputes with the Texas Comptroller at all levels, including pre-audit, audit, administrative appeals, and collections. He also has experience assisting clients with matters involving the Texas Workforce Commission, as well as corporate matters, including formation and structuring, and federal tax matters.

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:

The 2.42% tax is imposed (and thus no Texas sales or use tax is imposed) on any person who engages in one of the “oil well services” above, and who:

Second, no Texas sales or use tax is due on “[w]ork performed inside the wellbore for the purpose of starting initial production or increasing production by working on the formation”.  [5]  The above language leaves itself open to a wide variety of interpretations, and unsurprisingly has been the subject of significant litigation.  Subsection (b)(2) provides minor help in the form of a “laundry list” of nontaxable services:

However, an effort to interpret or apply this list may create more questions than it resolves.  The Comptroller’s website includes an “audit manual” that provides some additional detailed information on the taxability of certain oil well services.  The audit manual can be found here.


The above discussion is of course a very general overview.  Whether a specific oil and gas well-related service may be subject to tax more in-depth review of the service performed and the circumstances surrounding it.  Our team at Freeman Law has experience representing taxpayers at all levels of state tax litigation, including with respect to the issues described above.


State and Local Tax Services

Freeman Law works with tax clients across all industries, including manufacturing, services, technology, oil and gas, financial services, and real estate. State and local tax laws and rules are complex and vary from state to state. As states confront budgetary deficits due to declining tax revenues and increased government spending, tax authorities aggressively enforce state tax laws to recapture lost revenues. 

At Freeman Law, our experienced attorneys regularly guide our clients through complex state and local tax issues—issues that are frequently changing as states seek to keep pace with technology and the evolution of business. Staying ahead requires sophisticated legal counsel dedicated to understanding the complex state tax issues that confront businesses and individuals. Schedule a consultation or call (214) 984-3000 to discuss your local & state tax concerns and questions. 


[1]  See 34 Tex. Admin. Code § 3.324(a)(2).

[2] See 34 Tex. Admin. Code § 3.324(b)(1).

[3] See Tax Code §§ 191.081, 083.

[4] See Tax Code § 191.082.

[5] See 34 Tex. Admin. Code § 3.324(b)(2).