Ellen Cody Sales and Use Tax Senior Manager

Transcription

1 Industry Panel of Energy Experts Explore the Gulf Coast and our Northern Border Taxation of Oil & Gas Upstream and Oil Field Service Providers Louisiana, North Dakota, Texas Ellen Cody Sales and Use Tax Senior Manager Weatherford Houston, TX Scott Steinbring Partner Multistate Tax Services Deloitte Tax LLP Houston, TX 1

2 Louisiana Sales/use tax applies to the purchase, lease or rental of: TPP including machinery, equipment, and materials used in onshore exploration and production (E&P) Parish sales/use tax locally administered Parish tax rates vary by jurisdiction; combined state and local tax rates range from 7% 10.5% No Louisiana sales/use tax exemptions for onshore E&P Taxable services include repairs of movable property (TPP) Movable property (e.g., compressors, pumps, fracking units, tools, maintenance equipment) 2

3 Louisiana Examples of non-taxable services Hydraulic fracturing, perforating, drilling, acidizing, logging, work-over, hauling services, rental with operator, road construction, pipeline construction Services performed on immovable structures (i.e., improvements to real property) are non-taxable Contractors are considered the consumer of materials Contractor pays sales/use tax on incorporated materials No sales/use tax charged to customer on separately stated charges for materials 3

4 Louisiana First use of TPP is offshore beyond the territorial limits of any state If location of first use is known at the time of purchases: Issue to vendor Louisiana exemption certificate Form R-1096 Indicate offshore area on exemption with area name, block name, lease number If location of first use is not known at the time of purchases: Issue to vendor Louisiana offshore exemption certificate Form R-1023 Separate exemption certificate for each on-shore storage location If item ultimately not used offshore use tax is payable to taxing authorities 4

5 Updates & Developments Louisiana LA Supreme Court: Portable toilet rental and service company; non-taxable sanitation and cleaning service is separate from taxable rental charge, January 16, This could have broad application; separately stated charges for stand-alone non-taxable services that are not part of the sales price or rental charge (portable toilet rentals, waste bin rentals, pipe inspection, etc.) LA Revenue Ruling No , Repair parts and labor purchased by a lessor of tangible personal property, December 17, A lessor can purchase repair parts for rental property tax-free for resale as long as the repair part does not include any charges for repair labor. A lessor cannot purchase repair labor tax free for resale. A charge for both labor and a repair/replacement part is taxable on the entire amount, regardless of whether the charge is lump-sum or separately stated. The repair part is an integral and inseparable component of providing the taxable repair service. 5

6 Updates & Developments Louisiana LA Revenue Information Bulletin No , January 22, 2015 Machinery and equipment must be eligible for depreciation for federal income tax purposes in order to qualify for the sales/use tax exclusion for manufacturing. Charges for repair labor generally do not qualify for the manufacturing exclusion. 6

7 Taxable Transactions: Any sale, lease, or rental of TPP North Dakota All associated charges related to the lease or rental (set up, inspection) Fabrication charges (usually the Vendor supplies both the labor & materials) Freight/delivery/shipping/handling charges are all considered part of the sale Repair charges related to rental equipment. All charges related to repair rental equipment are taxable if it s mandatory the Customer reimburse for such charges. (Sales Tax Newsletter January 2012) Disposal and environmental charges (charges to help the retailer s cost associated with landfill fees or complying with environmental regulations) are taxable when associated with a taxable retail sale and are also mandatory. (Sales Tax Newsletter January 2012) 7

8 Non-taxable transactions: North Dakota Services in general including both personal as well as professional services Real property construction, installation, or repair Contractor is the consumer of materials and should not charge sales tax to its customers Separately stated repair labor to TPP Rentals with operators Held to be a service transaction TPP consumed by service providers Proppants and other materials used by fracking service providers are consumed, thus taxable to the service provider, but not taxable to the service provider s customer Water - Statutory exemption is in place for all purchases of water, no matter the use 8

9 North Dakota Use Tax Purchases of TPP purchased outside of ND for the storage, use and or consumption within the state is subject to use tax. Audits Cumbersome audits that are often full detail reviews 9

10 Texas Taxable items include sales and purchases of both tangible personal property and taxable services. 1 Bare rentals and rentals with a supervisor are taxable. When equipment is solely operated by the service provider it is a non-taxable service as long as the service is not a specifically enumerated taxable service. Only specifically enumerated services are taxable: 2 Repair, remodeling, maintenance of TPP Real property repair & remodel Real property services Security services T&D services by a utility provider Data processing Information services Internet access 1 Tex. Tax Code Tex. Tax Code Debt collection Credit reporting Insurance services Telecommunications Telephone answering Motor vehicle parking and storage Cable television services Amusement services Personal services 10

11 Real Property vs. TPP Texas Determining whether property is deemed realty or tangible personal property is critical in determining taxability for sales/use tax purposes Pump stations Booster stations Casing (in place) Examples of Realty Enhanced production, injection and recovery systems Storage tanks with a capacity greater than 500 barrels Vapor recovery systems Compressor stations Production platforms Water disposal systems Underground gathering lines Gas processing plants Examples of TPP Wellhead equipment/christmas trees Well components Line heaters Wellhead/suction/vacuum compressors Storage tanks with a capacity less than 500 barrels Separation and dehydration equipment Above ground gathering lines Artificial lift equipment Equipment inside the casing, such as Tubing Pipe Pumps Rods Gas-lift equipment 11

12 Texas Updates & Developments Texas Comptroller Letter Ruling, L, January 27, 2015 Liquefied Natural Gas ( LNG ) Plant Compressing the gas to a pressure required to convert the gas into a liquid within the LNG plant qualifies as manufacturing and processing. Conversion of pipeline quality natural gas into LNG at the LNG plant is a manufacturing process. The tax implications of specific pieces of equipment within the LNG plant were not addressed in this letter ruling. Texas Comptroller is working with Industry to address the taxability of compressors used in various types of operations, in particular in oil/gas operations Texas Research & Development: Sales/Use Tax Exemption or Franchise Tax Credit Registration for Qualified Research and Development Sales Tax Exemption Annual Information Report (due March 31 each year) 12

13 Texas Updates & Developments Texas Court of Appeals, Aug. 13, 2014 Oil & Gas Company Refund Claim Affirmed the District Court s decision in favor of the State. Denied manufacturing, pollution control and public-health exemptions and related tax refund claim. Comptroller s interpretation is not erroneous or inconsistent with the statute. If the statute is ambiguous or vague, courts defer to the interpretation provided by an agency unless that interpretation is inconsistent with the plain language of the statute or plainly erroneous. Taxpayer s interpretation might not be unreasonable. Taxpayer failed to meet its burden of proving it qualified for an exemption; burden of proof is on the taxpayer. 13

14 Texas Sales/Use Tax Managed Audit Texas Two changes made to the managed audit agreement, effective October 1, 2013: The new agreement shortens the deadline to seek a credit. Previously, a request for a credit or refund could be filed during the hearings process, but effective October 1, 2013, the request must be filed within 30 days of the Texas Notification of Audit Results. The new agreement eliminates the ability to seek a refund if a court case invalidates an agency policy or if the agency invalidates its own policy. Taxpayer will have to be aware of issues in hearings or court to raise them before the completion of the managed audit or within 30 days of the Texas Notification of Audit Results. Does the benefit of penalty and/or interest waiver outweigh foregoing of potential claims of refunds? 11 June,