Joseph Garcia
State Tax Manager
Former Texas Comptroller State Tax Auditor
Texas Drillers & Operators
Written By: Joseph Garcia
VENDORS COULD BE OVER-CHARGING YOU SALES TAX ON RENTALS
TEXAS TAX GROUP CAN HELP YOU GET THIS TAX BACK!!!
Not many driller/operators pay attention to exactly how much sales tax they are being charged by their vendors on rental of equipment at the well site. You could be overcharged ‘local jurisdiction tax’ by up to 2% on each invoice.
Local Tax is any tax assessed over the Texas State tax rate of 6.25%. Often, this local tax is not due because the tax rate is due at the well site (which often has little to no local tax due). Vendors usually just charge the maximum rate of 8.25% usually because of the office location of the driller/operator. Often that office location is within a city or other local tax jurisdiction.
This could end up costing with you being overcharged local tax (up to 2%) based on the business’s office location, not the well site. For some large and mid-sized companies’ rental equipment purchases can add up.
In the Oil and Gas and Well Service industry millions of dollars are spent each year. Many of these contracts are generally month-to-month contracts. And many times this equipment ends up in different locations. In some cases, the initial delivery would be to the customer’s facility located within the city limits. This is a very common practice, and local taxes would be correctly due based on the storage yard or warehouse location. In this example let’s assume that this particular customer location was within a city and county and that the total local tax rate is 2%. Therefore, the total tax due is 8.25% (6.25 State + 2% local tax).
However, the next month, the rental equipment might be moved out to the well site, beyond any local taxing jurisdiction. Therefore, only the 6.25% State rate would be due. Because the contract renews every month a new sales tax transaction occurs, which requires that the tax is due based on the location of the rental equipment. Since the equipment is now out at the well site where no local taxes are due, the vendor should only charge 6.25%.
What happens many times is the initial local taxes charged (8.25%) on the first invoice continues to be charged on all future month-to-month rental charges. This means you are overpaying your local 2% sales tax every month. It can add up. If you are audited by the Texas Comptroller, you would be a due refund. If a sample of expenses was performed by the auditor, then the credit for overpaid local sales tax could be projected. Even if you are not under an audit TEXAS TAX GROUP could review your records and obtain these credits and refunds for you (based on a 35% contingency fee).
One of the keys to being able to receive this type of refund is documentation. The initial invoice or contract must specify the ship-to location and the type of contract. Then once the asset is moved to the job site, the taxpayer must maintain detailed records showing the location of each piece of rental equipment that is in the field. Then this list must be updated every time the equipment is moved. Documentation is the key to receiving your Local Tax Refunds.
Let Texas Tax Group help you! Call for a free consultation.
Good Luck,
JOSEPH GARCIA
State Tax Manager
Former Texas Comptroller State Tax Auditor, 23 Years
