Podcast: Sales Tax Recovery – Where Can Oil & Gas Companies Find the Dollars?

Key Points:

• Oil and gas sales tax laws and statutes vary from state to state.
• Sales tax overpayments occur for many reasons.
• Tax experts can assist with sales tax comprehension and recovery.

Oil and gas sales tax varies from state to state making it difficult to navigate tax compliance and in some cases causing overpayments.

Weaver’s Mayur Naik, Senior Manager, State and Local Tax Services, and Shane Stewart, Partner-in-Charge, State and Local Tax Services, brought their wealth of knowledge and expertise to Weaver: Beyond the Numbers.

With so many differences in state tax codes, how can oil and gas companies find savings through sales tax recovery?

Naik broke down sales tax and how it impacts the oil and gas industry.

“A sales tax is a transactional tax,” Naik said. “It’s a tax that’s typically imposed on the sale of tangible personal property, also known as TPP. In respect to the oil and gas industry, TPP could cover a lot of things.” While the sales tax laws in each state vary, Naik said the taxes could apply to the casing, tubing and well services that an oil and gas producer is producing, construction activities, chemicals and software. “It’s a wide breadth of items that can be taxed in this space, and that’s why it takes someone looking at it to understand where you should be paying sales tax and where you shouldn’t.”

Stewart cautioned that, while there are many taxable items associated with oil and gas, there is a lot of ambiguity in the tax laws that often lead to overpayment. Knowing what qualifies for an exception or an overpayment recovery can save money.

“There are a few reasons why there are overpayments,” Naik said. “Whenever these companies are drilling a bunch of wells, they don’t have the time and resources dedicated to identifying what are refunds and what are liabilities as these bills are coming in.”

Companies may choose to pay the sales tax and then pursue repayment later.

A second reason for overpayment is not understanding a particular state tax law statute and what each state offers. And a third reason may be that the vendor a company is working with may not understand the sales tax law.

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