Current through Register Vol. 49, No. 9, September, 2024
A. REFINING -
EXEMPT. The following items of tangible personal property are examples of
exempt machinery and equipment purchased by oil, brine, and gas refiners to
construct new, or expand existing, refining plants or facilities in Arkansas:
1. Tanks or containers in which the actual
refining takes place;
2. Pipes,
valves and pumps through which crude oil, brine or natural gas is actually
transported during refining operations from wellhead through treatment tanks at
the well site; and
3. Machinery and
equipment used to refine or process oil, brine, or natural gas into articles of
commerce.
B. REFINING -
NON-EXEMPT. The following items of tangible personal property are examples of
non-exempt machinery and equipment purchased by oil, brine and natural gas
refiners:
1. Storage tanks or containers used
to store oil, brine, or natural gas prior to or subsequent to the actual
refining process; and
2. Pipes used
to transport oil, brine, or natural gas from separators and treatment tanks at
a well site to refineries or processing facilities and pipes used to transport
the finished product after refining or processing has been completed.
C. EXTRACTION. Machinery and
equipment purchased to construct new oil, brine, or natural gas extraction
plants or facilities in Arkansas, or machinery and equipment purchased to
recomplete or redrill existing oil, brine, or natural gas extraction plants or
facilities in Arkansas are exempt from tax if the provisions of this rule and
GR-55 are satisfied. "Recomplete" or "redrill" shall have the same meaning as
indicated in GR-57(F).
1. A "new" well is a
well that has not been put into production.
2. To qualify for the exemption, the
machinery must be used directly in the extraction process.
a. The extraction process for oil shall be
considered as beginning with the erection of the drilling rig at the drilling
location and shall be considered as terminating at the heater treater or
settling tank immediately prior to transportation. Oil tanks used for storage
alone shall be subject to tax.
b.
The extraction process for natural gas shall be considered as beginning with
the erection of the drilling rig at the location of the well and shall be
considered as terminating once the gas has reached the Christmas tree. Once the
gas has reached the bee catcher or separator for the first stage of removing
impurities from the gas, refining has begun and shall be considered as
continuing until the gas leaves the outlet on the discharge side of the final
gathering compressor station. The pipeline from the outlet to the transmission
line shall be subject to tax.
D. EXTRACTION - EXEMPT. The following items
are examples of exempt machinery and equipment used directly in the extraction
process:
1. Drilling rigs. All machinery and
equipment that becomes a component part of a newly constructed drilling rig,
e.g., crown block, drill bit, drill string are exempt. However, any subsequent
replacement of drilling rig components will be taxable unless the replacement
is made in conjunction with a complete or substantial replacement of an entire
drilling rig;
2. Production casing,
production tubing, pumps, motors, and other machinery or equipment that becomes
a component part of a newly constructed well or a redrilled well;
3. Christmas trees, meters, regulators,
separators and treaters located at the wellhead, and auxiliary equipment used
around the well, e.g., electrical generators, pumps, air compressors, shakers,
hoists, blow-out preventers (BOPs);
4. Drilling mud;
5. Machinery and equipment purchased to
completely or substantially replace an existing oil or gas well; and
6. Brine Supply Well. New or rebuilt pump,
motor, and protector when all three items are purchased to replace an existing
pump, motor, and protector at the same time. However, if less than all three
items are replaced at the same time, a "substantial replacement" has not
occurred and the items purchased will be taxable.
E. EXTRACTION - NON-EXEMPT. The following
items of tangible personal property are examples of non-exempt machinery and
equipment used in the extraction process:
1.
Machinery and equipment purchased for a drilling rig when the rig is not being
completely or substantially replaced;
2. Machinery and equipment purchased to
rework or work-over an existing well;
3. Dump trucks or other transportation
vehicles;
4. Pipe and compressors
located beyond the outlet on the discharge side of the final gathering
compressor station; monitoring equipment used to monitor the pressure and flow
rate of gas;
5. Water, sand,
proppants, explosives, chemicals (unless the chemicals qualify as exempt
chemicals pursuant to GR-55.1), and other consumable supplies purchased and
used by contractors and oil and gas service providers in their performance of
well services; and
6. Storage
tanks, dog houses, and portable trailers.
F. SERVICES. The total gross receipts derived
from the services of alteration, addition, cleaning, perforating, fracturing,
refinishing, replacement, repair, rework or workover of any part of an existing
oil, brine, or natural gas drilling rig or an existing oil, brine, or natural
gas well are taxable as services performed upon manufacturing machinery and
equipment. However, perforating, fracturing, and other completion services
performed on a new well to begin initial production, or in conjunction with the
redrilling or recompletion of an existing well, are not subject to tax.
1. Recompletion means completion operations
performed in a source of supply that is separate and distinct from the source
of supply in which the well was successfully completed prior to the
commencement of the current completion operations, e.g., an existing well is
perforated and fractured to initiate gas production from a new and different
zone from the zone that was already producing.
2. Redrill means an expansion (See GR-55(C))
of an existing well by drilling the well to a deeper depth to enhance
production from another zone.
3.
Rework or workover means work of a remedial nature performed within the
vertical confines of the same source of supply.
4. Completion means the first configuring of
the well inside the production casing and perforating of the casing to allow
gas from the surrounding rock into the casing and to the surface. Completion
services include running casing, cementing, logging, perforating, fracturing,
acidizing, swabbing, and other special services depending on the
characteristics of the formation.
5. Service providers should pay tax on all
consumables used in providing the services, regardless of whether the service
is a taxable service under this rule.
G. The following oil, brine, and natural gas
extraction equipment is exempt from tax under the pollution control provisions
of GR-66:
1. Surface casing and concrete used
to enclose the casing, down hole casing, injection tubing, and well bottom
packer;
2. Brine disposal well,
including the inline pipeline pumps and wellhead booster pumps, valves and
pipes used to transport the brine to a brine disposal well; and
3. Pit liners.
Ark. Code Ann. §
26-52-402
