Current through Vol. 42, No. 1, September 16, 2024
(a)
"Material transfer"
described. The transfer of tangible personal property from one location
to another is referred to as a material transfer.
(b)
Liability during drilling
phase. The operator is responsible for collecting and remitting tax on
material transfers during the drilling phase. The operator and/or the producer
is responsible for collecting and remitting tax once the well is
drilled.
(c)
Determining
taxability of a material transaction. The taxability of the material
transaction will depend on whether the ownership interest(s) after the transfer
is the same as it was before, as illustrated:
(1) "A" is an oil operator and owns 100% of a
producing well. He can transfer material from his warehouse to the well and
back to his warehouse without incurring a tax liability because there was no
change in the ownership of the tangible personal property.
(2) "A" is an oil operator and enters into a
joint venture to drill a well called the Wilson No. 1. "A" is to be the
operator with a 40% working interest, "B" has a 35% working interest, and "C"
has a 25% working interest. "A" transfers 100 joints of drill pipe from his
warehouse to the drilling site. This transfer is not taxable according to 68
O.S. 1360(B), since, after the sale, there is a joint interest in the property.
If the Wilson No. 1 is a dry hole and the 100 joints of drill pipe are returned
to "A's" warehouse, then sales tax would be due on "B's" and "C's" interest in
the pipe since "A" is again the sole owner of the pipe and it was placed back
into his inventory by the material transfer.
(d)
Material transfers involving
separate legal entities. Material transfers involving separate legal
entities, i.e., corporations, partnerships, limited partnerships, and
individuals are regarded as arm's length transactions for tax purposes
regardless of common ownership, as illustrated:
(1) "A" is an oil operator and enters into a
joint venture to drill a well called the Gerard No. 2. "A" is to be the
operator with 40% interest, "B" has a 30% working interest, and "C" has a 30%
working interest. "A" also enters a joint venture to drill a well called the
Jones No. 3. "A" is the operator with a 30% working interest, "D" has a 28%
working interest, and "E" has a 42% working interest. The Gerard No. 2 is a dry
hole and 100 joints of pipe are transferred to the Jones No. 3 and the joint
interest billing of "B" and "C" credited. Sales tax is due on the 30% interest
of "B" and 30% interest of "C".
(2)
Corporation A sells tangible personal property to corporation B. Corporation A
and corporation B are owned 100% by the same person. The sale is
taxable.
(3) Limited Partnership A
sells tangible personal property to corporation B. Corporation B is the General
Partner of Limited Partnership A. The sale is taxable.
(4) Corporation A brings tangible personal
property to its yard and credits Limited Partnership B for its value.
Corporation A is a partner in Limited Partnership B. A has bought the goods
from B and the transaction is 100% taxable.
Amended at 18 Ok Reg
2823, eff 6-25-01
