Okla. Admin. Code § 710:65-19-240

Current through Vol. 42, No. 7, December 16, 2024

Section 710:65-19-240 - Oil operator transfers; "material transfer" described; examples

(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.

Okla. Admin. Code § 710:65-19-240

Amended at 18 Ok Reg 2823, eff 6-25-01