Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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190.0000 CONSTRUCTION CONTRACTORS—Regulation 1521

Annotation 190.0538


190.0538 Oil Well Cementing. A specialty contractor does cementing work on abandoned and new oil wells. The cementing of abandoned oil wells requires a series of cement plugs at varying levels in the well. Wet cement (ready mix) is delivered to the jobsite and injected into the well either through a chute attached to the truck or by pumping. When a required level has been plugged, other fluids are injected to fill the void between the plug and the next level at which a plug is required. New oil well cementing occurs when unwanted fluids must be blocked. Dry mix is blown out of its container where it is hit by a jet stream of water, mixing the cement into a buttermilk consistency. The mixture is then pumped into the well.

These contracts are construction contracts for improvement to realty. Assuming the contractor has a lump-sum contract to furnish and install cement into its customer's oil wells, the contractor may purchase the cement tax paid. Thereafter, the contractor's lump-sum charge to its customer is not taxable. If the contractor separately states charges on its bill to its customers for items such as transit mix, pumping or hook up, these charges do not become taxable as long as the contract is a lump-sum contract to furnish and install the cement for its customer.

The cementing is highly specialized and cannot be reused for a different well or job. If a customer cancels an order and does not receive the cement, the contractor bills the customer for the cement at a marked-up price.

Assuming the contractor has entered into a lump-sum construction contract to furnish and install the cement, when the contractor (a consumer of the cement) blends the cement for the construction job, it is making a use of the cement other than a retention, demonstration, or display of the cement while holding the cement for sale in the regular course of business. Therefore, the contractor, as a consumer making a use of the cement purchased tax paid, is not entitled to a "tax-paid purchases resold" deduction for this cement. 2/6/89.