Private Letter Ruling

Ruling Number:P-2011-011
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Charges for brine-impacted soil remediation services including services to dispose of unwanted soil excavated from the remediation site.
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Approval Date:02/22/2012



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Office of Policy & Research


February 22, 2012
XXX
XXX
XXX Dear XXX:

Thank you for your recent letter. You ask how Kansas sales tax applies to charges for brine-impacted soil remediation services, including services to dispose of unwanted soil excavated from the remediation site. The contaminated soil is disposed of by converting it into a slurry that is pumped into decommissioned underground gas storage caverns.

Brine-impacted soil, the oil and gas drilling operations that can produce it, the problems such soil cause, and what can be done to correct the problems are discussed in a research article entitled Remediation of Oilfield Brine-impacted Soil Using a Subsurface Drainage System and Hay, by Thomas M. Harris, J. Bryan Tapp, and K.L. Sublette of the University of Tulsa. The article provides: An executive summary prepared for the Kansas Corporation Commission entitled Remediation of Leon Water Flood, Butler County, Kansas, dated March 2003, provides in parts relevant here:

Management of drilling wastes is an ongoing environmental concern. The United States Environmental Protection Agency (EPA), the Bureau of Land Management (BLM), and the Bureau of Ocean Energy Management, Regulation and Regulation, and Enforcement (BOEMRE) have issued Federal regulations that govern the management and disposal of drilling wastes. See Drilling Waste Management Information System at http://web.ead.anl.gov/dwm/. Kansas Corporation Commission regulation K.A.R. 82-3-603 fixes requirements for how spills of oil field fluids are handled. Oil field fluids include saltwater, oil, drilling mud, and fluid used for fractionation.

The discussions quoted above show a range of actions that can be taken to remediate brine impacted soil. If necessary, all of these actions can be taken on the same area of impacted soil. One is to work minerals (e.g. gypsum) into the impacted soil. Another is to plant halophytes, which are plants like saltbush or sea lavender that can flourish in salty soil. The third is to excavate the soil, remove it, and dispose of it in an environmentally sound manner. You ask whether Kansas sales tax applies to excavation services to remove the soil and to services to grind the soil into smaller particles which are mixed with liquids to create a slurry that is pumped into decommissioned underground gas storage caverns.

Kansas retailers’ sales tax is not imposed on soil excavation services if the charges for excavation are not lumped together as part of a taxable installation charge. See In Re Bernie’s Excavating Company, Inc., 13 Kan.App. 2d 476, 772 P.2d 822 (1989). For example, charges for excavating a trench and installing buried pipe in it are fully taxable if both services are billed as a single lump sum charge for taxable pipe installation. However, if the customer invoice shows one charge for pipe installation and another for excavating the trench, the charge for excavation is not subject to Kansas sales tax. Accordingly, Kansas sales tax does not apply to separately stated charges for excavating brine impacted soil or to a lump sum charge for nontaxable remediation services that recovers the service provider’s excavation costs as part of the single, undifferentiated customer charge.

The Kansas retailers’ sales tax act (Act) levies sales tax on retail sales of tangible personal property and on retail charges for the taxable services enumerated in the Act. No service enumerated in the Act can be construed so broadly that it includes disposal services. Over the years, the department has ruled Kansas sales tax is not imposed on charges for sewer services, trash hauling, pumping out septic tanks, and disposing of salt water produced at a gas or oil well, as well as other similar services.

The services performed to transform excavated soil into a slurry that can be pumped into decommissioned gas caverns are also nontaxable disposal services, as it the pumping service itself. Accordingly, charges billed to a customer for: (1) excavating brine impacted soil, (2) hauling it to a pumping station, (3) changing the soil into a slurry, and (4) pumping it into the ground are not subject to Kansas sales tax.

K.S.A. 79-3606(n) exempts:
Salt water produced at a oil or gas well site is a by-product of oil and gas drilling and production operations. When the salt water is dumped on the ground, the salt often combines with the soil and remains there as waste from the oil and gas operations

This means a service provider that provides soil remediation services to third-parties can claim exemption on its purchases of gypsum, hay, manure, fertilizer, and commercial products like RestorNhance and Soil Saver, that are spread on brine impacted soil. The consumed in production exemption only extends to items that is “consumed, depleted or dissipated in one year.” K.S.A. 2010 Supp. 79-3602(dd). Therefore, gravel, limestone, new soil, halophilic plants, tile, liners, netting, and similar items that are purchased and installed as part of a soil remediation project are taxable when purchased by the service provider. After installation, all of these things remain in place for years and are not “consumed, depleted or dissipated in one year.” See In re George Angle d.b.a. Frontier Oil Company, 11 Kan.App. 2d 62, 713 P.2d 962 (1986).(Down hole cement and casing that line a well bore are not consumed in production.)

This is a private letter ruling pursuant to K.A.R. 92-19-59. It is based solely on the facts provided in your request. If it is determined that undisclosed facts were material or necessary to an accurate determination by the department, this ruling is null and void. This ruling will be revoked in the future by the operation of law without further department action if there is a change in the statutes, administrative regulations, or case law, or published revenue ruling, that materially effects this private letter ruling.


Date Composed: 03/12/2012 Date Modified: 03/12/2012