Marcellus Shale Sales Tax Gold

The gold rush is on!  The rush for sales tax gold, that is.  For those involved in the mining of natural gas, a significant opportunity exists for a sales tax refund under the Pennsylvania Sales Tax Mining Exemption.  The Mining Exemption provides an exemption to Pennsylvania’s sales tax for certain equipment and services used in the extraction of natural gas.  Because many vendors are wrongly applying sales tax to items covered by the Mining Exemption, it is important for companies that mine the Marcellus Shale region in Pennsylvania to closely examine their purchases for possible refunds under the Mining Exemption.

What Is Exempt?

The Pennsylvania Department of Revenue has defined the extraction of natural gas as an excluded mining activity.  Pennsylvania law defines mining to include exploration, drilling, extracting and refining of natural resources such as natural gas.  The actual mining process is considered to begin with the drilling of the wellbore and ending with last physical change of the gas prior to being sold and transferred.

The following processes have been considered mining activities:

  • Cementing.  Cementing involves pumping cement slurry (a blended mixture of dry powder cement, water and various additives) to bond casing or piping to the wall of the bore hold.
  • Fracturing.  Fracturing is a well stimulation process used to improve the natural flow of oil gas.  Fracturing begins with the use of a fluid, a mixture of water and chemicals, to crack the rock formation.  Then, proppants such as sand and ceramic material are injected into the cracks to create open channels through which the gas flows.  Once the proppants are in place, the fluid is drained from the well.
  • Acidizing.  Acidizing involves the injection of acid below rock fractures to create flow channels within the rock formation.  The acid is specially blended based on a well’s bottom temperature, depth, fluid characteristics, and nature of formation.
  • Drilling

 The following equipment items have been defined as exempt by the Department of Revenue:

  • Acid Pumper (equipment used to pump specially blended acid)
  • Batch Mixer (equipment used at the well site to mix cement slurry)
  • Frac Pumps (equipment that injects fluid into a formation)
  • Manifold Trailer (equipment that attaches piping lines to the well head to facilitate the pumping operation)
  • Pump down acid equipment (a positive placement pump with boost pump for prime up.  Positive placement pump is used to expand a cavity.  Boost pump is used to increase the system pressure of the operation.  The pump down acid equipment is the pumping equipment used to perform the fracturing)
  • Twin cement unit.  (a system located at the well site that mixes cement to be added to the batch mixer)
  • Drilling rig and repair parts, drilling head, drilling extensions
  • Cutting bits
  • Casing, Pump, Pump rod, Pump Jack
  • Blasting and dislodging equipment and supplies, such as air compressors, compressed air tubes and dynamite or other explosives
  • Rock dust and rock-dusting equipment
  • Trolley and mine telephones used predominantly in mining activities, other than for managerial direction and supervision, such as for dispatching purposes on mine railways and work coordination among production employees of equal authority.

Petition For Refund

For those improperly assessed with sales tax for items subject to the Mining Exemption, a petition for refund should be filed with the Board of Appeals.  A petition for refund of a sales tax payment must generally be made within three years of the payment.  However, a petition for refund of sales tax monies paid as a result of an assessment, determination, or settlement must be filed within six months of the actual payment.

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