South Dakota – Taxability of Oil and Gas Field Services

SALT Report 1578 – The South Dakota Department of Revenue recently updated their publication regarding the taxability of oil and gas field services. In general, the 4% state tax plus any municipal sales tax applies to the gross receipts from the sale of products and services. Gross receipts include all charges for labor, material, supplies, and other items such as mileage, travel expenses, or delivery charges. Additionally, service providers owe sales or use tax on all material, equipment, and supplies they use or consume while providing their service.
The Department’s most recent publication was updated to include the taxability of oil well operator’s fees and royalties.
Oil Well Operator Fees
Fees for managing or overseeing the operation of an oil well in South Dakota are subject to the 4% state tax plus any applicable municipal sales tax. The service provider owes sales or use tax on the equipment, supplies, and services they purchase. Products and services provided by the Operator are subject to sales tax when they are billed to the owner.
The Operator may purchase supplies, services, equipment, and oil and gas field services on behalf of the owner. However, the Operator will owe use tax on these purchases, if sales tax is not collected by the supplier.
Royalties
Royalty interest is retained by a mineral owner in an oil and gas lease. Typically, royalty interest fees are subject to a share of the gross production and oil extraction taxes and the post-production costs; but they are not subject to the costs of pre-production and they are not subject to sales tax.
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