ADMINISTRATIVE NOTICE 95-22
SUBJECT: Consumers Sales
and Use Taxes -- Water well drilling is a contracting activity
for purposes of the consumers sales and use taxes.
It has come to our attention that there is some
misunderstanding among well drilling businesses over proper application
of the consumers sales and service tax and compensating use tax
to the activity of water well drilling (as opposed to mineral
production well drilling).
Obsolete consumers sales and use tax regulations
treated water well drilling as a taxable service. In 1992, the
West Virginia Legislature approved promulgation of amendments
to the consumers sales and use tax regulations which, among other
things, reclassified water well drilling as contracting activity.
Title 110, Code of State Regulations, Series 15,
Section 117.28 reads:
117.28 Well Drilling. - Persons engaged
in the business of water well drilling are rendering a contracting
service, the gross receipts from which are not subject to [consumers
sales and service] tax.
Persons engaged in the business of providing contracting
services are generally required to pay consumers sales or use
tax on all purchases for use or consumption in that business activity.
Title 110 Code of State Regulations, Series 15,
Section 8a.1 reads:
8a.1 Persons engaged in the business of providing
contracting services to other persons are providing a service
that is generally not subject to consumers sales and service tax.
Such persons are generally considered to be the user or consumer
of all tangible personal property and all services which they
purchase. Consequently consumers sales and use taxes must be
paid on all purchases of tangible personal property or taxable
services except as otherwise provided in these regulations.
SUMMARY
1. Water well drilling is classified as contracting
activity under the consumers sales and use tax laws and is treated
in the same way as construction contracting.
2. Since the drilling of water wells is a contracting
service and since contracting services are exempt from the consumers
sales and service tax, the driller should not add 6 percent consumers
sales and service tax to the amount the driller charges for drilling
a water well.
3. Persons engaged in the business of water well
drilling are generally required to pay consumers sales and use
taxes on all purchases of tangible personal property or taxable
services for use or consumption in the well drilling activity.
This includes materials and other items ultimately sold or transferred
to the customer when the well is completed such as, for example,
well casings, pipe, well caps, well seals, and pumps.
NOTE: The preceding
discussion applies to water well drillers. It does not apply
to drillers of natural gas wells, oil wells, salt brine wells,
or any other well drilling for purposes of producing a mineral.
APPLICATION OF THIS ADMINISTRATIVE NOTICE
Due to widespread confusion among water well drillers,
the Department will not penalize water well drillers who continued
to treat water well drilling as a taxable service after the consumers
sales and use tax regulations were changed in 1992. However,
these water well drillers must remit to the Tax Commissioner,
by January 31, 1996, all consumers sales and service tax billed
before January 1, 1996. Beginning January 1, 1996, all water
well drillers must pay consumers sales or use tax on all purchases
of tangible personal property or taxable services used or consumed
in drilling water wells after December 31, 1995.
Water well drillers who have been paying consumers
sales or uses taxes on their purchases and who treated water well
drilling as a contracting service exempt from consumers sales
tax may not file a claim for refund of the consumers sales or
uses taxes they paid on their purchases for use in business.
If, on audit, it is determined that a water well
driller failed to pay consumers sales and use taxes on purchases
of tangible personal property or taxable services used or consumed
in water well drilling and failed to collect consumers sales tax
on charges for drilling a water well drilling billed before January
1, 1996, the audit will be completed under the 1992 regulations
relating to water well drilling contracts entered into after June
30, 1992.
Please contact our Taxpayer Services Division if
you have a question about this administrative notice.
Issued: November 8, 1995 James H. Paige III
Secretary/Tax Commissioner
For additional information please write or call:
Department of Tax and Revenue Operator on Duty 8:30 am - 4:30 pm
Taxpayer Services Division Monday through Friday
P. O. Box 3784 Telephones: (304) 558-3333 or
Charleston, WV 25337-3784 1-800-982-8297 (within W. Va. only)
Telecopier: (304) 558-3269
TDD Service for the hearing impaired:
1-800-282-9833
Field Offices: (SEE
NEXT PAGE)
| Field Offices with taxpayer service representatives are located in the following cities: Beckley Suite 109 407 Neville Street Beckley, West Virginia 25801 Phone: 256-6870 | Clarksburg Gore Hotel 205 West Pike Street Clarksburg, West Virginia 26301 Phone: 627-2165 |
| Huntington 1037 6th Avenue Huntington, West Virginia 25701 Phone: 528-5565 | Martinsburg 1432 Edwin Miller Blvd. Martinsburg, West Virginia 25401 Phone: 267-0020 | |
| Parkersburg 400 5th Street Parkersburg, WV 26101 Phone: 420-4573 | Wheeling 40 14th Street Wheeling, West Virginia 26003 Phone: 238-1150 | |