37 FEBRUARY 2024 WorldWide Drilling Resource® Drilling Into Money Not Boring by Mark E. Battersby The Other Tax With 45 states and the District of Columbia requiring businesses to collect sales taxes at the point of sale, most are familiar with them. Businesses within the drilling industry, on the other hand, have a many-faceted and often-misunderstood relationship with sales taxes. Traditionally, only tangible products were subject to sales tax. However, many states now tax services to fill up their tax coffers. In most states, purchases of supplies and materials made by drilling contractors, suppliers, or service businesses are usually taxable at the time of purchase because most states treat these businesses as the end consumer. As end consumers, the drilling operation is not expected to sell supplies and materials, but rather consume them. However, some states allow businesses to treat materials and supplies as purchases for resale inventory - if the invoice or bill separately states this. While knowing when and how to collect a sales tax is critical, paying - and remitting - collected sales taxes or selfassessed use taxes to the state or local government is equally important. A completed sales tax remittance form should always be submitted regardless of whether sales taxes have been collected or not during the period. When a drilling company makes out-of-state or Internet purchases, they may encounter the often-ignored, but increasingly enforced “use” portion of the sales and use tax conundrum. In general, a drilling operation is supposed to voluntarily file its own report and pay the standard tax on all out-of-state or online purchases. Without accurate records, a drilling business leaves itself open for a variety of problems, not the least of which is a sales tax audit. Not too surprisingly, the revenue woes of many state and local governments have prompted a significant increase in tax audits, especially sales taxes. The “no tax collected, no return required” myth can end up costing a drilling company money. Every business with a sales tax permit should always file a sales tax return on the due date in the jurisdiction where the sale was made - even if sales taxes were not collected in the period covered by the return or jurisdiction. Calculating, collecting, and reporting sales taxes and, of course, complying with the many and diverse use taxes, can be painful, but ultimately, sales taxes go toward a good cause. These taxes are what fund state and local budgets and pay for schools, roads, fire prevention, and other important programs. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com
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