On November 15th, the Pennsylvania Department of Revenue updated and reissued Sales and Use Tax Bulletin 2012-01, addressing sales and use tax issues with respect to drilling site preparation in the Marcellus Shale. As originally issued on April 16, 2012, the bulletin stated that equipment used to build drill rigging pads was taxable but tax would not apply to foundation materials, such as sand, stone and similar materials. As updated, the bulletin adds that where rigging pads are constructed in accord with certain statutory requirements applicable to containment for unconventional wells, “to control or abate pollutants generated in the mining operation,” materials such as liners, sand and gravel would be excluded from tax as pollution control devices.

The bulletin continues to advise that equipment used in construction of ponds or other facilities, as well as liners and other materials used in such construction, are taxable where fresh water or other raw materials will be stored. However, where a pond is used to store pollutants generated in drilling operations, materials used in the construction of the pond, such as liners, would be exempt as pollution control devices. See our July 2012 newsletter for a review of other guidance concerning application of sales and use tax to drilling activities in the Marcellus Shale.