Pennsylvania Clarifies Sales Tax on Equipment and Supplies Used in Mining Site Preparation

Wednesday, April 18th, 2012


The Pennsylvania Department of Revenue (DOR) has published a bulletin explaining sales tax rules for mining site preparation. Pa. Sales and Use Tax Bull. No. 2012-01 (Dept. of Revenue Apr. 16, 2012). Specifically, the bulletin discusses the taxability of equipment and supplies used to prepare a site in anticipation of mining operations to be conducted at that site.

Generally, machinery, equipment, parts (and foundations for those parts), and supplies that are predominantly used directly in mining operations will be excluded from Pennsylvania sales and use tax. Pa. Stat. Ann. tit. 72, sec. 7201(k)(8); 61 Pa. Code sec. 32.35(a).

However, some equipment and supplies used in site preparation may not qualify for the exclusion, even if the property is considered "essential" or is required by law. A Pennsylvania sales tax regulation states that this exclusion does not apply to property or services used in the "construction, reconstruction, alteration, remodeling, servicing, repairing, maintenance or improvement of real estate." Accordingly, equipment or supplies used to "remove trees and clear ground preparatory to extraction activities is not deemed to be directly used" are therefore not eligible for the exclusion from sales and use tax.

As a result, most equipment used in mining site preparation will be subject to tax. However, the foundation directly under the drilling rig is excluded from tax. The regulation specifically states that "foundations" are among the items excluded from tax, despite the fact that it is connected taxable equipment used to build rigging pads.

Additionally, the construction of ponds or other storage areas used to store fresh water or raw materials prior to their use in drilling or hydraulic fracturing is not considered a mining activity for purposes of the tax exclusion. Therefore, any equipment used in the construction of these items will be subject to tax. However, if the pond will be used to "control or abate pollution generated in the mining operation," it will be excluded from tax. Any materials used in the construction of that pond, such as liners, sand and gravel, would be excluded from sales and use tax.

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