In a decision in a case closely followed by Texas' oil and
natural gas industry, the state Supreme Court Friday ruled that an
oil and gas producer could not qualify for a sales tax exemption on
the purchase of drilling equipment.
The unanimous ruling, which is expected to add millions of dollars
to the tax bills of producers in the Lone Star State, was handed
down Friday in the case of Southwest Royalties, Inc. v. Hegar.
At trial Southwest had argued that it was entitled to a sales tax
exemption for the purchase of casing, tubing and other well
equipment under a statutory exemption for equipment used in
manufacturing. However, state officials held that the equipment was
not used in manufacturing as it is defined in the state tax code.
The justices sided with the state.
"Southwest did not prove that the equipment for which it sought a
tax exemption was used in 'actual manufacturing, processing, or
fabricating' of hydrocarbons," the court said in its ruling, which
upheld earlier rulings of a trial court and an appeals court.
In a statement Friday, Texas Attorney General Ken Paxton praised the
court decision.
"I am pleased that the Texas Supreme Court unanimously agreed that
the law is clear and that Southwest Royalties does not qualify for a
tax exemption.
"The comptroller is faithfully executing the law and treating
taxpayers fairly, in accordance with the wishes of the Texas
Legislature," he said.
However, Todd Staples, president of the Texas Oil and Gas
Association, said the association was disappointed in the court's
decision.
"It is undeniable that oil and natural gas exploration and
production today is more and more a manufacturing process. For a
healthy oil and natural gas industry, our operators, who compete
globally, need equitable tax treatment," he said in a statement
Friday.
--Jim Magill,
jim.magill@spglobal.com
--Edited by Richard Rubin,
richard.rubin@spglobal.com
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