The State of Texas is likely to save billions of dollars in rebates after the Texas Supreme Court turned aside a request for a sales tax refund sought by Midland-based Southwest Royalties.
The nine Republican justices ruled unanimously that the energy company should not be exempted from paying sales tax on equipment used in its oil and natural gas exploration operations.
Southwest Royalties wanted to exempt its equipment purchases of casing, tubing and pumps between 1997 and 2001. The company maintained that the materials were used to produce hydrocarbons which would have excused the firm from sales tax levies under state law.
“It is undeniable that oil and natural gas exploration and production today is more and more a manufacturing process,” said Todd Staples, the President of Texas Oil and Gas Association who expressed disappointment after the ruling. “For a healthy oil and natural gas industry, our operators, who compete globally, need equitable tax treatment.”
But Texas Comptroller Glenn Hegar said the case would have spurred more than $4 billion in refunds had the high court not endorsed previous lower court decisions that ruled against the company.
“Southwest did not prove that the equipment for which it sought a tax exemption was used in actual manufacturing, processing or fabricating of hydrocarbons,” ruled Justice Phil Johnson.
