AUSTIN, Texas (AP) — The Texas Supreme Court rejected an energy company's request for a sales tax refund on Friday, a seemingly small and esoteric decision that nonetheless saved the state from potentially having to underwrite billions of dollars in similar rebates.
The court's nine Republican justices ruled unanimously that Midland-based Southwest Royalties should not be exempted from paying sales tax on equipment used in oil and natural gas drilling.
Southwest Royalties was hoping to exempt equipment purchases of casing, tubing and pumps between 1997 and 2001, arguing that the materials were used to produce hydrocarbons, which would have excused them from sales tax levies under Texas law.
But Texas Comptroller Glenn Hegar estimated that the case would have far-reaching implications and could have spurred more than $4 billion in refunds had the state's highest civil court not endorsed previous lower court decisions that also went against Southwest.
"Southwest did not prove that the equipment for which it sought a tax exemption was used in 'actual manufacturing, processing, or fabricating' of hydrocarbons," Justice Phil Johnson wrote in an opinion released Friday.
Attorney General Ken Paxton, whose office argued the case, praised Hegar for "faithfully executing the law and treating taxpayers fairly, in accordance with the wishes of the Texas Legislature."
"Bottom line: We saved the state, and taxpayers across the state, over $4 billion," Paxton said in a statement.
In his own statement, Texas Oil & Gas Association President Todd Staples called the ruling a disappointment.
"It is undeniable that oil and natural gas exploration and production today is more and more a manufacturing process," Staples said. "For a healthy oil and natural gas industry, our operators, who compete globally, need equitable tax treatment."
