Opportune Tax Alert: Texas Sales Tax Manufacturing Exemption for Below-Ground Equipment?

This Tax Alert reports recent developments in a Texas sales tax case with the potential to generate significant cash tax savings for the upstream industry.

The Texas Supreme Court has set oral arguments in Southwest Royalties v. Glenn Hegar, Comptroller of Public Accounts for March 8, 2016.  Southwest Royalties is seeking a refund of Texas sales tax on purchases for below-ground equipment used in the processing of oil and gas.  If the Court rules for Southwest Royalties, this case will mark a significant expansion of the Texas manufacturing exemption under Texas Tax Code Sec. 151.318.  The Texas Comptroller has estimated this expansion could cost the State over $4 billion in lost sales tax revenue.

Opportune Tax recommends protective sales tax refund claims for our Texas upstream clients with the following profile:

  • Working interests in Texas wells
  • Material investment in Texas operations from 2012-2016
  • Texas sales tax activity:
    • No sales tax refund requests for 2012-2016 or
    • Filed refund requests that did not include purchases for below-ground equipment

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