Equipment Used in Gas and Oil Extraction Not Eligible for Manufacturing Exemption in Texas

Monday, August 18th, 2014

 
 
Gas and oil extraction pumps.
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Texas
General

The Texas Third Court of Appeals ("Court") recently ruled that a taxpayer's purchases of equipment used in oil and gas extraction did not qualify for the manufacturing exemption.

Texas exempts sales of items directly used in the manufacturing, processing, or fabrication of tangible personal property. The items must be necessary or essential to the process and must directly make or cause a physical change to the product. Texas also exempts items used in manufacturing, processing, or fabrication if the items are necessary and essential for a pollution control process or for compliance with public health laws.

The taxpayer extracted natural gas and oil from the ground. The taxpayer argued that the manufacturing exemptions applied to casing, tubing, pumps, and related parts used in the extraction process.

The Court ruled that these exemptions did not apply. The extraction process was not manufacturing, processing, or fabricating tangible personal property. The state distinguished between manufacturing and extraction in other contexts. There were separate exemptions for items used in mineral exploration and production. Dictionary and industry definitions of "manufacturing" would not include extraction. The Court therefore concluded that the manufacturing exemptions did not apply to equipment used in oil and gas extraction.

http://www.search.txcourts.gov/Case.aspx?cn=03-12-00511-CV


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TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

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