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Texas budget spared in court ruling on drilling tax case

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A Texas Supreme Court ruling has spared the state from having to issue billions of dollars in tax refunds to oil and gas drillers — a prospect that had  threatened to shake up the next legislative session. 

The justices on Friday sided with Texas Comptroller Glenn Hegar in an arcane tax dispute that the Republican feared could have far-reaching consequences for the state’s budget outlook. 

Denying Midland-based driller Southwest Royalties’ request for a refund, the court ruled that state law did not exempt metal pipes, tubing and other equipment used in oil and gas extraction exempt from sales taxes. 

“Southwest did not prove that the equipment for which it sought a tax exemption was used in “actual manufacturing, processing, or fabricating” of hydrocarbons within the meaning” of the tax code, Justice Phil Johnson wrote for the majority in an opinion that affirmed decisions in lower courts. “Thus, Southwest is not entitled to an exemption from paying sales taxes on purchases of the equipment.” 

Though Southwest Royalties, a subsidiary of Clayton Williams Energy, sought to recoup less than $500,000 from purchases between 1997 and 2001, the stakes were far higher. 

A Texas loss could have spurred up to $4.4 billion in refund filings for 2017 alone, Hegar’s office estimated, and $500 million each subsequent year that the exemption remained in place. 

In a statement released after the ruling, Texas Attorney General Ken Paxton praised the court’s ruling. 

“The Comptroller is faithfully executing the law and treating taxpayers fairly, in accordance with the wishes of the Texas Legislature,” Paxton said. “Bottom line: we saved the State, and taxpayers across the State, over $4 billion.” 

This article originally appeared in The Texas Tribune at http://www.texastribune.org/2016/06/17/texas-budget-spared-court-ruling-drilling-tax-case/.

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