A new ruling this week from Travis County District Judge John Dietz this week could cost the state of Texas billions in tax revenue. Ruling in favor of the drilling company Southwest Royalties, the court found that oil and gas equipment used for exploring and completing wells should not be subject to sales tax because it qualifies for an manufacturing exemption.
“The judge has indicated he’s going to rule with the plaintiffs, but we know the state is going to appeal,” he says. “We’ve had instances where plaintiffs have won big judgments in trial court, only to see it be reversed on appeal and vice-versa. This is still very early in what will be a long legal process.”
Craymer says it also depends on how the final ruling is written. It could be broad enough to include billions in tax funds or narrow enough to only affect a smaller amount. Southwest Royalties is owned by Clayton Williams, a Midland oilman known for his failed campaign against Ann Richards for Texas Governor in 1990.
The Texas Energy Report says that the state could lose “$4.4 billion plus interest in sales tax revenues by 2017,” according to a document they obtained. It “shows that $2 billion of that total might be owed to oil companies in refunds, along with interest, based on a standard four-year statute of limitations,” according to the site.
UPDATE: Debbie Hastings, executive vice president of the Texas Oil & Gas Association (TXOGA), which wasn’t a party to the case, says in a statement emailed to StateImpact Texas that they were “surprised” by the decision. “We understand there may be potential implications of this decision to our companies, the state of Texas, and local taxing entities,” Hastings says. “We are waiting for the written decision and an analysis of the case to fully understand those implications.” Hastings notes that the oil and gas industry added $9.3 billion in tax revenues and royalties to the state’s coffers last year, and says that “vast majority of that state and local revenue is unaffected by Judge Dietz’s decision.”
Read More: Why Texans are Chasing Millions in Oil and Gas Royalties: Energy companies are paying billions of dollars in oil and gas royalties to Texas landowners. But some owners say they’ve been short-changed. The biggest among them: the State of Texas.