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Texas Supreme Court Decision Saves State Billions

June 24, 2016

A recent ruling from the state's Supreme Court addressed a long dispute concerning Texas taxes — and taxpayers should be happy about it.

Like many important legal cases, Southwest Royalties, Inc. v. Hegar, concerned some fairly arcane issues. Basically, it turned on whether a Texas sales tax exemption for manufacturing machinery and equipment applied, as claimed by the plaintiffs, to certain items used to bring oil and gas to the earth's surface.

The state contended that pumping oil and gas from underground reservoirs isn't actual manufacturing of oil and gas, and that the equipment does not qualify for the manufacturing exemption.

The court agreed.

The favorable court ruling in the closely watched Southwest Royalties case means that Texas won't be on the hook for billions of dollars in immediate tax refunds as well as hundreds of millions annually thereafter. That kind of financial loss could have made the 2017 legislative session extremely difficult.

I'm a great supporter of the Texas oil and gas industry, and I'm keenly aware of the many positive effects it's had on our economy. But as Comptroller, my duty is to follow the letter of the law. That was our position in this case — and it will be going forward, too.

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Thank you for all you do for Texas, and God bless,

Glenn Hegar