Reversing its prior ruling (discussed in our
April 23 client e-communication), the Travis County District
Court issued a final judgment yesterday afternoon determining that
machinery and equipment used to extract oil and gas from wells was
subject to sales tax in that the manufacturing exemption did not
apply.
A copy of the final judgment can be found
here. As noted on pages 2 - 3, the court's rationale is
that while the extraction operations brought about the requisite
physical changes to the oil and gas, the machinery and equipment at
issue did not directly cause such changes. Rather, the court
reasoned the direct causes of the physical changes were the changes
in pressure and/or temperature. The court did not address the
argument that such pressure/temperature changes could not have
occurred without the machinery and equipment at issue.
There is no word yet whether Southwest Royalties will appeal this
ruling.
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