OFFICE OF THE ATTORNEY GENERAL OF TEXAS 

AUSTIN 

goaonbls Prod rtrirwa 

Orimirul Dietriot nttomaf 

Ioa(zrlow,Tlla~ 

/ 
Eon. Fred 

aa *B. s. 

friarnan, Pago 2 

Ii this baslo sediment and weter, StietilaeS tafOrmd tQ 

a s,* i8 the acoumulatlQn Of water and waets matter la 

-_ .- ._ - --_. the bQttoBIo Or tanXeI oolaprlelng tanK farnia Qr other storage roollltles 

for omds oil upon whloh the ooaupotion tax lerled by hrtlolo WSVa, 

Varnon*~~ irortotated Civil Statuteor haa beet paid to the Etato oi Texas 

by.the *flret purohaseP of suoh 011, a8 contemplated b7 Sootion 1 

(ti) Of the hCt, then Qt COUrW, 110 fmthCr taX lICiUti aOOrUe OpQll 

the 1oVI &rrrit7 Crude Oil 80pal~tad il'O& thl8 "B. S. & W." h this 

"B. S. & WI.* was part and psrael of eaoh barrel of orudo 011 pumpad 

lx&~ the tank, u?~n whloh a tax was ooaputed and peld at the ratio of 

twQ aad thrso-quarters oenta (8 S/4$) per barrel, it wodd pakntl7 

oQn#titQtc double taratlon In am anlawf~l sttnee to again oolleot 

tohill tar UpOn Qil derired from suoh "'8. S. k If." 

Your letter la not Olear Ln this regard, but for purp~aea 

Qt thla opinion, we ehall awuw that the Substanoe or produOt uhloh 

JQU Oall "baolo oedlment and watersm lo In truth and in faot tank 

bottoms, taken rmm the tank8 of the pz~duoor In tank-olaaa%ag prooea8.a by mOhaatiQll plant8 pumha~ing #ama. This preWnt8 aa 

emtlroly dltisrent question baoau8a. while aotual ba810 mdlmeat 

.a& safer aa suoh is, of OQurae, not taxable booauae it .oOataina M 

orude 011, tank bQttQM oontaining a rarlable latamlxtara of bui9 

l o dlwnt and water with orude 011 woul&be taxable to the extant 

Qt ths oruflb 011 reoQrara4 theretmsn. -Qu suoh a liai+atlOa Of 

tha tana "baslo sediment and water" or 'B. S. k W.," usad la 70plr 

htter, we till pmOee8. to &Ve our roawaa for holding thS.OIW60 

oil darlvsd fm awh pml!ot to b& taxable. 

Seotion 8 '(1) df firtlole VOSTa, Vernoals ~&M-atad Clril 

Statutea, levie6 the OOcUpatiQn tm in qUwtiOn a.8 f6llQW6: 

"There Is herwb7 leried an oaoupatlon QII 011 prodaoad within this Stat. Of two-& threa-guartars (8 S/w) 

oants per barrel of S~rty-two (a) 8tandard &one. Said 

tax shall be oamputsd upon the total bwrels of 011 produoed Qr salvaged fiQm the earth Qr w&are Qt this St&b 

WithQUt onr deduotlon, and shall be based upon tank table8 

ShQdng OW hUQdX%d per Oent (xoo$) Of PSQdUOtiQn and mot 

ndeaurwentrr oi oontents+~- 

Seotlan 1 (5) define8 *O$l* to msan "ambe 011 or other 

011 taken fxm the earth, regardle8a Qf gzar1t.y of the 011.' 

Seotlon 1 (8) of the Aat pro+lbae, in part, that ualhIanoe ior any reasonable and bona fide doduotlon fQT baslo Sediment 

end water . . . will be allQWti.” 

The oil QbtaiIIcd iron tenk bottcnnrr, (deferred %iQ i.W 7OW 

letter a8 hasi aadimeut aud water) ~althoagh admitt&lg Qt l&U gmrit7' 
Bon. Frad ErIemu, Page 3 

1s darlaitely "oIla 8~8 above defined. But ne antlolpatie that the 

arguxcnt wiL1 be adranaed that such "oil* *as areatod by a ne*r 

procese of realamatiou and cannot be considered to have been *produoed or salvaged from the earth or waters of the State," 60 

a6 to bo within the tar levy of &otion 2 (I) of the Act. Thle 

same argument Qould plaualbly be urged as to crude 011 produoed in 

oortaln section8 Qi Texan contaInIn& ninety pctr sent water, because 

such "oil" I6 clearly not laerohantable and requires a prooea6 of 

6ep.aratIon of the water and other f~retgn sub6taace from the 'oil* 

as It comes from the earth or waters of the State. But oertalnly 

tho marketable crx&de 011 rchloh 16 the end-produat OS this prooeaa of 

86paratlon 16 taxable under Article VOWa, Venmn*a Annotated Civil 

Statutes, to the produaer thereof, or subsequent purohaeer6. By 

the same token, crude 011, ragardlosrr of its grarlty, whloh is 

produoed or derived by a proce88 of separating It from the ba6lo 

8ediment and water with which it has beoone IntermIred 16 aertalnly 

tho same orude 01.1, mleoule fQr amleoule, as was originally pm42:: and sslrag?d from the earth sad waters of the atate by the pro- 

. The fact that the proce66 of rsparating the 011 fram fQr8igQ 

eubbstanoee la through the medium OS oh6mlatry 16 beside the mark.. 

The point we make la that no new produot 16 oreated In these reolamatiQn plants. Crude 011 1s not produoed or oreated where. It did act 

exlst before. The prQoeacre8 Of 8~paXUtiQa~e~lQfad in the80 lWO&IMtloa plants may be conaidsred a13 just another. atop in the prodwtiQn 

.of oil., which the Qrlglnal produo~r oould perform if he 80 doslrod. 

The expedient qf a aale of this 011 from pmdnoer to reo&imation 

plant does not allow an eaaape from taxation a8 011 pr~duoed in t&l6 

state. 

The ahore quoted statufory alloraaoe of a deduotlon for 

baelo aedihnt and.water preaaata no ob6taole TV the~aonolueion 

rea6hed her6ln. s'he all~waaoe Is llmlted.tQ a 'rea6QMbl6 and bona 

fide deduotlon,* and we understand It to be the praotloe and oustom 

of the petroleum industry for thI8 dedUOtIQn to be ch~aimed aatl 

allowed when the orude 011 la pumped from the lea&e tanks into the 

.plpellnes on a first eale. The aotual baela 8edlMnt snd water la 

the, crude 011 1s then and there -aed by 8oleatlflO method8 

and an adjuetmeat Ie accordingly made In the puraha8e prloe between 

the producer and the first purohaser. But the statutory exemption 

or deduction wag not intended to oover tank bottome, oontainlng in 

meet cases a larger per oent oi orude petroleum than be616 sediment 

and water, even thou& euah tank bottom6 o&nuot be ooaeidered marohantable oil. The statute above quoted limit8 the deduatlon or 

sxemptfon claimed to actual "B. 5. k llI.- and l.mplledly disallQWl3 a 

fraudulent claim for mlon of a produot alleged to be "B. 5. h We, 

but whloh In fact oont@ine large quantltlea of'orude 011. If thla 

eo-aalled *B. 9, &. #.,m ummrketable a8 'crude oil, la u&d on hlghways or destroyed, no tax aooruee. But If it oontalde such quantities 

OP krlide of1 as to becoaze intereating to e reowtion plant, it is 

,not, ip point of fast, *B..S. & *.,* and tbe 011 derived therefrom 

ia taxable. 
Eon. Fred Priaman, page 

It raaains to ._ 

4 

be determined upon whom the obligation to 

rests. _ .._ . 

By spftlon 1 (1") 0' Afilole 7067a & ay thld occupation tax 

erIlOn’6 Annotated Clrll ~tatutas, this oceupat1on sax la lnaae cl 

prisiary ll~blllty OS the "producer" of crude petroleum a6 dafinad 

in section 1 (1) ot the Aat, but It la provided t&t every pumhaae~, 

whether 'ilrat purohaaelm or waub6equent purohaser,* 88 defined in 

the Ad+, 16 required to oollect such tax by deduating and wlthholdlng tha amouat thereof from any payment aide by suoh purahaaar to 

tha produter, and ramlttlng aama to the f.tatc. Seotlon 1 (14) oi 

the Act provides that tbo taxes levied thereby Shall bs a llablllty 

upon the producer, flret purohasor, aud/or aubaequant pumhaaar or 

purohaaor6, and aubdlr~alon (l5).or eald eeotlon provides that 

failure of the purohaaer to pay Said tq ehallnot mliera the produoar from the paylLent of same, nor shall It relieve any subsequent 

purebaser from the papent or aa~e. Sootion 1 (2) or tha Rot derlnea 

Vlrat pumh484~ to mean any person purohaslng crude 011 from the 

Seation 1 (3) doflnea %Ub68qUent purohaaarb as any 

topp@g plant, tmating 

plant, rarlnery, 6nd/or any kind or ohamoter of proooaelng plant, 

or anyonowho purahaaoa 011 ror any purpose whatsoever, when said 

011 is purchascd.from any pemon,other than the produaer. 

Se are oliabla to detormlns rroa! the faota 6ubmlttod whether the roelopratlon plant pur@ashg thla "8. f?. k.W.- la a "&f&at 

purchascfl or nauba4qu4nt purchaae~ a6 homlnaboro dofined. 

in either case an obligation would roat.upon aueh roalamatlti plant 

to pay the oo'eupatlon tax leria@&y Artlole 7067a, Vernon's Annotated Cltll Otatutea, upon all arugs 011 Qarltod by it from tha 

Ig. S.'& 19.” purohaasd, If auoh tax haa not themtofora beon paid 

by tho produoar. This la 60 botaose thla.tax Ilability raata 

upon alther the Vlret puroha8or*-and/or *subssquont pUrOhaa4X"' 

in the event the tax $9 not pald by the pmduoor, sad the raolamatlon plant involved in y&r question nust neoeaoarfly bo olther one 

or the other of auah purohaaera~ 

Trusting that thle rully anawera your inquiry, 10 are 

Tours vary truly 

ATTORRF? GE3QERAl.a OF TEXAS 

-.