OFFICE OF THE ATTORNEY GENERAL OF TEXAS **AUSTIN**



### goaonbls Prod rtrirwa OrimirulDietriotnttomaf Ioa(zrlow,Tlla~

/

### Eon. Fred

aa *B. s. friarnan, Pago 2

Ii this **baslo** sedimentand weter, StietilaeS tafOrmd tQ
a s,* i8 the acoumulatlQnOf 

### water**and** waets matter la

-_ .- ._ - --_. the bQttoBIo

Or tanXeI

oolaprlelng

tanK farnia

Qr other storage roollltles **for** 

### omds oil uponwhloh 

### the **ooaupotion** 

### tax lerled **by** 

### hrtlolo WSVa, Varnon*~~

irortotated

Civil Statuteorhaa beet paid to the Etato oi Texas by.the *flret purohaseP of suoh 011, 

### a8 contemplatedb7 Sootion 1 (ti)Of the hCt, then Qt COUrW, 110fmthCr taX lICiUti aOOrUe OpQll the 1oVI&rrrit7 Crude Oil 80pal~tadil'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 ooaputedand peld at the ratio of twQ aad thrso-quartersoenta (8 S/4$)per barrel, it wodd pakntl7 oQn#titQtcdouble 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 Substanoeor produOtuhloh JQU Oall "baolo oedlmentand watersm lo In truth **and** in faot tank bottoms, taken rmm the tank8 of the pz~duoor In tank-olaaa%agprooea8.a by **mOhaatiQll** plant8 **pumha~ing** #ama. This 

### preWnt8 aa 

### emtlroly

dltisrentquestionbaoau8a.while aotual ba810 mdlmeat .a& safer aa suoh is, of OQurae,not taxablebooauae it .oOataina M orude 011, tank bQttQM 

### oontaining a rarlable latamlxtara of bui9 l odlwnt

and water with orude 011 **woul&be** taxable to the extant Qt ths oruflb011 reoQrara4 theretmsn. -Qu suoh a liai+atlOaOf tha tana "baslo sediment andwater" 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.8f6llQW6:

"There Is herwb7 leried an oaoupatlon QII011 **pro** daoad within this Stat. **Of** two-& threa-guartars (8 S/w) oants per barrel of **S~rty-two** (a) 

### 8tandard &one. **Said** tax shall be oamputsdupon 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 ualhI** 
anoe **ior** any reasonable **and** bona fide doduotlon fQT baslo Sediment endwater

. . .will **be allQWti.** **”**

The oil QbtaiIIcd

iron tenk bottcnnrr, (deferred%iQi.W

7OW lettera8 hasi aadimeut aud water) ~althoagh admitt&lg Qt l&U gmrit7'Bon. Frad ErIemu, Page 3

1s darlaitely "oIla 8~8above defined. But ne antlolpatie that the arguxcntwiL1 be adranaed that such "oil* *as areatod by a ne*r procese 

### of realamatiouand 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 pctrsentwater, because such "oil" I6 clearly not laerohantable and requiresa prooea6 of 6ep.aratIon

of thewater 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-produatOS this prooeaa of 86paratlon16 taxable under Article VOWa, Venmn*a Annotated Civil Statutes, to the produaer thereof, or subsequentpurohaeer6. 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 rsparatingthe 011 fram fQr8igQ eubbstanoee

la through themedium 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 oreatedwhere.

### It did act exlst before. The prQoeacre8 Of 8~paXUtiQa~e~lQfad in the80 lWO&IM

### tloa plants may be conaidsred

### a13just another. atop 

### in the prodwtiQn .ofoil.,

which the Qrlglnal produo~r oould perform if he 80 doslrod. The expedientqf 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 rea6hedher6ln. s'heall~waaoe Is llmlted.tQ

### a 'rea6QMbl6 and bona fide deduotlon,*and we understand It to be thepraotloe and oustom of the petroleum industry for thI8 dedUOtIQn to **be ch~aimed** 

### aatl allowedwhen the orude 011 la pumped from the lea&e tanks into the .plpellneson a first eale. The aotual baela 8edlMnt snd water la the, crude 011 1s then and there -aed by 8oleatlflOmethod8 and an adjuetmeat Ie accordingly made In the puraha8eprloe between theproducer and the first purohaser. But the statutory exemption
or deductionwag not intended to oover tank bottome, oontainlng in meet cases a larger per oent oi orude petroleum than be616 sediment 

### andwater, even thou& euah tank bottom6 o&nuot be ooaeidered

### marohantableoil. The statute above quoted limit8 the deduatlon or sxemptfonclaimed to actual "B. 5. k llI.- and l.mplledly

disallQWl3

a fraudulentclaim formlon 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 'crudeoil, la u&d on hlghways or destroyed, no tax aooruee. But If it oontalde such quantities OPkrlide

of1 as to becoazeintereating 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 

### determinedupon 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~bllltyOS the "producer" of crude petroleum a6 dafinad in section 1 (1) ot the Aat, but It la provided t&t every pumhaae~, whether 'ilratpurohaaelm or waub6equentpurohaser,*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, 

### flretpurohasor, aud/or aubaequantpumhaaar or **purohaaor6,** and aubdlr~alon (l5).or eald eeotlonprovides 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



### Seation1 (3)doflnea%Ub68qUent purohaaarb as any topp@g **plant,** tmating plant, rarlnery, 6nd/or any **kind** or ohamoter of proooaelngplant,
or anyonowho purahaaoa 011 ror any purpose whatsoever,when said 011 is purchascd.fromany pemon,other than the produaer.

Se are oliablato detormlns rroa! the faota 6ubmlttodwhether the roelopratlon plant pur@ashg thla "8. f?. **k.W.-** la a "&f&at purchascfl

### or nauba4qu4ntpurchaae~ a6 homlnaboro dofined. in either case an obligationwould roat.upon aueh roalamatltiplant to pay the oo'eupatlon tax leria@&y Artlole 7067a, Vernon's Annot**ated** Cltll Otatutea, upon all arugs 011 **Qarltod** by it from tha Ig. S.'& **19. ”** purohaasd, If auoh tax haa not themtofora 

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

### uponalthertheVlret **puroha8or*-and/or** *subssquontpUrOhaa4X"' in the event the tax $9 not pald by the pmduoor, sad the **raolama** tlon 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

-.