PRICE DANIEL 

ATTORNEY GENERAL 

Arrx~rru 1s. TWXAS 

November 20, 1951 

Hon. Robert S. Calvert Opinion No. V-1353 

Comptroller of Public Accounts 

Austin, Texas Re: Construction of Subsection 

(b), Section 1, Article 7060a, 

V.C.S., relating to the taxation of certain oil well surDear Mr. Calvert: veying or testing services. 

You have asked this office for a construction of Article 7060a, V.C.S., with reference to the taxability of certain well 

servicing operations. Your request embodies several questions 

which we will briefly state and answer separately. 

Subsection (b) of Section 1 of Article 7060a, as amended by Section XIV of House Bill 285, Acts 52nd Leg., R.S. 1951, ch. 

402, pm 6,95, reads as follows: 

“(b) Every person in this State engaged in the 

business of furnishing any service or performing any 

duty for others for a consideration ai compensation, 

with the use of any devices, tools, instruments or 

equipment, electrical, mechanical, or otherwise, or 

by means of any chemical, electrical or mechanica 

process when such service is performed in connection 

with the cementing of the casing seat of any oil or gas 

well or the shooting or acidizing the formation of such 

wells or the surveying or testing of the sands or other 

formations of the earth in any such oil or gas wells, 

shall report on the 20th day of each month and pay to 

the Comptroller, at his office in Austin, Teitas, an occrupbtion tax equal to 2.42% of the gross amount received from said service furnished or duty performed, 

during the calendar month next preceding, The said 

report shall be exec,uted under oath on a form prescribed and furnished by the Comptroller j” 

This office has held in previous opinions that the tax 

in question applies only to well services which are performed in 

connection with the following specifically named operations: Gei 

menting of the casing seat of any oil or gas well, shooting or acidizing the formations, and the surveying or testing of sands or formations of the earth in such wells. Att’y Gen. Ops, O-3627 (1941), 

O-3698 (1941), O-3784 (1941), and O-4261 (1942). 
. 

Hon. Robert S. Calvert, Page 2 (V-1353) 

In your first question you ask if the opinions of this 

office construing Article 7060a are still in effect in view of the 

decision of the Court of Civil Appeals,in Western Co. v. Sheppard, 

181 S.W.2d 850 (Tex.. Civ. App, 1944, error ref,.). 

The plaintiffs in the Western case sued to 

recover taxes which had been paid under protest on receipts from 

shooting and acidizing oil and gas wells. The plaintiff contended 

that various items of expense incurred in performing such services were deductible from the gross receipts before computing 

the tax, In this connection, the Court said: 

“The words service and duty are words of common usage and generally well under&god. The fact 

that their application to a particular set of facts or a 

particular occupation may be somewhat difficult does 

not render the language of the Act indsiinite or uncertain. Either the tax was intended to apply to the gpclss 

receipts of the entire prscess of shooting or aeidizing 

wells, including the costs of materiala; M it was intended to be limited to the gro,ss reeripte from the 

services performed in the actual aCi#laing 0~ shooting 

of the well, exclusive of the cost of the acid or expiesives used in such processes. It must be presumed 

that the Legislature, when it passed the act, was familiar with the manner in which such business was conducted., The record discloses that in the acidizing 

process large quantities of acid are used, the amounts 

and mixtcwea depended upon the character and thickness Bf the oil bearing strata: and that the appellants 

se engaged were mo~c interested in the sale af the acid 

than in placing it in the well. There are thus involved 

in the business of such appellants tWer factors,--one a 

sale of the acid& and ttae other a s-ice of placing same 

in the welt in such manner, by the use of tieis owi~ 

equipment, skill, etc., as to accomplish the desired result. Th& major portion af the gross receipts for the 

overall undertaking was for the mate&als furnished 

and a*edg and the chzge for ‘servicing’ the well with 

such mateaials constLtuted only a minor portion of the 

total aggssgate OF gross charge, though the two items 

were not speciPcally segregated in such overall or 

g*‘@ss cbatge, If the Legislatsse, cognizant et these 

matters, had intend& to levy the tax both on the &at 

of the matcsials used in perbarm5ng such servke an& 

on the service perfc+med tn s&&zing t&z v&Al, it could 

easily have so provided. Since, however, the lanmgpe 

used emphasizes the kern service in cmmection with 

the shading or acidising process, an item separabk 
Hon. Robert S. Calvert, Page-3 (V-1353) 

from the sale and delivery of the materials used, which 

could have been made a distinct transaction without 

such service; and lays the tax by express language on 

the ‘service furnished or duty performed,’ the gross 

receipts taxed would, we think, be those received for 

such services, not including the value of the materials 

used..” (181 S.W,.Zd at 856.) 

The ,Gourt then set out the following guide or rule to 

bs used in arriving at the value of materials sold and delivered 

to the well head: 

“No good reason appears why those so engaged 

in such business could not and should not segregate in 

eech instance a fixed charge for such service from the 

sales price of their materials at the well head. In the 

absence of such segregatien and the &e&ion of a spe- 

&fic service charge, since the @a:tuta expseedy tlcxee 

only the service, regardless of the domi@rant eteaeht 

of value of the materials used, the most reasonable 

aad prnctical metfawl of airi&ng at the ai3&ee eha#$e 

would be the difference. between the fair and reason&i& 

market’value of the a,cid delivered at the well head and 

the total gross charge; or if such market value cannot 

be so established, then its actual or intrinsic value at 

the woe11 head. In determining s,ach market or actual 

value ail of the elements enter,ing into same should be 

consideredi not only those undertaken to be enumerated 

in tbw tr&& court’s formub, but any others f~ais&y and 

reason&&y entering into the value, whether market gzl 

aqztual, of the ma,terials used in the shooting or acidieing prooe,ss delivered at the well head. These elements 

sl%ouM Include such items as original cost of materials, 

cost of traasportation, insurance, demurrage, evaporation, wear, and teaf on equi.pment, pro r~ata cost of overhead, a reasonable profit on the sale, and any other reaso&&e or ncctyssary element of cost e&ering into the 

valau af: each materials delivered st’ the well head read,y 

to bw os.ed in the acidising plrocess.” jlgl S.W..M at 853,) 

O,ur aw3wer ,tb yaw firs& quelitipn 58 ~&at, after rawkew- 

$+#g the ,p&or opinions of this office construing Article ‘lot% in the 

g&f&t Qf the Western Company ease, we still adhere to the TUlingS 

a& corrclus’ions ‘reached in those opinions, 

in yqur s&+&d question yen Have asked if certain upeyations of As,socIated Engineers, Inc. and Hudson-Eads, Inc. are 

&&+zable under the prio,r rulings of this office, 
Hon. Robert S. Calvert, Page 4 (V-1353) 

In answering this question, we will briefly set out 

these operations and then state our conclusion as to the taxability 

of the service in question: 

1, Temperature surveys made to locate the top 

of the cement behind the casing for the purpose of determining the success of the cementing. It is our opinion that this is taxable service performed in connection 

with the cementing of the casing seat. Att’y Gen. Op. 

O-3698 (1941); Uren, “Petroleum Production Engineering, Oil Field Development” (3rd Ed. 1946) 655. 

2. Bottom hole pressure or depth pressure tests. 

These are technical services performed in connection 

with the surveying or testing of the sands or other formatbns of the earth and are taxable. Att’y Gen. Ops. 

O-3698 (1941) and O-4188 (1942); see Pirson, “Elements 

of Oil Reservoir Engineering” (1st Ed, 1950) 239. 

3. (a) Productivity index test. This is a well 

test used to calculate the be@reis ui oil that can be produced per unit of time per pcw~I of bottom hole pressure drop. 

(b) Gas-oil ratio testing. This test may be 

generally defined as the measurement of the volume 

of the oil and gas produced from a well and the mathematical relationship of the one to the other, 

(c) Bottom hole sampling or subsurface fluid 

sampl%ng and analysis. 

(d) Open flow potentiai tests. These tests 

have been defined in the brief attached to your request 

as that of “measur,ing the volume of gas produced from 

a well and determining the pressure in the well from 

actual measurements with a bottom hole pressure gauge 

or by calculatien from pressures measured at the surface. With this data the theoretical volume which the 

well will produce is calculated for the hypothetical cond.ftion of adr:o, pressure at the bottom of the well.” 

(e) Gas-condensate well tests. These tests 

are, according to the submitted brief, similar or equivalent to gas-oil ratio bests., fluid sampling, and open 

hold potential tests except that this test is applicable 

only to gas wells producing gas containing relatively 

large amounts of vaporized liquids. 
Hon. Robert S. Calvert, Page 5 (V-1353) 

It is our opinion that these services are all related te@mical services performed within the scope 

of testing or surveying of sands or formations under 

the statute and are taxable services. Att’y Gen. 0,~. 

O-4188 (1942). 

4. Tubing perforating. In Att’y Gen. Ops. O3627 (1941) and O-3784 (1941) it was held that the op* 

oration of perforating the casing of a well did not coma 

within the meaning of the term “shooting” a,nd that 

such service was not included within the statute unless 

i,t was used in connection with ane of theother named 

taxable operations. It is our opinion that the same 

rule would apply to the perforating of the tubing of a 

well. 

5. Sand bailing, paraffin removal, cleaning out 

operations, and servicing of subsurface controI equipment. These are mechanical operations which are not 

included within the scope of the statute and are not 

subject to the tax unless in s’ome unusual instance they 

are performed in connection with one of the taxable 

operations. Att’y Gen. Op. O-3627 (1941). 

Your third question concerns the taxability of certain 

operations and services performed by A-l Bit & Tool Company, 

as shown in the invoices attached to your request, The principal 

items shown on these invoices are charges for making sidewall 

c.ores. We have in previous opiniwns held that both sidewall sampI&g or coring and core analysis are taxable operations Att’y 

Gea. Ops. O-3698 (1941) and O-4188 (1942). See; also, She 

v,, R&r,y Engineerirnp Co., 208 SW.2d 656 (Tax. Civ. App., ,-%&. 

The other items shown on the invoices include the 

cost of &utter heads, charges for service hours, and trucking 

obarges. Such items d,o not represent the sale of a material under the .decision of the Western Company case, supra, and cannot 

be segregated from the-t is our opinion that 

thes,e items are mer,ely expanses of operation incurred in the earing operations and should be included within the gross receipts 

from service operations. 

In your fourth question you ask if royalty payments to 

persons owning patents on tools, instruments, and equipment used 

by persons engaged in well servicing operations are deductible 

from the receipts derived from such operations before computing 

the ‘tax 1 
Hen. Robtrt S. Catvtrt, Page 6 (V-1353) 

Article 7060a does nDt contain a definition of the 

term “gross amount” as used in the statute; therefore, we must 

look to general usage in order te ascertain the meaning of this 

term. 

The term “gross amount” was construed in Fife 

Ass’n of~Philadelphia vu Love, 101 Ttx. 336, 108 S.W. 158,160 

11908), as f,ollows: 

“The word ‘gross’ is defined: ‘Whole; entire; 

total; without deduction. ’ Webster’s Di,ctionasy; Scott 

v. Hartley, 126 Ind. 246, 25 N.E, 826. The language 

under consideratir;m in the statute ‘is: ‘The g,ross amount of premfnms received in the state.’ There is 

no ambiguity in the langtiage of the statute, and there 

can be no doubt as to wbskt its wd&naxy meaning is. 

The rule govexnlng tbeY&rprct&4c~n ef such language 

is thgs stated In Chambers v. HAUL, 26 Tex. 472; 

‘Where language is plain ad arrvrmbiguous, there is 

no room for ctrastruct2on.. It Ls n&e% &dmissibEz to 

resort to subtle and forced crmstracMans to l&m& or 

extend the me,aning of language. An& w&se mds dr 

expressionrs have acqui@ed a &e&mite meaning in law, 

the9 must be so expounded, Under the rule of interpretation just quoted there is no room for eqnstruction 

of the language of the statute. It just simply means 

that the entire sum received by such insurance companies as premiums in this state should be the basis 

upon wh.ich to estimate the occupation tax required to 

be paid by such companies. , a n Therefore, taking 

the lenguage of the entire provision into consideration, 

it meslnsa OS stated before,. that the basis upon which 

the tax is to be assessed is ‘the gross premium receipts,’ the whole amount ,nee.eived, without deduction 

8~ ab&ement,, ” 

The term “gross amount” is defined in 38 C.J.S. 1083, 

note 87, as ordinarily meaning the “entire amount of the receipts 

&a bu*inese.” The term ‘gross receipts” is defined in 38 CJ.S. 

rol!bt as bQllows: 

*Ord$nas$ly, the gross amount of cash received; 

but tt,s construct&n and meaning depend on the context 

and the subject matier, and accordingly it may be construed to mean a,etuaI cash co&kn&ed on particlllar obligations, together, with moneys in hand due the obligers 

and credited on such indebtedness; the entire receipts 

without any d,eduction; ‘gross sales’, including the gross 

armrant collected and unooflected of all the sales. ” 
. . 

Mon. Robert S. Calvert, Page 7 (V-13,53) 

. 

We are of the opinion that the terms “gross receipts” 

and “gross amount” have equivalent or synonymous meanings and 

that the term “gross amount” as used in Article 7060a includes 

the total gross receipts from the named taxable operations or 

services without any deduction for maintenance, insurance, royalty payments, salaries, or other operating ex,penses or costs of 

performing the particular service. 

In your last question you have requested that we advise you as to whether acidiaing of a we11 must be done immediately following the perforation of the casing in order for the per- 

‘forating service to be considered as having been performed in 

connection with the acidizing. In Attorney General Opinion O-3627 

(1941) we held that ordinarily the perforating ,of the cas,ing of a 

well, by either a gun or mechanical means, did not come ‘within 

the meaning of the term “shooting” as used in the statute; however! 

the perforating service was held to be taxable if performed in con’ 

nection with one of the taxable operations. 

In Attorney General Opinion O-3784 (1941), in construing the term ‘in connection with,” we said: 

‘. 0 * * an operation does not have to be one of the 

named operations to be taxable, but it is taxa,ble .if it 

is merely “performed in connection with’ one of the 

named operations. ‘The courts have given the phrase 

“in connection with” a broad interpretation.’ Kokusai 

Kisen Kabushiki Kaisha v. Columbia Stevedoring Co., 

23 Fed. Supp, 403. We believe that any service that 

is performed as a necessary step toward the performance of, or in fulfillment of, a particular operation 

would be considered, as being done ‘in aennection w<ith 

said particular operation. ” 

It is our-opmion that while the time element is very 

important, it is not the determining ‘factor and it is therefore not 

necessary for the acidising of a well to be performed immediahely following the perforating of the wel,l easing in order for s.uch 

gerforatin$‘to be performed in connection with the aeidising. The 

test to be applied”& that of deterrhinkng if the per&rating was performed as a necessary step in, preparation for acidizing the well. 

We are of the opinion,that the purpose of the individuaIperforating 

opera t. eon must be considered and that as a c,onsiquence a rule or 

formula setting out a fixed period of time as a test could’not be : 

prescribed @hat, would apply to’al. fact eItuatim%s. In this cosmection, we wouM ‘Eke to point oUt again that if a perforating operation 

is performed f:or h&purpose of completing the gas or oil well, the 

fact that such perforations are subsequently used in acidiaing the 

well would not make the perfo,rating service taxable if there $s no 

continuity or connection between the two operations. 
Hon. Robert S. Calvert, Page 8 (V-1353) 

SUMMARY 

Under the submitted facts the following operations are services performed in conntctioa with one 

of the specifically named operations wblrb we subject 

to the tex lerted by Article 706Qa, V.C.8,: tampe~eturn awveys mode for the purpose of locrting top of 

cement, bottom hole pressure or dapth p?xrsare teotr, 

productivity index testa. gas-oil rrStv tests, bottom 

bole samplirq and analysis, open flow potential tests, 

gas-condensate well tests, sidewall sampling, and COPY 

analysis. Att’y Gen. Ops. O-369& (1941) and O-4168 

(1942). Tubing pcrforatlng, sand bailing, pralfin ramoval, and other cleaning out opcrrations 4kre mechanical operetions not oa+dinarily pe&&;azed in connection 

with one of the tarabte qm&a~. aft% Oenr. Ops, 

O-3627 (1941) and O-3983 (1941). 

Article 7060a levies an ace s*rrupm 

those persons engbged in the weli 

mtasuItcd by the g.n@ss amount ces&~d %&%m sulk 

operatiom3, less the eeet of mckvt4bte SohI, but v&Wtgut c+ap daductfdns Ear eapranser, NT&$’ pa)rnents, 

or oth5r cost.8 Oc perfort&h~ the I16c*ioc. 

APPROVED: 

W. V. Geppert 

Taxation Division 

Yawi very truly. 

PRfCE DANIEL 

FL/mwb