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 ofcertain oil well surDear Mr. Calvert: veying or testing services.

You have asked this office for a construction of**Arti** cle 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 1ofArticle 7060a, as amended by Section XIV ofHouse Bill 285, Acts 52nd Leg., R.S. 1951, ch. 402, pm6,95,reads as follows:

“(b) **Every** person in this State engaged in the business offurnishing any service or performing any duty for others for a consideration ai compensation, with the use ofany devices, tools, instruments or equipment, electrical, mechanical, or otherwise, or by means ofany 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 inAustin, 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 towell services which are performed in connection with the following specifically named operations: Gei menting of the casing seat ofany 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)

Inyour first question you ask if the opinions of this office construing Article 7060a are still in effect inview 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 offacts 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 Bfthe 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 tWerfactors,--one a sale of the acid& and ttaeother 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 afthe 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 OFgross 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 ofthe matcsials used in perbarm5ng such servke an&
on the service perfc+med **tn**s&&zing t&zv&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 ofthe 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 aspe- &fic service charge, since the **@a:tuta expseedy**  **tlcxee** only the service, regardless ofthe domi@rant eteaeht ofvalue of the materials used, the most reasonable aad prnctical metfawl ofairi&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 woe11head. 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 tbwtr&& court’s formub, but any others f~ais&yand 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%ouMInclude such items as original cost ofmaterials, cost of traasportation, insurance, demurrage, evaporation, wear, and teaf on equi.pment, pro r~atacost 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 bwos.ed in the acidising plrocess.” jlgl S.W..M at 853,)
O,ur aw3wer ,tbyaw firs& quelitipn 58~&at, after rawkew- $+#gthe ,p&or opinions of this office construing Article ‘lot% in the g&f&t

### Qfthe Western Company ease, we still adhere to the TUlingS a& corrclus’ions ‘reached in those opinions,



### inyqur s&+&d question yen 

### Haveasked if

### certain upeyations ofAs,socIated Engineers, Inc. and Hudson-Eads, Inc. are &&+zableunder 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 ofthe 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 ofOil Reservoir Engineering” (1st Ed, 1950) 239.

3. (a) Productivity index test. This is awell 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 ofthe oil and gas produced from awell 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
awell and determining the pressure in the well from actual measurements with abottom 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 ofvaporized 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 ofawell did not coma within the meaning of the term “shooting” a,ndthat such service was not included within the statute unless i,twas 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 ofa 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 toyour 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,onot represent the sale ofa 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.

Inyour fourth question you ask if royalty payments to persons owning patents on tools, instruments, and equipment used by persons engaged inwell servicing operations are deductible **from** the receipts derived from such operations before computing the ‘tax1Hen. Robtrt S. Catvtrt, Page 6(V-1353)

Article 7060a does nDtcontain adefinition 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 vuLove, 101Ttx. 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, 126Ind. 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
noambiguity in the langtiage of the statute, and there
can be no doubt as to wbsktits wd&naxy meaning is. The rule govexnlng tbeY&rprct&4c~n ef such language is thgs stated In Chambers v. HAUL,26Tex. 472;

‘Where language is plain ad arrvrmbiguous, there is
no room for ctrastruct2on.. It Lsn&e% &dmissibEz to resort to subtle and forced 

### crmstracMansto l&m& or extend the me,aning oflanguage. An& w&se mds dr expressionrs have acqui@ed 

### a&e&mite meaning in law, the9 must be so expounded, Under the rule ofinterpretation **just** quoted there is no room for eqnstruction of the language of the **statute.** Itjust 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.
,anTherefore, taking the lenguage of the entire provision into consideration, it meslnsa OSstated before,. that the basis upon which the tax is tobe 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!btas bQllows:

*Ord$nas$ly, the gross amount of cash received; but tt,sconstruct&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 

### armrantcollected and unooflected ofall 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 inArticle 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 towhether acidiaing ofawe11must be done immedi**ately** 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 ,ofthe cas,ing ofa 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 tobe **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 tobe one of the named operations to be taxable, but it is taxa,ble .ifit is merely “performed in connection with’ one of the named operations. ‘The courts have given the phrase

“in connection with” abroad 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 ofawell 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 tobe 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 ifa perforating operation is performed f:orh&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 $sno continuity or connection between the two operations.

### Hon. Robert S.Calvert, Page 8(V-1353)

SUMMARY
Under thesubmitted facts thefollowing operations are services performed inconntctioa with one of**the**

### specifically named operations **wblrb we**  **subject** 

### tothetex lerted byArticle 706Qa,**V.C.8,:** 

### tampe~e**turn awveys**  **mode** 

### for thepurpose oflocrting top of cement, bottom hole pressure or dapth p?xrsare teotr, productivity index testa. gas-oil rrStv tests, **bottom bole**  

### samplirq **and**

### analysis, openflow potential tests, gas-condensate well tests, sidewall **sampling, and** **COPY** 

### analysis. Att’y Gen. Ops. O-369& (1941) andO-4168 (1942). Tubing pcrforatlng, sand **bailing,** 

### pralfin ramoval, andother cleaning outopcrrations 4kremechanical operetions notoa+dinarily pe&&;azed inconnection with oneofthe**tarabte qm&a~.**  **aft% Oenr.** **Ops,** 

### O-3627 (1941) andO-3983 (1941).
Article 7060alevies anace s*rrupm those persons engbged intheweli mtasuItcd bytheg.n@ss**amount** 

### ces&~d %&%m sulk operatiom3, 

### less the eeet ofmckvt4bte SohI,butv&Wtgutc+apdaductfdns Eareapranser, NT&$’ pa)rnents,
or oth5r cost.8Ocperfort&h~ theI16c*ioc.

**APPROVED:**

**W.** 

### V. Geppert Taxation Division **Yawi very**  **truly.**


### PRfCE DANIEL

FL/mwb