The Attorney General of Texas 

November 30, 1978 

JOHN L. HILL 

Attorney General 

Honorable Peyton McKnight 

Senate Study to Replace 

Ad Valorem Taxes 

P. 0. Box 12068 

Austin, Texas 78711 

Opinion No. H-1264 

Re: Whether a tax on crude oil 

or on refined products is a tax on 

motor fuels and special motor 

fuels. 

Dear Senator McKnight: 

You have requested our opinion regarding a proposed statute which 

would tax refinery production. Your first question is: 

Would a tax imposed on the fair market value of 

refinery products, prior to their sale, use, transfer, or 

other disposition, be, as to that portion applicable to 

the value of motor fuels, considered a motor fuels tax 

which would be subject to the requirements of Articles 

9 and 10 of Title 122A, Taxation-General, R.C.S.? 

Chapters 9 and 10, title 122A, impose a tax on the “first sale, 

distribution, or use” of motor and special fuels. Attorney General Opinion 

WW-876 (1960) (defining “first sale”). Tax.-Gen. arts. 9.02, 10.03. The motor 

fuel tax “shall be in lieu of any other excise or occupation tax imposed . . . on 

the sale, use, or distribution of motor fuel.” Tax.-Gen. art. 9.02(5). The 

proposed tax on refinery production would be before any “sale, use, transfer, 

or other disposition” of the motor fuels and therefore would not be a 

transaction which is taxable under chapters 9 or 10. Thus, the allocation 

provisions of those statutes would not apply to a refinery tax. However, 

article 8, section 7-a of the Texas Constitution provides in part: 

Subject to legislative appropriation, allocation and 

direction, all net revenues remaining after payment of 

all refunds allowed by law and expenses of collection 

derived from motor vehicle registration fees, and all 

taxes, except gross production and ad valorem taxes, 

on motor fuels and lubricants used to propel motor 

vehicles over public roadways, shall be used for the 

sole purpose of . . . [public roads and highways]; 

P. 5007 
Honorable Peyton McKnight - Page 2 (~-1264) 

provided, however, that one-fourth (l/4) of such net revenue 

from the motor fuel tax shall be allocated to the Available 

School Fund. . . . 

(Emphasis added). 

If the proposed refinery tax is an ad valorem tax or a tax on gross production, 

the revenue need not be allocated pursuant to article 8, section 7a. However, it 

appears that the proposed tax might be an occupation tax in which case one quarter 

of the tax revenue is allocated to education under article 7, section 3 of the 

constitution. Attorney General Opinion V-1027 (1950). As we have not been 

provided with the precise language of the contemplated statute, we cannot give a 

conclusive answer as to the character of the tax. 

Your second question is: 

If the answer to question (1) is in the negative, would the 

use of current contracts and other sales products make a 

difference such that the answer to question (1) would become 

affirmative? 

We do not believe that the use of “current contracts and other sales data” as 

evidence of the market value of refinery production would bring the tax within 

chapters 9 and 10, title 122A. We believe such information is relevant to a 

determination of market value. Cf. Tax.-Gen. art. 3.02; Attorney General Opinion 

M-968 (1971). A refinery’s produc=ould be assessable with or without information 

regarding sales and contracts. The tax would not be contingent on there being a 

sale, transfer or other distribution. 

You also ask: 

Would an ad valorem tax on the crude oil inputs into the 

refinery be a motor fuels tax such that the revenues 

therefrom would be subject to the requirements of Title 

122A, Articles 9 and lo? 

We do not believe that revenue from a tax on the crude oil received by a 

refinery for processing is subject to chapters 9 and 10, title 122A. Crude oil does 

not meet the definition of motor or special fuel and therefore is not taxed under 

chapters 9 and 10. Tax.-Gen. arts. 9.01(l), 10.02(l), (2). 

SUMMARY 

An ad valorem tax on refinery production or crude oil is not 

subject to chapters 9 and 10, title 122A, Taxation-General. 

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. . 

Honorable Peyton McKnight - Page 3 (H-1264) 

yd$u&l /A . ,flc-.--- 

,/ .,,“I’ / JOHN L. HILL 

:’ ..I Attorney General of Texas 

ENDALL, First Assistant 

C. ROBERT HEATH, Chairman 

Opinion Committee 

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