Opinion ID: 2440218
Heading Depth: 1
Heading Rank: 1

Heading: Legislative history and administrative practice.

Text: In 1941, the 47th Legislature enacted House Bill No. 8, an Omnibus Tax Law. Article II thereof provided for an occupation tax upon the business of producing gas in Texas. (Acts, 1941, 47th Leg. ch. 184, p. 269) This Act contained the following exclusions: In determining the market value of gas for the purpose of computing the tax due, there shall be excluded the value of residue gas lawfully injected into the earth in the State of Texas for the following purposes: (a) storage thereof; (b) repressuring; (c) lifting oil ; and also (d) gas lawfully vented or flared in connection with the production of oil; save and except however, if any gas so injected into the earth is sold for such purposes, then the market value of the gas so sold shall not be excluded in computing the tax. (Emphasis added) The natural gas portion of this tax bill was designated as Article 7047b by the publishers of Vernon's Annotated Texas Statutes. In 1945, the Legislature amended Article 7047b so that the exclusions read as follows: In calculating the tax herein levied, there shall be excluded: (a) gas injected into the earth in this State, unless sold for such purpose; (b) gas produced from oil wells with oil and lawfully vented or flared; and (c) gas used for lifting oil, unless sold for such purposes. (Acts 1945, 49th Leg. ch. 269, p. 423, l. c. 424) (Emphasis added.) The wording of the exclusions in the 1945 enactment is for all practical purposes the same as that of the present statutory provision, Article 3.01 of Title 122A. The difference between the exclusion provision of 1941 and that of 1945 lies in the requirement that the gas must be injected into the earth. The 1941 enactment exempts gas lawfully injected into the earth for the purpose of lifting oil. The 1945 statute simply provides an exemption for gas used for lifting oil. In 1941, the Attorney General filed two opinions, each in substance stating that the gas injected into the ground for the purpose of lifting oil to the surface was not taxable under the 1941 statute. In 1947, after the 1945 amendment became effective, the Comptroller of Public Accounts requested an opinion as to whether gas burned in engines used for lifting oil is exempt from the tax levied under Article 7047b, R.C.S. The Attorney General summarized his holding as follows: Exclusion from the gas production tax of gas used for lifting oil as provided in Subsection c of Section 1 of Article 7047b, has reference only to gas injected into the ground for the purpose of pressure in lifting the oil, and not to gas used as fuel in a pumping engine that lifts oil. [1] Since 1947, the Comptroller has followed the Attorney General's opinion and collected a tax upon gas consumed as fuel in a prime mover [2] or motor which is used to operate an oil lifting pump. The record indicates that there are at least three methods in which gas is utilized in lifting oil from the well hole, namely, (1) by using the same as fuel for prime movers which operate mechanical or hydraulic pumps which extract the oil from the well hole, (2) by injecting gas into the earth and repressuring the reservoir, and (3) by a process of aerating the column of oil in the tubing and thus causing it to come to the surface. This third operation is made the basis of one of the Attorney General's arguments here and hence should be briefly described. According to an employee of the Railroad Commission, in a typical operation involving an oil well producing some gas, the product as it comes from the well passes through a separator and the oil and water removed therefrom. The gas then passes through a scrubber where more water is removed. It is then compressed by a compressor which is powered by a motor or prime mover. It is then injected into the casing and at various depths it passes into the tubing through valves. It operates to aerate and lighten the oil so that such oil passes out of the wellhead with the gas. The lifting of the oil is thus accomplished at first hand by the gas itself and not through application of the gas as fuel.