         OFFICE OF THE ATTORNEY      GENERAL   OF TEXAS
                            AUSTIN




goaonbls Prod rtrirwa
Orimirul Dietriot nttomaf
Ioa(zrlow,Tlla~




                     /
Eon. Fred friarnan,
                  Pago 2


           Ii this baslo   sediment and weter, StietilaeStafOrmd tQ
aa *B. s. a s,* i8 the acoumulatlQn
                          -_        Of water and._waets matter- la
                                   .-                            --_.
the bQttoBIoOr tanXeIoolaprlelngtanK farniaQr other storage roollltles
for omds  oil upon whloh the ooaupotion tax lerled by hrtlolo  WSVa,
Varnon*~~irortotatedCivil Statuteor haa beet paid to the Etato oi Texas
by.the *flret purohaseP of suoh 011, a8 contemplated b7 Sootion 1
(ti) Of the hCt, then Qt COUrW, 110 fmthCr taX lICiUti aOOrUe OpQll
the 1oVI&rrrit7 Crude Oil 80pal~tad il'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 ooaputed and peld at the ratioof
twQ aad thrso-quarters oenta (8 S/4$) per barrel, it wodd pakntl7
oQn#titQtc double taratlon In am anlawf~l sttneeto again oolleot
     tar UpOnQil derired from suoh "'8.S. k If."
tohill
           Your letter la not Olear Ln this regard, but for purp~aea
 Qt thla opinion, we ehall awuw    that the Substanoe or produOt uhloh
 JQU Oall "baolo oedlment and watersm lo In truth and in faot tank
 bottoms, taken rmm the tank8 of the pz~duoor In tank-olaaa%ag pro-
 oea8.a by mOhaatiQll plant8 pumha~ing #ama. This preWnt8 aa
 emtlrolydltisrent question baoau8a. while aotual ba810 mdlmeat
.a& safer aa suoh is, of OQurae, not taxable booauae it .oOatainaM
 orude 011, tank bQttQM oontaininga rarlable latamlxtara of bui9
 lo dlwntand water with orude 011 woul&be taxable to the extant
 Qt ths oruflb 011 reoQrara4 theretmsn. -Qu suoh a liai+atlOa Of
 tha tana "baslo sediment and water" or 'B. S. k W.," usad la 70plr
 htter, we till pmOee8. to &Ve our roawaa for holding thS.OIW60
 oil darlvsd fm    awh pml!ot to b& taxable.
           Seotion 8 '(1) df firtloleVOSTa, Vernoals ~&M-atad Clril
Statutea, levie6  the OOcUpatiQn tm in qUwtiOn a.8f6llQW6:
          "There Is herwb7 leried an oaoupatlon QII011 pro-
     daoad within this Stat. Of two-&   threa-guartars (8 S/w)
     oants per barrel of S~rty-two (a) 8tandard &one.       Said
     tax shall be oamputsd upon the total bwrels of 011 pro-
     duoed Qr salvaged fiQm the earth Qr w&are Qt this St&b
     WithQUt onr deduotlon, and shall be based upon tank table8
     ShQdng OW hUQdX%d per Oent (xoo$) 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.yof 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
 end water . . . will be allQWti.”
           The oil QbtaiIIcdiron tenk bottcnnrr,
                                               (deferred %iQi.W7OW
 letter a8 hasi aadimeut aud water) ~althoaghadmitt&lg Qt l&U gmrit7'
Bon. Frad ErIemu,   Page 3


 1s darlaitely "oIla 8~8above defined. But ne antlolpatiethat the
arguxcnt wiL1 be adranaed that such "oil* *as areatod by a ne*r
procese of realamatiou and cannot be considered to have been *pro-
duoed 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 pctrsent water, because
such "oil" I6 clearly not laerohantableand requires a prooea6 of
6ep.aratIonof the water and other f~retgn sub6taace from the 'oil*
as It comes from the earth or waters of the State. But oertalnly
tho marketable crx&de011 rchloh16 the end-produat OS this prooeaa of
86paratlon 16 taxable under Article VOWa, Venmn*a Annotated Civil
Statutes, to the produaer thereof, or subsequent purohaeer6. By
the same token, crude 011, ragardlosrrof 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 pm-
42:: and sslrag?d from the earth sad waters of the atate by the pro-
      . The fact that the proce66 of rsparating the 011 fram fQr8igQ
eubbstanoeela through the medium OS oh6mlatry 16 beside the mark..
The point we make la that no new produot 16 oreated In these reolama-
tiQn plants. Crude 011 1s not produoed or oreated where. It did act
exlst before. The prQoeacre8Of 8~paXUtiQa~e~lQfad in the80 lWO&IM-
tloa plants may be conaidsred a13 just another. atop in the prodwtiQn
.of oil.,which the Qrlglnal produo~r oould perform if he 80 doslrod.
The expedient qf 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
 rea6hed her6ln. s'heall~waaoe Is llmlted.tQ a 'rea6QMbl6 and bona
 fide deduotlon,* and we understand It to be the praotloe and oustom
 of the petroleum industry for thI8 dedUOtIQn to be ch~aimed aatl
 allowed when the orude 011 la pumped from the lea&e tanks into the
.plpellnes on a first eale. The aotual baela 8edlMnt snd water la
 the,crude 011 1s then and there -aed        by 8oleatlflO method8
 and an adjuetmeat Ie accordingly made In the puraha8e prloe between
 the producer and the first purohaser. But the statutory exemption
 or deduction wag not intended to oover tank bottome, oontainlng in
 meet cases a larger per oent oi orude petroleum than be616 sediment
 and water, even thou& euah tank bottom6 o&nuot be ooaeidered mar-
 ohantable oil. The statute above quoted limit8 the deduatlon or
 sxemptfon claimed to actual "B. 5. k llI.-and l.mplledlydisallQWl3a
 fraudulent claim for mlon       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 hlgh-
 ways or destroyed, no tax aooruee. But If it oontalde such quantities
 OP krlideof1 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 4


             It raaains to be determined upon whom the obligation to
 ay thld occupation tax_rests.
                  ._
                            .._ . By spftlon 1 (1") 0' Afilole 7067a
&erIlOn’6   Annotated Clrll ~tatutas, this oceupat1on sax la lnaae cl
prisiaryll~blllty OS the "producer" of crude petroleum a6 dafinad
in section 1 (1) ot the Aat, but It la provided t&t every pumhaae~,
whether 'ilrat purohaaelm or waub6equent purohaser,* 88 defined in
the Ad+, 16 required to oollect such tax by deduating and wlthhold-
lng 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, flret purohasor, aud/or aubaequant pumhaaar or
purohaaor6,    and aubdlr~alon (l5).or eald eeotlon provides that
failure of the purohaaer to pay Said tq ehallnot mliera the pro-
duoar from the paylLentof 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
              Seation 1 (3) doflnea %Ub68qUent purohaaarb as any
                                           topp@g plant, tmating
plant, rarlnery, 6nd/or any kind or ohamoter of proooaelng plant,
or anyonowho purahaaoa 011 ror any purpose whatsoever, when said
011 is purchascd.from any pemon,other than the produaer.
          Se are oliablato detormlns rroa!the faota 6ubmlttod whe-
ther the roelopratlonplant pur@ashg    thla "8. f?.k.W.- la a "&f&at
purchascfl or nauba4qu4nt purchaae~ a6 homlnaboro dofined.
in either case an obligation would roat.upon aueh roalamatlti plant
to pay the oo'eupatlontax 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 beon paid
by tho produoar. This la 60 botaose thla.tax Ilability   raata
upon alther the Vlret puroha8or*-and/or *subssquont pUrOhaa4X"'
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




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