                                   Arrx~rru   1s. TWXAS
PRICE  DANIEL
ATTORNEYGENERAL
                                         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 tax-
                                                             ation of certain     oil well sur-
           Dear   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 1 of Article 7060a, as amend-
           ed 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 oc-
                  crupbtion tax equal to 2.42% of the gross amount re-
                  ceived 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 pre-
                  scribed    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 acid-
           izing the formations,     and the surveying     or testing of sands or for-
           mations 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 serv-
ices were deductible     from the gross receipts      before   computing
the tax, In this connection,     the Court said:

               “The words service             and duty are words of com-
       mon 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 uncer-
       tain.   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 in-
       tended 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 expie-
       sives used in such processes.                It must be presumed
       that the Legislature,         when it passed the act, was famil-
       iar with the manner in which such business was con-
       ducted.,    The record        discloses      that in the acidizing
       process     large quantities         of acid are used, the amounts
       and mixtcwea       depended        upon the character           and thick-
       ness 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      re-
       sult.   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 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 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 acidie-
      ing prooe,ss delivered       at the well head.         These elements
      sl%ouM Include such items as original              cost of materials,
      cost of traasportation,       insurance,      demurrage,       evapora-
       tion, wear, and teaf on equi.pment, pro r~ata cost of over-
      head, a reasonable      profit on the sale, and any other rea-
      so&&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               up-
eyations  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 de-
       termining   the success of the cementing.        It is our opin-
       ion 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    Engineer-
       ing, 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 for-
      matbns    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 pro-
      duced per unit of time per pcw~I of bottom hole pres-
      sure 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 mathe-
      matical   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 sur-
      face.   With this data the theoretical      volume which the
      well will produce is calculated      for the hypothetical     con-
      d.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 equiv-
      alent 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 re-
       lated 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. O-
       3627 (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 equip-
       ment.    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         samp-
I&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     un-
der 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 ear-
ing 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 a-
       mount 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 inter-
       pretation    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      com-
       panies 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        re-
       ceipts,’ 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 con-
       strued to mean a,etuaI cash co&kn&ed on particlllar          ob-
       ligations,   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,    roy-
        alty payments,    salaries,   or other operating  ex,penses or costs of
        performing    the particular    service.

                        In your last question you have requested          that we ad-
         vise you as to whether      acidiaing    of a we11 must 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   ,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 constru-
        ing 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 perform-
               ance 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        immediahe-
        ly 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 per-
        formed 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 cosmec-
        tion, 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 opera-
      tions 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~e-
      turn 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   ra-
      moval, and other cleaning out opcrrations 4kre mechan-
      ical 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         %&%msulk
      operatiom3,    less the eeet of mckvt4bte SohI, but v&Wt-
      gut c+apdaductfdns Ear eapranser, NT&$’ pa)rnents,
      or oth5r cost.8 Oc perfort&h~    the I16c*ioc.

                                               Yawi   very   truly.

                                                PRfCE DANIEL



APPROVED:

W. V. Geppert
Taxation   Division




FL/mwb
