                      The Attorney              General of Texas
                                          November     30,   1978
JOHN L. HILL
Attorney General


                   Honorable Peyton McKnight                     Opinion No. H-1264
                   Senate Study to Replace
                     Ad Valorem Taxes                            Re: Whether a tax on crude oil
                   P. 0. Box 12068                               or on refined products is a tax on
                   Austin, Texas 78711                           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];




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           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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