^ _ . ,




  Honorable George H. Sheppard
  .Coiuptroller-'of
                  Public Accounts
  Austin, Texas

  Dear Sir:                     Opinion NO. o-4261
                                Re: Construction of Article 16, House
                                     Bill No. 8, Forty-seventh L&is-
                                     lature, with reference to tax-
                                     abLlltg of certafn oil well oper-
                                     ations.

             Thls~ls In reply to your request for our..:oplnionIn
  regard to Articl6 16, Rouse Bill No. 8, Forty-seve?ith Legisla-
  ture, (codlfled~as Article 7060a of Vernori's Annotated Revised
  Civil Statutes of Texas) which Imposes a tax on the furnlshlng
  of certain 011 well services, Your request reads as follows:

                 "Thetie is a device known as a casing tester,
          gun tester or flow device which Is run in com-
          bination with a gqn perforator or separately. The
          tool is run on a tubing-or arlll pipe ~to a aesig-
          n&ted zone inside the casing so that when the
          casing Wperforatd,     the oil OXtSid8 of the cas-
          ing at that level call flow through such perfor-
          ators into the well and on into the production
          tooX In order to determine if additional hbles
          are required or to determlne If the perforating
          has been successfully done opposite the actual   011
          zone.
                 II
                  0 0 0 . *

                 "Please tell me if, in your opinion, easing
          or gun tester or flow device l;sea in connection witb
          the 'perforating of the casing would come within one
          of the . D D taxable operations."

             The partrcJlar statu.te in question is paragraph (b),
  SectFon I, of sa'LdArt;I.cle16, ROuS8 Bill No, 8, which reads as
  follows:

                 "(b) Every pepsor, fn this State engaged in
          the business of furrdshfr!g any service' or perform-
          ing any iiutg for others for a consideration or com-
          pensation, with the use of ar;y dedces,   tools,
Honorable George H. Sheppard, page 2                  O-4261

          I




         instrdmen$s or equipment, electrical, mechanical,
         or otherwise, or by meaKs of a?y chemical, elec-
         trical, or mechanlcal~~process when such service is
         performed in cotinectlon wLth the cementing of the
         casing seat of any oil or gas ,well or the shooting
         or acldlzlng the fticmatFons of such wells OP the
         ailrveging or testing of the sands or other foFmatlons
         of the earth 1~ afiy such oil br gas wells, shall
         report or,~the 29th of each month-and pay to the Comp-
         troller, at his office In Austin,-Texas, an occupation
         tax equal to 930 ad ";wo-ter,'tts(2.2) per cent of
         the gross amount received from said service  furnished
         or duty performed; during the calendar month next
         preceding.   The said report shall be executed under
         oath on a form prescribed an& furnished by the
         Comptroller."

           We have h8r8!ofOre held that "this is a tax on ger-
Llces furnished or &uty Derformecl" and that "the persons&taxed
are those per%ons 'fur%iahing,eny service or performinn anrr dutg
. * s . when sizch service is performed In connection wFth'" cer-
tain Oil and gas pell operations.   (See the follow$ng Attorney
Gkneral's Opinions: NO. o-3627, dated June 27, 1941 No-:.o-3698,
-aatea Aug. 7, 1941, ana No, o-3784,     aatea’kag.    7   1941, ma   -.
a&lres&ed to the^Comptroller of Public Accounts. I Those opera-
.tions.are enumerated in the statzte as follows:   'cementini? of
th$ casF?m s&at of any oil or gas.well or the shootlllP:or acidlz-
N    tb6 formatlord of sizh re1i.s ox the SuXVedhg or testing of
the.sands or other formations of the earth in any such of1 or
gas W811S."

            If the operation 907;~ describe, to-wit, the use of tne
deVic8 to d~etermlne If additional holes in the casing are reqMree9
or Its use to determine if the perforating hss been successfiiliy
done, is one of the operrctioLs listed irA sala s’tatute,  then a
person perfor~ming aai6 0pePaCion 0:: per,foxming any service ir,
cor;neation witti said opera~tior~an3 collectt;irgpay therefor is
liable for the tax by vi:?i;:tz~
                               of %e same.




operation you describe 5.3 this l-@U8St    iS Nt   in COM%Ct~O?i
with 'ceme:=iZLngof tke casirg seat", "shootifig", "surveying" OX?
"t8stfIlJ5", as those to;xms a:?% used in tie StabAte.    We refer yaL
to said opinioli~ NO, o-=3627,NO, c;-$96 and No, O-3784, which
were sent to you nker: t,L.eg were orlglnaily written,
Honorable George H. Sheppard, page 3             O-4261



           A d-Ffferent answer might be necessary in regard to
"ablaiiing". "Xn Opinion No. O-3784, supra, this deDartment held
that "an operatlbn does not have to.be one of the named oper-
ations to be taxable, but Ft is taxable~ if it is-merely 'per-
fbimed in connection with' one of the named-operations."    In
that.'oplnlon it was further held that t.he tax in question do&s
not apply to~the ordinary use of a mechanfcal perforator or a gun
perforator, &s those devfces are orainarlly used only to make
holes in a casing So that the 011 already there will"flbw into
the well; but we sald thist %ometimes perforating of,a basing is-
done in connection with a taxable openatlon, to-wit, "acldlzlng~
ih that It 1s“done preparatory to acidizing for the purpose of
maklng hbles at a certain level through which acid could bi?
forced, and W8 held that In such a case the work of perforating
the casing was a taxable service.

            In answering the questLon before us we believe the
answer depends upon Whethey or not the d8ViC'e you deiicribe (the
devlc6 to determlne'the extent~'of the perforating) tjas US6a'lii
cbnhection with a taxable operation.   If the perforatlngwasa~~
taxable operation by virtue of~being preparatory to acldlzing as
stated-in Opinion No. o-3784 then the operation you describe,
to-wit, the use bf th& devFce to determine the extent of the .~
p&rforating;is   a taxable operation; but, otherwise it Is not a
taxable Operation.

            We hope the foregoing answers your question.

                                  Yours very truly

                               ATTORNEY GENERAL OF TEXAS


                                  By s/Cecil C. Rotsch
                                       Cecil C. Rotsch
                                       Assistant

CCR:LM:wc


.APPROVED JAN 31. 1942
s/Grover SellX     -
FIRST ASSISTANT
ATTORNEY GENERAL
Approves! Opinion ComUlittee'By s/%X6 Chairman
