Untitled Texas Attorney General Opinion ( 1951 )

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