Southwest Royalties, Inc. v. Susan Combs, Comptroller of Public Accounts of the State of Texas And Greg Abbott, Attorney General of the State of Texas

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-12-00511-CV

Southwest Royalties, Inc., Appellant

v.

Susan Combs, Comptroller of Public Accounts of the State of Texas; and
Greg Abbott, Attorney General of the State of Texas, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
NO. D-1-GN-09-004284, HONORABLE JOHN K. DIETZ, JUDGE PRESIDING

MEMORANDUM OPINION

Southwest Royalties, Inc. (Southwest), filed a refund claim with the Comptroller of

Public Accounts of the State of Texas (Comptroller) for taxes that it paid from January 1, 1997,

through April 30, 2001. See Tex. Tax Code § 111.104 (setting out requirements for tax-refund claim).

The requested refund was for taxes paid on the purchase of equipment as well as services pertaining

to the equipment that Southwest used in the extraction or mining (cumulatively extraction) of oil

and natural gas. When it filed its claim, Southwest alleged that the equipment and services were

exempt from taxation. See id. § 151.318 (containing manufacturing exemption), .3111 (exempting

certain services applied to exempt property).

After convening a hearing, the Comptroller denied Southwest’s request. Subsequent

to the Comptroller’s ruling, Southwest filed suit against the Comptroller and against the Attorney

General of the State of Texas. See id. § 112.151 (authorizing suit for tax refund). In the trial,
Southwest again urged that it qualified for a tax exemption. At the end of the trial, the district court

concluded that Southwest failed to meet its burden of proving that it qualified for an exemption

and that the Comptroller’s determination that Southwest was not entitled to a refund was

“reasonable” and did “not contradict the plain language” of the relevant provisions of the Tax Code.

Southwest appeals the judgment of the district court. We will affirm.

STATUTORY FRAMEWORK

Under the Tax Code, the legislature applies sales and use taxes (collectively sales tax)

to the “sale of a taxable item in this state” and for “the storage, use, or other consumption in this state

of a taxable item purchased from a retailer for storage, use, or other consumption in this state.” Tex.

Tax Code §§ 151.051, .101. The sales tax requirement is subject to various exemptions, including

the manufacturing exemption located in section 151.318 of the Tax Code. See id. § 151.318. That

provision is entitled “Property Used in Manufacturing” and provides a list of items “exempted

from” sales tax “if sold, leased, or rented to, or stored, used, or consumed by a manufacturer.” Id.

§ 151.318(a).

When Southwest sought a tax refund, it asserted that it was entitled to an exemption

under three subsections of the manufacturing exemption. Those provisions exempt the following

property from taxation:

(2) tangible personal property directly used or consumed in or during the actual
manufacturing, processing, or fabrication of tangible personal property for ultimate
sale if the use or consumption of the property is necessary or essential to the
manufacturing, processing, or fabrication operation and directly makes or causes a
chemical or physical change to:

2
 (A) the product being manufactured, processed, or fabricated for
ultimate sale; or

(B) any intermediate or preliminary product that will become an
ingredient or component part of the product being manufactured,
processed, or fabricated for ultimate sale1;

...

(5) tangible personal property used or consumed in the actual manufacturing,
processing, or fabrication of tangible personal property for ultimate sale if the use or
consumption of the property is necessary and essential to a pollution control process;
[and]

...

(10) tangible personal property used or consumed in the actual manufacturing,
processing, or fabrication of tangible personal property for ultimate sale if the use or
consumption of the property is necessary and essential to comply with federal, state,
or local laws or rules that establish requirements related to public health.2

Id. § 151.318(a)(2), (5), (10).

1
As mentioned above, Southwest is seeking a tax exemption for equipment and services
purchased from January 1, 1997, through April 30, 2001. In its briefs, Southwest notes that prior
to October 1, 1997, subsection (a)(2) of the manufacturing exemption did not expressly require a
“direct” cause or change. See Act of May 27, 1997, 75th Leg., R.S., ch. 1390, § 1, sec. 151.318(a),
1997 Tex. Gen. Laws 5195, 5196 (adding direct requirement) (current version at Tex. Tax
Code § 151.318(a)). Accordingly, Southwest insists that even if this Court were to determine that
Southwest was not entitled to an exemption because the equipment at issue did not directly cause
a change, Southwest would still be entitled to an exemption for the equipment that it purchased prior
to the effective date of the statutory amendment. For that reason, Southwest alternatively asks this
Court to render a judgment in its favor regarding the equipment purchased prior to the effective date.
However, given our ultimate resolution of the issues on appeal, Southwest is not entitled to the
alternative relief that it seeks.
2
The public-health exemption was promulgated by the legislature in 1999, see Act of May
31, 1999, 76th Leg., R.S., ch. 1467, § 2.18, sec. 151.318(a)(10), 1999 Tex. Gen. Laws 4996, 5018
(adding public-health exemption) (current version at Tex. Tax Code § 151.318(a)(10)), but the
Comptroller’s rules allowed that type of exemption before the provision was enacted by the
legislature, see 15 Tex. Reg. 6600 (1990) (current version at 34 Tex. Admin. Code § 3.300(d)(11)
(2014) (Tex. Comptroller of Pub. Accounts, Manufacturing; Custom Manufacturing; Fabrication;
Processing)).

3
 In addition to the exemptions described above, section 151.3111 exempts from

taxation “a service that is performed on tangible personal property that, if sold, leased, or rented, at

the time of the performance of the service, would be exempted under this chapter because of the

nature of the property, its use, or a combination of its nature and use, is exempted from this chapter.”

Id. § 151.3111(a).

As outlined above, the statutory provisions at issue in this appeal govern exemptions

from taxation. Id. §§ 151.318(a)(2), (5), (10), .3111(a). Statutory exemptions are strictly construed

because they undermine both uniformity and equality of taxation by imposing a heavier burden on

some taxpayers instead of imposing the burden equally on all taxpayers. Laredo Coca-Cola Bottling

Co. v. Combs, 317 S.W.3d 735, 739 (Tex. App.—Austin 2010, pet. denied); see also Sabine Mining

Co. v. Combs, No. 13-06-00330-CV, 2007 Tex. App. LEXIS 6766, at *8-9 (Tex. App.—Corpus

Christi Aug. 23, 2007, no pet.) (mem. op.) (deciding that section 151.318 should be interpreted

“very narrowly” and noting that when courts elected to provide broad reading of section 151.318,

legislature amended statute to overrule broad ruling). For that same reason, “the burden of proof for

showing that the exemption applies is on the claimant.” Laredo Coca-Cola Bottling Co., 317 S.W.3d

at 739; see also Tex. Tax Code § 151.318(r) (specifying that taxpayer has burden of proof); 34 Tex.

Admin Code § 1.40(2)(A) (Tex. Comptroller of Pub. Accounts, Burden of Proof) (establishing that

taxpayer has burden of establishing by “clear and convincing evidence” that transaction is tax

exempt). “The exemption must affirmatively appear in the statutory language, and all doubts are

resolved in favor of the taxing authority and against the claimant.” Laredo Coca-Cola Bottling Co.,

317 S.W.3d at 739.

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 STANDARD OF REVIEW

Resolution of the issues on appeal depends upon statutory construction, which is a

question that is generally reviewed de novo. City of Rockwall v. Hughes, 246 S.W.3d 621, 625 (Tex.

2008). When construing statutes, a court’s primary objective is to give effect to the legislature’s

intent. Iliff v. Iliff, 339 S.W.3d 74, 79 (Tex. 2011). In ascertaining the legislature’s intent, we rely

on the plain meaning of the words in the statute unless the plain meaning would lead to an absurd

result or unless a different meaning is apparent, Texas Lottery Comm’n v. First State Bank of

DeQueen, 325 S.W.3d 628, 635 (Tex. 2010), and we look to the entire act and not just to “isolated

portions,” 20801, Inc. v. Parker, 249 S.W.3d 392, 396 (Tex. 2008). Moreover, we presume that the

statutory language was chosen purposefully and deliberately, First State Bank, 325 S.W.3d at 635,

and we should not interpret a statute “in a manner that renders any part of the statute meaningless or

superfluous,” Columbia Med. Ctr. of Los Colinas, Inc. v. Hogue, 271 S.W.3d 238, 256 (Tex. 2008).

If “a statute’s words are unambiguous and yield but one interpretation,” we give

“such statutes their plain meaning without resort to rules of construction or extrinsic aids.” Combs

v. Roark Amusement & Vending, L.P., 422 S.W.3d 632, 635 (Tex. 2013). However, if the statute

is ambiguous or vague, courts defer to the interpretation provided by an agency unless that

interpretation is inconsistent with the plain language of the statute or plainly erroneous. Id.; see First

Am. Title Ins. Co. v. Combs, 258 S.W.3d 627, 632 (Tex. 2008) (explaining that because legislature

has charged Comptroller with task of setting tax policy and regulating collection of taxes, courts give

serious consideration to Comptroller’s construction of tax statute and will uphold her interpretation

provided that it is reasonable “and does not contradict the plain language of the statute” (quoting

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Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993))); see also Tex. Tax Code

§§ 111.001-.002 (charging Comptroller with responsibility of collecting taxes and empowering

Comptroller to adopt rules enforcing provisions of Tax Code). Stated differently, courts defer to

an agency’s interpretation of a statute if “there is vagueness, ambiguity, or room for policy

determinations in a statute.” TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 438 (Tex.

2011); see also Ojo v. Farmers Grp., Inc., 356 S.W.3d 421, 433 (Tex. 2011) (stating that courts may

consider administrative construction of statute even if statute is not ambiguous).3

3
For reasons more thoroughly explained in the body of the opinion, we believe that
consideration of the Comptroller’s construction is warranted in this case. On appeal, Southwest
urges, for various reasons, that no deference should be afforded to the Comptroller’s construction
of the relevant statutes. First, Southwest notes that refund lawsuits are tried de novo. See Tex. Tax
Code § 112.154; see also Tex. Gov’t Code § 2001.173(a) (explaining that if agency decision is
reviewed by trial de novo, trial court proceeds as if there had been no agency decision). Second,
Southwest alleges that the Comptroller does not have a long-standing policy of denying the
exemptions at issue; on the contrary, Southwest insists that the Comptroller has historically
not distinguished manufacturing claims from extraction claims. See Texas Citrus Exch. v. Sharp,
955 S.W.2d 164, 170 (Tex. App.—Austin 1997, no pet.) (explaining that “greater deference” is given
to agency interpretations that are “long-standing and applied uniformly”). As primary support for
this proposition, Southwest refers to decisions made by the Comptroller decades ago. See, e.g., Tex.
Comptroller of Pub. Accounts, Hearing No. 24,833 (Apr. 9, 1990) (noting that tax scheme did “not
require a determination of mining process versus manufacturing process”); Tex. Comptroller of Pub.
Accounts, Hearing No. 23,055 (Aug. 17, 1988) (stating that if “Tax Division wishes to remove all
mining activities from manufacturing, processing, and fabrication, a duly promulgated rule should
be proposed”). Finally, Southwest argues that deference to the Comptroller’s interpretation is not
warranted in this case because the Comptroller “has no expertise in petroleum engineering” and,
therefore, has no specialized knowledge regarding whether the property and services at issue satisfy
the terms of the exemption. See Rylander v. Fisher Controls Int’l, Inc., 45 S.W.3d 291, 302 (Tex.
App.—Austin 2001, no pet.) (noting that courts do not defer to agency interpretations regarding
questions not lying within agency expertise or concerning nontechnical questions of law).

For the reasons that follow, we disagree with Southwest. Although Southwest correctly points
out that trials occurring after a ruling by the Comptroller are de novo, see Molinet v. Kimbrell,
356 S.W.3d 407, 411 (Tex. 2011), consideration of agency interpretations is a permissible tool used
by courts when conducting a de novo analysis in order to ascertain the legislature’s intent, see

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 DISCUSSION

In two issues on appeal, Southwest challenges the judgment of the district court. In

particular, Southwest insists that the district court erred by failing to find that any of the tax

exemptions summarized above applied in this case. As discussed previously, Southwest sought

those exemptions for equipment and services that it used for extracting natural gas and oil from the

ground. In particular, Southwest sought exemptions for “casing, tubing, pumps, and related parts”

Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993); see also Tex. Gov’t Code
§ 311.023(6) (authorizing consideration of “administrative construction of the statute”). In addition,
even though we agree with Southwest’s general statement that more deference is afforded to agency
interpretations that are long-standing, we cannot agree with its suggestion that the Comptroller’s
seemingly inconsistent past rulings prohibit this Court from giving any consideration to the
Comptroller’s current construction. Although some of her prior rulings may seemingly contradict
her current interpretation, the Comptroller has also repeatedly concluded that oil and gas extraction
does not constitute manufacturing. See, e.g., Tex. Comptroller of Pub. Accounts, Hearing No. 103,299
(Feb. 11, 2011) (concluding that bringing “oil to the surface of the earth is not processing,
fabrication, or manufacturing”); Tex. Comptroller of Pub. Accounts, Hearing No. 43,807 (Oct. 20,
2009) (same); cf. Chevron v. Natural Res. Def. Council, 467 U.S. 837, 863-64 (1984) (explaining
that agency’s construction of statute may change over time because agency is required to assess
wisdom of its interpretation continuously).

Moreover, the Comptroller is charged with overseeing and enforcing the tax statutes at issue
and with deciding which transactions are subject to taxation and which ones are exempt from
taxation. See Tex. Tax Code §§ 111.001-.002. In light of this responsibility, we also cannot agree
with Southwest’s suggestion that the issue presented in this case is squarely outside the expertise of
the Comptroller. Although it may well be true that the Comptroller does not have any specialized
knowledge regarding petroleum engineering, she certainly has expertise in categorizing and
comparing transactions for tax purposes. Moreover, when considering whether deference should be
afforded due to an agency’s expertise, the question is whether the issue presents considerations that
courts are as qualified to consider as an agency, see Fisher Controls, 45 S.W.3d at 302 (stating that
for non-technical question of law, courts are “as competent as the Comptroller” in ascertaining
legislative intent), and not, as suggested by Southwest, whether a different agency might have a
better understanding of the issue than the agency being asked to make a determination. Given the
complexity of the governing statutory scheme and given the highly technical nature of the activity
at issue, we believe that the Comptroller’s taxing expertise particularly warrants serious consideration
of her interpretation of the governing statutes in this case.

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as well as for services pertaining to that equipment.4 When it sought the exemptions, Southwest

generally urged that the equipment and services qualified for the exemptions “because the equipment

was used in or during the actual processing of product to extract and separate the mixture into its

components of oil, gas, and water, and is necessary and essential to that process.”

In its second issue on appeal, Southwest contends that the district court erred by

failing to conclude that the exemption located in subsection 151.318(a)(2) applied in this case.

Specifically, Southwest urges that the exemption applies because the process caused a direct physical

change to the petroleum products. See Sabine Mining Co., 2007 Tex. App. LEXIS 6766, at *11

(explaining that term “direct” in context of exemption “implies a close link with no intervening

causes”). When arguing that the exemption applies, Southwest notes that the district court concluded

that the process caused a physical change to the petroleum products but contends that the district

court erred by concluding that the process was only an indirect cause of the changes. As support for

this proposition, Southwest argues that the equipment at issue “is an integral unit that directly

generates and controls the pressure and temperature differentials, directly causing the physical

changes in the oil and gas.” In addition, Southwest summarizes the evidence that it presented during

trial showing that the equipment directly caused a physical change.

In its first issue, Southwest contends that the district court erred because the evidence

produced during the trial conclusively proved that public-health and pollution-control exemptions

found in subsections 151.318(a)(5) and 151.318(a)(10) applied. In fact, Southwest argues that the

4
Although the original request with the Comptroller involved additional equipment and
services, the appellate briefs by the parties and the findings of fact and conclusions of law by the
district court only pertain to the specific equipment and services discussed above.

8
evidence showed that “most of the equipment at issue was necessary and essential to a pollution

control process and to comply with public health regulations.” As support for this proposition,

Southwest summarizes the evidence that it presented regarding the public-health and pollution-

control exemptions and argues that the equipment was necessary to comply with pollution

requirements mandated by the Texas Railroad Commission. Moreover, although Southwest seems

to acknowledge that both the pollution-control and public-health exemptions contemplate some

kind of product change, Southwest contends that these exemptions, unlike the exemption found in

subsection 151.318(a)(2), do not require a showing that equipment directly causes a physical or

chemical change to a product. Compare Tex. Tax Code § 151.318(a)(5), (10), with id. § 151.318(a)(2).

Accordingly, Southwest asserts that the changes that occurred to the oil and gas during the extraction

in this case suffice to invoke the pollution-control and public-health exemptions.

Although each of the three exemptions described above contains unique elements,

all three also require that the property at issue be “used or consumed in the actual manufacturing,

processing, or fabrication of tangible personal property for ultimate sale.” See id. § 151.318(a)(2),

(5), (10).5 On appeal, the Comptroller contends that the equipment and services at issue in this case

5
When arguing that the manufacturing exemption can apply to equipment and services used
for oil and gas extraction, Southwest notes that after this appeal was filed, a bill was introduced
seeking to amend the manufacturing exemption by adding a subsection stating that the extraction
of oil and natural gas does not constitute manufacturing, processing, or fabrication under the
exemption. See Tex. H.B. 3113, 83d Leg., R.S. (2013). Moreover, the proposed amendment stated
that it was simply a clarification of existing law. Id. When discussing the importance of this
amendment, Southwest contends that the amendment “is a death blow to the Comptroller’s position”
because “there would be no need to amend” the statute if it already supported her position. Assuming
for the sake of argument that the addition of the amendment could be given the meaning suggested
by Southwest if it became law, the proposed amendment was not passed.

9
used for extracting oil and gas can never qualify for the exemptions because the equipment and

services are not used in “manufacturing, processing, or fabrication”; on the other hand, Southwest

contends that equipment and services used for the extraction of oil and gas can qualify for the

exemption provided that all of the elements are proven.

As a preliminary matter, we note that it is not readily apparent from the wording of

the manufacturing exemption that the phrase “manufacturing, processing, or fabrication” includes

the extraction of oil and gas, but the plain meaning of the words in the statute as well as clarifications

provided by the legislature tend to support a conclusion that extraction is not included. In the

manufacturing exemption, the legislature has specified that the term “‘manufacturing’ includes

each operation beginning with the first stage in the production of tangible personal property and

ending with the completion of tangible personal property having the physical properties (including

packaging, if any) that it has when transferred by the manufacturer to another.” Id. § 151.318(d).

Based on that provision, the extraction of oil and gas from the ground would not seem to qualify

as manufacturing. See id. That determination is consistent with the legislature’s decision to

distinguish the term manufacturing from both mining and extraction in other contexts, see id.

§ 171.1012 (explaining that for franchise taxes term “‘Production’ includes . . . manufacture, . . .

mining, [and] extraction”), and with the common definitions for manufacturing and mining,

see Merriam-Webster Dictionary (defining mining as “[e]xcavation of materials from the

Earth’s crust, including those of organic origin, such as coal and petroleum”), available at

http://www.merriam-webster.com/dictionary/mining (last visited Aug. 11, 2014); id. (explaining that

term manufacture refers to “something made from raw materials by hand or by machinery”),

10
available at http://www.merriam-webster.com/dictionary/manufacture (last visited Aug. 11, 2014);

Black’s Law Dictionary 1085 (9th ed. 2009) (defining mining as “[t]he process of extracting

ore or minerals” and “encompasses oil and gas drilling”); id. at 1050 (explaining that manufacture

means “[a] thing that is made or built by a human being . . . as distinguished from something

that is a product of nature”). See also North American Industry Classification System

(placing oil and gas extraction in different classification than manufacturing), available at

https://www.census.gov/cgi-bin/sssd/naics/naicsrch?chart=2012 (last visited Aug. 11, 2014); Tex.

Tax Code § 313.024(e)(1) (setting out what qualifies as manufacturing by referencing codes

from North American Industry Classification System).

In light of the lack of clarity highlighted above, we turn to the Comptroller’s

interpretation of the manufacturing exemption. The Comptroller urges that the legislature did not

intend for the manufacturing exemption to apply to the extraction of oil and gas. As support, the

Comptroller points to her rule interpreting the manufacturing exemption, which provides that “[t]he

first production stage means the first act of production, and it shall not include those acts in

preparation for production.” 34 Tex. Admin. Code § 3.300(a)(9) (2014) (Tex. Comptroller of Pub.

Accounts, Manufacturing; Custom Manufacturing; Fabrication; Processing).6 Accordingly, the

6
The entire definition reads as follows:

Each operation beginning with the first stage in the production of tangible personal
property and ending with the completion of tangible personal property. The first
production stage means the first act of production, and it shall not include those acts
in preparation for production. For example, a lumber company that cuts trees or a
manufacturer that gathers, arranges, or sorts raw materials or inventory is preparing
for production. The first production stage for the manufacturing of software is the

11
Comptroller contends that extraction is more akin to an act “in preparation for production” than

manufacturing. Cf. Houston Wire & Cable Co. v. Combs, No. 03-07-00006-CV, 2008 Tex. App.

LEXIS 1820, at *15 (Tex. App.—Austin March 12, 2008, pet. denied) (mem. op.) (concluding that

cutting and re-spooling cable did not constitute processing because company did not create new

product or change intrinsic character of products).

Furthermore, although the Comptroller notes that the relevant provisions of the

Tax Code do not define the terms “processing” or “fabrication,” she also points out that those terms

have been defined by rule as respectively meaning “[t]he physical application of the materials and

labor necessary to modify or to change the characteristics of personal property” and “[t]o make,

build, create, produce, or assemble components of tangible personal property, or to make tangible

personal property work in a new or different manner.” 34 Tex. Admin. Code § 3.300(a)(5), (10)

(2014). In addition, the Comptroller has specified through a rule that “[p]rocessing and fabrication

are two activities that are performed during manufacturing. For example, the person who takes raw

steel and makes pipe is engaged in fabrication. The workers who coat or thread the pipe are engaged

in processing.” Id. § 3.300(a)(9)(B); see also Combs v. Chapal Zenray, Inc., 357 S.W.3d 751, 759

(Tex. App.—Austin 2011, pet. denied) (explaining that terms manufacturing, processing, and

design and writing of the code or program, and manufacturing includes the testing
or demonstration of the software. Manufacturing includes the repair or rebuilding of
tangible personal property that the manufacturer owns for the purpose of being sold,
but does not include the repair or rebuilding of property that belongs to another.

34 Tex. Admin. Code § 3.300(a)(9) (2014).

12
fabricating all refer to “a joining of components into a finished product”). Accordingly, the

Comptroller contends that the equipment and services used by Southwest for extraction purposes

cannot fall under either of those definitions.

In addition, the Comptroller points out that in the manufacturing exemption the

legislature chose to specifically include certain activities that might not fall under the common meaning

of manufacturing, processing, or fabrication. See Tex. Tax Code § 151.318(n), (o), (t) (incorporating,

respectively, “repairing jet turbine aircraft engines and their component parts” and producing news

publications as well as “pre-press machinery, equipment, and supplies . . . necessary and essential

to and used in connection with the printing process”). In light of these inclusions, the Comptroller

urges that the legislature’s decision to not specifically incorporate oil and gas extraction, which also

does not fall within the common meaning of manufacturing, should be viewed as purposeful.

More importantly, the Comptroller contends that reading the manufacturing exemption

as including equipment and services used in the extraction of oil and gas would render superfluous

other provisions of the Tax Code dealing with extraction. Specifically, the Comptroller refers to

sections 151.324 and 151.317 of the Tax Code.7 Section 151.324 is entitled “Equipment Used

Elsewhere for Mineral Exploration or Production” and exempts, among other things, “drill pipe,

case, tubing, and other pipe used” as well as “tangible personal property exclusively used . . . for the

exploration for or production of oil, gas, sulphur, or other minerals not in this state.” Id. § 151.324(a).

7
In its judgment, the district court concluded that the Comptroller’s determination that
Southwest was not entitled to an exemption “is reasonable and does not contradict the plain language
of the statute, particularly in light of other provisions in the tax code that would be rendered
meaningless, i.e. Tex. Tax Code §§ 151.317 and 151.324.” That determination was repeated in the
district court’s conclusions of law, which were issued after the court reached its decision.

13
Section 151.317 exempts the sale of gas and electricity used for specified purposes. Id. § 151.317.

Of relevance to this case, two subsections exempt gas and electricity sold for use in powering

equipment exempt under the manufacturing exemption and used “in lighting, cooling, and heating

in the manufacturing area during the actual manufacturing or processing of tangible personal

property,” and another subsection exempts gas and electricity used “directly in exploring for,

producing, or transporting, a material extracted from the earth.” Id. § 151.317(a)(2)-(4). In light of

these provisions, the Comptroller contends that if Southwest were correct that equipment and

services related to extraction qualified under the manufacturing exemption, there would be no need

to have the exemptions summarized above located in sections 151.324 and 151.317. In addition,

the Comptroller urges that the legislature’s decision to include an exemption for extraction but to

limit it to extraction performed out of State demonstrates the legislature’s intent to not exempt those

activities inside the State.8

8
In its reply brief, Southwest engages in a piecemeal attack on the various bases relied on
by the Comptroller by asserting that each basis does not completely align with the Comptroller’s
construction. For example, Southwest contends that although the common definitions for
“manufacturing” and “mining” might show that the terms “are not always linked,” they do not
demonstrate that the two could never be linked. In other words, Southwest contends that if in the
process of extracting oil and gas, its activities qualify under the definition of manufacturing,
processing, or fabrication promulgated by the Comptroller, see 34 Tex. Admin. Code § 3.300(a)(5),
(9), (10) (2014), then the exemption should apply, see Tex. Tax Code § 151.318(a). Next, Southwest
urges that the legislature’s decision to include within the manufacturing exemption activities that
would not typically fall within the common meaning for manufacturing should not be used as
support for the idea that the legislature intended to exclude extraction from the exemption. In
essence, Southwest contends that unlike the other non-manufacturing enterprises, extraction can, in
certain circumstances, fall under the manufacturing exemption and, therefore, needs no specific
inclusion. Finally, although Southwest concedes that under its construction there may be some
overlap or redundancy between the current version of the manufacturing exemption and other
provisions of the Tax Code, it asserts that construing the manufacturing exemption as applying to
the equipment and services at issue in this case would not, as argued by the Comptroller, render

14
 As mentioned above, the boundaries intended by the legislature regarding what

qualifies as property or services used during “actual manufacturing, processing, or fabrication” are

not clear from the language of the manufacturing exemption. See id. § 151.318. This ambiguity

alone might suffice to defeat Southwest’s claims due to the strict construction that tax exemptions

are given, to the fact that all doubts regarding the applicability of an exemption are resolved in favor

of taxation, and to the fact that the right to an exemption must be clearly apparent from the language

of the statute. See Laredo Coca-Cola Bottling Co., 317 S.W.3d at 739. However, Southwest faces

the additional hurdle requiring courts to defer to an agency’s interpretation of an ambiguous statute

unless that interpretation is plainly erroneous or inconsistent with the language of the statute. See

Roark Amusement, 422 S.W.3d at 635. The Comptroller’s interpretation is not plainly erroneous or

inconsistent with the language of the statute. Accordingly, even though Southwest’s interpretation

might not be an unreasonable one, we cannot conclude that the district court erred when it

determined that the equipment and services at issue did not qualify for the manufacturing exemptions

sections 151.317 and 151.324 of the Tax Code superfluous. Cf. In re City of Georgetown, 53 S.W.3d
328, 336 (Tex. 2001) (noting that “only reasonable explanations” for redundancies regarding
exceptions from disclosure under Public Information Act was “that the Legislature repeated itself
out of an abundance of caution, for emphasis, or both”).

When attacking the Comptroller’s construction, Southwest correctly points out that the
interpretive tools that she used to discern the legislature’s intent do not mandate her interpretation;
however, that same criticism could unquestionably be lodged against the resolution offered by
Southwest as well. In fact, using tools of statutory construction to ascertain legislative intent will
often involve the resolution of competing directives, and the technicalities identified by Southwest
reinforce the benefit that reviewing courts obtain through consideration of an agency’s interpretation
of a statute that it is charged with enforcing. And the fact remains that the Comptroller’s
interpretation resulted from the implementation of several tools of construction, which, even with
their faults, are among the most effective means for gaining insight into the legislature’s intent.

15
under subsections 151.318(a)(2), (5), or (10). For these reasons, we overrule Southwest’s two

issues on appeal.

CONCLUSION

Having overruled Southwest’s two issues on appeal, we affirm the judgment of the

district court.

__________________________________________

David Puryear, Justice

Before Justices Puryear, Rose, and Goodwin

Affirmed

Filed: August 13, 2014

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