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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Honorable Peyton McKnight - Page 2 (~-1264)
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.
P- 5008
. .
Honorable Peyton McKnight - Page 3 (H-1264)
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,/ .,,“I’/ JOHN L. HILL
:’ ..I Attorney General of Texas
ENDALL, First Assistant
C. ROBERT HEATH, Chairman
Opinion Committee
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