Texas Oil Lawsuit Could Lead to Billions in Tax Refunds

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Summary: An oil industry tax lawsuit may cost Texas its $4 billion surplus.

Plunging oil prices have brought change in Texas, so much so that mega firm Orrick recently opened a Houston office because of it. Now the oil industry may bring another big change in the form of multi-billion dollar tax refunds.

  

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The Texas Tribune reports that Southwest Royalties first sued Texas in 2009, and the case has been in the system since then. In late January of this year, the Texas Supreme Court heard their tax case which asked that oil companies’ equipment such as tubing and metal pipes be tax exempt. Southwest Royalties wanted equipment purchased as far back as 1997 to be a part of the exemption.

While a tax exemption case seemingly lacks sex appeal, this case could actually lead to a major setback for the state’s economy.

Texas Comptroller Glenn Hegar says ruling in favor of the oil companies could lead to tax refunds of $4.4 billion, a number that could wipe out the state’s surplus.

Hegar noted that this case along with a franchise tax case filed by AMC’s parent company are two cases that are heavily watched by budget experts, but he believes Texas will come out on top.

The oral arguments will take place on March 8, says The Texas Tribune. The case rests on Southwest Royalties proving that its equipment meets the legal definition of what constitutes a tax exemption.

In theory, the justices hearing the case would rule based on merits alone, but past precedent has possibly shown that the judges take advisory warnings into account. For instance, in 2012, Travis County District Judge John Dietz ruled in favor of Southwest Royalties only to later reverse his decision. Southwest Royalties claimed Dietz was swayed by a Wall Street Journal article.

It’s noted that if Texas loses its surplus, it still has a Rainy Day Fund worth $10 billion.

Source: The Texas Tribune