A hydraulic fracturing company, Stingray Pressure Pumping LLC, appealed a decision of the Ohio Board of Tax Appeals to the Ohio Supreme Court requesting it review the taxability of its equipment purchases used in the production of crude oil and gas.
Stingray’s prior appeal from the Board to Ohio’s 10th District Court of Appeals resulted in a reversal and remand to the Board to re-review a relevant statute which had been amended during Stingray’s appeal process and which had retroactive application. Nonetheless, the Board’s second review of the equipment purchases resulted in the same determination - taxable. The Board concluded the equipment was either not used directly for its hydraulic fracturing or if it was directly used, it was not a “thing transferred”.
“... the General Assembly has expressed a clear intent to have the amended statute apply retroactively to those matters still on appeal. ”
An Exemption & Exclusion
Stingray provides pumping operations, maintenance, and logistical services within the oil and gas production industry. Throughout the appeals process, the company maintained that the purchased equipment at issue, data van, sand king/sand silo, t-belt, hydration unit, chemical unit and blender, was exempt from Ohio’s sales and use tax.
As set forth in amended Ohio Code § 5739.02(B)(42)(q), a sales tax exemption applies when the purpose of the purchaser is “[t]o use or consume the thing transferred directly in the production of crude oil and natural gas for sale.” Further, category VIII of the code provides a non-exhaustive list of equipment of what is and what is not considered the “thing transferred”. Thus, as set forth by the Board in its decision, in order to qualify for the exemption under category VIII, “each item must be used directly for providing reservoir stimulation, hydraulic fracturing, or acidizing services and not included in the exclusions in R.C. 5739.02(B)(42)(q)(ii).”
Stingray argued that all of its equipment qualified as exempt under the subsection as “[r]eservoir stimulation, hydraulic fracturing, and acidizing services, and tangible personal property directly used in providing such services, including all material pumped downhole.”
Board of Tax Appeals 2nd Determination
However, after analyzing each of Stingray’s purchases in light of the amended code section, the Board determined that none of the purchased equipment was directly used in the qualifying activity and also not excluded.
Of note, the Board discussed that the burden of proof for an exemption is on the taxpayer, “… items are presumed to be taxable unless the statute provides otherwise …”. If Stingray can more fully support its position that the items are exempt, the outcome of the current appeal may result in a more favorable determination than the prior appeals.