Stingray Pressure Pumping, LLC (“Stingray”) provides fracking services, which include pumping a pressurized mixture of water, chemicals, and sand to fracture open rock formations in the process of oil and gas extraction. The state of Ohio provides an exemption from sales and use tax for some equipment used in the business of oil and gas production. At issue, in this case,1 is equipment purchased in 2012 before the Legislature made changes to the statute that provides an exemption.
Stingray challenged a decision by the Ohio Board of Tax Appeals (BTA), which concluded that some of the equipment at issue did not qualify for the sales tax exemption. About half of the originally assessed taxable pieces of equipment were ruled to be exempt, based on the law at the time that was interpreted to apply only if the equipment was “directly used in injecting the high-pressure fracking fluid into the well.” The tax commissioner concluded that only pumps and manifolds used with the pumps qualified for the exemption, excluding all other ancillary equipment from the exemption.
While Stingray was awaiting appeal to the Tenth District Court of Appeals, the Legislature substantially amended the relevant statute to add two lists of equipment: one list of items that would qualify and one list of items that would not qualify in the application of the language “to use or consume the thing transferred directly.” [Emphasis added.] The Court of Appeals determined that the statute applied retroactively and remanded the case for consideration under the new statute. When the BTA reconsidered the application of the new statute, the decision remained that the pieces of equipment at issue were not equivalent to a “thing transferred” and did not change its earlier ruling.
To reach its decision, the Supreme Court analyzed the items listed in the new statute as included and not included as a “thing transferred” to determine applicability of the exemption to those pieces of equipment excluded by the BTA. Stingray contended that all items at issue qualified as a “thing transferred” because they were all used for “reservoir stimulation, hydraulic fracturing, and acidizing services and tangible personal property directly used in providing such services, including all material pumped downhole.” The Court concluded that all items except the data van—which was essentially a motor vehicle—qualified for the exemption from sales and use tax.
Additionally, the Court concluded that the intent of the definition of “thing transferred” to include “services provided in the construction of permanent access roads, services provided in the construction of the well site, and services provided in the construction of temporary impoundments” and “equipment and rigging used for the specific purposes of creating with integrity a wellbore pathway to underground reservoirs” was never intended to also have to qualify as being “used directly in the production of crude oil and natural gas for sale.” The Court concluded that the intent of this definition was to exempt these services without having to also qualify as being “used directly in the production of crude oil and natural gas for sale.”
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1 Stingray Pressure Pumping, LLC v. Harris, Slip Opinion No. 2023-Ohio-2598.
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