Could a lease operator receive 100% of a natural-gas-tax refund when an interest owner separately sold 25% of production taken in kind?

Plain-English summary

The lease operator sold 75% of production under its contract. Another interest owner took 25% in kind and sold it under a separate contract. The operator claimed 100% of a marketing-cost refund and distributed the overpayment among working-interest owners.

Because the operator had not remitted all of the tax, the Comptroller said it should obtain an assignment from the owner taking gas in kind. The Department could then refund 100% to the operator, assuming the refund on the 25% owner's gas was proper. Verification required examination of the operator's records.

What this means for you

A refund recipient needed authority to claim the portion tied to another owner's separately sold production, along with records supporting the calculation.

Common questions

Could the operator receive the entire refund? Yes, with the in-kind owner's assignment and a valid underlying refund.

How would the refund be verified? By examining the operator's records.

Citations and references

The letter did not cite a specific statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1107C08

Original ruling text

April 8, 1991

Dear ****:

Thank you for your letter concerning a refund of the natural gas
tax because of a marketing cost deduction.

According to your letter, 75% of the production is sold under the
lease operator's contract. The remaining 25% is taken in-kind by
one of the interest owners and sold under a separate contract
entered into by that interest owner. The operator filed a claim
to recover 100% of the marketing costs and disbursed the
overpayment to the other working interest owners.

As you pointed out, any verification of the correctness of the
refund will have to be made by examining the operator's records.

Since the operator did not remit 100% of the tax, I am of the
opinion that an assignment from the owner taking in-kind should be
obtained by the operator. We will then be able to refund 100% of
the tax refund to the operator. This is with the understanding,
of course, that a refund is proper on the 25% interest owner's gas.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Should you have additional questions or need more information
concerning this, please call me at our toll-free number
1-800-531-5441, extension 3-4623. For answers to general ques-
tions, call 1-800-252-5555. The regular number is 512/463-4600.
You may write me by directing your letter to the attention of Tax
Administration Division.

Sincerely,

G. C. Edgar
Tax Administration Division