Ohio sales / use tax: Statute expanding oil & gas exemption applies retroactively to purchases of hydraulic fracturing equipment

FrackingThe Tenth District Ohio Court of Appeals recently applied a statutory amendment clarifying the oil & gas exemption for Ohio sales & use tax retroactively. Interestingly, while this appeal was pending at the Board of Tax Appeals, the legislature amended the statute to clarify the scope of the exemption for fracking equipment. Although legislation is generally applied prospectively, this amendment was considered remedial and expressly stated that it clarified existing law and applied retroactively, including to current appeals.   R.C. 5739.02(B)(42)(q). Stingray Pressure Pumping, LLC v. Tax Commr. of Ohio, 2019-Ohio-5198. This decision opens up refund opportunities for taxpayers in the oil & gas industry, even those currently appealing an assessment.

The particular issue in this case was whether a sales tax exemption applied to certain equipment used by Stingray Pressure Pumping, LLC in the production of crude oil and natural gas by fracking. The BTA initially denied exemption for equipment used to mix liquids and materials before being pumped into wells. Under previous case law, this type of property was taxable since it was considered adjunct to the drilling process, rather than used directly in the production of oil and gas.[1]

However, while Stingray’s appeal of the BTA’s decision was pending, the General Assembly amended R.C. 5739.02(B)(42) to clarify the scope of the exemption for fracking equipment by identifying certain exempt property and activities that may not have been contemplated when the sales tax exemption was originally enacted decades earlier. See H.B. No. 430; R.C. 5739.02(B)(42)(q). Although amendments are generally prospective, since the statutory amendment expressly clarified the scope of an existing exemption, the amended statute applied retroactively to cases pending on appeal. The BTA did not have the opportunity to apply the clarified statute and, therefore, the Court remanded the appeal to the BTA to determine the taxability of the equipment under the clarified scope of the sales tax exemption.

If you have questions about the tax treatment of your oil and gas production equipment, or any questions concerning Ohio Sales / Use Tax and exemptions, please do not hesitate to contact us.


 

[1] See Indep. Frac Serv. v. Limbach, No. 1989-J-863 (June 28, 1991); Lyons v. Limbach, 40 Ohio St.3d (92 (1988); Kilbarger Constr., Inc. v. Limbach, 37 Ohio St.3d 234 (1988).

Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at sdi[email protected] or 330.258.6460.

Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423.

Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a board range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.

About Buckingham, Doolittle & Burroughs:

Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit bdblaw.com.

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