Could a direct-payment permit holder claim credit for tax-paid inventory later removed for exclusive offshore mineral exploration or production?

Plain-English summary

Tangible personal property removed from tax-paid inventory qualified for exemption when used exclusively in offshore oil or mineral exploration or production outside Texas's territorial limits.

The direct-payment permit holder could claim credit if the items had not been used before the offshore use. The credit used the same tax rate at which tax was originally accrued and paid—the rate in effect when the inventory was purchased.

The taxpayer had to keep records showing the items purchased, the items removed for offshore use, and the tax paid. Indefinite storage before removal did not by itself destroy the exemption.

For inventory bought before October 1, 1987 and later used in Texas, the tax rate was also the rate in effect when the inventory was purchased.

What this means for you

The historical credit depended on tracing unused tax-paid inventory to exclusive qualifying offshore use and preserving rate and item-level records.

Common questions

Did commingling tax-paid inventory destroy the credit? No, if the qualifying items and tax could be documented and the other conditions were met.

Did long storage destroy the exemption? No.

Which tax rate applied to the credit? The same rate originally accrued and paid.

Citations and references

The letter cites no numbered 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/8801L0853E06

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller January 4, 1988

Dear **:

Thank you for your letter regarding tax due under your direct payment
account
on items taken from your tax-paid inventory for offshore use. Following
are
your specific questions and our responses:

Question 1: Will the commingling of items purchased for offshore use
result
in loss of exemption? Is CORP A prohibited from taking tax credit on the
portion of materials removed from storage for offshore use?

Answer: Tangible personal property removed from your tax paid inventory
for exclusive use in exploration for or production of oil or other
minerals
offshore and outside the territorial limits of Texas will qualify for
exemption.

Credit can be taken on your direct payment return if there was no use of
the items prior to use offshore. The credit will be at the same tax rate
at which the tax was accrued and paid to the state. The tax was due at
the tax rate in effect at the time the inventory was purchased.

Documentation must be kept in your records reflecting the items purchased
and removed for offshore use and the tax paid in order for credit to be
allowed.

Question 2: Will the storing of items for indeterminable periods of time
result in loss of exemption? Is CORP A prohibited from taking tax
credit on the portion of material removed from storage for offshore use?

Answer: No. See Answer 1.

In our telephone conversation, you asked about the tax rate on inventory
purchased prior to October 1, 1987 and used in Texas. The tax is due at
the
tax rate in effect at the time the inventory was purchased.

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

If you have any questions or need more information, please call our
toll-free
number 1-800-531-5441. The regular number is 512/463-4600. You may write
me
at the Tax Policy Division.

Sincerely,
(Mrs.) Jo Ann Dieck
Tax Policy Division