Governor sent 2 sales-tax exemption bills

Measures cover materials used in oil, gas well development, their disposal

A bill exempting sand used in oil and natural-gas drilling from sales taxes breezed through the Arkansas House of Representatives on Monday.

A bill granting a sales tax exemption for the disposal of saltwater and other fluids used in oil and gas exploration and development also sailed through the House.

Both bills are headed to Gov. Asa Hutchinson, a Republican.

In a 79-1 vote, the House approved Senate Bill 801 by Jason Rapert, R-Bigelow.

It would provide a sales-and-use tax exemption for sand and other proppants used to complete a new oil or gas well or to re-complete, redrill or expand an existing well. Proppants are granular substances that are injected into wells to keep fractures open so oil and gas can be removed.

In last year's fiscal session, the Republican-controlled Arkansas Legislature overturned then-Gov. Mike Beebe's veto of a specific section of an appropriation bill that exempted sand and other proppants used in drilling.

In June, a lawsuit was filed by Robert Nunn asking a Pulaski County circuit judge to rule the law unconstitutional, contending that the state Legislature passed the exemption without following the constitutionally required procedure for considering nonappropriation bills during the fiscal session.

Early last year, a circuit judge ruled in a lawsuit filed by Weatherford Artificial Lift Systems Inc. that the state had wrongly collected a sales tax on proppants. Judge Tim Fox said state law exempting equipment and machinery used in manufacturing from the sales tax applied to proppants. He ordered that the state refund more than $1.3 million in sales taxes to Weatherford but issued a stay on that order in May until an appeal of the case can be heard.

The state has appealed the ruling in the Weatherford lawsuit to the state Supreme Court.

Assuming that proppants are currently taxable under state law, the bill would reduce state revenue by about $390,000 per year based on current activity, though that amount fluctuates, the Arkansas Department of Finance and Administration said.

A separate bill affecting the oil and gas industry also passed Monday.

In a 80-0 vote, the House also sent the governor SB802 by Rapert.

It would provide a sales-tax exemption for the collection and disposal of saltwater, drilling fluids, hydraulic fracturing fluids, produced water, pit water, pit mud and similar materials produced from oil, gas or other natural resource exploration and development activities, the finance department said.

The bill would reduce state tax revenue by $300,000 in fiscal 2016 and $450,000 in fiscal 2017, the finance department estimated.

Metro on 03/31/2015

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