AI Generated Opinion Summaries

This summary was computer-generated without any editorial revision. It is not official, has not been checked for accuracy, and is NOT citable.

Facts

• Haliburton Energy Services, Inc. (Taxpayer) engaged in hydraulic fracturing (fracking) of oil wells in the Permian Basin, filed claims for gross receipts tax refunds totaling approximately 84 million dollars for tax periods spanning from December 1, 2011, to October 31, 2014. The New Mexico Taxation and Revenue Department (the Department) denied these refund claims. The core of the dispute revolves around whether the Taxpayer was entitled to a deduction for the sale of chemicals used in the fracking process and whether certain materials (curable resin coated proppant) used in fracking qualify as chemicals for the purposes of the deduction (paras 1-3).

Procedural History

• Administrative Hearings Office: The Chief Administrative Hearing Officer (AHO) upheld the Department's assessment of gross receipts taxes on a portion of receipts from sales related to fracking, denying the Taxpayer's claims for refunds (para 1).

Parties' Submissions

• Taxpayer: Argued that (1) it was entitled to a deduction for the sale of chemicals used in fracking pursuant to Section 7-9-65, (2) the AHO's interpretation of the word "lots" in Section 7-9-65 was improper, and (3) the AHO erred in determining that curable resin coated (CRC) proppant is not a chemical (para 4).
• Department: Contended that the Taxpayer's receipts from fracking do not qualify for the deduction under Section 7-9-65, emphasizing the statutory and regulatory framework that presumes all receipts are taxable unless clearly exempted or deducted under the law (paras 7-8).

Legal Issues

• Whether the Taxpayer is entitled to a deduction for the sale of chemicals used in the fracking process pursuant to Section 7-9-65 (para 4).
• How is a "lot" measured for the purposes of the deduction under Section 7-9-65 (para 2).
• Whether CRC proppant is a chemical for purposes of Section 7-9-65 (para 2).

Disposition

• The decision and order of the Chief Administrative Hearing Officer (AHO) were affirmed, denying the Taxpayer's claims for refunds (para 37).

Reasons

• The Court, per Judge Kristina Bogardus, with Judges J. Miles Hanisee and Gerald E. Baca concurring, held that:
  The Taxpayer's sales for fracking do not qualify for Section 7-9-65’s deduction because the statute, when read in its entirety, indicates that the deduction applies to standalone sales of chemicals rather than chemicals used in conjunction with a service like fracking (paras 10-12, 16-18).
  The legislative history and the amendment to Section 7-9-65 effective July 1, 2019, support the conclusion that the Legislature did not intend for the predominant ingredient test to apply to transactions involving fracking chemicals (paras 17-18, 21).
  CRC proppant does not qualify as a chemical under Section 7-9-65 because it is not used for producing a chemical reaction but rather requires an outside action (heat or an activator) to produce a reaction, which is inconsistent with the regulatory definition of a chemical as a substance used for producing a chemical reaction (paras 24-29, 32-33).