In Nabors Drilling Technologies USA, Inc. v. Hegar, the Court of Appeals fully denied Nabors’ sales and use tax refund arising from exemptions claimed for drilling-equipment and temporary storage.
Houston-based Nabors Drilling claimed it was entitled to a refund of use taxes paid on its purchases of component parts that it stored temporarily in Texas prior to shipping out-of-state, and alleged it was entitled to the drilling-equipment exemption for sales taxes paid on the component parts that were incorporated into drilling equipment to be used exclusively outside of Texas.
Nabors purchased component parts that it ultimately incorporated into oil and gas drilling equipment for sale to its customers located both inside and outside Texas. The court found that, at the time Nabors purchased the component parts, it did not document the intended place of use of each item, the parts were not incorporated into drilling equipment until needed for a specific job at a specific location, Nabors presented no evidence concerning how long the component parts stayed in inventory prior to being shipped to a customer drill site, and that after Nabors incorporated the component parts into drilling equipment, that equipment was used on customer jobsites both in Texas and out of Texas. The court also determined that Nabors stored the component parts in its Houston-based warehouse in between use on customer job sites.
Even though some of the component parts were used exclusively outside of Texas, the court held that Nabors could not exempt its purchase of any of the component parts because Nabors failed to identify which specific component parts qualified for the drilling-equipment exemption.
The court also held that Nabors was not eligible to claim the temporary storage exemption for use tax assessed on the storage of the component parts in its Houston warehouse because the parts were stored temporarily on multiple occasions—both after Nabors’ initial purchase of the parts, and then again in between use at customer job sites. The court reasoned that the temporary storage exemption contemplates only one initial period of temporary storage before an item is permanently removed from the state.
 03-17-00284-CV, 2018 WL 2709201 (Tex. App.—Austin June 6, 2018, no pet. h.).