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August 14, 2023

Ohio Supreme Court takes new approach to statutory construction in applying a sales and use tax exemption statute to fracking activities

In Stingray Pressure Pumping, LLC v. Harris,1 the Supreme Court of Ohio took a new approach to construing tax statutes, particularly exemptions, and allowed most of a taxpayer's claimed Ohio sales/ use tax exemptions for oil and gas production for certain equipment it purchased for fracking activities.


The taxpayer, Stingray Pressure Pumping, is engaged in the oil and gas business, including hydraulic fracturing (fracking). Fracking involves pumping a pressurized mixture of water, chemicals and sand into the earth to fracture and pop open rock formations to extract oil and gas. At issue in this case is whether certain equipment purchased by the taxpayer for use in its fracking business qualifies for the sales and use tax exemption for oil and gas production.

The Ohio Department of Taxation (Department) denied the taxpayer's claimed exemption for some of its purchases and instead assessed these purchases. During the taxpayer's appeal of the assessments, the General Assembly amended the exemption statute.

At the time the Department issued its assessments, ORC 5739.02(B) allowed an exemption for equipment "used directly" in oil and gas production. The amended statute, ORC 5739.02(B)(42)(q), still requires equipment to be "directly" used in production but also defines "production" as "operations and tangible personal property directly used to expose and evaluate an underground reservoir that may contain hydrocarbon resources, prepare the wellbore for production, and lift and control all substances yielded by the reservoir to the surface … ." The amended statute added non-exhaustive lists of items that qualify and do not qualify for exemption. The Ohio Board of Tax Appeals (BTA) applied the amended statute and, relying on older case law, denied the taxpayer's claims for exemption on the ground that the items were used "preliminary and preparatory" to production.

Court applies new method of statutory construction and allows most exemptions

On appeal to the Court, the Department argued that the amended statute did not change the substantive law that should control the application of the exemption statute. The Court rejected this argument, observing that the Department's interpretation would render the amended statute's list of items potentially qualifying for exemption as meaningless. Instead of following court precedents construing an exemption statute narrowly against the taxpayer, the Court announced that it would read tax statutes through a "clear lens, not one favoring tax collection" to "provide a fair reading of what the legislature has enacted" and that "henceforth we will apply the same rules of construction to tax statutes that we apply to all other statutes."

Applying this test to the items at issue, the Court concluded that the following items qualified for the exemption:

  • Blenders. The BTA denied the exemption for blenders, finding they were used to hold a mixture before it was pumped into the well. The taxpayer presented testimony that the blenders also mix water, sand and various chemicals together to be pumped into the well. Although the blenders perform a holding function, the Court concluded that their primary purpose is to mix the critical ingredients in the fracking recipe before the mixture is pumped into the well.
  • Hydration units. The BTA denied the exemption, finding the hydration units were used to store water and chemicals before pumping the mixture into the blender. The Court disagreed, noting that the taxpayer presented testimony indicating the hydration units' primary use was to mix water and various chemicals.
  • Chemical-additive units. The BTA denied the exemption, finding that these units performed a storage function. The Court disagreed based on the taxpayer's testimony that the units' primary function was to provide chemicals to the hydration units and the blenders by way of hoses.
  • Sand kings. The BTA denied the exemption, finding that these items performed a storage function. The Court agreed the sand kings hold sand for a brief period of time, but found their primary purpose was to feed sand into the blenders for immediate injection of the pressurized mixture into the well.
  • T-belts. The BTA denied the exemption, finding that the T-belts were used to deliver sand to the blenders. The Court concluded that the exemption applied because the T-belts moved sand into the blenders "split seconds" before it was injected into the manifold and sent down the well shaft.

The Court, however, rejected the taxpayer's argument that its data van qualified for an exemption because it acted as a "command center" where computers and operators control the production process. The Court concluded that the exemption did not apply because the statute indicated that motor vehicles do not qualify for exemption.

A partial dissenting opinion would have held that the sand kings, T-belts, and chemical additive units did not qualify for exemption as property used for storage and delivery. The partial dissent observed that the fact that the equipment "eventually has some connection with the hydraulic-fracturing process" does not transform it into property used directly in the fracking process.


The Court's decision provides guidance as to items qualifying for exemption in the fracking industry. Of greater significance is the Court's statement that it would now read tax statutes neutrally based on their plain and ordinary meaning — not in a manner that favors or opposes taxation.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation Group
   • Bill Nolan (

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor


1 Stingray Pressure Pumping, LLC v. Harris, Slip Opinion No. 2023-Ohio-2598 (Ohio S.Ct. Aug. 2, 2023).