- Associated Press - Thursday, June 4, 2015

LITTLE ROCK, Ark. (AP) - Arkansas’ finance office said Thursday it’s paying $24.5 million to four companies after a divided state Supreme Court said taxes were improperly collected on sand used in natural gas drilling.

In a 4-3 decision, justices agreed with a Pulaski County judge who ruled that the sand used by Weatherford Artificial Lift Systems was considered equipment and therefore exempt from taxes. The case focused on taxes collected before the Legislature changed the law last year to make the sand exempt.

The Department of Finance and Administration said it will immediately repay the $1.3 million collected from Weatherford, along with taxes that were applied to three other firms that weren’t involved in the lawsuit.

“We have a new interpretation of the law and we will go forward as a result and will start paying refunds to the taxpayers who have paid taxes on the proppants,” the department’s deputy director, Tim Leathers, said.

The court noted that a witness for Weatherford testified that without the sand used in drilling, production would cease in the Fayetteville Shale natural gas formation that has been the focus of heavy drilling in recent years.

“Given this evidence, we cannot say that the trial court clearly erred in concluding that the proppants in the present case were equipment,” Justice Josephine Linker Hart wrote in the majority opinion.

An attorney for Weatherford said he was pleased with the ruling.

“They took the importance of the material in the process into account,” Mike Parker said.

Three justices disagreed with the ruling, noting that the state law before 2014 didn’t specifically list sand among equipment that was exempt from sales taxes.

“While hydraulic fracturing is clearly a complex process, and preparing sand to be used in that process may also be considered somewhat complex, the sand itself is not an implement, tool or device ‘of some degree of complexity,’” Justice Robin Wynne wrote in a dissenting opinion.

The case is among two regarding the sand tax. A separate lawsuit in Pulaski County challenges the way lawmakers enacted the exemption last year by including it in an unrelated budget bill. Lawmakers earlier this year approved the exemption as a stand-alone bill.

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Follow Andrew DeMillo on Twitter at https://twitter.com/ademillo

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