Solaris Oilfield Site Services Oper LLC v. Brown County Appraisal District, No. 11-22-00206-CV, 688 S.W.3d 918 (Tex. App.—Eastland April 18, 2024, no pet.) (rehearing denied May 23, 2024)

A recent decision from the 11th Court of Appeals clarifies that taxpayers are allowed to break down their equipment into component parts for taxation purposes.

In Solaris Oilfield Site Services Oper LLC v. Brown County Appraisal District, Solaris asked that its sand silo systems it rents to customers in the oil and gas business be put in one account and valued/taxed as dealer heavy equipment inventory (DHEI) under Section 23.1241 of the Texas Property Tax Code, while the series of trailers that transport and support those same systems be put in a separate account and valued/taxed as general personal property under Section 23.01.

Solaris’s sand silos cannot move on their own; they need specialized transport trailers to move them. And to functionally operate on site, the sand silos need a generator to power everything. All to say, the sand silos must be integrated into a specialized transport trailer to be transported and must be integrated into a generator to work.

Brown County Appraisal District argued that the sand silos should be taxed as general business personal property for multiple reasons. First, the sand silos meet the definition of motor vehicle when integrated with the specialized transport trailers and because of that the sand silos cannot qualify as heavy equipment (DHEI statute specifically excludes motor vehicles required to be titled or registered as qualifying as heavy equipment). The 11th Court rejected this argument and reasoned that there is a distinction between a trailer and the load it carries. While trailers are defined as motor vehicles under the Transportation Code and may be required to be titled or registered by Chapters 501 and 502 and may be excluded from qualifying as heavy equipment, the loads carried by those trailers, are not.

Second, Brown County argued that “if taxpayers such as Solaris are allowed to break down their equipment into component parts for taxation purposes, no equipment could ever qualify as a ‘motor vehicle.'” For example, “a dealer could say that any given component, such as a car radio, is not a vehicle because it has no wheels and does not serve the function of transporting people or property.” The 11th Court rejected this argument and reasoned that the sand silos are not always integrated in the same way as a car or a truck. “Unlike a car or a truck, which is designed to function as a single unit at all times, the silo systems are designed to be broken down into separate units for purposes of transport from one site to another.”

Third, Brown County argued that the sand silos should not be allowed to be treated as integrated for one purpose (operational functions) and as component parts for another purpose (transportation functions). To qualify as heavy equipment, the sand silos must be “self-propelled, self-powered, or pull-type equipment . . . that weighs at least 1,500 pounds and is intended to be used for agricultural, construction, industrial, maritime, mining, or forestry uses.” Tex. Tax Code § 23.1241(a)(6). Brown County argued that when the sand silos are viewed by their individual components, they are no longer self-powered and therefore cannot qualify as heavy equipment because the sand silos do not have an internal engine; instead, they must integrate with a generator to operate. The 11th Court rejected this argument. It reasoned that the Supreme Court of Texas recently declined to restrict the term self-powered to equipment with an internal engine, and instead read self-powered to include “any piece of heavy equipment that relies on an integrated combustion engine.” So, because the sand silos indisputably rely on an integrated engine, the generator, they are self-powered.

After rejecting all of Brown County’s arguments, the 11th Court reversed the lower court’s judgment issued in favor of Brown County and concluded that the sand silos qualify as Dealer Heavy Equipment Inventory under Section 23.1241 of the Texas Tax Code and that they should be reinstated in a heavy equipment account. It further concluded that the specialized transport and base trailers should be separately taxed as vehicles.

The takeaway from this case is that taxpayers can benefit from equipment being split into different categories based on its function and integration. This case also provides clarity on how similar mobile equipment might be treated under Texas property tax law.

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To review the Opinion from Solaris Oilfield Site Services Oper LLC v. Brown County Appraisal District, click the following link (or copy and paste): https://search.txcourts.gov/SearchMedia.aspx?MediaVersionID=b8d78e16-e5cc-4ca4-a3a2-e66a8793bd7a&coa=coa11&DT=Opinion&MediaID=775bd5da-1040-464c-af29-a0b826f2ac85.

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Key Sections of Texas Property Tax Code: 
§ 23.01, Appraisals Generally
§ 23.1241, Dealer’s Heavy Equipment Inventory; Value

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