Background and Parties

ChampionX, LLC manufactures chemicals for the energy and water industries, including hazardous chemicals used in water treatment applications and by oil and gas customers involved in exploration, production, refining, and chemical processing. Between March 2011 and October 2018, ChampionX placed its manufactured chemicals in returnable porta-feed containers designed specifically to hold the chemicals during transport. The company used three types of returnable, reusable containers—stainless steel, polyethylene-lined, and plastic bottle inside a stainless steel shell—varying in size from 30 gallons to 700 gallons. These containers ensured the chemicals did not react during transportation, preserved chemical composition, and met governmental regulations and standards.

ChampionX paid sales tax and accrued use tax on the containers when purchased or leased from vendors, and paid sales or use tax on cleaning services, delivery, and pickup services related to the containers. After the containers were returned by customers, third-party vendors transported them to contracted cleaning services that reconditioned, cleaned, inspected, and certified them to ensure compliance with Department of Transportation regulations before returning them to ChampionX for reuse in the manufacturing process. ChampionX subsequently filed sales and use tax refund claims for the periods at issue, asserting exemptions under the Manufacturing Exemption.

The Tax Dispute

The Comptroller of Public Accounts issued final audit reports disallowing ChampionX's refund claims. After administrative proceedings through the State Office of Administrative Hearings (SOAH) resulted in denial of the refund claims, ChampionX filed petitions for judicial review in Travis County District Court. ChampionX moved for partial summary judgment, arguing that the containers qualified for exemption under Texas Tax Code Section 151.318 as tangible personal property "used or consumed in the actual manufacturing, processing or fabrication of tangible personal property for ultimate sale" under subsections (a)(5), (8), and (10), which cover pollution control processes, quality control processes, and compliance with federal, state, or local laws related to public health.

The State countered with its own motion for summary judgment, asserting that the containers did not qualify for the Manufacturing Exemption because they were neither ingredients nor component parts of the manufactured chemicals. The State further argued the containers were excluded from the Manufacturing Exemption under Section 151.318(c) because they were used to distribute, transport, maintain, and store chemicals. Most significantly, the State contended the containers were taxable under the specific Container Exemption in Section 151.322, which exempts only nonreturnable containers sold without contents and returnable containers sold with contents or resold for refilling—not containers purchased by the manufacturer itself.

Trial Court Decision

The trial court denied the State's motion for summary judgment and granted ChampionX's motion, entering final judgment that "(1) the exemption for property used in manufacturing under Section 151.318 of the Tax Code exempts the Containers at issue from Texas sales and use tax and (2) the exemption for services on exempted property under Section 151.3111 applies to the cleaning, delivery, and/or pickup services performed on the Containers." The court found that ChampionX had established as a matter of law that the containers were used during the actual manufacturing process in ways necessary and essential to pollution control, quality control testing, and compliance with public health regulations.

Implications for Oil and Gas Practitioners

This withdrawn opinion (superseded March 12, 2026) addressed a significant issue for oilfield service companies and chemical manufacturers serving the oil and gas industry: whether specialized containers used to transport manufactured chemicals qualify for the Manufacturing Exemption or fall under the more restrictive Container Exemption. The case turned on statutory construction of competing exemption provisions in the Texas Tax Code, with the trial court concluding that the Manufacturing Exemption applied when containers were integral to the manufacturing process itself—ensuring product integrity, enabling quality control testing, and meeting regulatory compliance requirements—rather than merely serving as distribution packaging. The dispute highlights the substantial tax exposure faced by oilfield chemical manufacturers on capital equipment and services, particularly when the same property arguably falls under multiple exemption categories with different qualifying criteria. For in-house counsel at energy service companies, the case underscores the importance of documenting how containers and similar equipment are integrated into manufacturing processes to support Manufacturing Exemption claims rather than relying solely on the Container Exemption's narrower provisions.