The increasingly competitive marketplace for frac sand and diminished sales price reduced profitability and income-generating capacity of the underlying fixed assets only recently acquired or still under construction. The challenge was to identify and quantify the impact of reduced demand and income on the frac sand plants and to develop an effective presentation for local tax authorities that reflected these market conditions and diminished fair market value.
Changing Economic Condition
The migration to local sand rather than Northern White Sand and construction of numerous new state of the art frac sand facilities created capacity far in excess of available demand. In addition, reduced demand and excess capacity resulted in frac sand prices much lower than anticipated and that had been relied on in the investment profile to justify the economics of the facilities.
ITC worked closely with recognized third-party appraisal experts to quantify external economic obsolescence applicable to new frac sand mines. In addition to determining the impact of the overexpansion and price reductions on the new mines, ITC pursued TCEQ exemption for those assets meeting the test as pollution control-related.
Our expertise with mining industry facilities and oilfield service taxpayers proved to be very-well received by the taxing authorities. We successfully reduced the tax liability by an average of $1,090,707 for the sand plants owned by this taxpayer. The pollution control portion of the tax savings will remain in effect according to state of Texas statutes and the economic obsolescence will be revisited on an annual basis in order to maximize potential tax savings and preserve our client’s bottom line.