ANACORTES — Tesoro Refinery must continue to pay a state hazardous material tax on gas it produces as a byproduct and then uses in the oil refinery process, according to a State Supreme Court ruling.

In 2004, the company, based in San Antonio, Texas, sued the Washington State Department of Revenue, asking for a $938,000 refund on taxes paid between 1999 and 2003. Tesoro argued that because the byproduct, called “refinery gas” fueled about 75 percent of the heat it uses to heat crude oil, the company qualified for an exemption to the state’s hazardous material tax, according to the court ruling.

The company argued that it only needed to pay the tax on the gas that wasn’t burned internally as part of refining oil. The company will burns the gas occasionally in a “controlled burn” that can be seen in a “flare,” according to the ruling.

State revenue officials didn’t agree with Tesoro and asked a Thurston County Superior Court judge for summary judgment, receiving a ruling in the agency’s favor.

Tesoro appealed to the State Court of Appeals, where the justices denied the company’s request for reconsideration. Tesoro then took the case to the State Supreme Court, where it was argued in January.

On Aug. 14, that court issued a 5-4 decision that upheld the lower courts. As a result, the company must continue to pay the hazardous material tax on the gas it produces, regardless of where it is burned. Tesoro officials in Texas didn’t return a message Tuesday asking for comment.