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    Hon. George H. Sheppard
    Comptroller of Public Accounts
    Austin, Texas

    Dear Mr. Sheppard:               Attention of Mr. Farrar

                                     Opinion No. O-182
                                     Re: Taxes on confiscated oil

    This is in answer to your letter of JnnKary~ 19, 1939, in which you
    ask this Department for an opinion concerning taxes on confiscated oil.

    That part of your letter which sets out the facts involved and the
    questions you desire answered is as follows;

         "There have been a number of cases of confiscated oil sold
         by the State of Texas upon which the purchaser has paid
         the tax levied by Article 7057a. Such purchaser now
         claims that such tax was erroneously paid and makes demand
         on this department for credit as provided for in subsection
         13 of Section 1. This department therefor requests your
         opinion as to whether the Comptroller is authorized to give
         credit for taxes paid on oil confiscated by the State.

         flInmost cases the source of the confiscated oil is unlmown.
         There is one case, however, where the Thomas D. Humphries ~.
         lease produced 102,000 barrels of excess oil, and the
         source of the oil is not in question. The fact that it was
         produced illegally wss basis upon which the court held it
         subject to confiscation by the State. This department has
         made demand upon the owner of the lease for taxes, under
         Article 70578. The leaseowner has refused to pay the
         taxes on the ground the State acquired title to the oil and
         sold it, therefore, no tax accrues. I will thank you to advise
         the law under this condition of facts."

    We will endeavor to decide your first inquiry, which is whether or not
    the Comptroller should 'give credit for taxes paid by these parties
    under the facts stated by you.

    The producer of the oil in this case in the person who took the oil from
    the earth (which is the person from whom it was confiscated) by virtue
    of paraaaph (.l).of Section 1 of Article 7,057a,,whichreads as follows:
Hon. George H. Sheppard, Feb. 9, 1939, Page #S   O-182



     "For the purpose of this Act "producer' shall mean any person
     owning, controlling, managing or leasing any oi'lwell and/
     or any person who produces in any menner any oil by taking
     if from the earth or waters in this State, and shall include
     any person owning any royalty or other interest in any oil
     or its value whether produced by him, or by some other person
     on his behalf, either by lease, contract or otherwise."

It was intended by the act that the "producer" pay the tax, whichis shown
by the words of paragraph (12) as follows:


     "The tax herein imposed on the producing of crude petroleum
     shall be the primary liability of the producer as hereinbefore
     defined;V

A "first purchaser" is defined in paragraph (2) as the "person purchasing
crude oil from the producer"; and persons buying from the "first purchaser"
are defined as "subsequent purchasers". A provision is made in paragraph
(12) and in paragraph (15) whereby the "first purchaser" and "subsequent
purchasers" are to aid in collecting this tax from the "producer" by
deducting the amount of the tax from the purchase price and paying this
amount to the Comptroller as the tax; and as this amount would be
ultimately deducted from the sale price the "producer" received it
would result in the "producer" paying the tax.

The State is not a first purchaser under such conditions as these. As
noted above, a first purchaser is the "person purchasing .... etc."
The state is not a person, nor did it purchase. Furthermore, to require
the purchaser to withhold 2-j/4 per cent of the purchase price from
the State on the one hand and pay that sum to the Comptroller as taxes
on the other hand would be equivalent to taxing property of the State.
In no view of the situation can this be done in this instance. And,
certainly there is no authority in the statutes for making the purchaser
from the State pay this tax in addition to the purchase price.

Therefore, when the purchaser paid the 2-314 per cent tax in addition to
the purchae price, his mistake was one of law which we think would fall
within Section 1 (13) of saiu Article 7057a, reading as follows:

    'ZJhenit shall appear that a taxpayer to whom the provisicns
    of this Act shall apply has erroneously paid more taxes then
    were due during any tax paying period either on the account
    of a mistake of fact or law, it shall be the duty of the
    State Comptroller to credit the total amount of taxes due by
    such taxpayer for the current period with the total amount
    of taxes so erroneously paid."
Hon. George H. Sheppard, Feb. 9, 1539, Page # 3     O-182



Our answer to your first inquiry is that the Comptroller should give
these parties credit to the extent of 2-3/4# per barrel for the taxes
paid on the occasions you refer to.

We will now endeavor to decide your second irqljiry,which is whether
or not the lease owner in these cases where t.ieoil has been confiscated
is still liable for the tax of 2-,3/4#per barrel on the oil produced.

We assume that the lease owner you refer to is the person who produced
the oi~land from whom the oil was confiscated.

It is our belief that that part o1
                                 * paragraph (12) quoted above plazas
the primary liability for these taxes on the producer; and the
producer in this case is the one from whom the oil was confiscated.
As soon as the party in question became a Uproducer", that is had
produced the oil, the liability for the tax became fixed on that person,
and it made no difference as to what ha;)penedto the oil. The tax
in question is a tax on the occupation, the act of producing the oil,
such being the holding in the case of Group No. 1 Oil Corp. vs. Sheppard,
89 S. W. (2d) 1021, which involved the statute in question, and in
which the court said:

       "Nor is the tax levied on the oil in place. The tax is levied
       on the business or occupation of producing the oil."

The   fact that this oil was produced in an illegalmsnner should not excuse
the   producer from liability for the tax. In these instance the law will
not   permit s party to profit by his own wrong. In 4 Cooley on Taxation,
4th   Ed., 3337, it is said:

       "An occu;>ationtax is collectible without regard to whether
       the owner has operated under or in defiance 3f public regu-
       lations as to license. It is no defense to an action to
       collect a privilege tax that the business upon which the tax
       is assessed is illegal."

This rule of law was followed in the cases of Foster v. Speed, I.20
Tan. 111 S W. 925, 22 L. I?.A. (N. S.) $9, 15 Ann. Cas.:%o66;,aind
Brunswicke-Balke-Collander Co. vs. Mecklerburg County, l&N.   C. 386, 107
S. E. 317.
Our snswer to your second inquiry is that the lease owner (the person
who produced the oil and from whom the,oilwas confiscated) is still
liable to the State for the tax of 2-3/w per 'barrelon the oil produced.

                                           Yours very truly
                                      ATTORNEY GENEPAL OF TEXAS

                                      s/ Cecil C. Rotsch
Hon. George H. Sheppard, Feb. 9, 1939, Page #4   o-182



                                    BY
                                         Cecil C. Rotsch
                                             Assistant

CCR:BT/ldw

APPROVED
s/ Gerald C. Mann
ATTORNEYi@JYERUOFTFXAS
