                                     July 14,   1975


The Honorable    Bob Bullock                              Opinion No.        H- 640
Comptroller   of Public Accounts
Lyndon B. Johns.on                                        Re:      Whether a sale by a gas
State Office Building                                              producer to an interstate
Austin,  Texas 78701                                               transmission   company in
                                                                   the State of Texas pro-
                                                                   duces receipts from
Dear   Mr.     Bullock:                                            business   done in Texas.

    You have requested our opinion regarding the computation    of franchise
taxes on gas producers  within Texas.     Your request concerns the effect of
sales from such producers   to interstate  pipeline companies.  You note in
your letter and we assume for the purposes of this decision that:

         Title to and possession   of the products purchased
         by these companies    pass to them within the State
         of Texas at either the well head or plant site, and
         all risk of loss is thereafter  the responsibility of
         the purchaser.

You have asked       two questions    concerning       the above    stated    facts:

         1. Do the Texas producers have receipts from
         business done in Texas on these sales after May                 1,
         1970?

         2. Would the Texas producers      have receipts from
         business done in Texas prior to the amendment of
         article 12.02(l)(b)(i) of the Texas Franchise   Tax Act
         effective May 1. 1970, on these sales?

    Articles      12.01, et seq.,   Taxation-General,     levy a franchise  tax on domestic
and foreign      corporations   for the privilege   of doing business   in the state.




                                         p.   2815
    The Honorable      Bob Bullock,   page 2        (H-640)




    Calvert v. Capital Southwest Corporation.          441 S. W. 2d 247 (Tex. Civ.
    APP- --Austin    1969, writ ref’d.,   n. r. e. ) appeal dismissed,   397 U.S.
    321. Article 12.02(l)(a)   establishes     an allocation formula under which
    that portion of a corporation’s     entire taxable capital which is to be
    taxed by the State is determined      on the basis of the “percentage     rela-
    tionship which the gross receipts       from its business done in Texas bear
    to the total gross receipts . . . from its entire business.”         Article
    12.02(l)(b)  provides in part:

             For the purpose of this Article,  the term ‘gross
             receipts from its business  done in Texas’ shall
             include:

                       (i) Sales of tangible personal property
                       when the property is delivered or
                       shipped to a purchaser   within this State,
                       regardless  of the F. 0. B. point or other
                       conditions of the sale . . .

    Prior to its 1969 amendment,        article    12. 02 provided   in place   of subsec-
    tion (i) above:

             Sales    of tangible personal  property located within
             Texas     at the time of the receipt of or appropriation
             to the   orders where shipment is made to points
             within    this State . . .

    Acts   1959,   56th Leg.,   3rd C.S.,    ch.   1. p. 187.

         The 1969 amendment to article 12.02 extended the definition of “business
    done in Texas” to include interstate       sales which involve delivery to the
    purchaser    at a point in Texas,   Attorney General Opinions M-829 (1971),
    M-642   (1970). as well as any sale “when the property is delivered or
    shipped to a purchaser     within this State. ” Thus under article 12.02 prior
    to its 1969 amendment a sale did not constitute “business        done in Texas”
    where it involved an out-of-state      shipment,  whereas the present article 12.02
    includes within the term “business       done in Texas” those sales in which the
    purchaser    takes delivery in Texas regardless      of whether the sale involves
    an out-of-state    shipment.   Attorney General Opinion M-829      (1971) was




                                            p.    2816

i
.    ,




    The Honorable    Bob Bullock,    page 3      (H-640)




    decided after that amendment but we believe the facts given in that
    opinion were insufficient     to support a determination      whether the sale
    involved a delivery in Texas.       However,   under article 12.02 both prior to
    and after its 1969 amendment,       as well as under its predecessor,
    article 7084, V. T. C. S., a sale constituted business         done in Texas
    when the shipment involved in the particular         sale was from one point
    in Texas to another, that is, an intrastate       sale.    Humble Oil &
    Refining Co. V. Calvert,       414 S. W. 2d 172 (Tex.Sup.     1967); Ramsey v0
    Investors   Diversified   Services,   248 S. W. 2d 263 (Tex. Civ. App. --Austin
    1952, writ ref’d., n. r. e. ); Flowers    v. Pan American       Refining Corpora-
    tion. 154 S. W. 2d 982 (Tex. Civ. App. --Austin       1941, writ ref’d. ); Clark
    v. Atlantic Pipe Line Co., 134 S. W. 2d 322 (Tex. Civ.App.            --Austin 1939,
    writ ref’d. ); Attorney General Opinions M-829          (1971), M-642 (1970).
    WW-1503    (1962).    Since we believe your request involves such intrastate
     sales, in our opinion they constituted “business        done in Texas” both
    before and after the 1969 amendment to article 12.02.

         Your office has informed us that in a 1971 ruling the Comptroller
    held these sales not to constitute “business        done in Texas. ” That ruling
    cites no authority for its conclusion.        See, Letter of August 4, 1971,
    from Robert S. Cal~vert to Lee Hill, Chairman.            Tax Advisory Committee,
    Texas Mid-Continent      Oil & Gas Association.        We have given careful
    consideration   to the arguments     presented in the briefs submitted to the
    Comptroller    at that time and to this office regarding this opinion.          These
    arguments may be summarized           as follows:    (1) In the 1.969 amendment
    to article 12.02 the Legislature      did not intend to change the law with
    respect to “interstate    origin sales, ” that is, sales of property originating
    in Texas and delivered or shipped out-of-state.            (2) The cases of Clark
    v. Atlantic Pipe Line Co.,       supra,  and Flowers      v. Pan American     Refi-
    ning Corporation,    z.        as well as prior Attorney General Opinions,
    would classify   these sales as not constituting       “business    done in Texas. ”
    (3) An ultimate destination test should be followed to avoid duplicative
    taxation.   (4) As the adm’mistrative       construction    of article 12.02.  the
    Comptroller’s    1971 ruling should not be disturbed absent clear statutory
    authorization.

         The 1969 amendment to article 12.02 altered its language from “where
    shipment is made to points within this State ” to “when the property is
    delivered or shipped to a purchaser  within this State. ” It is well settled




                                         p.   2817
.      I




    The Honorable    Bob Bullock,    page 4     (H-640)




    that the best expression  of legislative intent is the words of a statute.
    Calvert v. British-American     Oil Producing Co.,    397 S. W. 2d 839
    (Tex. Sup. 1965); Empire Gas & Fuel Co. v. State, 47 S. W. 2d 265
    (Tex. Sup. 1932); City of Irving v. Dallas County Flood Control District,
    377 S. W. 2d 215 (Tex.Civ.   App. --Tyler     1964); rev’d. on other grounds,
    383 S. W. 2d 571 (Tex.Sup.    1964); State v. City of Gladewater,     242
    S. W. 2d 650 (Tex. Civ. App. --Texarkana       1951, writ ref’d. ). While the
    1969 amendment to article 12.02 extended the definition of “business
    done in Texas” to include interstate     sales with a Texas destination,   the
    amendment also made clear that sales with a Texas delivery to the
    purchaser   constitute “business    done in Texas. ” However,      we do not
    believe the 1969 amendment had any effect upon the question before us,
    for the instant sales do not in our view, involve either a shipment or a
    delivery to a point outside the State.

        In Clark v. Atlantic Pipe Line Company,           supra,    the court held that,
    for the purposes of a pipeline company’s        franchise     taxes, its business
    of transporting    oil did not constitute “business     done in Texas, ” for while
    the company’s     activities were entirely    intrastate,    they were a part of the
    interstate   transportation   of the oil.  In reaching its decision,      the court
    acknowledged     that the statute, article 7084. was susceptible to a different
    construction    and exclusively   based its holding on what was viewed as the
    requirements     of the commerce     clause of the Federal Constitution.        The
    court’s   commerce     clause rationale arguably may remain viable as applied
    to the case before it, that of a common carrier        involved in the interstate
    transportation    of oil.  However,    it may not be generally applied to other
    situations,   for a state may include receipts from interstate sales in a
    fairly apportioned tax.      Matson Navigation Co. v. State Board of Equaliza-
    tion of California,    297 U.S. 441 (1936); Chassaniol     v. City of Greenwood,
    291 U.S.    584 (1934); International    Shoe Company v. Shartel,    279 U.S. 429
    (1929); Underwood Typewriter        Company v. Chamberlain,       254 U.S.  113
    (1920); American     Manufacturing    Company v. City of St. Louis, 250 U.S.
    459 (1919); United States Glue Company v. Town of Oak Creek,            247 U. S.
    321 (1918): Baldwin Co. v. Glander,        70 N.E. 2d 885 (Ohio 1947); Corn v.
    Fort.   95 S. W. 2d 620 (Term. 1936).

        While the Clark case did not involve        a sale, it was followed in Flowers
    v. Pan American    Refining Corporation,        supra,   where sales of oil to an
    out-of-state purchaser   which apparently        involved out-of-state deliveries




                                          p. 2818
The Honorable    Bob Bullock,     page 5        (H-640)




were held not to be “business    done in Texas.”     These cases were
followed in Attorney General Opinion WW-1503        (1962) concerning   sales to
an out-of-state  purchaser   involving   shipments to points outside the State.
While the 1959 codification   and the 1969 amendment of article 12.02 may
affect the holdings of these cases,    even applying their tests to your
question,   we believe the instant sales constitute “business     done in Texas.”

    The court in Flowers      stated:

        ‘business  done in Texas’ . . . mean[s] business
        begun and completed in Texas.    and not business
        begun in Texas and completed in some other
        state or foreign nation, or vice versa.
        154 S. W. 2d at 984

At the time of the Flowers case there was no statutory definition,    but the
definition enacted in 1959 seems to have codified the ruling, providing,
“sales . . . where shipment is made to points within this State. ” Similarly,
the court in Clark stated “business    done in Texas’ . . . means intrastate
business. ” Thus, “business     done in Texas” has always included intrastate
business,  or in the case of sales,  intrastate sales.

    In our opinion the sales of gas involved          in your request   are intrastate
sales for purposes  of franchise taxation.

     Cases holding sales followed by shipment out-of-state         to constitute
intrastate  sales are:   State Tax Commission      of Utah v. Pacific States Cast
Iron Pipe Co.,    372 U.S. 605 (1963); international     Harvester    Company v.
Department    of Treasury,    322 U.S. 340 (1944); Department       of Treasury    of
Indiana v. Wood Preserving       Corporation,   313 U.S.   62 (1941): Superior    Oil
Co. v. Mississippi,     280 U.S. 390 (1930); Compania General de Tabacos de
Filipinas v. Collector    of Internal Revenue,    279 U.S.   306 (1929); Excel,     Inc.
v. Clayton,   152 S. E. 2d 171 (N. C. 1967); Superior Coal Company v. Depart-
ment of Revenue,     123 N.E. 2d 713 (Ill. 1954); Ashton Power Wrecker           Equip-
ment Co. v. Department       of Revenue,   52 N. W. 2d 174 (Mich. 1952); Moffat
Coal Co. v. Daley,     89 N. E. 2d 892 (Ill. 1950); Department      of Treasury    v.
Globe-Bosse-World       Furniture Corporation,     46 N. E. 2d 830 (Ind. 1943);
 Trotwood Trailers    Inc. v. Evatt. 51 N. E. 2d 645 (Ohio 1943); State Board
of Equalization   v. Blind Bull Coal Company.       101 P. 2d 70 (Wyo. 1940);




                                        p.   2819
    ,      I




        The Honorable    Bob Bullock,   page 6       (H-640)




        City of Jacksonville    v. Florida Fresh Water Corporation,       247 So.Zd
        739 (Dist. Ct.App.    --Fla.    1971). See  International Harvester    Co. v.
        Evatt,   329 U.S. 416 (1946); McGoldrick      v. Berwind-  White Coal   Mining
        co.9   309 U.S.  33 (1940); Dallas Gas Co. v. State, 261 S. W. 1063 (Tex.
        Civ. App. --Austin    1924, writ ref’d. ); c_f. Phillips Petroleum     Co. v.
        Oklahoma,    340 U.S.    190 (1950); Parker v. Brown, 317 U.S.      341 (1943);
        El Paso Electric    Co. v. Calvert,     385 S. W. 2d 542 (Tex. Civ. App. --Austin
        1964, writ ref’d.,   n. r. e. ), appeal dismissed,   382 U.S. 18 (1965).

            We are dealing here with franchise taxes on the vendor gas producer.
        The deliveries   involved in these sales are invariably to a point within
        the State, and, as stated in your request,      title to and possession    of the
        products pass at either the well head or plant site.        That the gas is
        further transported    outside the State as an incident of a subsequent sale
        by the pipeline company does not, in our view, affect the classification
        of the local transaction    involved in the sale of gas by the producer as
        “business   done in Texas’? under article 12.02.       While the amount of gas
        sold by the pipeline company in interstate      commerce     has relevance    to
        the computation of its franchise    taxes,  it is immaterial    to the issue of
        the producer’s    franchise taxes.    The producer makes no out-of-state
        delivery or shipment; his sale to the pipeline company is intrastate          in
        all facets and falls within the statutory definition of article 12.02(l)(b)(i).
        Thus it is our opinion that such sales are clearly intrastate        sales and
        therefore  constituted “business    done in Texas” both before and after the
        1969 amendment to article 12.02.

             It may also be noted that the franchise tax liability on sales by an oil
        and gas producer to a purchaser      within the state of production was not even
        a matter of contention in Webb Resources,       Inc. v. McCoy,    401 P. 2d 879
        (Km.    1965); Honolulu Oil Corporation    v. Franchise   Tax Board,   386 P. 2d
        40 (Calif. 1963); and Superior Oil Company v. Franchise        Tax Board, 386
        P.2d 33 (Calif. 1963).     The issue in those cases was, assuming      franchise
        tax liability on the intrastate  sales, which allocation   formula would be
        utilized.

            We cannot perceive how the classification     of these sales as “business
        done in Texas” can result in duplicative   taxation of the producer vendor.
        Since all facets of these sales take place in Texas,     we do not see how
        another state could classify  them as business    done therein and thereby or




                                           p. 2820

!
.   :::




          The Honorable   Bob Bullock,        page 7    (H-640)




          otherwise tax the producer vendor on the basis of these sales.   American
          Oil Co. v. Neill, 380 U.S. 451 (1965); Skelly Oil Co. V. Commissioner    of
          Taxation,  131 N. W. 2d 632 (Minn. 1964); Standard Oil Co. v. Thoresen,
          29 F. 2d 708 (8th Cir. 1928).

               We are aware that where the meaning of a statute is doubtful. the
          construction  placed upon it by an officer or agency charged with admini-
          stering the statute is entitled to great weight.   Calvert v. Kadane. 427
          S. W. 2d 605 (Tex.Sup.   1968).  However, in our view, the determination  of
          the Comptroller   in his letter of August 4, 197 1, was clearly erroneous
          and contrary to the clear wording of the statute here in question.

                  Depart&       practice is important when an
                  administrative   agency is confronted with an
                  ambiguous statute, but it affords no basis for
                  practices  which are contrary to the plain
                  meaning of statutes.    Brown Express,     Inc. v.
                  Railroad Commission,      415 S. W. 2d 394, 397
                  (Tex. Sup. 1967).

          Sabine Pilots Association    v. Lykes Brothers Steamship,       Inc.,  346 S. W. 2d
          166 (Tex. Civ. App. --Austin     1961, no writ): Humble Oil & Refining Co. v.
          State, 158 S. W. 2d 336 (Tex. Civ. App. --Austin      1942. writ ref’d. ). The
          “plain meaning” of our franchise tax statutes has been consistently         held
          to classify  intrastate sales as “business     done in Texas.”   Since we believe
          that the sales involved in this question are properly classified       as intra-
          state, an administrative    ruling which would not so classify such sales
          should not be followed.

                                    SUMMARY

                       Sales of gas by a Texas producer to an interstate
                  pipeline company with delivery and passage of title and
                  possession   in Texas,   constitute intrastate   sales and
                  “business   done in Texas” for the purposes of computa-
                  tion of the producer      vendor’s franchise   taxes under
                  article 12.02,   Taxation-General,    V. T. C. S.




                                         //
                                                  Attorney   General   of Texas
                                         wp.     2821
        .   . .   .
:   *




            The Honorable     Bob Bullock,    page 8      (~-640)




            APPROVED:




            DAVID     M.   KENDALL,   First   Assistant




             ll?$?zUd
            C. ROBERT HEATH.          Chairman
            Opinion Committee




                                                  p.   2822
