                              March   14, 1952


Hon. Robert S. Calvert                   Opinion No.      V-1421
Comptroller   of Public Accounts
Austin, Texas                            Re:     Occupation   tax rate on liq-
                                                 uid hydrocarbons     recovered
                    ,i
                                                 from gas by means of a sep-
               -_                                arator. or other non-mechan-
                                                 ical methods incidental to
Dear Mr.     Calvert:                            the production   of the gas.

             Your   request   for an opinion     of this office    reads   in part
as foUows:

           “Please advise me whether liquid hydrocarbons
    recovered    from-gas   by means of a separator   or other
    non-mechanical     methods incidental to the production
    of said gas are to be taxed at 4.125$ per barrel when-
    ever the value   is less than $1.00 per barrel and at
    4-l/8%   of the value whenever the value is more than
    $1.00 per barrel,    or if the rate should be 4.6$ per
    barrel whenever the value is less than $1.00 per bar-
    rel and 4.6% of the value whenever the value is more
    than $1.00 per barrel.

            ‘It has been my interpretation    that the tax rate,
    effective September    1, 1951, on liquid hydrocarbons
    recovered    from gas by means of a separator       or other
    non-mechanical     methods incidental to the production
    of said gas is 4.6$ per barrel whenever the value is
    less than $1.00 per barrel and 4.6% of the value when-
    ever the value is more than $1.00 per barrel.         How-
    ever, due to the large number of taxpayers         who have
    taken exception to this interpretation,     I will appreciate
    your   opinion as to the correct   tax rate. . . .”

           Section III of House Bill 285, Acts 52nd Leg., R.S. 1951,
ch. 402. p. 695, amends Section l(1) of Article 7047b, V.C.S., by
increasing  the tax on production of gas from 5.2 per cent to 5.72
per cent of the market value, and reads in part as follows:

           ‘There is hereby levied an occupation tax on the
    business or occupation of producing gas within this
    State, computed as follows:
22%    Hon. Robert      S. Calvert,     Page   2   (V-1421)




                    “A tax shall be paid by each producer on-the*-
             ‘mount of gasproduced     and saved within~this State
             equivalent to:5.72%   of the market value thereof~ssand
             when produced; provided that the amount of such tax
             on sweet and sour natural gas shall never be less than
             121/1500 of One Cent (10 per one thousand (1,000) cubic
            :fggt*”

                     Seiti&i(3)       of Article-7047b,.V.‘C.‘S.,:~piovid&:
                I@
           -,        “All liquid hydrocarbons       that are recovered
             from-gas .by means of a separator          or by other.~non-
            ,~mechanical methods, incidental to the production~df
              said.gas;~shall  Abe.taxed at the same rate as oil--as
            Llevied by:Acts-of    1941. Forty-seventh’,LegislaaWr.e,
             Chapter 184,-Article     I, ‘Section-ll”

                      Article-7047b.  V;CiS..  levies an occunation tax on-the
       ‘business     of produc~ing gas in this State. -The tax isbased    upoarthe
       .:.market~valrie:,.bf the.gas as produced. ~W. -R.-Davis v..State,.i42
        -T.ex.’ 637; 180.S.W-.2d 429 (1944); Car&an     River, ~Gas ~Co. v.Bivins,
      .-137-T&,     347,~153‘S.W.2d   432 (1941).

                     ?Sectlonll(3)   of Article-7047b~spec’ifically.:provides!’the
      “manner’ and- raie-of taxing certain liquid hydrocarbons-recovered
      ’from-,the:gas     by me&s      of a separator cr.other~‘non-mechanitil
      ,^-means. .This‘ provision,       which has’ the. effect-of taxing.~ those.liquid
       :hydrpcarbonsl      produced with the. gas-at the lower: rate pr,ovided
        for: oil’&thii     than:,ht the. same’iate    aslg6s;had.     its- origin:i&kr-
      ticle--~,ofHotis~Bill.8,         Acts 47th-Leg.,-.R-.S.-   1941,:ch.. 184,?p.1269.
        The pertinent part of paragraph (1)’of Section 1~of Article:IIzof
        that~ Act read.as follows:

                     . . ;--Allliquid  hydrocarbons-    thattare’recov-
           3’erkd friim’g+by        means of a separator: or: byy~dther
             nonmechanical~inethods       shall~ be taxed at the: same
           ‘r&e.as    oil-as levied by Article I of this-Act.”

                     Article I of House Bill 8 referred tomabove levied-anoc-
      ’ cupitibn tax.Lpon the production of oil at the rate of 4.12~:perrcent
      !~.of the ‘market value thereof whenever such values was .in~excesszof
        $1.00’ per barrel.

                   Article 7047b was amended in 1945 bye changes In~.the
       wording of and in the addition of certain sections.      Acts 49th Leg..
       R.S. 1945, ch. 269; p. 423.   There was no change in the amount of
       the tax levied upon the production of gas.     That portion of--Section
       1 of Article II of House Bill 8 relating to ‘the taxation of ‘the .liqtid
       hydrocarbons-in    question was amended to tread:
Hon. Robert   S. Calvert,   Page   3 (V-1421)




           “All liquid hydrocarbons   that are recovered  from
    gas by means of a separator     or by other non-mechanical
    methods, incidental to the production of said gas, shall
    be taxed at the same rate as oil as levied by Acts of 1941,
    Forty-seventh    Legislature, Chapter 184, Article I, Section         1.”

           The 52nd Legislature      increased   the occupation taxes
on the production of oil and gas, making the tax equivalent       to 4.6
per cent of the market value of oil and 5.72 per cent of the market
value of gas produced.      Sections I and III, Acts 52nd Leg., R.S.1951,
ch. 402, p. 695.    Section l(3) of Article  7047b was not amended by
this Act.        -~

            The only question presented here is that of determin-
ing whether the liquid hydrocarbons      should be taxed at the rate of
4.125 per cent or at 4.6 per cent of their market value.      Taxation
of the liquid hydrocarbons    at the lower rate, 4.125 ‘per cent, may
be supported by the theory that this was the tax levied upon oil by
House Bill 8 of the 47th Legislature    and this rate was specifically
adopted by reference    to that act. Taxation of the liquid hydrocar-
bons on the basis of the present rate-at which oil is taxed (4.6 per
cent) may be maintained on the assumption       that the Legislature   in-
tended that oil and these liquid hydrocarbons     were to be taxed at
the same rate.

            It is a ge~neral rule that a statute which adopts another
statute or a part thereof by specific reference        incorporates     or
takes the adopted statute as it existed at that time notwithstanding
subsequent repeal, amendment         or modification    of the adopted stat-
ute. 50 Am. Jur. 58. Statutes, Sec. 39; 39 Tex. Jur. 129, Statutes,
Sec. 66; Annotation,     168 A.L.R.   627; 59 C.J. 610, 937, 1058, Statutes,
Sets. 167. 548, 624; 2 Sutherland, Statutory Construction          (3rd Ed.
1943) 548. As in the case of most general rules, however,             this rule
has its exceptions.    The two exceptions      applicable   here are: (1)
where the Legislature      evidences   such an intent, either express       or
implied, the subsequent amendments          of the adopted statute are in-
corporated within the adopting statute; and (2) subsequent           amend-
ments of the adopted provisions        will be incorporated     where both
adopted and adopting sections are part of the same act or statute.
Annotation,   168 A.L.R.    627; 50 Am. Jur., supra; 59 C.J. 1058, Stat-
utes, Sec. 624; 1 Sutherland, Statutory      Construction    (3rd Ed. 1943)
432.

            The occupation taxes on oil and gas were both enacted
by the 47th Legislature   in substantially   their present form in House
Bill 8,, supra, commonly    referred   to as the Omnibus Tax Bill.
The two taxes are closely related and have a similar background
in many respects,    and they are taxes in the nature of severance
taxes levied upon companion industries      or occupations.
                                                       //
&:,.       .
.4




           2w    Hon. Robert     S. Calvert,   Page 4 (V-1421)




                                We are of the opinion that the Legislature       -intended that
                  ‘the liquid hydrocarbons      recovered   from gas by ‘separators       or other
                 5non-mechanical        means were to.,be taxed at-the same rate as oil.
                   These liquid hydrocarbons       were, for the purpose of this tax, to’be
                   treated as oil. If the Legislature      had intended otherwise,     a specific
                 ‘-rate would have been set out in Article        7047b.   This intent of the
                  ~Legislature .is clearly    evidencedhy     the fact that when.the 5lst Leg-
                   islature,   at its Special Session,   passed House Bill 3 temporarily
                   increasing    tiy ten per cent the various    sales, occupation, hand li-
                   tense taxes, etc., fin order.to     provide additional revenues,      the ,Act
                   specifically    provided that the liquid hydrocarbons      recovered     by
                   separators     or noon-mechanical    means were.t-o Abetaxed at the same
                   irate as oil under the-Act, i.e., 10% of 4.125.       Acts 51st ‘Leg., kt
                   %.S. .1950’, rh. t, 9. :I&

                                .l-Iouse ‘Bill ‘Zg5, Acts 52nd ‘Leg., R.S. 1951, ch. 492, p.
                   695, ~generally car-r&d over and;~in effect. made permanent the
                    temporary     increas’e~ of ten per c~ent imposed by House BiLl -3. The
                   caption to House .-Bill .2&E clearly evidences the intent of the Leg-
                ‘. .islature ‘,to increase the occupation taxes levied on the prodtiinn
                   of oil and gas; In this connection-we       ‘quote from,Attorney    Genek’fk
                   ~0pihion V--1246 (.i9St) as ~filtows:

                                 ‘!After %h’e ctose of ~the ‘Re~gular Sessinn df r&e
                      ;3tst’L;~~iStaWre:in’~49,          it,became apparent*at’the
 .~,   .               ‘revenues to’& -collected under’the rntes:prm+lediin
                       ‘the taxing -&dtrites then in effect.would        be insafficimrt
                       :PO-meet :the :neces~sary current expenditures            r&the
                     ,Stateforthe~biennium            ending August.,31, 1951,andim
                       order ‘to-avert’the       deficit forecas~t by-the Comptrxiller
                        and to pr-ovide :suificient funds ~for the operation of klre
                        State’Hospitals     and Special Schools, the Legislature
                        was called ,into-Special       Session for the purpose of~%n-
                       :acting ‘tax le.gielation to raise revenues         in anamount
                       .stifficient to-averts the deficit and provide-forthe           ~ne&s
                        of the State.Hospitals       and Special Schools.       House Bill
                         3, adopted by Zhe Legislature         at the Special Session
                         (Acts 5Is.t Leg., 1st C.S. 1950, ch. 2. p. 10) pr~ovided
                       ~for fan additional tax of 10% of the basic          levies of ~a11
                        the taxing statutes,      with certain exceptions       not’herre
                         pertinent, such additional tax-to’be        in effect’for   .the
                        years 1950’and that part of 1951 ending on August 31gt.
                        ‘The revenues derived therefrom            were allocate,d to the
                        State~Hospital    %und with the exception of the portion
                         required .by Section 3, Article        VII of the Constitution
                        ~of Texas to .be:set apart for the benefit of the public
                       :fru-e s&6oEs.
Hon. Robert   S. Calvert,    Page   5 (V-1421)



           “At the Regular Session of the 52nd Legislature
    in 1951, House Bill 285, as introduced in its original
    form, provided for a continuation of the taxing statutes
    therein contained at the rates then in effect and con-
    tained the customary     form of emergency     clause.   While
    in committee,   the .original bill was amended as a whole
    by increasing  the basic rate of all of the taxing statutes
    by lo%,, using practically   the identical language contained
    in House Bill 3 ‘with certain ezceptions    for the purpose
    of clarifying the application   of the increased   rate. . . .

             “In construi~ng a statute, the cardinal rule is to
     ascertain   the-intention      of the Legislature      in enacting
     the law.-This      intention, once ascertained,          must be en-
     forced although it may not be consistent             with the strict
     letter of the statute.      In ascertaining      the true intention
     of the Legislature,       the existing condition of the law at
     the time of its enactment and the general rules then
     established    and applicable       to its subject matter should
     be considered..      State v. Dyer, 145 Tex. 586, 200 S.W.
     2d 813 (1947).     If the language used in the act leaves
    ,its intent obscure,      the courts     may resort     to certain
   .aids in construction        such as the nurnose sounht to be
    ,accamplished,       the history of the -legislation,      and the
     public policy of the State. Harris v. City of Fort Worth,
     142 Tex: 600. 180 S.W.td 131U(l944]. The object in con-
     struing any statute is to as&?&a&             from the langua,ge
     used in the statute the intention of the Legislature,              and
     where the statute is a taxing statute,           the act should be
     construed in connection with other laws relating to the
     assessment      and collection      of taxes.    White v. McGill,
     131 Tex. 231, 114 S.W.td 860 (1938).            The Legislature
     is free to fii in each act the time it, as a whole or in
     part; shall take effect, and may therefore              provide that
     it shall takewect        in whole or in part from its passage,
     approval,   or %%      fled    date. Chambers        v. Baldwin, 274
     S.W. 1011 (Tex. Civ. App. 1925).           The intention of the
     Legislature     being clearly manifested          by its history and
     by the emergency        clause    that it should become effective
     as a revenue producing measure              upon its effective date,
     that intention should control.          Texas Co. v. Stephens,
     100 Tex. 628, 103 S,W. 481 (1900).            In determining    the
     legislative   intent, the entire act should be looked to and
     this includes the caption, the body of the act, and the
     emergency      clause.    -Popham v. PHtterson,         121 Tex. 615,
     51 S.W.2d 680 (1932).
-.       .




             Hon. Robert   S. Caivert,   Page   6 (V-1421)




                          -Applying these rules of statutory construction
                  to House Bill 285, and bearing in mind that House Bill
                  3 imposed an additional tax of 10% in practically      all
                  of the taxing statutes    amended by House Bill 285, with
                  certain exceptions     above noted, the continuance of the
                  10% increase in effect after>he      expiration  date of
                  House Bill 3 on August 31, 1951, makes it a reason-
                  able conclusion that the Legislature      intended to carry
                  the 10% increase into effect for the entire calendar
                  vear 1951 except in cases where such increase was
                  specifically   repealed.   Construing all of the provisions
                -,~of House Bill 285 together, the intendment was to keep
                  the 10% additional levy except where the basic levy
                  of the taxing statute was raised, in which case the ini
                  crease was to become effective upon September 1, 1951.
                  wtthout regard to whether the tax was payable in ad-
                  Vance upon an annual, quarterly,      or monthly basis.”
                  (Emphasis Added).

                         The liquid hydrocarbons    in question are actually pro-
             duced as a part or component of the gas and would be taxed as such
             except for the express    provision that they were to be taxed at the
             ijame rate as oil. We believe that it is obvious that the Legislature
             intended to increase   these occupation taxes by approximately     the
             same amount and that since the occupation tax on the production of
             oil was raised from 4.125 to 4.6 per cent, it follows that the tax nn
             these liquid hydtocarbons     was aIso to be increased  to 4.6 per cent
             Of their rixaiket WAS.
     ,

                        in &n&usion,    it is our opinion that the 52nd Legisla-
             ture intended in House Bill 285 to carry over and to continue in
             effect the gene*&1 ten per cent increase    in various taxes imposed
             by House Bill 3, and that the liquid hydrocarbons     recovered from
             gas by separators   or other non-mechanical     means under the pro-
             visions of ~paragraph (3) of Section 1 of Articl~e 704i’b, V.C.S.,
             should be taxed ‘at the same rate Bs oil or at~4.6 per cent of their
             market v%lui? ~whenever such value is in excess of $1.00 per barrel.




                         Liquid hydrocarbons   recovered  from gas by
                  separators   or other non-mechanical   means are tax-
-*   .




         Hon. Robert     S. Calvert,   Page   7 (V-1421)
                                                                                24-a

             able at the same rate as the occupation tax levied
             upon the production of oil, which is 4.6 per cent of
             the market value.  Arts. 7047b and 7057a, V.C.S.;    .
             H. B. 285, Acts 52nd Leg., R.S. 1951, ch. 402, p.
             695; Att’y Gen. Op. V-1246 (1951).




                                                   Yours      very     truly,

         APPROVED:                                  PRICE DANIEL
                                ,-                 Attorney General
         W; V. Geppert _,
         Taxation Division

         E.Jacobson
         Reviewing Assistant                               Assistant

         Charles D. Mathews
         First Assistant


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