Oeneralmest 0. Thompson, Chairman
RailroadCommlaalon of Texas
Austin,Texas
                               op~inionNO. w-926
                                 Re: Whether the various
                                     transactionsof the West
                                     Texas Gatherlng Company
                                     constitutes~utlllty
                                     operation subject to
                                     the Utilities Tax under
war Qeneral Thompson:                Article 6060, V.C.S.
     You have asked several questions concerning the appllcatlon
cf the tax imposed by Article 6060 to the operatidtisof the
Ye& Texas Gathering Company. To answer these questions, it .ls
aeceasaryto briefly dlScU8s the provisions and effect of the
tax in question.
                 SCOPE AND EFFECT OF ARTICLE 6060
    Article 6060, V.A.C.S.,~pmvides:
              “Every gas utiliky subject to the
         pmvisfons of this subdivision on or
         before the 1st day of January and
         quarterly thereafter shall file with
         the Commission a .statemeot,duly verlfled
         as true and correct by the president,
         treasurer or general manager If a company
         or corpbratlon,or by the owner or one of
         them   If an lndivldual dr co-partnership,
         showing th’egross.receipts of such utility
         for the quarter next preceding or for such
         portion of said quarterly period a8 such
         utility may have been conducting any
         buslness, and at such time shall pay lnto
         the State Treasury at Austin a sum equal
         to one-fourth of one per.cent of the gross
         income received from all business done by
         it within ,thlsState during   said quarter
         period.”
General Ernest 0. Thompson, page 2   (b&f-926)


The sco e of the foregoing article wa8 limited by Section 10,
z. ;. 5 &7 of the 46th Legislature (Acts of'1931, 42nd'Leg.,
 . ., ch. 73, page ill), whiph reads:
              "Sec. 10. ‘That Article 6060 of the
          Revised Civil Statutes of 1925, except
          in 80 far aS It imposeS the license fee
          or tax of one-fourth of one per cent
          against persons owning, operating, or
          managing plpe lines, as provided In
          section 2 of Artlole 6050, is hereby
          repealed and said fund shall be used
          for enforolng the provision8 of Articles
          6050 to 6060,  inclusive."
The pertinent pmvlslons of Article 6050   are as follows:
             "The term 'gas utlllty~.and*$public
          utility1 or 'utilityt,as used in this
          subdiv1810n;mea~s and includes persons,
          companies and private corporations,their
          lesaees, trustees, and receivers; owning,
         managing, operating, leaalng or~aontrolllng
          within this State any wells, pipe lines,
          plants, property, equipment,facXlltfe8,
          franchise, license, or pennlt i~r either
          one of more tifthe Pollowlng kinds of
         ~buslnes8:
             II
              . . ,.
             "2 . Owning or operating or managlng
         a pipe line for the transportationor carriage
          of natuml gas, whether for pub110 hire or
          not, If any part of the rlght oi'way of 8aid
          line has been acquired or may hereafter be
          acquired by the exemlse of the right of
         'iimlnentdomain; or if eaid line or any part
          tt:ereof.
                  t-slaid upon, over or under any
          public road or highway of thls,.State,or
          street or alley of any municipality, or the
          right of way of any railroad or other public
          ptllity;'in?ludingalso any nJtura1 gas
          utility author+@ hy law to exerclee the
          right of eminent domain."
In summary, it is provided that the tax Imposed by Article
6060 is to be paid by those in the business of.ownlng, Operating,
or managing a pipe line for the tzansport'ationor carriage of
aeneralErnest 0. Thompson, page 3   (hW-926)



 naturalgas, In order to Incur llablllty under Article 6060,
 the taxpayermust have acquired part of the right of way for
 the pipeline by the exercise of the right of eminent domain
 or be authorized to exercise the right of eminent domain, or
 the pipeline must cross a public highway or mad, municipal
;rtreetor alley, or railroad or public utility right of way.
 It must also be determined that the transportationof natural
 ga8 by pipe line IS being carried on a8 a "bUslne88" activity;
 however,It Is not required that such transportationbe either
 the "sole" or "primary" business of the taxpayer. See Attorney
;Oeneral'sOpinions 0-3524-A and W-625.
      As pointed out by Opinion No. WI-625,each case arising
underArticle 6060 Involves a fact question. A taxpayer might
own,operate, or manage a pipe line aridtransport natural gas
withoutbeing engag+ in the business of transportationof natural
gas within the contemplationof Section 2 of Article 6050.    The
 Courtlo the case of Thompson v. United Gas Corporation,190
15.W. 26 5d, (Tex.Clv.App.1945, refused), pointed out that the.
 Legtslature,~In regulating and contmlllng gas utilities, had
 dividedthem Into three clasalflcatlon,and.that these class-
-1ficatlons represented three businesses: (1) production,
 (2)  transportation,and (3) dlstrlbutlonand sale of natural
'W. The Court stated that the utilities described In
 sections(l), (2) and'(s) of Article 6050 have the right of
.tmlnent domain, and that,each such utility necessarily carries
IOnit8 business by the use of pipe lines. Accordingly, It was
,concluded that a company engaged solely In dlstrlbutlonof gas
 at retailwas not In the bUSfneS8 or transportinggas within
 themeaning of Section 2 of Article 6iJ50.
     Similarly,in Opinion 0-3524-A,  It Wa8 held that the
RepublicNatural Gas Company was not engaged In the business
of transportingnatural gas by virtue of Its operation of a
gatheringaystan which brought gas produced by the company to
a centralPoint for 8ale. The rationale of the oDInIon was that
'thegatheringSystem was Operatea atia necessary-adjunctto the
businessof producing gas, and not as a rreparatebUSlne8S activity.
lb the same effect18 Opinion No. WU-625.   There it was held
thata producer who, In-order to sell g&s from his well, found
it necessaxy'tolay appmxlmately five miles of three-inch line
,%aconnectwith a transmissionline was not in the business oft
transporting or carryink natural gas within the meaning of
:Swtlon2 of Article 6050.
     In view of these authorities, It clearly appears that a
 personmay transport.g&aby pipe line without Incurring llabllIty
 underArticle 6060, If the transportation Is not conducted as
:abusinessactivlty,hut'lscarried on as a necessary adjunct
Honorable Ernest 0. Thompson, page 4       (W%g26)


to another buslneaa, such as p,roductlonor dlstrlbutloti.
However, IS the pipeline operation is not necessary to the
successiulprose&utlon of a business distinct from gas
transportation,the owner, operator or manager of the pipeline
will be liable for the tax.
     The measurement of the tax is expressed in clear and
expllait terms, It Is imposed on the ross Income received
                                      %?!i3xas
from all business done within the State o          There 1s no
pmvlX%    for segregatingIncome according to thi type of
bualness done.
     It Is in light of the foregoing prlnclples that the guestlons
presented by this opinion requeet,mustbe resolved.
                  WEST TEXAS GATHERINQ COMPAWY OPERfiTIONS
     The information submittedwith the opinion request des-
oHbaa the operations of the Weat Texas Cathefing Company under
three .separateheadings. In order to &lve the questions posed
the proper factual setting, it Is ncaessary to briefly set
forth the salient activities ti,nder
                                   each hwlng:
     “EL   Paso Natural   Qae--Weet   Texas Gathering Company Trans-
action*:
       West Texas Gathering Ccmpany purchases and gathers ga.8
In the Rsperor Fields In Wlnkler County, .Texas,wblch gas, after
gathering, Is transportedby pipeline through the South Kennit
Piela, where additional gathering 1s.done, and thence to the
El Paso-WlperorMeasuring Station where It 1s delivered and sold
to El Paao.NaturiiZl   Gas Company for processing and transmlsslon
In interetate   comneroe.    None of the right of way for the pipeline
system was aaqulred by the rlgh$ of eminent domain, but the
line crosses various public roads, highways and railrOadS.
     Epronler d&mi! June 27, 1958, the Federal Power Comm-
ission found that this operation made West Texas Qatherlng
Company a “natural gas” compafiywithin the meaning of the Natural
ads Act.  A certificateof public convenienceand necessity
waa issued to West.Texas. The F. P. C..approved a “rate

1 In this connection,, It’should be noted that under the express
terms of the Act,  It Is not necessary that the aarrlage of
trma~ortatfon   of the gas be for publla hire; .thepipelLne
carrier may transporthis own gas or transport ‘gasunder private
contract aridstill incur liability under Artiale 6060.
&ne+     Ernest O. Thompson, page 5   (iw-926)


rchedule”(contractbetween &l Paso and West Texas) which
provides,in effect; that West Texas Is to purchasesgas from
the various producers at a specified price, and, after delivery
and sale to R Paso, is to be reimbursed for the price paid
the reducers plus West Te3caS*ecost of service, including a
6.drate   of return on the undepreciatedInvestment,

     IXlrlngthe first year under F.P.C. regulatloh,West Texas
paid the producers 16 /MCF. An arbitrary and interim cost or
servicecharge of 24A CF was agreed upon, and El Paso was
bllledat a,rate of 184fiCF. At the end of the first year,
the actual cost of service was determined to be less than
l#/hCF,,neceesltatlng a refund by West Texas of the amount by
which El Paso was overcharged. After the first year, the :basle
for billing is the actual cost of service per/hCF for the
precedingyear. At the end of each year adjustment Is made
for underbillingor overbilling.

    “Pioneer-NaturalGas Company--WestTexas Qatherlng Company
Transaction”:
     West Texas gathers a specific volume of gas for the Plo-
seer Natural Gas Company. Thlhisgas is,purchased by nest
Tsms in the EtnperorFlelds and transported through pipeline
to the West Texas gas treating plant located near the El’
Paso E%peror measuring station. There the gas Is treated for
the removal of hydrogen sulphide and carbon dioxide, It
thenflows through approximately26 miles of pipeline to
PhillipsPetroleum Company’s Coldsmith Gasoilne Plant, where
suiphurcompounds, water and liquefiablehydrocarbons are
removed(during which process title is retained’by West Texas),
and thence to a point just down stream of the Phllllps Gasoline
Plantwhere Ploneor receives the gas from West Texas .and title
passe8to Pioneer. West Texas purchases this gas for 16#(ICF.
lbe gas delivered to Pioneer is utlllsed in intrastate conmkerce.
Partof it is used for irrigation pumps which are serviced by
the Pioneer system.
       “MiscellaneousTransactionsof ‘WestTexas OathekIng Company”:
       ‘0)   “Gathering of’gas for Permian Basin Pipellne Company”:
                      of gas whloh West Texas gathers in the
     A certain ,unourlt
EmperorFields 18 4c~rlcatedby the producer‘to Permian Basin
PlpellneCcmpnny for salo In Interstate commerce. Tbls gas
is transportedby West Texas through the aforementionedplpe-
line to a point just ahort of the KennIt Field, where it is
deliveredto Permiani West Texas does not taKe title to this
gas. For esch.thoueandcubic feet of gas gsthered for Permian,
Ueet Texas receives 0.5#.
Qeneral Ernest;0. 'Ihompson,page 6    (~~-926)


     (2) Qathering of gas that Pioneer Natural Gas Company
purchases from Pan American Petroleum Company”:
       Pioneer Natural Gas Company purchases a certain amount
of  gas which is produced In the Bnperor Fields from Pan American
Petroleum Company. his gas is delivered by Pan American Into
the West Texas gathering system and transportedby West Texas
to the point described under the second heading, above, where
it 1s delivered to Pioneer. Title to this volume of gas
rmains    in Pioneer; West Texas receivea 24CF   for dellveridg it.
       (3) Revenue Prom,LiquldHydrocarbons:
     West Texas receives a certain portion of the value of the
liqujds extracted in Phillips Goldsmith Oasollne Plant. West
Texas also collects from the field gathering system and markets
a nominal amount of llquld hydrocarbonscalled ?drlp condensate.’

                      Questions’
                               and Conclusions
      ‘ItIefirst question regarding the foregolng facts is whether
West  Texas iS subject to the tax Imposed by Article 6060. West
Texss is in the businessof ttinaportinggas from,the place of
production to various points for delivery and/or sale. me gas
Is transported thpugh       a pipeline system which crosses certain
 ubllc rciads,  et.     In view of the general discussion at the
 irst
i?     of this opinion,     it ia clear $hat.West Texas comes within
section 2 of Artic,le6050 and Is subject to the tax under Article
6060.
     me second questlon concerns the receipts to which the tax
Is applicable. As has been pointed out, the tax applies to the
 z&s income receive&from all business done’wlthln the State
!A-!kas.    mere 18 not pr;iiiZslonfor segregating income accord-
ing to the type of business done; notiIs there any provision for
divlllcg or allocstlng the gross income on any basis. cf:
      ey v. W&t TelrssGulf PIpelIne Company,.336 S.W. 28
                  19bO) ci    eq eni    1~ LS clear that the
t?x applies t.3(1) the &s~~&c~rne which Weit Texas receives

2 From t,nr !r.formst.lon aubm:.t.ted with the opinion request, It
appcara thit:West. Texas doe6 nof coFelder that it is’authorized
to exercise r,3eright.of eminet?tdomaln, and thrt. all rights Of
way havvt)  been squired through arms-lcngtb bargaining’with     the
surface cwners I since    the terms ol‘Section 2 of Article 6050
are tiouchcdlo r.herltcmatlve, we need not.consider the question
of whethc-r  West Texas actually has the rlghc of eminent domain.’
General Srnest O. Thompson, page '7 (w-926)

fmm the hydrocarbons,(seeNo. 3 under "Miscellaneous
heading,above), (2).to the amount received for transporting
gas in the instances where West Texas does not obtain title .'
tc the gas, and (‘3) to the sales price of the gas which West
Texas purchases rrom producers and re-sells. In connection
with the latter situation, it should be noted that in cases
where an end-of-the-year"cost of service" adjustment is
required,the tax applies to the amo nt actually and ultimately
realizedfrom the sale of the gas. Y
     The third question Is whether West Texas may claim a refund
for the tax paid on gas sold to Pioneer and ultimately used
for irrigation purposes. Article 6060 oomprehends'nocredit
provisionfor gas used for Irrigation or agricultural
purposes.
                           SUMMARY
               The West Texas Gathering Company
          Is subject to the tax imposed by Article
          6060. me tax applies to the gross income
          Prom all.business done by the company In Texas.
               There is no credit provision contained
          in or comprehendedby Article 6060 for gas
          used for Irrigation or agriculturalpurposes.
                                  Yours very trulj,
                                  WIU WILSON
                                  Attorney General of Texas

                                    'qg2daL
                                  -Jr: Jack N; Price
                                       Asslstant

3 Since the tax 1s to be paid quarterly, while the adjustment Is
made on an annual basis, an administrativeproblem concerning
 collectlonIs presented. me simplest and most practical way
 to handle this pf@blem is to make a aorrespondtngadjustment in
 the tax at the time of the first quarterly colledtlon after
 the annual "cost-of-service"adjustment 1s m&de. For instance,
 if West Texas bills El Paso for an addltronal amount, that
 amount can be'taxed as part of the gross income for the quarter
 during which It.10 collecl~d; if WestTexas is required to
 refunds certain amount to El Paso, credit for the past over-
 payment of tax cay be given by deducting that amount from the
 gross Income of the company for the quarter during which
.the refund Is made.
General Ernest 0. Thotnpson,
                           page 8 (W-926)


JNP:bg
APPROVED:
OPINION COMMITTEE:
Henry Braswell, Chairman
Byron F. Fullerton
James R. Irlon, III
Raymond V. Loftin, Jr.
John'Rewes
REVIEWEDFORTREATTORNE!fGEN$RAL
@:   Houghton Brownlee; Jr.
