          THEA~TORNEY                    GENERAL
                          OF   TEXAS
                        Aue-     11. ‘X’EXAS




Hnnornbl~,e
          Robe~,tS. Cs~lvert           Opinl~onNo. w-477
Comptroller of Public Accounts
Cap1to1 Station                        Re:     Proper lnterpretation to
Austin, Texzs                                  be placed on Sub-section
                                               2 ,ofSection 2s of .Lrtl-
                                               cle 7047b relating to the
                                               amount of taxes to be
                                               pa1.don gas where’the
                                               seller ha3 an escalator
                                               cl~a~1~3e
                                                      In,their,contrnct-
                                               -when the final declolon
                                               of the Federal Power Com-
                                               mission Is pending.
Dwrir Mr. Cnlvert:
         You request the opinion of thi3 offi.ceupon the ques-
tions pI?esentedin your letter of June 12, 1958. For o
bt-,tt.cr               of the questI.onsa.ndthe factual.basin
        l~?rje.,t;,~rridi,ng
upsr! ,:ri.li.rt-:
              they RW(?predicated, we quote the pertinent part
(ofpw     letter :rzfoll.ows:
    "Artlcl,e 7047b, V.A .C.S, levies a tax on the business
    and occupnt;1on of producing go3 tl%,thinthis State
    t.ia:;ed
           on ‘themarket vnlue of the gas as and when
    gr*oduccB.
    “Sec.ti.on
             2 of    Article   701+7b,V.A.C.S. reads as follow3:
        ‘The mrkct   veluw   of gas prodmod In this
       St*oLeshell bc t.hevalue thereof at the
       muth   of the well:    however, in case gas
       in sold I’orcash only.,the tax shall be
       computed on t,heproducer’s gross cash re-
       ct,i~I’tr!
               . Payments made by purchasers to pro-
       ducer:Jfor the purpone of reimbursing such
       producer3 for taxes due hereunder shall not
       he consl,deredR part;of the prod,ucwr’sgross
       c;33hrec+i,pt,:s.   In a’11case3 where the whole
       or n pal:bt of’the considcretion for the sale
       (:ffrt113i:;H por,tionof the products extracted
       I”rcon:
             the:i~:!!lucebb’3 gn3 or 3 portion of the
       rczidu,e):;I:;,or both, the tnx shall be com-
       p~l;txlon t:,hegross value of all things of
       value rocoiv~~~~  by, the producer, Including
       any Lion11::cj~’
                      pr~emi.um :’
  "Sub-section 2 of Section 28 of Article 7011Tb,V.A.C!.S.
   reads 8.sfollows:
    'When it shall appear that a taxpa:yerto
    whom the provisions of this Article shall
    apply has erroneously paid more taxes than
    were due during any taxpaying period either
    on account of a mistake of fact or law, i,t
    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.’
 "The Federal Power Commission has suspended various
 applIcatlons for scheduled contract rate increases
 on gas sales subject to Federal Power Commlsalon
 regulation. The Natural Gas Act provides that if a
 final decision has not been rendered within five
 months following the proposed effective date of tbe
 increased rate on motion of the filing producer,
 the proposed rate change shall go into effect. In
 this event, where increased rates become effective,
 the Commission may require the producing company to
 furnish a bona or file under 'Corporate Undertaking'
       eu of bona) to refund any amounts ordered by
 $2 Enmission , pending a hearing and final decision.
 In the event the Commission in Its :finaldecision
 disallows the rate lncreixse,the amounts collected
 under 'Corporate Undertaking' or under bond plus
 interest at six pe:rcent per annum must be refunded
 to the purchaser of the gas.
 "Gas soles affected by this procedure fall Into two
 categories; (1) sale from leases and (2) residue
 sales from gasoline plants.
  "A ouestion has arisen as to whether the gas produc-
  tion tax provided for by Article 7047b, V.A.C.S. sir:
  due on the increased rates received under bond or
  under 'Corporate Undertaking' at the time that .thc
  amounts are collected or whether the tax becomes due
  at the time the Federal Power Commission reaches a
  final decision. It is my understanding tha,tit may
  be as long as five years before a final decision ic
I,reached in some of the cases now pending.
 "A number of the taxpayers are currently remlttlng
 the tax on the rate increases received under bond
Honorable Robert,S. Culvert, page 3,   Opinion No. WW-477


    or under 'Corporate Undertaking' and have Indicated
    that should the Federal Power Commission In Its final
    declslon require that part or all of the increased
    rates be refunded that credit will be taken against
    future gas production taxes for the amount of tax
    previously paid on that part of the rate increase
    refunded."
    You asked two questions, as follows:
    QUESTION NUMBER ONE:
   "Please advise me whether or not the tax becomes
   due at the time the Increased rate is received
   under bona or 'Corporate Undertaking' on sales
   from leases and residue sales from gasoline plants
   or whether Ft Is due at the time the Federal Power
   Commission reaches a final declslon."
   QUESTION NUMBER TWO:
   "If your answer is that the,tax becomes due at the
   time the increases are received under bona or 'Cor-
   porate Undertaking', please advise me whether or
   not the taxpayer will be entitled to take credit
   against future gas production taxes for the tax
   paid on any part or all of the rate Increase re-
   quired to be refunded by the Federal Power Commls-
   sion jn Its final decision."
       The pertinent portion of Article 704'j'b,
                                               Vernon's Civil
Statutes, which levies this tax, is as follows:
   "Section l(1). There is hereby levied an occupa-
   tion tax on the business or occupation of producing
   gas withln this State, computed as follows:
       "(a) From the effective date of this Act
            until September 1, 1955, a tax shall
            be paid by each producer on the amount
            of gas produced and spved within this
            State equivalent to nine per cent (9%)
            of the market value.thereof as and when
            produced;
       "(b) From Sep'tember1, 1955, until September 1,
            1956, the rate of said tax shall be eight
            per cent (8%) of the market value of the
            gas as and when produced.
                                                     .      ,




Honorable Robert S. Calvert, page 4,   OpLnLon No. VW-477


        "(c) From and after September 1, 1956, the
             rate of said tax shall be seven per cent
             (746)of the market value of the gas as and
             when produced."
        You will observe that under sub-section (a) the tax is
 levied upon the market value of the gas "as and when pro-
 duced," and the same language is used in sub-section (b)
 ana (c). Therefore, under the plain terms 'ofthe statute,
 the tax accrues as and when produced and is payable at the
 time and in the manner prescribed by sub-section (c) of
,Article 7047b, V.C.S.
       You will also observe that the tax is calculated upon
the market value of the gas. The Supreme Court has said
that the term "market value" is the prioe for which the
producer sells his gas. W.R. Davis, Inc., v, State 142
Tex. 637 180 S.W. 2a J+29. It is quite apparent that the
producer sells the gas not only at~the permissible rate
prior to the rate increase but in addition to the,increased
rate effective under a bond or Corporate'Undertaklng. Stated
another way, the producer sells the gas at the permissible
rate and in addition thereto the increased rate or both com-
bined and the tax accrues on the combined rates "as and when
produced" and is payable at the time and in the manner pre-
scribed by the statute.
       Therefore, in answer to your question Number One, you
are advised that the tax should be calculated by taking into
account the increased rate which the producer may receive
under a bona or Corporate Undertaking, and this, regardless
of whether the increased rate is from leases or residue gas
from gasoline plants. Payment of the tax may not be post-
poned until the final determination by the Federal Power
Commission of the validity of producer's application for the
increased rate.
       In answer to question Number Two, you are advised that
if the increased rate should finally be disalloWed by the
Federal Power Commission and the producer required to refund
to its customers the increased rate, the producer or taxpayer
would be entitled to take credit on its subsequent reports
for the taxes aid upon the increased rate as provided in
sub-section (2P of Section 2a of Article 7047b, V.C.S. The
length of time taken by ,thePower Commission to finally
determine the validity of the producer's application for
an increased rate is not material.
 .    -




Honorable Robert S. Calvert, page 5,    OpLnion   No.   W-477



                            SUMMARY
        A producer should pay the gas production tax
     imposed by Article 7047b, V.C.S., taking into ac-
     count any Increased ,rate put into effect by a
     bond or Corporate Undertaking in lieu of a bond.
     If the Increased rate is denied by the Federal
     Power Commission and the producer Is required to
     refund the Increased rate to its customers, the
     tax so paid by reason of the increased rate should
     be allowed as a credtt on subsequent repor,tsas
     provided by the taxing statute.
                                Yours very truly,
                                WILL WILSON
                                Attorney General of Texas

                                By s/L. P. Loller
                                     L. P. Lollar
                                     Assistant
LPL:db:wc
APPROVED:
OPINION COMMITTEE:
J.C. Davis, Jr., Chairman
Tom I. McFarling
Jack Goodman
Henry G. Braswell
REVIEWED FOR THE ATTORNEY GENERAL
By : W. V. Geppert
