                             Ausn~    ~.TEXAS

  FVII.L  WILSON
AlTOHNEYGIENERAL
                                May 10, 1961


   Hon. Robert S. Calvert
   Comptroller of Public Accounts
   Capitol Station
   Austin, Texas
               Opinion No. !&J-1052
               Re:   nether the Transwestern Pipeline Company may
                     file a franchise tax return as a public utility
                     before commencing business as such, or should
                     they be liable for franchise tax as an "ordi-
                     nary corporation" and kindred questions.
   Dear Mr. Calvert:
             You have requested the opinion of this department con-
   cerning the franchise tax liability of Transwestern Pipeline
   Company under Article 12.01, Title 122A, Revised Civil Statutes
   of Texas, based upon the following factual situation.
             Transwestern Pipeline Company, a Delaware corporation,
   obtained a certificate of authority from the Secretary of State
   on October 29, 1957, to do business in Texas for the following
   purposes:

              "(a) To buy, sell, transport, store and furnish
         gas for light, heat, power and other purposes; to buy,
         exchange, lay down, construct, contract for, lease,
         and in any and all other ways acquire, take, hold and
         own pipelines, tubes, tanks, storage facilities, com-
         pressor stations, pump stations, connections, fixtures
         and such telegraph and telephone lines, machinery,
         apparatus, devices and arrangements as may be useful
         or necessary to operate such pipes and pipelines be-
         tween different points, and to improve, maintain and
         operate the same, and to sell, mortgage, lease or
         otherwise encumber or dispose of the same;
              "(b) To mine for produce, buy, acquire, use,
         sell and distribute na iural gas for light, heat, power
         and other purposes, and also to produce, acquire, use,
         sell and distribute the by-products and residual prod-
         ucts therefrom, and to construct or in any mannerac-
         quire, maintain, operate, encumber, sell or in any
         manner dispose of works therefor, and any and all
Hon. Robert S. Calvert, page 2   (W-1052)


    necessary equipment and appurtenances necessary or
    incident to such operations and business;
         l'(c) To establish and maintain an oil busi-
    ness with authority to contract for the lease and
    purchase of the right to prospect for, develop and
    use coal and other minerals, petroleum and gas;
    also the right to erect, build and own all necessary
    oil tanks, cars and pipes necessary for the operation
    of the business of the same; provided, however, that
    nothing hereinabove contained shall authorize the
    Company to engage directly in the oil pipe line busi-
    ness in the State of Texas."
          It began transporting gas through its pipelines in the
State of Texas on July 1, 1960. Transwestern Pipeline Company
rendered its return on October 29, 1958, in which it paid the
minimum tax, no business of any nature having been transacted
by the company under any of its purpose clauses during the taxa-
ble period.
          However, the company's return filed for the year 1960
reveals that the company received the sum of $3,750.00 from gross
receipts from its entire business, inclusive of the $3,750.00,
including interest on obligations of the United States, in the
amount of $14,453.00, and proceeds from the sale of pipe (Illi-
nois), in the sum of $288,305.00, or a total of gross receipts
from all business done, in the sum of $306,518.00. Calculating
its return on 1.22$, which is the percentage relationship which
the gross receipts from its business done in Texas bears to the
total gross receipts of the corporation from its entire business
the corporation paid a basic franchise tax in the sum of $1,104.+5
as a public utility coryoration in accordance with the provisions
of Article l2.Ol(3), which is in part as follows:
          “(3)Except as provided in preceding subsec-
     tion (21, all public utility corporations, which
     shall include any such corporation engaged solely
     in the business of a public utility as defined by
     the laws of Texas whose rates or services are regu-
     lated, or subject to a regulation in whole or in
     part, by law, shall pay a franchise tax as provided
     in this Article which shall be based on whichever of
     the following shall yield the greatest tax:
          (a) Two Dollars and Twenty-five Cents ($2.25)
     per One Thousand Dollars ($1,000) or fractional part
     thereof applied to that portion of the stated capi-
     tal, surpius and undivided profits, allocable to
     Texas in accordance with Article 12.02 of this Chap-
     ter.
Ron. Robert S. Calvert, page 3   (W-1052)


          (b) Two Dollars and Twenty-five Cents ($2.25)
     per One Thousand Dollars ($1,000) or fractional part
     thereof applied to the assessed value for County ad
     valorem tax purposes of the property owned by the
     corporation in this State.
          (c) Twenty-five Dollars ($25.00)."
          Your first question is as follows:
          "May the Transwestern Pipeline Company file a
     franchise tax return as a 'public utility' before
     they actually commence business as a public utility,
     or should they 'beliable for franchise tax as an
     'ordinary corporation?"'
          There is no question that Transwestern Pipeline Company
is a public utility corporation as defined by Article 6053, Re-
vised Civil Statutes, although it is not a corporation authorized
to engage solelv in the business of a public utility since, under
the third purpose clause contained in its certificate of authority,
sunra, it may establish and maintain an oil business which is not
the business of a public utility corporation as defined by the laws
of Texas.
          The franchise tax levied under Chapter 12, Title 122A,
R.C.S., is a charge made by the State of Texas for the privilege
granted it of doing business in Texas. Houston Oil Co. of Texas
v. Lawson, 175 S.W.2d 716 (Civ.App. 1943, error ref.). If the
company does no business it would pay the franchise tax as pro-
vided by Article 12.01(3)(c), or as provided by Article 12.01(j)
(b) if it yields a greater tax, which was done by the corporation
in its returns for 1958 and 1959.
          Since its return for 1960 shows receipts from business
done in Texas, which were not received from business done under
the third purpose clause above referred to, but from capital in-
vestments incident to its public utility business, such receipts
are allocable to the company's business done as a public utility
corporation, even though it did not actually begin transporting
gas through its pipelines as a public utility corporation in the
State of Texas until July 1, 1960. Therefore, Transwestern Pipe-
line Company had the right to file its franchise tax return as a
public utility before it began transporting gas through its pipe
lines in the State of Texas on July 1, 1960.
          Your second question is as follows:
          "What is the determining factor that classifies
     a corporation as 'beingengaged 'partly in the business
Hon. Robert S. Calvert, page 4   (WW-1052)


     of a public utility as defined in Subsection (3)
     of this Article and partly in business embraced
     in Subsection (1) of the Article' for franchise
     tax purposes?"

          The company's records do not show that it has been en-
gaged at any time in the oil business as prwided in the third
purpose clause above referred to, but if and when it engages in
such business, then its receipts therefrom should be allocated
as provided by Article 12.01(k), Title 122A, since it will then
be engaged partly in the business of a public utility as defined
in subsection (31, and partly in busfness embraced in subsection
(1) of Article 12.01.
          Your third question, being based upon a hypothetical
situation which is not applicable to the subject corporation, no
answer thereto is deemed necessary in view of the long established
custom of this office not to give opinions in answer to hypotheti-
cal questions.
                            SUMMARY
         Transwestern Pipeline Company, being a public
    utility corporation as defined by Article 6053,
    R.C.S ., has the right to file its franchise tax
    return as a public utility corporation under the
    provisions of Article 12.01(3), Title 122A, R.C.S.
    The factor which classifies a corporation as be-
    ing partly in the business of a public utility as
    defined in Article l2.Ol(3) and partly in business
    embraced in Article 12.01(lj under the provisions
    of Article 12.01(k), is clete$minedby the actual
    receipts from its business done under Article 12.01(l),
    Title 122A.
                                 Very truly yours,
                                 WILL WILSON
                                 Attorney Geperal of Texas


                                    C. X. Richards
                                    Assistant
CKR:wb
Hon. Robert S. Calvert, page 5   (W-1052)



APPROVED:
OPINION COMMITTEE
W. V. Geppert, Chairman
Virgil Pulliam
L. P. Lollar
Maston Courtney
Dualey McCalla
REVIEWED FOR THE ATTORNEY GENERAL
BY:   Morgan Nesbitt
