                                      *

.I



                                          . . .   .   . . .




                OFFICE   OF THE ATTORNEY                      GENERAL   OF TEXAS
                                     AUSTIN
     QROVERSELLERS

J    ATTORNEY GENERAL




     Hoaorcblo Geo. H. 3happnr.i
     Con troller of Public kwounta
     Austin 11. Tmur
     Deer Sir:
                                          lie:The




                                                                        to tbi8    orri0e
                                                                        in part    as roi-


                                                                whio,hlerlao the
                                                                Ctate reada in part

                                et   ValUO O? Oil,                  as that
                                 ercia, shall be the wtual
                                 Hereof, plw my bonus or
                                 ther things or value paid
                              rhioh suoh 011 will romon-
                              II produoed in eooordano*
                                        wd requlatlonror.

                 *This 3epartmunt he8 reoently rewire3 a num-
           her or  inquirtce   from bath the purohoser  mci the
           produoer of oil au to vrbethar the pro saed eubalby
           paymnts    whiotl bdaofm er’feotive&u&amt 1, will be
           eubjaot to the tax levied    by .?rtlole 7057~~.
                                                                 702



mnorablc George W. Sheppard, 9qec 2


         "This I8, therefore, to rcqucct your opinion
    a8 to whether or not the aubcldy payment whloh
    will bcoomc operative and effcotIvc on Auguet 1,
    I8 cubjcot to the State tax levied by Scotlon 2
    0r mi0i0 7057b
         r+ * *a

          Artlolc 7057e, Y. A. C. 9. we8 cneotod by the 431-d
‘Sm88Ion.oithe Tue8 LcgI8laturc In 1933 amended by the 431-d
LcgI8laturcet It8 firat oellcd 8088ion in 1933 and again
amended et the roguler 8c88Ion of the 44th LcglslaturcIn 1935.
Seotfon 2 of this Art1010 wa8 lert emended by Aot8 1941, 47th
Lcglmleturo,page 269, Ch. 184, Art. 1, Sco. 1. Thla scotion
of the erticlr Is oonoorncd chlcfly with the emount or the tax
to bo oollcotcd and the method by wh%oh suoh amount Is to bc
nca8urmd. A art br SeOtIon 2, Artlolc 7057e, V. A. C. s. I8
88t out a8 r0P1~8:
          *co. 2., (1) Thcrc I8 hcroby levied en oo-
    oupetion tax on oil produood within thlr Btate d
    tour en4 one huadnd twenty-ilvcthousendths
    (4.l25) oont8 per barrel of rortp-two (42) rtenderd
    gellonc. 8e+d tar shell be oomputcd upon the total
    barrel8 or 011 produocd or cetvegcd from the earth
    or waters or this State rlthout any dcduotion8 urd
    shall be be8cd upon tenk table8 ohowing one hundred
    (100) par ocnt or ptioduotion end cxeot acarurcmcntc or
    oontont8. Provided, however, thet the oooupetion
    tex.hcrcInlcvlrd   on 011 shall be four end one
    hundred twenty-fIVcthoulrendths(4.125) per oat
    or the narkmt value or said 011 whenever the market
    value thercoi 18 In cxocc8 or One Dollar ($1) pmr
    barrel or rortptro (42) 8tenderd gallonm. The
    naflcotvalue of oil, am that term I8 uccb heroIn,
    ahell be the eotuel merkct value thcrcoi, pins any
    bonus or prcmlumm or other things oi valqc pald
    thcrcior or whloh ewh 011 will reasonablybring It
    produocd In eooordenocwith the laW8, rules, end
    rcgulation8of the State oi Texas.
         "(2) The tax hereby levied shall be a liebll-
    fty of the groduocr oroll end it 8hall bethc duty
    of such produocr to keep aoouretc xcoords of all
    011 produocd, making monthly reports under oath a8
    hcrcfnaftcrprovided.
         "(3) The purohescr or oil shall pay the tax on
    all 011 puroharrcdend dcduot tax so paid from pay-
    ment due groduocr or other Iatcrcst holdcr, making
                                                                    703


Honorable Ocorgc ii.Shcpperb, Pago 3


      SUOh payments SO dcduotcd to the ~Oln9tro11.rOf
      Pub110 Aooounts by legal tcndcr or oachfcr~s ohcok
      payable to the State Trcasurcr. Provibcd, that if
      oil produocd i8 not 801% during the month in which
      produoed, then said produocr shall pay the tax at
      the cam rate an4 in Bhc am&nor a6 Ii said oil were
      Sold.


          A8 the rirst step in enswmrlngyour quc8tIon It Is
ncoc88eryto esocrtaln the intentionor the Logiclaturc. ThiS
the Lc((I8leturchem nude easy ror u8 brthc rlmpllolty en6
olerlty or~thc la    $6 it hec used In dcflnlng the tam
*market telu6 of o 1". Thfm 4cfinftiOna8 qWtC4 in tO6U lct-
                 "f"
tom
              "The market V~UC of 011, em that t.?m i8
      wad herein, rhell be the eotuel merkmt vehc
      the-or,     pluc eaybonw or prcrtuas or other
      thlngc or veluc~pcid thcrcfor or &oh     swh  011
      will reasonably bring,Ii producc4 In eooor4enoc
      with the lews, ruler end regulation8or the Stat0
      or TC~~S.*
would soufo bc es olcer a8 logieletivclurguego oould tie
it& It stetcs In ruch a mennor es to have a0 rwm ror doubt
that the aurket prloe of the 011, the rtenderd b;l which the
amount of the tax 18 to be celoulatcd,rhouldInclude eny bontm
or prtimn or other thin8 of value which the pzv4uotIon of the
oil brings Into the hand8 Or the pro4uocr thcrcor. We bclIcve
that lt 8ey 'be raid with essuraooc that It we8 the fateuntlon Or
the LcgIsleturc that rush a bonus or promfumor 8ub8ldy as that
now being pald to produocr8 of oil from stripperwclla in the
Stetm ot Tcxes ~shotidbc Inoluded in the market prloo ior the
purpos,cor oaloulatlngthe exaount0r the tax.
          The publiolty rclcemc from the Offioc of .micC Admfa-
Irtretlon rclce8cd by the Oftlo. of W&8 InfoFmetfonon Thursday,
July 13, 1944, whloh you attached to your opinion rCqUCSt, in
dC8OrfbiXIgthe plans by whloh thcac SU~SfdfcS were to be paid
end distributedXCfCrS to the 91en a6 *this promfurpeymcnt
glen*. In anothbr paragraph of the Seid rchasc, in 8pcekfng
of the anount to be paid under the plan, they WC oellcd l prcmim
payxacnt8n.Nowhere In auoh rclcesc ir the word W8ub8fdyW wed,
but It Is obvIou8 that the plan thcrc outllncd 18 e plan to 9ey
e cubaldy, bOllUS, or bounty to enoourepJc
                                         the produotlon Or 011
from mInimum produotlon or stripper rcl18. That pert or the
lrtlolc quoted In your letter and hcrcInebovc,defining *merkct
lioiorableGeorge H. Shoppud, page 4


prloo or oil”,   USM both tha words Lbonu*W and *prsmlumma*
ltenb to be inoludad in the market prloe of 011. In thi8 oon-
neotlon, however, it in proper to oon*lder the word "mubaidy",
the logal definition  of whloh 18:

             “A @'ant Of funds or propUt+ rXY#ma gorUn-
        nent a* of the state or munlolpal oorporatlonto
        a private pemon or 0~       to a8818t in the en-
        tebliehwnt   or 8uppoa-t 01 en ezttuQrl88     deomd
        *drentyoow to the publloj l 8ubventIon". 60
        Corpus Yurla 976,
*a rynony~auuwith the words "born@ and          “pnmlum”.

           The 8mend.d lot am mot out above l   mglop two b-a* by
whloh th* smoantoi the tu to be paid I8 to bo aaloulated. The
fir&t ba8Im mentioned In thr 8ot I8 "by the barrel", 8ad tha lot
prooldas  that thr 8um a? 4.125 rot8 pr rt8nAarA barrel      oi 011
produsnd *hall be p8IA to.tio Stat. of hxu       by the proAumr,
and tho8. hatlry en intuest     in wih,~mduotIon for leoh and
eterp barrel   tii oil pro0~0rd 80 lonig a8 the urket priom of 011
*hall be and remain 1088 than 41.00 &mr $taadard b-01.        The
8ooond bauI8 pmfided by thr act u8r# thr market prloe of oil
a* the 8tandard ror~mea*arumentand repulses that ~125 per
oat   of the market prloe ot the 01).8haU br paid to the @iate
or Tsu8 as an oooupatloptu by the prodwu of 8uoh oil, 8nd
thwe lntueatod in 8uoh JiMduotionI whm the mark& prioa got
011 *hall l  xoooA~~$l&Opsr Lt8ndud bsrrml.
              Where the~rlr8t of theno bamar sly be employed, It
I8 obvlow t&t the payaeat oy non-pqmeat    of a sub8Idy oan hare
no citeot bn the amount of the tu to bo paid to thm &tat* of
Texa* . So long a* the mark&   rlos of thr 01 lnoludlag the
subrIdIa8 doer not rlw *bore P1.00 per Nandud b-01       the
amount or the tu to bo paid rem&m oonrtaat with or~rithout
the'paymentof a 8ubsIdg or premium. It 18 only *hem the nrket
prloe of the 011 lroeeda ona dollar per barrel, or whom b?oaurr
of the payment of the aubrldy the market ptlom ir o*\u*d to risa
above one dollar per barrel that it booome8 neoe***ry to oonslder
the nmrket prloo of the oil in order to arrive at the amsuit of
tax to be paid. When the market prloe ot thm 011 I8 pDre th
one dollar, the leglrl*tfverormula reqtirlng  th* tu to bo Ci325
                                                            @f
per ,o*atof the market prloa of the 011 is used, and sutihfotiu3.a
ahould be applied to the whole marJmt prior Inoludlagthe pramIum8
or 8ubsIdle8 if any.
          It vrouldbe Inoorreot to oonelude, however, that tha
tax baaed on eueh a rormula 18 aotually a tax on the sub8ldy Itllslf,
                                                                                  705


Honorable    Qeo. 5.   Sheppard,   p. 5




proAwus oi 011 in Tua8 wbleb la           l     lied   alike to   all aa-
gagd  io the bu8I8orr ot puoInf     oif in 8oooraenoe with a
M   emtie     formnl8 whir B&W     ho 8muaf; of th. tax VW
in dlroot ratio wltb tha urket prlocr af tha oil n~rdlesm or
whloh prodwers or what produou moeives lwh prloe, The
peroent8go to-8     la oonstaat and th8 SMS for eaoh pmduoor,
whZle Oha mullet  prloo for oil WA the Aifianat llemmntr go-
i8g to Mks up that mukrt prioe w      ohango ttcm dy to day,
from math to msmth, 8aA, in a 0880 lib this where 8 dltier-




            The view here oxpresead find8 by 8a8low ruoh support
       the  ldjubloated  deoIrloas both la state end tedornl j&iris-
dlot
-7    on, a rbw at wbloh are sltul heralmiter. Tbur we are
brofi@& to ee88Ider rhstbcr    or not the State Of Texas In o~lleat-
iog~thlr tax uy be mm14 up00 uar        ouaA* tok‘IarrInglug upon
m~,nfedor@l   st8tutory or oonatltut f on8l,problbItloaor llmlba-
     .
          But first let us dIgres8 for a mommnt to exemla0       '
briefly the natrue or this tom& of taxation. The kgI8lrture
in ezlaotlpclit oalled it 8n oooupation tax. A ?*
Civil Appeals in State vs. fluagbny,159 s.'R.(2aF”!6::%.%ir
it to be an oooupatlontax. T e Supraw Court or Taxas in
2tatc va. Bumble Oil IltHerImIagcompany,169 S.W. (26) 707,
whlla not stating  8poolfIoall~what kind of tax that oourt Asomod
It to be, reforrbd to it repeatedly as a "@o@@ prodwtiiontax",
and, lndsed, tha beglrlatura lteslf la Article 6Gj2, V. A. C. 9.
mentioned the (rot88 th*       * r88eint yeas    rsoelpts    produotion     tax
on crud.     petrolma". It aEould ha noted, howMm)I, that Artlole
6032 wos enaottd  by tht Leglrlaturw rlor to tha amen4manb of
;,rtlole7357r  whfoh gave to the aot Pts present  form. *bile
the Suprem Comt of the Ynltad :jtatos1~ Beklse, et al TO*         '
.';bsPmrd, 299 U.S. 33, in holding this aOt to be @Q=titutg‘=al,
                                                                                   706




II-
  ~‘~.I!onorsble
            2:".            ?i.    Shappard, p. 6


   referred in different part8 of its opinion to the tax as "an oo-
   oupatlon tax", a *gross prodwtlon taxw, and an *exslse tax”.
   By whatever nams the tax msy bssalled, it Is aotually, in terms
   of aomm~n ualerstmdng, ati by ths weight Of suthorlty, a tax
   on the oooupation of produoing 011, a tu plaotd upon the business
   or the privilege of severing irointhe ground s nstural resourss
   of the Stat. of Texss.
             hn sxhsustlvesearoh tor prcsedant-8 bsaring upon ths au-
   thority of a state to oollsot tax. a psrt of the measurement of
   whioh la a federal mtibsldy slmllar to the one under disousslon,
   unoorered no oaoes directly In point.   The season fer this seas
   to be that the question is so nsvel that It has not besa pn-
   asntsd to wy oourt in the iom found here. %‘hs neared      psrallrl
   to rush a subsidy la round in an aot pasaed ,bythe UaJtsd States
   Congrsss on Octobsr 1, 18$fO,whioh prorid. that thbM'~Lhould bs
   pa14 to the greduoer or sugar,or a oertain grade ?rsm osrtaln
   probeta within the United States a        o? 2# per psriaff.
                                                     bounty     rbs
   question whathar thaes bounty provisionswere oonstltut$om~~~as
   raised     in   the Buprene        Court   in Field vs. Clark, 111.,12,8. CL   495,
   lL,3 U.S.649, 36 L. Ed. 294. The Suprsu Court refuss$.tomle
   upoa the oonstltutlonalltyor the88 bsuntles, and the kc?twa& re-
   pealed by Congress two yearn later. Soms state sourts, hOwevar,
   have held sI*JL+r sugar bouatlssto be uneonstitutimal  under state
   oonstltuti~ &s takiw pub110 money tor a private use. This is not
   ths   proper     plase         to rsise s question as to the osnstltutionslit~ of
  the subsidy payments here belog oonsidered.    It, hwever, they
  should be held to be u.noonstltutlO~sl,they vsuld then be taxable
  by ths state upon the authority or the Suprsme Court of Uississippf
  rhloh he14 In Chapman vs. State, 179 Yiss. 507, 176 80.~391 8hst
  payments wee te a isrmer under the afterwards-held-usoast~tutlo~al
  Agrlo*ultural Adjustment hat were propsr obdeots for taxation bye a
  b!ls~lssippllaooms tu law.
            tiy olslnior statutory axemptlon rrom taxation of th,
  premium payments would be foundad on the authority of the Act o?
  January 22, 1932, Ch. 8, Sec. 10, 47 Stat. 9 as amendsd by Aot
  or June 10, 1941. Ch. 190, 55 Stat. 2k8, dealing with exemption
  0r property 0r iieooastruotionPlnsnoe Ootporstion tram taxation.
  The lpostpsrtlnent provlaionsor the Ast are quoted!
                 *The oorporation. . . shall be exempt from all
            taxation now or hsreartsr lmposs4 by the Uaited States
            . I . or by any state, county, muaioipality,or loaal,
            texlng authority. . . .
I

                                                                                                 707



        I?onomble Ceo. H. Sheppasd. p. 7


                      +hi ars&lons provided for in the prsosdln(l
                 stnteaoewith respect to tustfoll shall b8 sonstrurd
                 to be ayp2losble. . . . with reamat to.        . . the
                 3efense Supplies Corporstloa. . . .*




                 In o a ses
                          wh e n llallsr
        sldlsshate been mdo, both the
        the COW of lut r08o&t ha+. M rate4 ug~8~8r                      m
        analogous prsmiums or rulsl4les       a the hsa4s     of the *rpyer            es-
                                          180. vs. Qorr. 0r xaa. IhsalIs 124
                                          msfl oantnrt fn rillrtndf l WI&
                                           vs. Ooum. of ht. Bnamm, 135 F.
                                          ?ed*nl ~**mstim~ Oaaor Boll Conser-
        ration aad ZkwmotloA~letasmt Aot)t Taxas and. %eiti@ Ry. 00. Ts.
        United Btateo 2sS U.S. 265 (amstintpaid to rallrsadby Yedeml
        Goremment m4er Sestloa   209 of the TraasportatioaAot ot 1920).
                     These oases lr, 8ald to Lo no0 ia o&Liot               wlDh,but
        dlstlagulrhsbls      frem a ooatrrrfloasluqloa      ia .Muav&        vs.    CPbs
        Rallrwd Gompany268 U.S. 626. mo lbs oi              ~~tiMtloa              is tin.-
        ly dnm      and ir   bassd upon the dofinlt~ion
                                                      0f'~tioe11*.
                  Si8ilSx  80 fOd4rti sub&Alu gZz,~~tWg8~~~~                        sage
        Oorenuuat  ukdsr  prwiriena     of not tar,
        xorld War. 8r 8pHSfiO       federal uaotmnt    these.
        stated by Coognus to ba urspt       Wan tus%lti.      ~~:lzI'                      the
        SUQMM Court of Xorth Ouollna in Hwtln ts. Wllt'or4 Cow&,       et
        al, 158 S.E. 667, uad Ln Lsabsrt ts. Gtillord Uountf, 156 8.L 849,
        held that suoh ubmptioa did not sstead to the psMesds ot sat&
        moneys in ths hasds of the retsxaas.wbdthat whan Ohs Rose ha6
        been paid ana the   iatiti bad acquired full an4 wimstri0 Fld tit10
        and oontrol them?    snd lnrestsdin ansth*rpnwsrbr, that Prop-
        erty was terable by'the county 03 state. Theso oasu bid not resoh
        a federal sourt.
                  In like manner prosee4s CM war rlsk lnsurB~~e~~yR~4eral
        enaotaeat at0 8paridy      sxemptedWoe taxntlcm
        r;ohaafru 130 nlao. b36, 224 N.P. Sum.   305, 55 A-I..& 613 it WWJ
        heI4 that prorisioasor said aot rolatlng   to the sxswtion  from




    i
      -.


 Honorable   Sea.    ii. Sheppard, 2. 8


taxation af'Insurenor, payable thereunder, do not exemptthe amount
paid to the aatata of the insured from the State Trsnafer Tax, but
the axenptlon applies only while euoh moneys are In the handa of
the Nted Ctetea, and does not extend to oover suoh moneys atter
they have actually been paid to the baneflolary. It ua8 further
held that cren If the exsmptlon applied to the prooecds of lnsur-
anoe In the hand8 of the beneflolary,it would hot exsmpt suoh
pproouedafrom the transfer tax. The prorIrIon   exettiptlng progarty
from taxation ?id not exemptsthe tranarer thereof, upon the death
of theoumg,         droolthe suooearlon or traaafer tax, the exemption
applying to taxation of the property it8elf. end not to th elxolss
or prIrIls&e taxes lapo8ed upon the transrer thsreoi.
         If the first purchasersor the oil u.Bderthe pnliur
        plan, in ps~yingtheme aubsldlos t0 the prod~@sr for whloh
ptIyLfi6nt
they am ln turn oompensated for the prem.lumpsyasntr by Detsn8s
Gupplie8 Corporation,811agenoy of the Feberal @otornment, wsre
oonelbsrad thereby to b8oomeoontraotors with the Frdsr81 Oovun-
merit,they would BOt, oooord~ to the ro8t reoont ruling by ths
Supmae Court of the United.Stete8, broaurr Of suoh relstionshlp,
be rreed 130~ the ertsot of thls r0m of taxation. The tax 18 not
laid on ths purshsser.  It la on ths produoer. Ir ho b\y8, the
puFOha8er 18 raqu!red to pay tho:purohass prioe SVSB ~thougbsuoh
payment 8kIghtresult In sn Inore88e in the ooat 0r earrylllgout
hi8 tsderal oontraot.
         The United State8 Supreae Court ONJOS upouodl~    thlm
prlnofple hare an lntere8tlu history. In 1928 in P8ahaDdlo 011
Qompanp vs. Y188188lpp1, 277 U.S. 218, th8 Qourt in s M Orlty
oplnlon written by Mr. Ju8tioe Butler h8lb that ths Yi88 3.
                                                          saippi
Oooupatlon Tax on the sale or gasoline measumd by the number oi
gallons 8old oould not be oolleoted iron a aontraotor *ho rw-
nished gasoline to the UnIted States GOa8t DUard md to a #oteraB8*
Hospital because such a tax tight plaoe a burden upon a redersl
lnatruamtality by inoreasingthe oost Of the Qontnot.           In thI8
e+se tlieCourt found itself 8harply ditlded $ to b. Hr. Justloe
Holmes wrote one of his great di8mnting OpInIons In m&oh he ra8
joined by Er. Jwtloe BraIidei8and Mr. Sustioe Stemi Mr. Justioe
XoRsynolda tiled a 8eparata dI88sntIng opinion. Beoause the rIew8
expreaaadby Lr. Justice Holmes later beoame thoee of the Court,
we quote hers a pert of al8 dl88entIng oplnlonr
         *It 8eerzsto me that Lhe state oourt wei8right.
    I should aay plainly right, but for the efteot or oar-
    taln dlota or Chief JuFtloe Zarrhall which oulmfaated
                                                                       709




      In cr ratLc~:r were,rounded upon hi8 oft-quoted prop-
      oeltlun th,:~t tha ;)owerto tsx 18 the power to deS-
      troy. . . “he i.‘Crr;Grt::: t<.X fS AOt tbF power tG df3S-
      troy wLlls ttle ootrt 8It.s.. . dhOA the gorerfm#nt
      OCUhGsinto a state to purohase, i do not yeroelre
      why it should be entltlcd to etanddlfforentlpfm8
      any othrr pumbasrr. It eVai it8eit of the arPohlnery
      rUrBiBhed by the &ate,        md I 60 not 8be why it should
      not OOBtribUttr in the mm8.0 OQortlOA that 6Y* other
       AMha88r oontrlbuterfor t re prltllege8that1z u6e8.
      Pt ha8 no better or other right to um thu than any
      one ll8s. The ooaa 0r KQaiBtaiAiB# the sate that
      make8 the bU8iA.88 possibh        f8 $l8t 8s nsor88uy aB
      el.ement in the 008t 0r produotlon       a8 labor or 0081.
              1 am BOt SW N that the hW8id8nt,        She aeabera of
      ~O&SSS,   the Ju4la iary   or,   to OOY   nearer ,$o the
      OaI* la hand, the Cosst Guard or the OttiOhl8 6r th.
      VeteranI* Xoospltal,beOAU8A they l r* Inatrtrrr8ntalItls80r
      goremann aml oarnot funotion nahd ana unfed, hitherto
      have beon beld eAtitle6 to hare b&l18 for icw6 anO
      O~othlA& out a0m 80 .t8ras their butohers aad tafior8
      hare beon t8x.d on their 8ale8; sad 1 hare Aot 8~ poeed
      that the butoh8rs and tailors oould omit  tram the1r tax
      returns all rcmelpta from the large ola88 or eu8towra
      to *blob I have roterred. . . .*

         OA Roteaber 10, 19bl la Al8bum ~8. Kiaq sad Booaar,
)U      1, 61 3. Ct. 63 the hited
     U.S.                            Btate8 Suprou Court la a
         OpiBiOA 8pSSitiOsllyOVOWllhd ~SBhUdlO V8. fiS81881pp1,
UB8A~iSQUS
8Up-, and amtber 0a8. ba8.d UPOA  it8 authorityad h&l,
             (1) "The oon#titutioaat     ivuplty of the Utitecl
      State8 ima etete tuu6lon 18 not inrrlaaea br tha
      lxaotlcn or a S81e8 tax, with rhI8h tb4 seller I8
      ohargeablebut whloh h8 18 luQulred to OOlhOt irOr
      8 buyu,    la re8peot to iuiterhl8    pUrohrre6 by a OOB-
      traotor   with thr kited   Stat&a 011 a Oost-plU8  ball8
      for ume in oekryliq out hi8 oontraot, AOtWlthlrtand-
          the eoonomlo burden of the tax 18 borne br the
         ted States and AotwithstaAdlAgthht under the oOIi-
      traot,, title to buoh aatsrlals paseed to thatUnited
      States on ahlpment by the railer . . . aAd
           (2)  “I%8 COA8titUtiOA  Of the unit@6 Stat88 Uo-
      aided Py oongres8fonallel&1816tiOnv   dOa8 ~3% prohibit
      n0ndIrorlmlaetoryrtate texatioa 0r oontr*otor8    with
      tba United States merely baoaus8 bht burden I8 PuoS@I
                     , by the tc;n;ur or ths oontraot or
      on eoononrloally
Ecnorable 000. Ii.Sheppard, p. 20


     ~thbwiae, aa part           of   ths oonatruatlon   oost   to the
     fgorernment .”

             ~,uotingfrom the opmon            or the court:
                              In the prcreenttranaaotton en-
                      partloipants
     507 t&*a~oh            tax immudtp
                                as 18 affordwl   by the COII-
     8titution itsar. . 50 far as suoh a aon4laorlmlnator~
     state tax u 0 the oontraotor antera into the ooat or
                 a to the ~overment, that la but a normal
     the mater18p”
     laoldent of the organisatlonwithin the saao tcrrltory
     of two independent ta r ing
                               lovarelgrrtiea  the aasort-
     ad right      OS the     ona to bo irae of tautlon    b U&other
     do.6    not   SpSll     impliurity rrOR pyin& the add A
     lttributabla          to ths taxation of those rho first a$
     ply to the gowrnment and *ho hete bean grant&d no
     t6s    iRRun1ty.     So far as e differsat    rlw   has pra-
     railed see Panhandle 011 Conpaw va. Ylsalaaippl aad
     ;;:~.a     vs. Toxaa Cola ny we think l,t no lo
               Saa Uatoalt   an&d&y va Nltahell z69?%          ‘E;
     Trlkty Ymfa Conatruotlona0rr.w             VS. ur~ajatG i91
     U.S. 466$ James *a. wave ConPraotla6 Comp8ay 302 U.S.
     13L; Eialrerlng     vs. Gerhedt   3Ok U.S. 605; Wares vs.
     N. Y.    306 U.S.      466.”

           Closely lalogous to this tw upon tha bualnasa of pro-
duolng.oilln Tsxea are franohlae taxes qacted by almost orsly
state  in the Union from domeatio and forSi@    aor oratlona ror the
prlrllaga o? doing businaaa uithln thalr reapaotPta jurladlatlona.
:‘.uohl’ranohleataxes arb PIIa rule baaed upon a
mule just as the tex hare un&r dlaouaalon    la
mule. &any of the formulas employed include
of maoauromentupon whloh the tax 18 baaed, lnooma from federal
oontraota,funds vhlch lro raoaived fro@ tadcrralagenoi~a or fed-
era1 lnatrumentalltlea eeralnga fros foderol oop@gbtr       0;~gapi8,
end intersat on l’aderaitax-orea t bonds or obllgat:ona.
a long line of Suprame Court de0Palona upholding there various
forraaof taxation and holding that suoh nondiaorlminstorytaxation
plana whlah may include any or all. al the above-enumerated,faderal
sour008 of lnoome rlthln their taxebls base Jo not pleor any pro-
h:bited purdan upon the lredernlGovernumnt and do not rlolste    any
actual cr Implied prorlalon of the Federal ConaLltution.
          z~uoationallllms Corporation  or msrarloavs. ‘#ard, 282
U.S. 379 was a oaae involving a franohlar tax, one of tha types
hatilnabovereferred to, and In UoioJ32ng It the Court 1814 down
                                                                      73.1


n:,nortibla
         Gso. H. :ihs;::pard,
                          P. 11


the f~llcwlng rubs:
          1. ..rr.-,umln
                       thct tedersl prop*rty rights and lnccms
tiJererrbmare lnmunc froa ttatc thxstlon (LSIi~otrum,cntt~litit-s
ot the Xc&era1 5overnment the tex here, insofar ee mesrurad by
                        t royeltles la not void a8 6 tiixon
:~~~~~~r~~t~~c.~~~Gt~a.

          2.  The etato power to ter oorporlrte  rranehlaea and
the Immunity or federal Inatrumentalitlssrrom tnxetfon, should
be &lren such S praotioal cunatructionau will not unduly restrict
the ower of th6 orernment 110oaln tho tex, or the axerolse of
                                    '9,may be alfeottd
the P unctions of fhe governmenB whlo                  by It.

          3.  There la a logloal end preotioal dlStlnotlonbetween
tht;tax luid dlreotly upon all of a olaea oi govbrnment lnstrumsn-
tallties whioh the Constitutionlmpliedly torblds knd S tax Suoh
68 the prmont, whloh oen In no ouoe ,hSveany lnofdenoo unless the
taxpayer enjoys S pririlegowhioh is a yruyor objoot or tnxetion
.   .   .    .

          In arriving at the oonoluaion sot out next &ova the
Court wrote as follows:
                   wiserar es lt aonoorne the power of e atata to
            impose e tar on oo gr;~;efFaaohiaan the problsnr
            ha long oeesed to 'g            Xblle thin Court Slnoe
            li.cCullooh vs. &a land, r(&ret     316 has conalatent-
            ly held that   the7:nStr~ntSlltfS8 0P either got-
            ernment or tho Income derived from thara ms not bo
            maJe the dlreot obJeot of tarntlon by the of her, . . .
            it hes held with liiceoonalaknoy thet t,haprlvilaga
            0r oxaroialng tbs oorporate rranohlsa is no leaa en
            approprla,te  objeot of teratlon by one government
            merely beoailsethe oorporate property m net 1noomS
            whiah 1s madr the measure of the t&x, mey ohsnoe to
            include the obllgetioaa ot the other or the inooaa-
            ~larivedfrom thain. Tha oonatltutlonel ower of ona
            government to rsaoh thia potieaible       eat.ot tnx-
            &Ion ney not be ourtelled beoause of t e 1nJlreot
            effect   whioh ,thtjtax may hmo upon the other.
                  "Tireprecise question nov presented wae doff-
            nitely  tmawercd in FlIAt YS. Stons-Treoy Coapa4, 220
            x.3. 107, hiOh Uc,helb#Afddrr8l ti%X,bVi6Pd Wn      a
            oorpcrate frSnohlaa granted by a ntuto, but mo~aured
            by ths entire oorporate lnoona :noludlnti.In that o&se
            lncorae from tax-exe&,pt munlolpal bcn4&. Ia restohia6
IionorzbleGeo. Ii.Lihep;mrd,p. 12


     th;e oonclusion,  the Court reafflrvadthe dlstlnotlw,
    roptietedly  aede In earlier dsolaloAs,between 6 tsx*,
     invalid beoa4ee laid Ilretatlz on governmentallnetru-
    ~mcntellticsorJhaoareIerlved from it, and an axalas
    wblah 1s ralld beoause 1mpo.e.doa corporate fs%nahls.s,
     even though the corporato  pm&w%y or lnooa~t whiab LB
     tire F M ~SUTS       .xlabrraaas tax-erampt
                  o f th ete                       ssaurltise
     or th*:lrlnoome. Sea Soolety for Savln~a v.. Colt.,
     6 3.11. 596; J3-ovldsatXnetltutlon v&i.Ymse., 6 311.
     611; Hamlltoa Co. vs. Mdn6, 6 %a11 632.
          "Upun a Ilk. rlnoiple      otbcr forma of srolee
     tax hev. been uph.Ed, nltbwgb       the statutory me&sure
     of thr?tex lncludee seourltleaaonatItutlonal1.y       lmaune
     from any form of 3lreat tazution.       & 6t.W inbacltsnae
     or a legaoy tax la valll, altheugh ineosuredb the
     value ol'Unltsd Stetes bode whleh ere traallmir    tted.
     rlumor  vs. Colts, 178 U.6. 11      By parity of rba-
                                    . levied by . state
     rronlag8n lnh.rit.aao tax say 8.
     on P bequ et to the Unitbd Steter U.S. ~8. Pmrlcins
     163 U.S. 825 and by the United St&es    on . bequest to
     e munlalpallty. Snyder v.. Bettam, 190 U.S. 249.
     ~lmll.rly, state laws taring to etoakboldar. at full
     value stock in net~onal baab, am upheld although
     the banka own tar-except United St&tar:bonds. Van
     Ellen vs. 4.s~ee8om, 3 :sall 573; 1’60. vs. commlsslonera,
     l4xau. 244.
           mThle Court,   in drawl the line *h&oh della.
     the limits  of the   powers an
                                  3 iaauniti%s Or state
     and national                ia not intent upoa P me-
                                the ml. th.t gov.Wnt
                          are immune IIWB teratloa, regard-
     1s~ or tiieoonecquenoesto the oparrrtlon      or the
     government. T&e neeesaltp for merklog those bound-
     urles   rowa out of our ooaatltutlone~eyetea,     under
     which tl0th the Pedersl &id ?tat. Gov8rnment .x~lWlE.
     their euthority over on. psapl. aLthin tbeterrl-
     tori.1 llmlts OS tba 11s~ stete. The purpose la the
     ~rrrt~~W.tTOAt@ c~aeh~OV.rnsl.Cit, WlthlA ltL3own
     sptrere or the Freedom to 00rry   OA those aTfairs oom-
     al’;tedto it by the Constltutlonwithout undue in-
     terferenceby she other. k%cCulloch98. &caryland,sWr.;
     The Collector VIM. 2fgg,11 3~nll.113, 125; Haflroad
     Crmp0ny v5. :enintc;n,  18 ‘.:all.5, 31; Zouth Carolina Vs.
Honorable Geo. H. Sheppard, p. 13


    United States, lyy U.S. 437; 461; Flint vs. stone-
    Traoy Company, supra."
There is no denying that in some instances the decisions are oon-
rli0ting. This is mom true of earlier dealalone than of the later
ones. No area of absolute oertalnty is to be found on the border-
line of oonfllot between the state and federal jurladlot:ona In
matters of taxation.
         However, the weight of authority, reinforced by the dla-
tlnotly discernible reoent trend or the Supreme Court to liberalize
its viewpoint toward similar taxation plans, upholds the validity
of laws levying and measuring taxea by the method used by the.Legls-
lature in its enaotment of Article 7057a, V. A. C. S.
          You are therefore advised that in our opinion:
         1. The Legislature intended to lnoludo within the measure-
ment standard upon whioh the tax is based suoh premium payments or
subsidies as those desoribed in your letter.

         2. The state has the power to exaot psyment of taxes whloh
lnolude within their measurement formula these premium payment8 or
subsidies.

         3. In providing ror suoh taxation the state has not ln-
fringed upon federal statutory or constitutional prohibitlone or
llmltatlons.
                                    YOUB   Very tidy
                                .
                                    ATTOBBEY GENERAL OF TEXAS




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