                               RNEY         GENERAL
                          CD         EXAS




Honorable Robert S. Calvert
Comptroller of Public Accounts
Capitol Building
Austin, Texas

                               Opinion No. M-83
                               Re:   Whether corporations created
                                     for the purpose of providing
                                     TV cable services are requir-
                                     ed to pay the gross receipts
                                     tax provided by Article 11.02,
                                     Title 122A, Taxation-General,
Dear Mr. Calvert:                    V.C.S.
       You have requested the opinion of this Office on the
above captioned question. Section (1) of Article 11.02, Title
122A, Taxation-General, Vernon's Civil Statutes reads, in part,
as follows:
           "(1) Each individual, company, corpora-
      tion, or association owning, operating, managing
      or controlling any telegraph lines in this State,
      or owning, operating, controlling or managing
      what is known as wireless telegraph stations,
      for the transmission of messages or aerograms,
      and charging for the transmission of such mes-
      sages or aerograms, shall make quarterly, on the
      first days of January, April, July and October
      of each year, a report to the Comptroller, under
      oath of the individual, or of the president,
      treasurer, or superintendent of such company,
      corporation, or association, showing the gross
      amount received from all business within this
      State during the preceding quarter, in the pay-
      ment of telegraph or aerogram charges, includ-
      ing the amount received on full rate messages and
      aerograms, and half rate messages and aerograms,
      and from the lease or use of any wires or equip-
      ment within the State during said quarter, ...
      Said individuals, companies, corporations, and
                            -370-
Honorable Robert S. Calvert, page 2 (M-83)


       associations, at the time of making said report,
       shall pay to the State Treasurer, and there is
       hereby levied upon said individuals, companies,
       corporations, and associations, an occupation
       tax for the quarter beginning on said date, -a.'
       We think that a determination of whether corporations which
provide TV cable service are subject to the provisions of Article
11.02 requires a detailed examination of the facts. The following
is an excerpt from one of the briefs submitted in connection with
this request.
            'IE. Stratford Smith' in his March 7, 1967,
       position paper entitled Legal Status of Communit
       Antenna Television Systems Undmeral -----+
                                                and S ate
       ming       Statutes, writeszomn           this con-
       nection:
             1)t . . .

            "'A community antenna television system is a
       facility utilizing a receiving antenna or antennas,
       connection wire, cable or relay facilities and as-
       sociated equipment, for the reception by subscrib-
       ing members of the public of the signals of one or
       more broadcast stations.
             "A community antenna is, as the term implies,
       a master television receiving antenna erected and
       designed to service a community, or such part there-
       of as is practical to serve, or as may have a re-
       quirement for the service. It is technically and
       functionally analogous to the master antenna systems
       installed in apartment houses and hotels to permit
       service to part or all of the apartments, rooms, or
       suites by means of a single antenna system. Gener-
       ally,  community antennas are found in areas where,
       because of the interaction  of topographic or geo-
       graphic or structural conditions, and technological
       and economic factors, reception of television signals



1.   Former executive secretary and general counsel of the
     National Community Television Association, Inc., and
     now senior partner, Smith, Pepper, Shack & L'Heureux,
     1101 17th St., N.W., Washington, D.C. 20036.
                          -371-
Honorable Robert S. Calvert, page 3 (M-83)


      by conventional antennas is either: (1) non-
      existent, (2) of unsatisfactory quality, or
      (3) possible only with the aid of costly, tall
      and sometimes unsightly roof-top antennas or by
      means of antennas placed on high elevations or
      other suitable locations. For example, distance
      from originating stations, intervening obstacles
      such as mountains or high buildings, poor ground
      conductivity or seasonal and other changes in
      atmospheric conditions can often impair or make
      impossible good television reception. Where such
      conditions prevail a master community antenna is
      erected at a suitable loca,tion,usually on a high
      elevation or the top of a very tall tower erected
      for that purpose, where reception of the signals
      of the desired stations is available in sufficient
      field strength to produce good quality pictures.
           “A coaxial cable or other type of antenna
      lead or run extends from the antenna to the’area
      of community to be served where connection is made
      with coaxial or other wire distribution lines
      which, in turn, serve the individual subscriber
      “house drops.’ The antenna lead and distribution
      cable facilities are generally supported on elec-
      tric power or telephone utility poles for which
      rentals are paid under contract with those com-
      panics, In a few cases these facilities are placed
      underground or on privately owned poles. Easements
      and right-of-way to use streets and alleys are
      generally obtained from the municipal governments.
      In a limited number of cases these are exclusive
      rights, but for the most part are not.
           “‘Describing the technical function of a
      community antenna system generally, the signals
      received from the distant stations, as well as
      from local stations in many instances, are re-
      ceived at the master antenna and passed through
      amplifying equipment at that point and at appro-
      priate locations along the antenna run and distri-
      bution trunks. This procedure is employed to main-
      tain adequate signal strength for the signals to
      pass through the system to the television receivers
      in the home, and to produce acceptable or better
      pictures on those receivers. ...
                           -372-
Honorable Robert S. Calvert, page 4 (~-83)


            11 I
                   0..



            “‘Community antennas are capable of re-
       ceiving the signals of more than one station
       simultaneously. As a general rule, antenna
       sites are selected where the maximum number of
       nonduplicating and noninterfering television
       channels can be received in sufficient strength
       and quality to produce acceptable pictures. The
       antennas are designed and oriented, when install-
       ed, to receive the desired signals and to reject,
       to the extent possible, the undesired channels.
       Electrical interference can be caused by the chan-
       nels on the cable radiating outside of the con-
       fines of the cable into the same oradjacent chan-
       nels which are being received directly off-the-
       air. In order to minimize such interference and
       permit the compatible operation of CATV systems
       with direct off-the-air reception, the Federal
       Communications Commission has promulgated spe-
       cific rules and regulations applicable ,tocommun-
       ity antenna television systems to limit such “in-
       cidental radiation.” Thus, by Order adopted July 11,
       1956, the Commission adopted Subpart D of Part 15
       of its Rules and Regulations applicable to “Inci-
       dental and Restricted Radiation Devices,” entitled
       “Community Antenna Television Systems.‘I”
       .Let us examine the plain language of Article 11.02. The
specific individuals, companies, corporations or associations
subject to this tax are those “owning, operating, managing or
controlling any telegraph lines in this State, or owning, oper-
ating, controlling or managing wha,tis known as wireless tele-
~~~p~~~i,“h~u~,‘~~~~~~si~~~,“~r~~~~~~~~~~~do~o~e~~~
purpose of providing TV cable services are not providing the serv-
ices above quoted. Rather, the occupation in which such corpora-
tions are engaged is an adjunct to the occupation of television
corporations operating television stations. Therefore, under the
plain and unambiguous language of the statute, TV cable service
corporations are not subject to the occupation tax imposed by Arti-
cle 11.02.
       If we be in error in so grounding our holding, and if the
statute may properly be subject to construction, the law has long
been settled in this State that ambiguous tax statutes must be

                             373-
Honorable Robert S. Calvert, page 5 (M-83)


strictly construed in favor of the taxpayer and that the courts
will not extend the scope of a taxin statute by implication.
54 Tex.Jur.2d 166, 167, Taxation, B Jf
                                     1. The authorities in sup-
port of the foregoing propositions are legion. Western Union
Tel. Co. v. State of Texas, 62 Tex. 630 (1884); Philtex Chemical
Co. v. Sheppard, 219 S.W.2d 1010 (Tex.Civ.App. 199   error ref.,
n.r.e.)* Calvert v.                     346 S.W.2d 420 (Tex.Civ.
App. l&l, error re
Comm. v. Bass, 137
Oil & Refining Co.,
n.r.e.).
       We are aware that this Office has held in Opinions C-702
and C-702-A (1966) tha,tTV cable corporations are within ,thepro-
visions of Article 1416, V.C.S., which authorizes corporations cre-
ated for the purpose of constructing and maintaining magnetic tele-
graph lines to set their poles, wires and other fixtures across
public roads, streets and waters of this State in such manner as
not ,toincommode the public. Opinion C-702-A expressly modified
C-702 in so far as it contained statements to the effect that TV
cable corporations are public utilities, but adhered to the result
reached in C-702 on the ground that such corporations are subject
to regulation and that this regulation was limited to the exercise
of the police power of the State.
       Various cases are ci,tedin C-702 in which courts have held
that television transmission is an integral part of the telephone
and telegraph business regardless of the type of system used, i.e.,
coaxial cable or ordinary telephone wires. These cases were con-
cerned 2ither with the jurisdiction of a State Public Service Com-
mission or with eminent domain problems.3
       Whether a particular State Public Service Commission has
jurisdiction of regulating the transmission of television broad-
casts by wire depends, of course, upon the pcwer of regulation
granted the Public Service Commission under the State laws.
       The statutes authorizing the extent of the jurisdiction of
the New York Public Service Commission at the time of the decision


2.   Independent Theatre Owners v. Arkansas Public Service
     a.,    235 Ark. bbti, 361 S.W.2d 642 (1962).

3.   Ohio Tel. & Tel. Co. v. Steen, 85 N.E.2d 579 (1949);
     Ball v. American Telephone and Telegraph Co., 227 Miss.
     218, 86 So.2d 42 (1956).
                            -374-
Honorable Robert S. Calvert, page   6   (M-   83)




in Cerrachi Television Corp. v. Public Service Com'n, 267 N.Y.S.
2d 969 (Sup.Ct., Albany County, New York, 1960), authorized the
regulation by the Commission of the business of affording tele-
phonic communication for hire. The court held that a telephone
company's rental of pole space to the television corporation which
was engaged in the business of transmitting TV broadcasts over
wires to customers was not part of the public service performed by
the company in the business of telephonic communication and, there-
fore, was not subject to regulation by the Public Service Commis-
sion. We quote the following excerpt from pages 972-975 of the
opinion:
           "The business of the petitioner is of re-
      cent origin arising from the rapid expansion of
      the television industry. Patently the picking
      off-the-air standard broadcasts of commercial
      television stations and by amplification trans-
      mitting 'thesame over wires directly to the house-
      hold patron is not in any sense telephonic com-
      munication. Basically, then, the petitioner's
      business is not 6ubjec.tto the jurisdiction of the
      commission as the statutes are now written. Whether
      such an industry should be regulated is for the
      legislature and not for the courts.
           "The petitioner argues that since the company's
      poles are, by statutory definition, (Public Service
      Law, fi2, sub. l8), a part of the company's 'tele-
      phone line' and since the commission has regulatory
      jurisdiction over all telephone corporations and
      their equipment, the poles and the use of the poles
      by the attachment of the petitioner's facilities are
      subject to the commission's regulation. The petitioner
      argues that since the poles and the attachments fall
      within the regulatory sphere of the commission that
      the commission should assume to regulate the charges
      for the attachment of petitioner's wires thereto.


           "The rental of the pole space by the company
      to the petitioner is not part of the public service
      performed by the company in the business of telephonic
      communication. (Matter of Gamewell Co. v. Public Serv-
      ice Commission of State of N.Y., 8 A.D.2d 232, 188
      N.Y.S.2d 107, leave to appeal denied 7 N.Y.2d 706, 195
      N.Y.s.2d 1027, 162 N.R.2d 754). such a non-utility
      activity of a telephone company is not subject to regu-
      lation by the commission. (Matter of Solomon v. Public
                               -375..
Honorable Robert S. Calvert, page 7 (M-83)


       Service Comm. supra. Matter of National Merchan-
       dising Corp., supraj ."
       It is evident that entirely different rules of construc-
tion are applicable to statutes pertaining to the regulation of
television service corporations and their powers of eminent do-
main, and that these rules cannot'be applied when a tax statute
is being construed.
       The source of Article 11.02 was Article 7059, V.C.S. Arti-
cle 7059 was last amended by Acts 1945, 49th Leg., p. 471, ch.
299, 131, and was brought forward unchanged as Article 11.02 in
the recodification of the tax laws enacted by Acts 1959, 56th Leg.,
3rd C.S.; p, 187, 'ch. 1. The 1959 codification is carried in 2OA,
Title 122A, Tax.-Gen., V.C.S. Since TV cable corporations were in
existence'at the time of the last amendment of Article 7059 and at
the time ~of its being carried forward into Title 122A, it must be
assumed that, had the Legislature intended to tax such corporations,
it would have done so. Section 3 of Title 122A, enacted at the
time of the codification of the taxa',tionstatutes, reads as follows:
            "This act shall be construed to make a sub-
       stantive change in the prior-law only where the
       language of this act manifests a clear intent to
       make such a change."
        In Humble Oil & Refining Co. v. Calvert, 10 Tex.Sup.Ct.
Journal No. 23, p. 254 (March 15, 1967) the court was concerned
with the question of whether the Legisliture by enacting Article
12.02, Title 122A, Tax.-Gen., V.C.S., in 1959 intended to change the
corporate franchise tax allocation formula with respect to receipts
from intangibles. The Comptroller’s contention was tha,tArticle
12.02 not only codified Article 7084, but also amended it. The
court refused ,to sustain this contention. In the course of the opin-
ion the court pointed out that the only difference between Article
7084 and Article 12.02 was the addition of four subsections which
specifically allocated certain items to *business done in ~Texas.”
The court held thaf'these','subsectionswere'ihsufficient to consti-
ture an amendment as claimed and did not effectuate a change in
the ambiguous phrase “business done in Texas.” For over forty years
the Texas -,rulefor determining which receipts from intangibles
should be al-locatedin Texas had been the “location of payor” test.
‘The court deemed it of importance that the Comptioller had’fiist
asserted the ‘loouunerclaldomiciloH test dm 1963,. At page 257 .of
the opinion, the court quoted Section 3 of Title 122A, above quoted,
and concluded that in the absence of specific statutory language

                             -376-
Honorable Robert S. Calvert, page 8 (M-83)

specifying "commercial domicile," the Comptroller was at,tempt-
ing~to look outside the statute and outside the common law.
At page 257, the court said:
              "Section 3, supra, forbids the Comp-
         troller to look anywhere except 'the lan-
         guage of this Act,' and any change must
         there be manifested clearly."
       Your departmental construction of Article 7059 prior to
the 1959 codification did not include TV cable service corpora-
tions as being within the provisions of Article 11.02. As afore-
said, the 1959 codifications made no change in Article 7059, nor
have you changed your construction thereof to this date. It is
common knowledge that many TV cable service corporations have been
in existence for a good many years. Therefore, even if we were
in error in holding that the plain language of Article 11.02 ex-
cluded TV cable corporations from the tax therein imposed, Humble
precludes any other construction.
                           SUMMARY
              Corporations created for the purpose of
              providing TV cable services are not re-
              quired to pay the gross receipts tax pro-
              vided by Article 11.02, Title 122A, Tax.-
              Gen., V.C.S.
                                  rs very truly,



                                         General of Texas
MMP:ms

Prepared by Marietta McGregor Payne
Assistant Attorney General

APPROVED:
OPINION COMMITTEE
Hawthorne Phillips, Chairman
W. V. Geppert, Co-chairman
Ralph Rash
,JohnReeves
J. Arthur Sandlin
W. E. Allen
STAFF LEGAL ASSISTANT
A. J. Carubbi, Jr.
                                 -377-
