            THE   ,!TiTORNEY           GENERAL

                       OF      TEXAS

                      AUSTINILTEXAR




 onorable Geo. H. Sheppard
8omptroller of Public Accounts
Austin, Texas

Dear Sir:                   Opinion No. O-1870
                            Re: Construction of Article 7070,
                                 Vernon's Annotated Civil
                                 Statutes, regarding the appli-
                                 cation of the tax levied
                                 thereby to gross receipts of
                                 domestic telephone companies
                                 derived~from interstate calls.

           Fiehave for answer your letter of January 22, 1940, sub-
mitting for the opinion of this Department,the following inquiry
and accompanying fact situation,. which we,quote:

           "On May 29, 1935, I made a request of the Attorney
      General for en opinion as to the gross receipts tax in
      Article 7070 R. C. 9. 1925 required of an operator of a
      telephone exchange, and on May 31, 1935 Assistant Attor-
      ney General Rubert T. Faulk rendered an cpinion:as per
      enclosed copy; on September 17, 1935, Mr. Faulk reversed
      his former opinion, copy of which is also enclosed.

           "You will note that Article 7070 RCS 1925 provides that
      the gross receipts tax applies on the gross receipts
      from all business done within this State, from the use
      of other line or lines, telephone or telephones, and
      from the lease or use of any wire or equipment within
      this State.

           "There are several companies operating near the bor-
      ders of this State whose lines are wholly within the
      boundaries of the State. Where a telephone call ori-
      ginates within this State and is transmitted over said
      company's lines to the border, then is picked up by
      another company for some point outside of the State,
Hon. Geo. H. Sheppard, page 2 O-1878




      the Texas company is paid for that psrt of the use of
      their lines within the State, and the company complet-
      ing the call to the destination outside ofthe State
      is paid their commission, and you will please review
      this matter and give me your opinion if such calls as
      outlined would be termed interstate calls or if the
      gross receipts earned on these calls by ~the Texas
      company would be taxable.

           The general rule stating the limitations and restrictions
upon the taxation by a state cf interstate commerce, or the regula-
tion of interstate commerce by a state under the guise of taxation,
is fully stated in 12 C. J. p. 96:

           "It is well settled that a state cannot lay a tax
      on interstate commerce in any form, whether by way of
      duties laid on the transportation of the subjects of
      that commerce, or on the receipts derived from that
      transnortation, or on the occupation or business of
      carrying it on, for the reason that such taxation is
      a burden on that commerce and amounts to a regulation
      of it, and the power to regulate belongs toicongress.
      Indeed, taxation has been said to be one of the
      principal forms of regulation attempted by the states,
      and to be a form of regulation that hes,been uniformly
      condemned by the courts. It is equally well settled
      that the right of a state to tax property within its
      borders is not inpaired or defeated by the fact that
      it is used in interstate commerce, and that to warrant
      interference by the courts with the exercise of the
      taxing power of a state, on the ground that it obstructs
      or hampers interstate commerce, it must appear th&t .the
      burden is direct and substantial.  The difficulty has
      been, and is, to disting$sh between legitimate at-
      tempts to exert the taxing power of the state and
      those laws which, although.in the guise of taxaticn,
      impose real burdens on interstate commerce as such.
      In determining whether a state taxation law is valid
      as imposing a tax on property having a situs within
      its boundaries, or invalid as a burden on, and an in-
      terference with, interstate commerce, the purpose of
      the taxation, or the intent of the framers of the
      statute, is immaterial, asis also the mode of col-
      lection provided. finere a,carrier is engaged in both
      interstate and intra-state business, in the imposition
      of a tax on such-carrier in the interstate business
      must be discriminated from the intra-state business,
      or it must be madecapable of such discrimination,
Ron. Geo. 3. Sheppard, page 3 o-1878




      so that it may clearly appear that the intra-state
      business alone is taxed. Whenever the subjects of
      taxation can be separated, so that that which arises
      from interstate commerce can be distinguished frcm
      that which arises from commerce wholly within the
      state, the distinction will be acted on by the courts,
      and the state will be permitted to collect the tax
      arising on commerce solely within its own territory."

           Under the recognized principle announced above that pro-
perty within the borders of the State may be taxed by that State
despite the fact that it is used in interstate commerce, (Pull-
mann Palace Car Company vs. Penn., 141 U. S. 18, 35 L. ed. 613,
11 Sup. Ct. dep. e76) taxes have been sustained that took ac-
count, not only of the local tangible values of the property,
but, in addition, considered the augmentation of value from the

~~~r~~d~~o~~E~51~.w~~     B~~~~~~~~~~~~b~~~~~~~~f     ii;   $:‘305:
Adams Express Co. vs.   enu     ,       *a        f              9
17 Sup. Ct. Rep. 527.

           Moreover, it has been held that a tax on the property
and business of a railroad company operating within a state,
might be computed, on a gross income or receipts basis, by adding
to the income derived from business done wholly &thin the State,
the proportion of income from interstate business equal to the
proportion between the road over which the business was carried
within the State to the total length of the raod over which it
was carried. Wisconsin & M. R. Co. vs. Powers, 191 U. S. 379,
48 L. ed. 229, 24 SUP. ct. Rep. 107.
           This method of determining a fair and equitable property
tax upon the property of companies engaged in both intrastate
and interstate commerce, by computing same on the basis of a
fixed percentage of the earnings of the property, finds illustra-
tion, as to telephone companies, in'the case of State vs. North-
western Telephone Exchan,Ce Company, 120 S/W. 534. The tax
statute upon which the case turned did not levy a property tax
computed upon gross receipts from intrastate business only, but,
additionally, upon a proportionate part of the gross receipts of
which company from interstate business or commerce. The court
reviewed the authorities upholding similar taxes upon the gross
receipts of railroad, companies, and upheld the tax in the case
before it because it was based upon a proportionate part of the
earnings cf the tel~ephone companies derived from interstate
commerce, rather than a flat per centum of gross earnin-s derived
from any source whatsoever, whether interstate or intrastate.
This latter method of taxation was condemned as violative of
the commerce clause of the Constitution of the United %ates
Hon. Geo. H. jhepnard, page 4 O-1870



in the case of Galveston, "arrisburg and San Antonio Ry. Co.,
et al vs. State of Texas, infra.

            Under the facts here, the "gross receipts" sought to be
taxed, were derived not from tolls on calls originating and
ending within the confines of the State of iexas, but rat'ner
from ,tolls on calls originating in Texas and terminating in
other states, or vice versa, - in other words, in interstate
commerce.   The.fact that the telephone company in question
receives  only such part of, the +?!ls as represents payment for
the facilities and services furnished by it in transmitting
the call from or to the borders of the St&e does not prevent
such receipts from being stamped with the interstate commerce
feature.
           The statute under considerat;on here, Article 7070,
Vernon's Annotated Civil Statutes, contains no language ccmput-
ing the tax upon gross receipts  of In!terstate business upon the
propcrtionate mileage basis recognleed by these cases, but
designates such taxan occupation tax and computes same upcn
gross receipts received by the telephone company "from all
business within this State" etc. Are the "gross receipts"
described above brought within this tax statute, as being de-
rived from "business within this State," by reason of the,;Ft
that the company's lines lie wholly within the State?
then the statute presents the vice denounced in the cases of'
Galveston, Harrisburg & san Antonio Ry. Co. et al vs. State of
Texas, 210 U. S. 217, 28 Sup. Ct. Rep. 638; Rattermanvs.    Yiestern
Union Telegraph Co., 127 U. S. 411, 32 L. ed. 229, 8 3up. Ct.
Rep. 1127; byestern Union 'Telegraph Co. vs. Texas, 105 U. 5. 460,
26 L. ed. 1067; {iestern Union Telegraph Co. vs. Penn. 128 U. S.
39, 32 L. ed. 345, 9 Sup. Ct. Rep. 6.

           In the case of Galveston, Harrisburg & San Antonio Ry.
co., et al, vs. State of Texas, supra, the Supreme Court of the
United States, per &. Justice Holmes, helti Nat the State of
Texas could not impose a tax upon railway companies whose lines
lie wholly within the State, "equal to one per centum of their
gross receipts," where a part, and, in some cases, much the
larger part, of these gross receipts, is derived from the
carriage of passengers and freight coming from, and destined
to, points without the State.

           Likewise, the instant case involves a company whose
facilities or lines lie wholly within the State of Texas, and
a statute which purports to levy a tax of certain per centum
upon the gross receipts therefrom. %ut the one saving dis-
Hon. Geo. H. "heppard, page 5 O-1878



tinction is that we may fairly and properly give a narrow and
limited construction to the words of the stagute "gross amount
received from all business within the State, and say that
same excludes the gross receipts described in your letter, even
though such receipts were derived from the company's lines
wholly intrastate, and might, in a general sense, be considered
as stemming out of "business within the State.   The statute
involved in the above case could not be so construed and there-
fore was stricken down as an unlawful regulation of interstate
commerce.

           In recogniticn of.our duty to so construe a statute, where
possible, as to render same constitutional rather than uncon-
stitutional, we hold that it was not the intenticn of the Legis-
lature to bring gross receipts from the described teleohone
calls within the scope of Article 7070, Vernon's Annotated
Civil Statutes, so as to be taxable thereunder.

                                  Yours very truly

                              ATTORNEY GENERAL OF TEXAS

                                       Pat M. Neff, Jr.
                                              Assistant



 GERALD C. MANN
 ATTORNEY GENERAL OF TEXAS

 APPROVED OPINION COMMITTEE
 BY BWB, CHAIRMAN
