Honorable George I-I.
                    Sheppard
Comptroller of hblio Accounts
Austin, Texas

Dear Sir:                       Opinion No. O-3923
                                Rer Is the holder of a "oontraot oar-
                                     rier" permit, issued under the
                                     authority of the Railroad Commis-
                                     sion of Texas, subject to the oc-
                                     aupation tax on gross receipts
                                     levied by Article ?066b, Vernon's
                                     Texas Civil Statutes, despite the
                                     fact that suah grose reoeipts are
                                     derived exclusively from trens-
                                     porting property for hire or oom-
                                     pensation for the United 3tates
                                     Army, on shipments originating and
                                     terminating at srmy camps, posts,
                                     depots and sites but passing through
                                     two or more inaorporated cities,
                                     tomns or villages?

          Your letter of March 10, 1942 submits for our opinion the fol-
lowing question, which we quote therefrom;

          %rtiale XIV of House Bill No. 8 of the Forty-seventh
    Legislature provides for P quarterly gross receipts taxiof
    2.2% on~bcsiats earned by Contract Carriers and such Con-
    tra& Carrier being identified in Chapter 277, Acts of the
    Regular Session of the Forty-seaond Legislature.

         "This department has been holding that a Contract
   Carrier, operating under a permit from the Railroad Com-
   mission, rho makes hauls between one incorporated town
   and another incorporated town within this State is subject
   to the gross receipts tax.

          "I now have an inquiry from Spears, Taylor & Spears of
    San Antonio, Texas, copy of which I am enclosing, on behalf
    of one of their clients who hauls commodities for the United
    States Army. You will note they state that none of the mer-
    chandise bs picked up or delivered in inoorporated towns or
    cities, but it is my understanding that they may traverse
    through tmo or more inoorporated toaas to reaoh their destination.
          ",Ploesctell me if, in your opinion. the faot that
    the receipts are earned on hauls for the -UnitedStates
    :~reywould exempt them from payment of gross receipts tax
    es provided for in Article XIV of House Hill No. 6 of the
    Torty-seventh Legislature."

          You also attach copy of letter from Spsars, 'luylorend kjpoers,
Attorneys of Sen Antonio, l’exeS, pointing cut that the hauls made by
the contract carrier in question era not picked up or delivered in in-
corporated cities or towns but are exolusive~lyfor the IJnitedStates
Army, originating end terminating in army camps, depots, posts and sitos.
It is suggested therein that in view of such ciroumstances, said carrj,er
does not fall within the scope and purview of the taxing Aot.

          Article 7066b, Vernon's Texas Civil Statutes, levies the fol-
lowing ocoupetion tax upon the gross receipts of each "motor bus company,"
"motor carrier" or "contreat carrier:"

          "(a) Each individual, partnership, oompeny, assoc;ati,on,
    or corporet$on doing business as e 'motor bus company' es defined
    in Chapter 270, Acts Regular Session of the Fortieth Legislature,
    as amended by the Acts of 1929, First Called Session of the
    Forty-first Legislature, Chspter 78, or es 'motor c&wrier* or
    'contract carrier' es defined in Chapter 277, Acts Regular Session
    of the Forty-seoond Legislature, over end by use of the public
    highways of this State, shell make quarterly on the first day of
    January, April, July, and October of each year, a report to the
    Comptroller, under oath, of the individual, partnership, company,
    essocietion, or corporation by its president, treasurer, or
    secretary. showing the gross amount received from intrastate
    business done within this State in the payment of charges for
    transporting parsons for compensation and any freight or commodity
    for hire, or from other souroes of revenue reoeived from intre-
    state business within this Stats during the quarternext preoeding.
    Said individual, partnership, company, assoaietion, or corporation
    et the time of making said report, shall pay to the State Treasurer
    en oocupetion tax for the quarter beeinning on said date equal
    to two and two tenths (2.2) per cent of said gross receipts, as
    shown by said report. l'rovided,however, carriers of parsons or
    property who era required to pay an intangihlc assets tax under
    the laws of'this State, are here'byexempted from the'prcvisions
    of this Article of this Act."

          The above tax Act refers to Chapter 277, Ants, koeular Soss5.on.
42nd Legislature, Artj~cleSllb, Vernon's Texes i'ivil:itatutes,for tha
                                        .
cic?initionOf a "contreot .ccirrierensub-lootto the tax ttierebylcvied.

          ho quatc said definition from the stetuto edviscd to:

          "(h)   v)!e <pi".!'aontract carrjer' m031':s
                                                     n'~ym&or   cnrrjcr
IionorableGeorge H. Sheppard, page 3            O-3923




    as hereinabove defined transporting property for compensation
    or hire over eny highway in this State other than 88 a common carrier.'

          "Motor carrier" as used in the foregoing definition, is, in
turn, defined by subdivision (g) of said Act as follows;

         "The term 'motor carrier' means any person, firm, ccr-
   poration, wnpany, co-partnership. association or joint
   stock association, and their lessees, reoeivers or trustees
   appointed by any Court whatsoever, owning, controlling,
   managing, operating or causing to be operated any motor
   propelled vehicle used in transporting property for compen-
   sation or hire over any public highway in this State,
   where in the course of such transportation a highway be-
   sen   two or mere incorporated cities, towns or villages
   is traversedi provided that the term'motor carrier' as
   used in this Aot shall not include and this Aat shall not
   apply to motor vehicles operated exclusively within the
   incorporated limits of cities or towns." (Emphasis curs)

          The requirements of the statutory definition of a "motor car-
rier,"  underlined above, have, by cur opinion No. O-1692, been held to
be met and satisfied where two or mere incorporated cities, towns or
villages em involved or traversed by e person, firm or corporation trans-
porting property for hire, even though such incorporated oity, town or
village is not the point of origin or the terminus of the shipnent. We
believe such opinion to be determinative of the status of the subject
concern es * "motor Carrier," subject to the jurisdiction of the Railroad
Commission and this gross receipts tax, despite the fact that the goods
transported ere picked up and delivered on army posts, camps, depots and
sites and not in incorporated cities, towns or villages, provided two or
more incorporated cities, towns or villages are traversed en route. We
enclose e copy of such opinion for your aonsideration.

          It remains to be determined whether or not the "contract oar-
rier" in question is exempt from reporting and paying the occupation tax
levied by Article 7066b, Vernon's Texas Civil Statutes, by virtue of the
fact that its gross reoeipts. upon which said tax is computed under the
Aot, are derived exclusively from payments or compensation from the
TJnitedStates of America for the transportation of property for and on
behalf of the Army of the United States. The only theory upon which
such immunity from State taxation could rest in the instant oese would
be thet the levying of such tax upon gross receipts derived from the U. S.
Treasury would be tantamount to e tax burden upon the United States
Government or an agency or instrumentality thereof and therefore unconsti-
tutional. We will address ourselves to that point.

          The incidence of the tax levied upon a "contraat carrier" f*llS
squarely upon suoh carrier, for the privilege of conducting the business
ellcmd by its permit and there is no 'requirementin the statute that
Ecncreble George H. Sheppard, page 4              o-392:5



such tax should be passed on end collected from the shipper or the
person peying for such transportation services. The tax is en cccupa-
tion tax directly upon the person, firm or ccrpcreticn pursuing the
described business, end the quarterly gross receipts tiremerely used
es e medium for cwputing such tax, the source of such receipts Fair?
of no materiality. hven though the amount of such tax should, es s
matter of sound business prsctice, be passed on the the Federal Gcvern-
ment, es part of the cost or compensation for transporting goods for
the Army, nevsrtheless, such tax or burden would be too remote and in-
direct to be aonsidered unconstitutional.

              The situation is analogous to that before the United States
Supreme Court in James v. Dravc Construction Co., 302 IT.S. 134, wherein
it was held that the State of West Virginia might collect a tax of 2%
on the gross receipts of e contractor from work performed by him in the
construction&      dams and locks for the Federal Government in the State.
Chief Justioe Hughes, in the opinion in that case declared, et page 160:

          "But if if be assumed that the gross receipts tax may
    increase the cost to the Government, that fact would not
    invslid,etethe tax. With respect to that effect, e tax on
    the oontreotor's gross receipts would not differ from e tex
    on the oontraotcr's property end equipment necessarily used
    in the perfarmenoe of the contract. Ccncededly, suoh a tax
    may validly be leid. Property taxes *r-enaturally, es in
    this ease, reckoned as a pert of the expense of doing the
    work. Texes mey validly be laid not only on the contractor's
    machinery but on ths fuel used to operate it. In Trinity
    Farm Construction Cc. v. Grcsjean. 291 77.S. 466, the tax-
    payer entered into e contract with the Federal Government for
    the construction of levees in aid of navigation   and gasoline
    was used to supply power for taxpayer's machinery. A state
    excise tax on the gasoline so used vs.8 sustained. The Court
    said that if the payment of the stats taxes imposed on the
    property end operations of the taxpayer 'affects the federal
    government et all, it et most gives rise to a burden which is
    consequential end remote end not to one that is necessary,
    immediate or direct.' But 8 tax of that sort unquestionably
    increases the expense of the acntractcr in performing his
    servioe end may, if it enters into the contractor's estimate,
    increese the cost to the Government. The fact that the tax
    on the gross receipts of the contractor in the Alward case
    (Alward v. Johnson, 282 U. S. 509) might have increased the
    cost to the government of the carriage of the mails did not
    impress the Court es militating against its validity."

          While the Dravc cese was decided by e divided court. its
authority cannot now be questioned, having .been recently cited with ep-
prove1 by the United States,Supreme Court in the opinion by Chief Justioe
Stone, announcing the unanimous decision of the court in Alabama v. Ring
~cncrable George H. Sheppard, page 5               o-3923



& Boozer, 86 L. Ed. 1, wherein a state sales tax of 2% upon building
materials wea susteined as applying to materials purchased by 8 con-*
tractor engaged inconstructing an army oamp for the United States
under 8. "cost-plus-a-fixed-fee" contract. We quote from the opinion
in the King & Boozer oese:

         "So far es such e nondiscriminatory state tax upon
   the contra&or enters into the cost of the meterials to
   the Government, that is but a normal incident of the
   organization within the same territory, of two indepen-
   dent taxing scveieignties. The asserted right of the one
   to be free of taxation by the other does not spell immunity
   from paying the edded costs. attributable to the taxation
   of those who furnish supplies to the Government end who
   have been granted no tax immunity. So far es a different
   view has proveiled, 444 Panhandle Oil Cc. v, lvIississippi
   (277 U. 5. 218) and Graves v. Texas Co. (298 IJ.S. 393).
   we think it no longer tenable."

          We think the question submitted by you is foreclosed by the P-
hove decisions and should accordingly be answered in the negative.

                                         Yours very truly

                                       ATTOR%Y   GN!XAL   OF TEXAS



                                          BY s/Pat M. Neff, Jr.
                                               Pat M. Keff, Jr.
                                                      Assistant

Pm:ej:ro

ADPROVEO APLlIL8, 1942
 s/Grover Sellera
FIRST ASSISTAN'
ATTORNEY GEWRAL

Approved Opinion Committee By B!"IB
                                  Chairman
