         THEATTORNEY                 GENERAL
                     OFTEXAS
                    AUSTIN    ~~.TEXAS
                                                 i

                             February 18, 1959


Hon. Robert 9. Calvert                   Opinion No. NW-   554
Comptroller of Public Accounts
Capitol Station                          Re: Whether or not shut-in
Austin, Texas                                gas royalty payments
                                             are taxable under the
                                             provisions of Article
Dear Mr. Calvert:                            7047b,V.C.S.
     Your letter of December 11, 1958,requesting an opinion
upon the above-captioned matter, reads, in part, as follows:
     "In making audits of several of the gas production
     accounts it has been noted that in a number of
     instances the producers make shut-in royalty pay-
     ments.to various of the interest holders. A    _
     question has arisen as to whether or not such
     payments are subject to the gasproduction tax,
     in view of the fact that the payments might be
     considered as a bonus or premium for gas that has
     been or which will, In the future, be produced
     from the lease."
     Article~7047b does not specifically purport to cover
this situation. Therefore, we must attempt to discern the
*legislative intent" without thereby adding to the statute.
     This is a severance tax. It contemplates roductlon of
gas. Dec. 1 (lp.     The tax base is either (1)+lue
                                                mar e
of gas at the mouth of the well or (2) grosa cash receipts,
Dec. 1 (q7.
     It is certainly true that royalty interest owners are
herein included in the taxed group. Dec. 1 (8J. It is
also true that royalty owners are here receiving cash payments
--shut-in royalties. However, these payments do not result
from the production and sale of gas. They do not originate
from purchasers, but rather from the lessee-producers. They
are to compensate the royalty interest holders for lost
production payments during periods when no nroduction occurs.
  nion 011 Company of California v.,L. 73.Ogden, et al, Tex.
  ~.APP. (19551 > 2?5s . .   246).
    Hon. Robert S. Calvert,       Page 2,     Opinion No. WW-a


    This is equally true whether a well be "shut-in" Immediately
    upon completion or after some'productlon has occurred.
         The statute measure8 tax compensation to the state by
    gas "produced and saved." As there la no severance occurring
    during these shut-in periods, the original potential produc-
    tion remains intact, and the full contemplated tax may still
    be imposed when gas Is produced.
         In view of the above reasoning, therefore, we believe
    that shut-in gas royalty payments are outside the intended
    scope of this tax statute.



           Shut-in gas royalty payments are not taxable
           under the provisions of Article 7O$'b, V,C.S.
                                     Yours very truly,
                                     WILL WILSON
                                     Attorney General of Texas




                                                           rney General
    APPROVED:
    OPINION COMMITTEE:
    Geo. P. Blackburn, Chairman

    Milton Richardson                                         (
-                  \
    Tom Burrus
    Joe Rollins
    REVIEWED FCRTHE    ATTORNEY GENBRAL

    By     W, V. Geopert
               I V . Geppert
      ,'
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