.     .




                       THEA~TORNEYGENEECAL
                                   OF   TEXAS
                                  Ausn~~~.'X%x~s
      W'ILI. WILSON
    ATFORNEY    GENERAL



                                        October 8, 1959

           Honorable Robert S. Calvert       Opinion No. WW-714
           Comptroller of Public Accounts
           Capitol Station                   Re:   Whether credits provided
           Austin, Texas                           for in H.B. 120. 55th
                                                   Leg. R.S. 1937,'reiating
                                                   to recovery of Gas Gather-
                                                   ing Taxes, may be claimed
                                                   against the additional
                                                   Franchise Tax and Severance
                                                   Beneficiary Tax provided
                                                   for by H.B. 11, 3rd C'.S.
           Dear Mr. Calvert:                       of 56th Leg.

                   You have requested an opinion on several questions
          relating to Section 3 of House Bill No. 320 of the 55th
          Legislature, (1957), which reads as follows:
                        "Sec. 3. Final and valid judgments having
                      been obtained against the State of Texas by
                      the following named corporations in the follow-
                      ing causes for the recovery of Gas Gathering
                      Taxes paid,%0 the State of Texas under the
                      provisions of Section XXIII of House Bill No.
                      285, Chapter 402, Acts of the Fifty-second
                      Legislature:
                        "El Paso Natural Gas Company, Judgment No.
                      101,822, 53rd Judicial District Court of Travis
                      County, Texas. $2,658,935.51
                        "Tennessee Gas Transmission Company No. 100,870,
                      126th Judicial District Court of Travis County,
                      Texas $1,140,906.00
                        "United Gas Pipe Line Company No. 104,489,
                      126th Judicial District Court of Travis County,
                      Texas $1,101,000.34 in lieu of an appropriation
                      to pay said judgments, there is granted to each
                      of said corporations a credit in the full amount
                      of said judgments, according to their tenor,
                      effect and reading, exclusive of any interest
                      on the principal sum of such judgments either
                      prior or subsequent to the respective dates of
                      such judgments to be applied against any and all
                                                              .




Honorable Robertl,S.Calvert, Page 2   (Opinion No.   Wii-714)

        franchise, gross receipts aniloccupation taxes
        which may become due and payable tp the State
        of Texas on and after September 1,'1959, by each
        said corporation, its successors or assigns,
        provided, h,owever,that no credit shall be
        applied against that portion of any tax the
        revenues from which are dedicated by the Con-
        stitution of the State or Texas to a specific
        fund. Such credit may be freely assigned, in
        whole or in part, by each said corporation,               I
        its successors or assigns, and any such
        successor or assignee may apply such credit
        against any such taxes which may be due and
        payable by such successor or assignee to the
        State of Texas. No such assignment of credit
        shall be effective until the State Comptroller
        shall have been furnished a true copy of such
        assignment certified to be correct by the assignor
        or the assignor's duly authorized officer, agent
        or attorney in fact. The credit granted to each
        corporation may be applied against the taxes
        specified above over a period not to exceed ten
        (10) years from and after September 1, 1959,
        and no more than twenty-five per cent (25s) of
        the tax credit provided herein owned by any
        single person, firm or corporation shall,be , '
        applied against taxes by such person,firm or
        corporation in any one (1) calendar year. In '
        order to apply against taxes the credit granted
        hereunder, the owner thereof, contemporaneously
        with each tax payment, shall submit to the State
        Comptroller a statement sworn to by such owner
        or his or its duly authorized officer, agent or
        attorney in fact, stating the amount of credit
        being applied, the tax against which it is
        applied, and that not more than twenty-five per
        cent (25%) of the total credit originally owned or
        acquired by such owner has been applied against
        taxes for the applicable calendar year. The appli-.
        cation of a credit against the taxes hereunder
        shall constitute a full accord and satisfaction,
        to the extent of the sum.of the credit, of the
        judgment for which the credit is granted, and
        the,application of such credit agaqnst taxes
        shall constitute a full accord and'satisfaction
        of such taxes to the extent of the sum of the
        credit applied. However, in the event that the
        manner of accreditation as provided herein is
        declared unconstitutional, such companies shall
        not be assessed any penalty or interest for taxes
        on which credit has been applied, if paid with
Honorable Robert S. Calvert, Page   3   (Opinion No. WW-714)
                   a

         reasonable promptness after any such declaration
         of unconstitutlonal1t.y."
         Your first question concerns whether or not the
credit specified above may properly be claimed against the
additional Franchise Tax and Severance Beneficiary Tax1 enacted
by House Bill 11, 3rdCalled Session of the 56th Legislature.
The portion of the above quoted act relevant to this question
states:
              . .there is granted.   .a credit. .
     : ' to be applied against w   and all franchise,     '
         mross receiots and occuoation %es   which


         Had the Legislature intended to limit the credit to
taxes in existence at the time of passage of House Bill 320,
it would have used language appropriate to such purpose; since
it used language clearly to the contrary, your first question
must be answered in the affirmative.
         Your next question is worded as follows:                 '.
           "Where the Constitution provides that one-
         fourth (1/4th) of the tax collected be deposited     '
         to the Available School Fund, please advise
         whether the total tax due for a particular
         period can be claimed as a credit or can only
         seventy-five (75s) per cent of the tax due be
         claimed as a credit."
                          8
         The portion of Section 3 of House Bill No. 320, 55th
Leg., relevant to this query, provides:
                .no credit shall be applied against
         that portion of w   tax the revenues from which
         are dedicated by the Constitution of the State .
         of Texas to's specific fund." (Emphasis added.)
         The.f'oregoingproviso In no way limits the amount of
the credit that may be taken in any one year. It merely pro-
vides that no credit may be taken against that portion of any
tax specifically dedicated by the Texas Constitution. Con-
1
 The severance beneficiary tax is an occupation tax; con-
  sequently there is no question about its being the type of
 tax against which credit may be claimed.
Honorable Robert S. Calvert, Page 4   (Opinion No. WW-714)


sequently, you are advised that where the Constitution
dictates that one-fourth (l/4),of a particular tax be deposited
to the Available School Fund, credit can only be taken against
the remaining 75%of such tax.
         Your third inquiry Is as follows:
           "The Gas Production Tax Law, provided,for
         by Article 70&7b, V.C.S. provides that the
         first purchaser of gas shall withhold the tax
         from his remittance 'to the producer and the
         purchaser in turn remit the tax to the State.
         Please advise me whether or not a purchaser of
         gas, who'is entitled to credit, can claim credit
         against the tax which he has withheld from pro-
         ducers of gas provided that he has assigned the
         proportionate amount of the credit to the indivi-
         dual producers."   .
         Article 7047b, Section Za, V.A.C.S, (recodified by'
H.B. 11, 3rd C.S. 56th Leg., as Art. 3.05of Title 1,22a,R.C.S.)
states:
           "(1) The tax herein Imposed on the producing
         of gas shall be the primary liability of the
         producer as hereinbefore defined, and every
         person purchasing gas from producer thereof and
         taking delivery thereof at or near the premises
         where produced shall collect said tax imposed
         by this Article from the producer. Every pur-
         chaser including the first purchaser and the
         subsequent purchaser, required to collect any
         tax under this Article, shall make ouch col-
         lection by deducting and withholding the amount
         of such tax from any payments made by such pur-
         chaser to the producer, and remit same as herein
         provided. This Section shall not affect any
         pending lawsuit in the State of Texas or any lease
         agreement or contract now or that hereafter may
         be in effect between the State of Texas or any
         political subdivision thereof and/or the University
         of Texas and any gas producer.
           1,               . .
            . . . .
           "(3)The tax hereby levied shall be a liability
         upon the producer, the first purchaser, and/or
         subsequent purchaser or purchasers as herein
         provided."
Honorable Robert S. Calvert, Page 5   (Oi?inionNO. Wd-714)


         Since the gas production tax is a liability of the
producer and the purchaser, either, or both, of them may, within
the specim    limits, take credit against such tax by following
the procedure prescribed in H.B. 320. .:,Thecredit may be
assigned from the purchaser .to the producer, or vice-versa,
provided,.however, that the assignee may not claim credit
pursuant to the assignment until a copy thereof, certified
to by the assignor, is on file with the Comptroller.
         The purchaser may take credit against taxes withheld
from payments to the producer by filing the sworn statement
required by H.B. 320 with the monthly report required by
Art. 7047b;'V.A.C.S. Likewise, the producer may take credit
by filing the sworn statement with its monthly report. In
instances where the producer has properly taken credit against
gas production taxes, the purchaser is relieved of the re-
sponsibility of remitting such taxes (up to the amount of the
credit taken) to the State.2
         In connection with the foregoing question you also
state:
           "It is quite common for a ,purchaserof gas
         to contract with the producer to reimburse
         him for any Increased taxes on the gas produced.
         Please advise me whether or not the taxpayer,
         entitled to credit, can make an assignment to
         the producer for the amount of the reimburse-
         ment and the producer in turn claim credit for
         the amount of the assignment against his gas
        .production tax."
         .
         This ,+ue:;tion
                       is answered in the preceding discussion;
the producer makes claim for the credit by following the above
specified procedure.
         In your letter dated August 24, 1959, which supplements,
your original opinion request, you state that the question has
arisen as to whether or not the'credit may be claimed against
the Railroad Commission Gross Receipts Utility Tax provided
for by Article 6060, V.A.C.S. The provisons of this tax are
as follows:
           "Every gas utility subject to the provisions
         of this subdivision on or before the first day of

_-.._.--.
2
 The facts justifying the failure to remit should be set forth
 with the purchasers monthly report; however, this is an
 administrative detail to be handled by your department.
                                                                              I       .




Honorable.Robert     S. Calvert,   Page   6    (Opinion   No.   WW-714)




          January and quarterly      thereafter,    shall flld
          with the Commlaelon a statement,        duly verified
          aB true and correct     by the president,      treasurer
          ar -general manager If a oompany or ogrporatlcfn,
          or by the owner or one o$ them if an’indlvldual
          or oo-partnership,     showing the groan reoelpts
          of suoh utlllty     for the quarter    next prnoedlng
          or for Buoh portion     of said quarterly      perlod a0
          euoh utility    may have been oonduotlng any bualnerl,
          and at such time shall pay Into the State Treasury
          at Austin a sum equal to one-fourth         of one per
          cent of the gross inoome reoelved        from all
          bualnese    done by It within thle State during
          eald quarter, ”
                                                                   :
          In ocinneotian     with this tax, Acts 1931, 42nd Leg.,
Reg. Seaa., page ill,     Ch. 73, fl 10, provides:                  ,

              “That article   6060 of the Revleed’Clvll
           Statute8   of 1925, except In so far aa It
           lmposee a license    fee or tax of one-fourth                  ’
           of one per oent againnt persons owning,
           operating,    or managing plpe;lnes,      as pro-
           vided In section    2 of artiole     6050, la here-            I
           by repealed    and Bald fund shall be used for
           enforolng   the provlslons    of artlolee    6050 to
           6066,’ lnoluelye.  ”
             Artloles    6050 through 6066, lnoluslve,     provide oertaln
regulatlotis     governing gas utliltleq.      All money oolleoted    pur-
suant to Art, 6060 ie held in:the          ‘gas utility   enforoement
fund” to be used for enforolni         suoh regulatlone..
          It ia olear that’;.the.:fee   bxaoted by ktlole 6060,
V.A.C.9     la a re ulator    (as oppoeed to a revenue) meanure,
AB sta&     by ChMe            Hlokman in Hurt v. Coorfer, 110 S.W,2d
896 (Tex.Sup,Ct.   1937):             8
              “It Is eometlmer dlffloult      to determine
           whether a given statute      should be dlassed aa
         i a regulatory    measure or a8.a tax meanure.         The
           prinolple    of the distinction     gemrally     reoognlerd
           1s that when, from a oonsfderation        of the statute               ,
           aB a whole, the primary purpose of the fees pro-
           vided thereln    ie the ralaing    of the revenue,
           then suoh fees are in faot ooouDation         taxes and
           thie regardless    of the namp by ihi.oh they are
.   ,




        Honorable Robert S. Calvert, Page 7    (Opinion No. WW-714)


                 To the same effect see H. Rouw Company v. Texas
        Citrus Commission, 247 S.W.2d 231 (T   s   ct 1952)    Ii
        County of Harris v. Shepperd, 291 S.?2d"$l   iTex.Sup%t. 1956).
        After citing the foregoing principle, the latter case states: .
                    "So-called licen'setaxes are of two
                 kinds. The one is a tax for the purpose of
                 revenue. The other, which is strictly
                 speaking, not a tax --
                                      at all but merely an
                 exercise onthe -ice     power, is ,a fee
                 ‘(                             ---,I
                 imposed for the purpose of regulation.
                  Emphasis adm.
                 It has been held that certain fees exacted by cities,
        for the purpose of regulation, were not occupation taxes wlth-
        In the meaning'of Article VIII; Section 1 of the Texas Con-
        stitution,-'whichprohibits a city from levying an occupation
        tax unless a comparable tax is levied by the State.
        Fort Worth v. Gulf Refining Company, et al., 83 S.W.2d%5F 1
        ‘(Tex.Sup.Ct.1935). Ex Parte Denny, 129 S.W. 1115 Tex.Cr.
        App. 1910 . See also Ex Parte Cramer, 136 S.W. 61 tTex.Cr.
        App. 1311 1 which held that a regulatory fee exacted from an
        electrician was not an occupation tax within the constitutional
        prohibition .against levying occupation taxes on agricultural
        or mechanical pursuits.
                 In view of the foregoing authorities, you are advised
        that the utilities regulation fee imposed by Article 6060,
        V.A.C.S., is not a franchise, gross receipts,3 or occupation
        tax within the meaning of H.B. 320; consequently, no credit
        may be taken against the payment thereof.
                                SUMMARY
                      Credits provided for In H.B. 320, 55th
                 Leg., R.S., 1957, may be taken against the
                 additional Franchise Tax and Severance Bene-
                 ficiary Tax provided for by H.B. 11, 3rd C.S.
                 of the 56th Leg., but may not be taken against


         Gross receipts taxes have been held to be occupation taxes.
         Ex Parte Walker, 52 S.W.2d 266, 121 Tex.Cr.R. 145 1932).         ,
         The case of Reed v. City of Waco, 223 S.W.2d 247, tTex.Clv.
         APP. 1949, error refused) held that the measure there in
         question was a regulatory device, not an occupation tax, even
         though levied on gross receipts.




                                          ii
                          3




Honorable Robert S. Calvert, Page 8.    (Opinion No. WW-714)
                                        .

          the gas utility regulation fee exacted by
          Art. 6060, V.A.C.S.
               Elthe~rthe producer or the purchaser
          may, within the limits prescribed by H.B. 320,
          take.credit against the payment of gas pro-
          duc.tiontaxes by following the procedure set
          forth therein.
                              Yours very truly,
                              WILL WILSON
                              Attorney General of Texas




                                  Assistant
.JNP:cm
APPROVED:    :
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
William E. Allen
,LawrenceJones
John Reeves
Fred B. Werkenthin
REVIEWED FOR THE ATTORNEY GENERAL
By:   W:V.   GEPPERT
