    .   .   .,




                                                      December      3, 1973


                 The Honorable      Robert    S. Calvert                 Opinion   No.   H-     172
                 Comptroller     of Public    Accounts
                 State Finance     Building                              Re:   Problems      relating  to
                 Austin,   Texas                                               Article    1.045, V. T. C. S.,
                                                                               Taxation-General,        pro-
                                                                               viding a limitation     period
                                                                               for gas production      tax
                                                                               liability   as affected   by
                                                                               orders    of the Federal
                 Dear   Mr.   Calvert:                                         Power     Commission

                         Your opinion request  requires   an interpretation        of several     provisions
                 of Article  1.045, V. T. C. S. - Taxation-General.

                        The State    of Texas imposes   a tax on gas production    which is based
V
                 on a percentage     of gross  receipts or income.   Articles   3.01, et seq. ,V.T.CS,
                 Taxation-General;       Humble Oil and Refining   Company v. Calvert,     478 S. W.
                 2d 926 (Tex.    1972).

                        The Federal   Power    Commission    (hereinafter     called the F.P. C.) regu-
                 lates the rates charged    for interstate  gas pipeline    purchases    and sales under
                 the Federal   Natural Gas Act.      15 USC $ 717, et seq.      The rates fixed by the
                 FPC directly   affect the amount of the production       tax due to the State of Texas.
                 The relevant   procedures    of the FPC are described       in your letter as follows:

                                       “The problem  arises  in connection   with additional
                                gas production  tax, or refunds   of overpayment    of tax
                                brought about through orders    of the Federal   Power
                                Commission.

                                       “As you know, the Federal        Power   Commission,
                                under certain    conditions,  allows   the seller   of gas being
                                sold in interstate   commerce     to collect  increased    rate




                                                           p” 788
,




    The Honorable      Robert   S. Calvert.    page      2   (H-172)




                  provided    for in his gas sales contract,        subject to
                  final review.     In most instances,       the final order of
                  the Federal     Power   Commission       requires    that the
                  seller   of gas refund to the purchaser         some part of
                  the suspended rate.        This office requires       that the
                  gas production     tax be paid on the total amount due
                  the producer,     including    the increased     rate. ”

           Since the state tax is currently       paid on the basis of the temporary
    rate, the final action of the FPC,       if it lowers the rate, also lowers   the
    tax and entitles the taxpayer    to a credit or refund (See Attorney      General
    Opinion No. WW-477,1958)      or if the FPC raises the rate, this results in
    a tax deficiency  and further  liability     on the part of the taxpayer.

            Article    1.045 establishes    limitations    for assessing    and collecting
    such deficiencies       and for claiming     and receiving    such a refund.      Its
    pertinent    provisions    appear in § (F).      Subsection   (1) of (F) provides:

                           “Notwithstanding      any provision   of any other
                   Article   of this Title,   when any administrative        pro-
                   ceeding    before any local,     state or federal    regulatory
                   agency or judicial      proceeding    arising  therefrom,
                   results   in a final determination      which affects    the
                   amount of tax liability      imposed    by any Article    of this
                    Title,  such final determination       shall be reported     to
                   the Comptroller      within sixty (60) days after becoming
                   final, with a statement       of the reasons for the difference
                   in tax liability,   in such detail as the Comptroller          may
                   require.    ” (emphasis     added)

            Subsection    (2) provides     that if from such report or from investigation
      it appears    that the tax liability     has not been fully assessed,      the Comptroller
    has one year after the receipt          of the report or one year from the discovery            of
    such final determination,        if unreported,      whichever   shall first occur,     to assess
    the deficiency.      Subsection     (4) provides    that no action may be commenced           in
    court to coll,ect any deficiencies         after one year from the date the Comptroller
    receives    the report or discovers         such fi,naL determination.      Subsection    (3)
    provides    that if a report or investigation        discloses  an overpayment,       then the




                                              p.   789
The   Honorable        Robert   S.   Calvert,   page   3   (H-172)




Comptroller     shall issue a refund or credit for such overpayment                    within
the aforementioned      one year period after receiving such report                  or -dis-
covering    such final determination.

        Your first question   concerns    the meaning of “final determination”
as used in the statute.     You ask, “When is the determination       of the Federal
Power    Commission    final?   Is it at the time that the Federal   Power   Commis-
sion issues its order as to the acceptable       price per MCF for the’gas,     or is
it at the time the Federal    Power    Commission,     the taxpayer and the purchaser
agree to the amounts to be refunded?”

       The term “final determination”          is used in the statute with reference
to administrative     proceedings     as well as jucidial     proceedings,     and we
assume    the Legislature     is using the phrase as synonymous           witch “final order, ”
which in turn represents        the same type of order on an administrative              level
that a final judgment     represents     in district   court.   See, Texas State Board
of Dental Examiners       v. Blankfield,     433 S. W. 2d 179 (Tex. Civ.App.,           Houston,
[14th Dist. ] 1968, writ ref’d n. r. e.) where the two types of orders               are likened.
The final order or determination          must be one which leaves nothing in dispute.
Sun Oil Co. v. Railroad        Commission,       311 S. W. 2d 235 (Tex.      1958); Payne v.
Texas Water Quality Board,          483 S. W. 2d 63 (Tex. Civ. App.,         Dallas,     1972,
no writ);   Allen v. Crane,      257 S. W. 2d 357 (Tex. Civ.App.,          San Antonio,      1953,
writ ref’d n. r. e. ).

        We believe   the final order or final determination   of the FPC,   as referred
to in Article   1.045, occurs when the amount of refund has been agreed        to by the
parties   and approved    by the Commission,    or, in the absence  of agreement,     has
been ordered     by the Commission.     Our opinion has a practical   as well as a
Legal basis.

       The practical   basis is that it is not until the exact amount of the refund
or deficiency   is known that the taxpayer    can make the report   contemplated   by
the statute,  because   such report  requires   exact information.

        The    legal    basis   is the accepted      definition   of the final   judgment   or order
which   is:




                                                p.   790
The Honorable      Robert   S. Calvert,     page 4    (H-172)




                     “For a judgment   to be final it must determine
              the rights and dispose   of all the issues involved    so
              that no future action by the court will be necessary
              in order to settle and determine     the entire contro-
              versy. ‘I County of Harris    v. Black, 448 S. W. 2d
              859 (Tex. Civ. App.,   Houston,    1969, no writ).

       Although    the FPC order establishing     a rate goes a long way toward
disposing   of all the issues,  there still remains    the accounting  problem   of
applying   the rates to the amounts paid pending the Commission         determina-
tion, and it is this accounting    which directly   bears on the re-assessment
of your production     tax.

      Your second question   refers  to the provision            in 5 (F)(l) of Article
1.045 that the taxpayer  must report “in such detail             as the Comptroller
may require.   ” You ask:

                        “Does this mean that within sixty (60) days after
                the final determination   of the Federal   Power   Commission,
                the taxpayer   must file corrected   reports  in detail showing
                the amount of tax overpaid     or underpaid,   or is a letter  of
                notoficati.on without amount detail sufficient?    ”

        We believe       that the statute clearly     delegates     to your office   the authority
to answer   these questions         on the basis of your own judgment,           limited    only by
reason.    You may require           that the report contain such detail as you deem
necessary    to assist you in determining          the effect of the FPC order           on the
taxpayer’s    liability.      Therefore,     if “a letter   of  notification  without    amount
detail” is not sufficient       for your purposes,        you should and may require          more.

         Your third question   arises  from the several      provisions         in the statute
to the effect that, in the absence     of a report    by the taxpayer,          the one-year
limitation   begins when the Comptroller       “discovers”     the FPC         final determination.
You ask, then comment        as to the problem     involved:

                       “If no report  is filed with the Comptroller    within
                sixty (60) days, when does the Comptroller       discover
                such final determination?      Is it when he reads about it




                                            p. ‘191
,I




     The   Honorable    Robert    S.   Calvert,   page    5    (H-172)




                    in the newspaper,         through reading        the Federal     Power
                    Commission       releases,       during the course of an audit
                    of the taxpayer’s       records,      or when the taxpayer           may
                    have possible      filed corrected        reports    reflecting     the
                    overpayment       or deficiency,        even though after sixty
                     (60) days from final determination?                The answer        to
                    this question     becomes       very important,        first because
                    in some instances         it takes a long period of time for the
                    taxpayer    to compile       the figures     necessary      for filing the
                    corrected     reports     with this office and for this office to
                    verify   corrected      reports.      If not reported       and no cor-
                     rected reports    are filed within the one (1) year period,
                     I have no way of knowing which taxpayers           may be due
                     to pay additional   taxes to the State and which ones are
                     entitled to a refund or credit until an audit has been
                     made of each of the affected      taxpayer’s    accounts, which
                     would be impossible      to accomplish    within the one (1)
                     year period. ”

             This statutory       concept of “discovery       by the Comptroller”     is not a
     clear one, and we have found no helpful authorities                interpreting   similar
     provisions.       In fact,    so far as we know, there are no similar provisions.
     We believe     the legislature       intended   these provisions     to apply primarily    for
     the benefit   of the Comptroller          so that your office will not be dependent       upon
     taxpayers     filing reports       to enable you to act on known final determinations
     of the FPC.        However,      the one year period       for paying a refund also begins
     running “after       receiving     such report    or discovering    such final determina-
     tion, ” $ (F)(3).      So the concept also applies        to refunds.

             The    statute cures your concern       about the one year limitation       running
     before   you    can audit the taxpayer’s     corrected    amount.     The statutory    time
     runs    from     the date of the taxpayer’s     report  or the date of the Comptroller’s
     discovery      “whichever     shall first occur. ” Although     this quoted language ap-
     pears only      in Subsection    (2), we believe   that it is implied   in Subsections     (3)
     and (4).

            The exact meaning    of the “discovery    by the Comptroller”                 as used in
     the statute is difficult to determine,    and again   this is a proper                subject for




                                                  p. 792
The Honorable     Robert   S. Calvert,    page   6   (H-172)




rules and regulations.        For your guidance in promulgating         such rules
and regulations     we can advise you that we do not believe         that the Legis-
lature intended to establish      constructive   notice in any form or to require
the Comptroller’s      office  to monitor    FPC rulings.     Nor do we believe     that
the Legislature     intended to charge your office with notice that may come
to employees     without direct responsibility.       Likewise,    the statute should
not be read so as to put your office in a position         that it has too little or
no time to audit a claim for refund or deficiency.             Your objective    is to
obtain a report and to correctly        compute the tax, and basically       it is the
taxpayers’    burden to bring about your “discovery.         ”


                                 SUMMARY

                      1. The reference    to “final determination”    in
              Article   1.045, V. T. C. S., Taxation-General,      refers
              to the time the FPC,     the tapayer and the purchaser
              agree to a refund or, in the absence of an agrement,
              a refund has been ordered      by the FPC.

                       2. The amount of detail of the reports    required
               to be filed by a taxpayer showing changes in liability
               resulting  from a FPC final determination     is a matter
               within the Comptroller’s  authority  to require.

                       3. The time of “discovery         by the Comptroller,   ”
               used in several     provisions    of Article   1.045, V. T. C. S.,
               Taxation-General,       i,s a proper   subject for rules and
               regulations   by the Comptroller       promulgated    to accom-
               plish the basic objective      of obtaining accurate    reports
               and correctly     computing    the final tax.

                                          Very   truly     yours,




                                          Attorney       General    of Texas




                                         p* 793
    .   . .   .




                  The Honorable   Robert   S.   Calvert,    page 7   (H -172)
Y



                  APPROVED:




                  DAVID M. KENDALL,         Chairman
                  Opinion Committee




                                                           p. 794
