                    EATTORNEY            GENERAL,
                           OF   TEXAS
                          ‘%UHTXNII.-
PRICE   DANIEL
ATTORNEY GENERAL          lIar~h25, 1949



Eon. S.C. UcIntosh, Director
Gas Utilities Dlvlslon
Railroad Commissionof Texes
Austin, Texas                      Opinion No0 V-795
                                  Re: The agpllcablllt~of Arte.
                                      6056 and 6060, v.c.s.,
                                      relative to operator'sre-
                                      port8 and gross receipts
                                      taxes of gab utllltles, to
                                      nambd corpor4tlons,under
                                        the submitted faots.

Dear Sir:
           Your request ior the opinion of this Department Is 4a
followa:
         "This is a request for 4n opinion concerning
     the status of three corporatl~onsznamely, JIcCarthy
     Oil & Gas Corporation,Jefferson Pipe Line Company
     and Neehes Natural Gas Company.
         "The
           - three_^corporationsabove referred to are
     engagea la producing, transportingor selling
     natural gas in the vicinity of Port Ar%hurp Texas,
     Enclosed you will find copies of letters from
     Neches Natural Gas Company aradMcCarthy Oil h Gss
     Corporationwhich are In reply to demands from
     thfs offfce for the filing of A~uel Reports pro-
     vided for pursuent to Article 6056, Revised
     Statutes) 1925*
         "JeffersonPipe Ltne Company a% this time is
     the Only one of the three mentioned corporatfons
     %het.ffleswith us the reports required by Articles
     6056'4nd 6060 and pays to us the tax provided for
     in ArtFcLe 6060, 1% only pays to us a tax of l/4
     of 1s on the basis of its receipts which are re-
     ported to us as being one cent (14) pep one thousand
     cubic feet of gas.
         "McCarthyOfl deGas Corporation owns 99*7$ of
     the voting stock of Jefferson Pipe Line Company which
     fs 4 Texas Corporatfon,
Ron. 3. C. McIntosh, Page 2             v-795


         "McCCerthy
                  Oil & Gss CorporationLs 4 Delaware
    Corporationand lts President Is Glen Ii.McCarthy.
         "Neches Natural Gas Company is 4 Texas Corpor-
    ation and of its 500 shares of voting stock, 470
    are owned by Glen II.McCarthy, Its officers and
    directors are interlockingwith the officers and
    directors of McCarthy 011 & Gas Corporation.
         "While we have collected the tax upon the basis
    of only one cent per thousand cubic feet of gas, the
    receipts for such g4s amount to approximatelyten
    cents per thousand cubic feet, Requests for reports
    and taxes h4ve been made of Neches Natural Gas Com-
    pany and McCarthy Oil & Gas Corporation have been
    msde by us but the same have been refused us.
         "Please advise whether or not 411 three of the
    above named corporationsmay be compelled to make
    reports to the Railroad Commission and also whether
    or not the three corporationsare liable for the
    payment of the gross receipts tsx upon the basis of
    the actual amount of money received from the busi-
    ness done."
         The firat question Is "whether or not all three of the
above named corporationsmay be compelled to make reports to the
Railroad Commission". It appears from your request that the
J8ffePsOn Pipe Line Company is presently making the PepOPts re-
quired by Articles 6056 and 6060, Revised Civil Statutes, there-
fore, only MtiCarthyOil and G4s Corporationand Neehes Natural
Gas Company need be consideredunder this question.
         McCarthy Oil snd Gas Corporation 1s a Delaware Corpore-
tlon, having 4 permit to do busfnesa fn Texas Issued by the Sec-
retary of Stete on December 26, 1945, for the following purpose:
        "To establish and maintain an oil business, with
   authority tocontract for the lease and purchase of
   the right to prospect for, develop and use co41 and
   other minerals, petroleum end gas; also the right to
   erect, build and own all necessary oil tanks, cars and
   pipe necessary for the operation of the business of
   the same."
which is euthorixedby Sub. 37,   Art.   1302, R.C.S.
        Article 6050, Revised Civil Statutes, 1925, is, in pert,
as follows:
Hon. 5. C. McIntosh, Psge 3        v-795


         "The term 'gas utility' and 'publicutility' or
    'Utilltyj' es used,in this subdivision,means and ln-
    eludes persons, companies and private corporations,
    their lessees, trustees, end receivers, owning, man-
    aging, operating, leeslng or controllingwithin thij
    State any wells, pipe lines, plant, property, equip-
    ment, facility, franchise, license, or permit for
    either one or more of the following kinds of business:


         "2e Owning or operetlng or man4glng 4 pipe line
    for the transportationor carriage of nature1 ges,
    whether for public hire OP not, if any pert of the
    right of way for said line hes;been acquired, or may
    hereafter be acquired by the exercise of the right
    of emlnant domain; or Is said line or any part thereof
    is 1aLd upon, over or under any public road or hlgh-
    way of this State, or street or alley of any rmnlcl-
    pallty, or the right of way of any railroad OP other
    public utility; includingelao any natural gss utility
    authorleed by law to exercise the right of eminent
    domain.


        "Every $uch gas utility is hereby declared to
   be effected with 4 plbllc interest end subject to the
   jurisdiction,control end reguletfon of the Commls-
   slon as provided herein."
         Article 6956, Revised Civil Statutes, 1925, is as Sol-
lows:
        "The Commissionmay require of all persons'or
   corporationsoperating,owning or controlllnq such
   w@De     lines sworn r4pOrts of the total quanmS
   of gas distributedby such pipe lines and of thet
   held by them fn storege, and slso of their source of
   supply, the number of wells from which they draw
   thefr supply, the amount of pressure melntalned, and
   the emount and character snd description of the
   equipment employed,,and such other matters pertain-
   ing to the business es the Commissionmay deem
   pertinent." (Emphasisadded)
         It sppeers from your request that McCarthy 011 and Gas
Corporation owns 9g07$ of the voting stock of the Jefferson Pipe
Line Company and hence, under the well,recognlzedrYle of 14~ of
corporete control by stock ownership, it exercises leg41 control
Ron. S,C. McIntosh, Page 4        v-795


over the gas pipe lines owned and operated by Jefferson Pipe
Line Compeny end is required to make such reports as the Rall-
road Commission may require under the provisions of Article
6056, supra.
        Neches Netural Gas Company if a Texas corporation,
chartered on December 28, 1945, for the following purposes:
         "Storing,transporting,buying end selling oil,
    gas, salt brine end other mineral solutionsand
    llqulfiedminerals; also sand end clay for the manu-
    facture end sale of clay products; and the produc-
    tion of oil end gas.
         "This corporetion shall have all of the powers
    permitted to corporationsunder Chapter 15, Title
    32 of the Revised Civil Statutes of the State of
    Texasj 1925, as emended and now In force, Including
    the additionalpowers permitted under Article 1506
    of such Chapter, and for the purpose of securing such
    additional powers, thls corporationaccepts the p;o-
    visions of Chapter 15, Title 32 of said Statutes.
         This purpose clause Is identicalwith that of the Jeff?
erson Pipe Line Company which was granted e charter by the Set-
retary of State of Texas on the same date, and therefore the
Neches Natural Gas Compeng Is required to make such reports as
the Railroad Commissionmay require under the provisions of
Article 6056, supra.
         Your second question is "whether or not the three cor-
porations are liable for the pavment of the RPOSS receipts tax
upon the actual smount of monky"recelvedfrom the business done."
        Article 6060, Revised Civil Statutes, 1925, Is as fol-
lows:
         "Rvery gas utility subject to the provisions of
    this subdivisionon or before the first day of January
    eno quarterly thereafter, shall file with the Com-
    mission a statement,duly verified as trueend correct
    by the president, treasurer or general manager if a
    company or corporation,or by the owner of one of them
    is an lndlviaual or co-partnership,showing the gross
    receipts of such utility for the quarter next preced-
    ing OP for such portlon of said quarterly period as
    such utility may have been conducting any business,
    and at such time shall peg Into the State Treasury at
    Austin a sum equel to one-fourth of one per cent of
    the gross Income received from all business done by
Hon. 5. C. McIntosh, Page 5        v-795


    it within this State during said quai%er."
         By Sec. 10, Ch. 73, Acts 42nd LegLalature, 1931, p0 111,
the foregolng article was repealed except Insofar as It Imposed
the tax upon gas utilities described In Section 2, Article 6050,
aupra.
         In the case of Thompson v. United Gas Corporation,190
S.W.,(26) 504, 509, (error refused), Judge Blafr clearly defined
gas utilltfea subject to payment of the tax under Article 6060
as follows:
        'Before the repeal of a portion of Art. 6060 the
   Legislature had imposed the tax upon ‘every gas utfl-
   itg' described in all three claaalflcations. By the
   repealing Act It continued to impose the tax only
   upon the gas utllltg described in Section 2 of Art,
   6050. Thus it deffnitrilg and clearly Imposed the tax
   upon the gas utility described as being persons en-
   gaged fn 'owning or operating or managing a pipe
   line for the transportationor carriage of natural
   gas, whether for public hire or not, if any part of
   the right of way for said line has been acquired* l l
   by the exerclae of the right of eminent domain* * *.I
   The distinguishingfeature of thls section, how-
   ever, is that the buslneaa la a pipe line fop trans-
   portation or carriage of natural gas by pipe line,
   and the repealing Act contFnued to fmpose the tax
   upon Ft only,"
         Under the foregoing ruling both the Jefferson Pipe Line
Company and the Neches Natural Gas Company are subject to the
payment of the tax imposed by Article 6060 upon the gross Income
received by each from all bualness done within the State of Texas.
         McCarthy Of1 and Gas Corporation fs engaged fn the busl-
neaa of producing and selling natural gas and therefore contends
that undoerthe decision by the Supreme Court of Texas in the case
of Rumble gS.1and Reflnlng Company v. Railroad Commlsalon,128
S.W. (2d) 9, It 1s not subject to the pPovFaion8 of either Article
6056 or Article 6060, aupra, This contention is evi.dently based
upon the following language In the court's opinion:
         "In this Instance, it is conclusive that M. & M.
    Pipe Line Company Is a public gas utllltg subject to
    the rate makfng jurisdictionof the Commfssfon, It
    is also conclusive that Humble la not a public gas
    utlllty subject to the rate making jurfsdictionof the
    Commission,unless this contract makes it such. As
    already stated, before it can be saFd that this aon-
Ron. S. C. McIntosh, Page 6        v-795


    tract makes Humble a public gas utilftg, the con-
    tract under discussion must legally operate to
    associate Humble and M. & M. Pipe Lfne Company fn
    a common business enterprise,and that enterprise a
    public utility gas business. In other words, the
    contract must operate to make Humble an associate
    of M. & M. Plpe Ljne Company as regards the gas
    utlllty business of the last-namedcompany."
         In the present situation McCarthy Oil and Gas Corpora-
tion owns 99.7% of the voting stock of Jefferson Pipe Line Com-
pang Glen H. McCarthy, Presfdent of the McCarthy Oil and Gas
Corporation owns 470 of the 500 shares of voting stock In the
Neches Natural Gas Company and the officers and dlrectora of the
Nechea Natural Gas Company and the McCarthy 011 and Gas Corpor-
ation are interlocking.
         In the same oplnion the Supreme Court of Texas quoted,
approved, and adopted the o inion in the case of State v. Lone
Star Gas Company (Civ. AppOP 86 S.W. (2d) 484, 491, (wrtt refused),
as follows:
         ' 'The rule is well settled that courts wFl1
    look through the forms to the realltles of the re-
    lationahlpbetween two or more corporationsIn
    order to determine whether each Is a separate entity
    or corporation;or whether their commingled affairs
/   are such as to constitute them one integrated and alngle
    business enterprise;or whether, through intercor-
    porate set-up, affiliation, or stock ownership, the
    purpose is to control the subsidiarycorporation or
    corporationsso that they are used as the mere fnstru-
    mentalities or agents of the owning corporationor
    corporations. In dlacussfng the rule, it has been
    held that while "ownershfp,alone, of eapltal stock
    in one corporationby another, does not create an
    Identify of corporate interest * + + OP create the
    relation of prlnclpal and agent or representative
    between the two"; still it has been repeatedly held
    that such rule la not applicable "where stock
    ownership has been resorted to, not for the purpose
    of partioi.patingfn the affafrs of a corporation in
    the normal and usual manner, but for the purpose
    + * + of controllinga subsidiarycompany so that It
    may be used as a mere agency or fnstrumentality.of
    the owning company or companies," Chfcago, M. & St.
    P. Ry. v. MinneapoltsCIVIC & Commerce Ass'n, 247
    U.S. 490, 38 3, Ct. 553, 557, 62 L, Rd. 1229; United
    States v; Lehigh Vallg R- Co., 220 U-3. 257,31 3.
    Ct, 387, 55 L. Ed. 458; United States v. Reading Co.,
 .




Eon. 5. C. HcIntosh, Page 7 :        v-795


     253 U,B. 26, 40 3. Ct. 425, 64 L. Rd. 760; United
     States v. Delaware, L. &V. R. Co., 238 U.S. 516,
     35 5. Ct. 873, 59 L0 Rd. 1438. Also, in discussing
     the rule, the fact that the same persons are
     directors and managers of two corporationshas
     been given conslUeratlon(McCasklllCo0 v, Unlted
     States, 216 U.S. 504, 30 3. Ct. 386, 391, 54 L. Rd.
     590)9 and "a growing tendency la therefore exhlblted
     In the courts to look beyond the corporate form to
     the purpose of lt, and to the officers who are
     Identifiedwlth that purpose." See, also, Gallatln
     Natural Gas Co. v, Public Service Co., 79 Mont. 269,
     256 P. 373. Where one corporation owns or dominates
     another, It has been often held that "the Independent
     entity of the two companies 1s so far disregarded
     that each 1s considered as but a part of the indlvlsl-
     ble whole." Kimberly Coal Co. v. Douglas E~ClrJ,
     f&;.;O)C 45 F. (26) 25> 27; In re Kentucky Wagon Mfg.
                3 F. Supp. 958; Law v. McLaughlin,D.C.,
     2 F. sip;: 601Q’”
         Under the factual situation here present and the fore-
going rule of law, if, in the ascertainmentof the true facts, It
la revealed that McCarthy 011 and Gas Corporatfonreceives an
actual considerationfor 'thetransportationof the gas In excess
of one cent per thousand &ubic feet as reported by Its wholly
owned subaidfary, Jefferson Pipe Line Company, McCarthy Oil and
Gas Corporation is subject to the payment of the gross recelpta
tax imposed by Article 6060, R.c.s., upon the actual consideration
received by lt In excess of the amount received by the Jefferson
Pipe Line Company for such transportation.
                           SUMMARY
          Under the stated facts a corporation owning prac-
     tlcallg all of the stock of a "publicutll;lty"~corpor-
     ation must make the reports and pay the gross receipts
     taxes on the amount actually received from transporta-
     tlon of gas as required by Article 6056 and 6060,
     R.C.S., the corporate entities being disregarded.Hum-
     ble Oil & Refining Co, v. Railroad Commission, 128
     3.X0 (2d) 90
                               Yours very truly,
                          ATTORNEY GRNRRAL OF TEXAS
CKR/mwb/wc                      By s/C.& Richards
                                     C.,K.Richards
APPROVED                             Assistant
a/Price Daniel
ATTORNEY GlNW3AL
