Honorable Geo. H. Sheppard
Comptroller of Public Accounts
Austin, Texas
Dear Sir:            Opinion No. O-892
                     Re: Liability of certain corporations,
                          owningand us&ng pipe lines for
                          the transportation of oil under
                          certain fact situations, to an aa
                          valorem tax on their intangible
                          assets under Art. 7105, R.C.S.
          By your letter of May 29, 1939, you seek ,the opln-
ion of this Department upon the liability of four corporal-
tions forthe intangible assets tax levied by Article 7105,
as amencled;Vernon's Annotated Clvll Statutes, under the fol-
lowingfact situation in each instance, which we quote from
your letter:
          "COMPANY A owns a gathering system which
    transports oil from Its producing leases to the
    purchasing company's pipe line. They do not
    charge a tariff and do not separate their expenses
    of operating the lease from those of operating the
    pipe line.
          "COMPANY B owns its produqlng lease and pipe
    line that transports the oil to their refinery.
    They do not set up a tariff and do not charge the
    pipe line with its portlon of the expenses.
          "COMPANY C operates its own lease and buys
    Oil from~other producers in that field and gathers
    and transports all of this oil to connecting trunk lines.
          "COMPANY D gathers its own 011 together with
    other oil purchased in the field and transports same
    to.its own refinery for processing. This company
    claims that all of the 011 transported belongs to
    it at the lease tank and therefore theg,charge no
    tariff."
          Article 7105, as amended, Vernon's Annotated Civil
Statutes, levies's tax on the intangible assets of certain
designated corporations in the following language:
Hon. Geo. H. Sheppard, page 2         O-892


          "Each incorporated railroad company, ferry
    company, bridge company, turnpile or toll company,
    oil pipe line company, and all common carrier pFpe
    line companies of every character whatsoever, .en-
    gaged in the transportation of 011, doing business
    wholly or in part within this State, whether incorporated
    under the.laws'of this State, or of any other State,
    territory, or foreign country, and every other in-
    dividual, company, corporation or association doing
    business of the same character in thLs State, in
    addition to the ad valorem taxes on tangible propertles
    which are or may be Imposed upon them respectively,
    by law, shall pay an annual tax to the State, beginning
    with the first day of January of each year, on their
    intangible assets snctproperty, and local taxes there-
    on to the counties in whYtchIts business Is carried
    on; which additional tax shall be assessed and levled
    upon such intangible assets and property in the manner
    provided in this chapter. The county or counties
    in which such taxes are to be paid, and.':the
                                                manner
    of apportionment of the same, shall be determIned In
    accordance withi:theprovisions of this Chapter."
          It will be noted that the foregoing statute expressly
designates two corporations which could relate to the instant-
questian, namely, oil pipe line company" and "all common car-
rier pipeline companies of every character whatsoever." The
question first presented is whether or not the Legislature
of Texas used the two terms interchangeably to describe one
corporation, that is, a common carrlerplpe lrne company, or
employed the two descriptive terms advisedly to bring within
the scope of the taxing measure two distinct and separate
types of corporations engaged In the pipe line business.
           Although we have been unable to find any satisfactory
definition or distInction by the courts in this or other states
between an "oil pipe line company" and a "oommon carrier pipe
line company," the case of Reagan County Purchasing Co. v.
State, 110 S.W. (26) 1194, resolves ~~11 doubts as to whether
the Legislature by such language, intended to single out for
an intangible assets tax only one oorporation or two corpor-
ations pursuing different character of businesses. This case
involved a suit by the State of Texas, in behalf of Itself
and Reagan County, against Reagan County Purchasing Company
to recover ad valorem taxes alleged to be-due on intangible
assets of said company, assessed by the State Tax Board aiia
certified to the Tax Assessor of Reagan County ~forthe year-
1935 - -The assessment was made and the suit based upon Article
7105, as amended, Vernon's Annotated Civil Statutes, and ~the
prlnclpal defense urged by the cornpaw was that the intangible
Hon. Geo. H. Sheppard, page   3      o-892


tax law did not apply to transporters of 011 by pipe lines
who are not common carrier pipe line companies, and who are
not incorporated oil pipe line companies in the sense that
they are In the business of transporting oil for hire.
Under pertinent findings of,fact made by the court it ap-
peared that theecompany in question, although authorized
by its charter And permit to engage in the business of
transporting 011 by pipe line, haa never engaged in the bus-
iness of transporting oil for others for hire or otherwise,
all of the 011 which is transported through its pipe line
system having been purchased by It from~all of the producers
in Reagan County under contracts with them, and in turn re-
sold under pre-existing contracts to the Humble Oil and Be-
fining Company, at a price equal to the price paid for the
oil plus 20# per barrel on each barred delIvered. Upon
this state of the record, the court answered t,hecontention
of the company with the following interpretation of the
intangible tax statute:
           "The text of the amendment provides that:
     'Each Incorporated . . . 011 pipe line company, and
    all common carrier pipe line companies of every
    character w~hatsoever,engaged in the transportation of
    oil, . * . in addition to the ad valorem.taxes on
    tangible properties w,hichare or may be imposed upon
    them respectively, by law, shall pay an annual tax
    to the~State, . - . on their intangible ,assetsand
   .property,~and local taxes thereon to the countIesIn
    which its business 1s carried on.' It will be
    observed that both 'pipe line companies' and common
    carrier pipe line companies are enumerated .among
    those who are to pay the tax upon intangible assets.
    The language is plain, and If we are to giv~eto it
    its plain meaning, we must hold that appellant comes
    within the enumerated classes. We are reinforced in
    this belle; by the fact that the caption, in stating
    the purposes of the act, likewise uses the same terms
    in the same sequence. Had the Legislature intended
    to limit the application of the act to pipe lfne
    companies transacting t~hebusiness of common carriers
    of oil, It cou'ldvery reaaily have done so. The meaning
    1s clearly expressed. 'A thing expressed puts and end
    to implication.'"
          Although the court goe,sfurther in this ,caseand
holds that the company in question 1,salso a ,commoncarrier
pipe line c~ompany,this does not impair its ruling that
Article 7105, as amended, Vernonas Annota~tedCivil Statutes,
comprehends within Its scope and terms not only common car-
rier pipe lines, as commonly aeflnea by our courts, but in
addition, private carrier pipe line companies.
                                                                .




Hon. Geo. H. Sheppard, page 4        O-892


           To which of these two general classes of pipe line
companies, embraced within the purview of the intangible tax
act, can the four corporations mentioned in your letter be
assigned? A common carrier pipe llne company has been unl-
formlg defined by the courts as one which offers its pipe
line facilities or services to,the public generally or holds
itself out as a carrierof 011 for hire. The usual accompany-
ing attributes or powers are the right of eminent domain,
and the publishing and filing with a regulatory body of tar-
iffs or-rates for the transportation of oil. As declaratory
of ~thls, the Legislature, by Article 6018, Revised Civil
Statutes, has defined a common carrier pipe line as follows:
          'Every person, firm, corporation, limited
    partnership, joint stock association or association
    of any kind whatsoever;
         "1. Owning, operating or managing any pipe
   line or any part of any pipe line within the State
   of Texas for the transportation of crude petroleum
   to or for the public for hire, or engaged in the
   business of transporting crude.petroleum by.pipe
   line; or
         "2 . Owning, operating or managing any pipe
   line or any part of zany pipe line for the transpor-
   tation of crude petroleum, to or forthe public for
   hire, and which said pipe line~is constructed or
   maintained upon, over or under'any public road or
   highway, or In favor of whom the right of eminent domaln
   exists; or
          "3 . Owning, operating or managing any pipe
    line or any part of any pipe line or pipe lines for
    transportation to or for the public for hire, of
    crude petroleum, and which said pipe line,or pipe
    lines is or may be constructed, operated or main-
    tained across, upon, along, over or under the right
    of way of any railroad, corporation or other common
    carrier required by law to transport crude petroleum
    as a common carrier; or
          "4 . Owning, operating or managing or particl-            b
    pating In ownership, operation or management, under
    lease, contract of purchase, agreement to buy or sell,
    or other agreement or arrangement of any kind what-
    soever, any pipe line or pipe lines, or part of any
    pipe line, for the transportation from any oil field
    or place of production within this-State to any dis-
    tributlng, refining or marketing center or reshipping
Hon. Geo. H. Sheppard, page   5       O-892


    point thereof, within this State, of crude petroleum
    bought of others;
          "Is hereby declared to be a common carrier and
    subject to the provisions of this law. The provl.-
    sions of this law shall not apply to those pipe lines
    which are limited in their use to the wells, stations,
    plants and reflnerles of the owner and which are not
    a part of the pipe line transportation system of any
    common carrier as a,,bove
                            defined; nor shall such pro-
    visions apply to any property of such a common carrier
    which is not a part of or necessarily incident to its
    pipe line transportation system."
           It is readily apparent that neither.of~the four com-
panies described in your letter are.~commoncarrier pipe line
companies under the foregoing judicial and statutory definl-
tions, because they do not hold themselves out to the public
as transporters of oil for hire. And although COMPANY C ARD
GOMPANYD, under the facts stated,by you, do transport by
pipe lin~ecrude petroleum bought of others, and consequently,
at first ,blush,come within the.purview of subdivision (4)
of Article 6018, Revised Civil Statutes,  we believe closer
analysis will demonstrate that the pipe lines involved are
not a part of any pipe line system for the transportation of
crude oil from the place of ~productlonto any "distributing,
refining or marketing center or reshipping point," but rather
fall wlthfn the exception contained in ,the lastparagraph of
the statute as being "llmited in their use to the wells,
stations, plants and refineries of the owner."
          If we are correct In our conclusion that the four
companies Involve&in your letter are not common carrier pipe
line companies, It but remains to be determined if they are
"oil pipe line companies," within the contemplation of Article
7105, as amended, Vernon's Annotated Civil Statutes. This
question affords more difficulty because the case of Reagan
County Purchasingcompany vs. State, supra, is the only case
in Texas bearing upon this question and it unfortunately
falls to define or delimit the term "oil pipe line company"
used in the,intangible tax act, but merely held that under
the facts of this particular case, the company in question
was an "oil pipe line company" within the meaning of the act.
It should be remembered, however, that under the facts of
this case the court found and held that there was a virtual
charge for the service of transporting the oil in question,
despite the fact that the oil was purchased at the.well by
the pipe line company. In this connection the court spoke
as follows:
Hon. Geo. H. Sheppard, page   6      o-892



          :::lAs-~heretbfo*4~st~ted,'
                                 Its charter, granted
    subsequent to the enactment of said provision, per-
   mits the transaction of the business of a common
    carrier, as-does Its permFt to do business. The
   profit of 20;cents per barrel stipulated In Its con-
   tract with the Humble Oil & Refining Company has all
   the characteristics of a charge for service. It is
   not dependent upon the State of the market. It is
   fixed; and market fluctuations cannot affect It.
   The hazards of the market have no place in appellant's
   scheme of things. Its return is as definite as the
   compensation of employees in the office and the field.
   Why should the Humble 011 & Refining Company pay this
   definite charge in excess of the markst price un-
   less it be for transportation of the oil from the
   producer to the yrchaser,, together with incidental
   storage ssrvlce?
           With further.,referenceto the status of a pipe line
company which transports crude 011 bought,of other% such as.
COMPAWY C and COMPANPD under cnnslderation here, the Supreme
Court of the UnIted States In United States vs. Ohlo'Oll‘Co~~,
234 U.S.,548,  34 Sup. Ct. 956, 58 L. Rd. 1459, commonly cited
as the,"Pipe Line Cases," held that a company which transports
only oil that is sold to 'it by other producers; and which
refuses to carry oil vhlch is not sold to It on practically
its ovn terms, is a commoncarrier ~within the meaning of an
Act of Congress extending ths operation of the Interstate -.
Commerce Act to persons and corporations 4ngaged in the trans-
portation of oil by pipe lines. The justification of this
ruling Is doubtless found in th4 fact that a forced sale of
crude petroleumby the producers to the plpe line company In
order to find a market or outlet for thsir oil, is a sub-
terfuge resorted to by the pipe,line companies to avoid oer-
taln tax and regulatory measures, andtitually amounts to a
carriage of the oil for hire.
          It appearsfrom your letter that COMPARYC "operates
its own lease and buys oil from other producers 1n the field
and gathers and transports all of Its oil to connecting trunk
lines," and that COMPANY D;~"gathersIts own 011, together :F:
with other ail purchased in the field, and transports same
to Its own refinery for processing.   Although it does not
appear that the oil.so purchased by each of these companies
is resold, under contract, at a fixed profit per barrel as
in the case of Reagan County Purchasfng Company v. State,
supra, or that the same conditions of monopoly and coercion
exist as in the case of United States vs. Ohio 011 Co., supra,
whereby the producers were foroed to sell to ths pipe line
oompani4s at the*r own terms in order to get a market for
their oil, ~4 neverthaless incline to the view, unbar these
.




    Hon. Geo. H. Sheppard, page 7         o-892


    authorities, that COMPANY C and COMPANY l2 are "oil pipe line
    companies" within the terms of Article 7105, as amended,
    Vernon's Annotated Civil Statutes, so as to be 1Lable for
    the tax on intangible assets thereby levied. That each of
    such comnanies is calculated to receive a profit from trans-
    porting this purchased 011 from the place of production to
    connection trunk lines and on to market, or to a refinery
    for proce~sslng,cannot be gainsaid. And this expected or
    poss,ibleprofit may be reasonably consIdered as in the nature
    of compensation or hfre for the transportation of crude
    petroleum by,such companies as private pipe line carriers.
    Inany event, such companies are, in effect, offering their
    pip4 line services and facilities to anotherperson or cor-
    poration, and to that extent may byeconsidered "oil pipe
    line companies."
              ,But~
                  we cannot bring ourselves to hold that COMPANY
    A and COMPANY B occupy a like status, but on the contrary,
    giv4 Ft as our opinion that neither of such companies~con-
    stitute an "oil pipe line company" within the meaning of--the
    intangible tax statute. You state that COMPANY A "owns a
    gathering system which transports oil from its-producing
    leases to the purchasing c~ompany.'s~
                                        pipe line" and that
    COMPANY B~"owns its pro&ucuc-ing
                                   Ieas.eand pipe lines that trans-~
    portthe oil to their own refLnery." Nonoil is bought from
    other producers for transportation 8s in the~zcaseof CGMPANY
    C and COMPANY D. We point wfth stress to thef fact thn-tthe.
    intangIble tax,statute under consideration-employs the lan-~
    guak3e"engag-& in the,transportation of oil, dopingbusiness
    wholly or 1n part 'within this State'las descript~iveof and
    following the enumeration of "oil pZp4 line company" and "com-
    mon carrter pipe line company." It would indeed be a stralned
    construction of the statute to say that COMPANY A an& COMPANY
    B, under the facts outlined in your letter, w4rt engaged in
    the business of transportation of oil, when~they own all the
    properties lnvolvsd, including the oil run through the pipe
    lines, and have no dealings, contractual or otherwise, with
    any oth4r person or corporation. It is our opinion that
    COMPANY A is Ln the producing 'businessand the gathering
    system which Fs owned by it is a mere incident to such busi-
    ness. Similarly; the system of pipe lines which COMPAXY B
    owns and uses for the transportation of oil from their own
    producing leases to their own refinery should be considered
    as a mere incident to their business of producing crude'oil
    and reftning or processing such oil.
              The Supreme,Court of the United States Ln the case
    of United States vs. Ohio Oil Co., supra, in holding tha-tan
    oil company using a pip4 lfne xholly for the purpose of con-
    ducting its ovn oil from its own wells in one state to Its
    own refinery in,another State was not an oil,plpe line Carriers
Hon. Geo. H. Sheppard, page 8         o-892


so as to be comprehended by the provtsFons of an Act of
Congress extending the Interstate Commerce Act to such car-
rier, expressed the conclusion which we have reached as to
COMPANY A and COMPANY B in the following apt language:
          "There remalns to be considered only the Uncle
    Sam 011 Company. This company has a refinery in Kansas
    and 011 ~411s in Oklahoma, with a pipe lLn4 connecting
    the two which it has used for the .solcpurpose of con-
    ducting oil from its own wells to its own refinery.
    It would ba a perversion of language,consldering the
    sense in which it is used in the statute, to say that
    a man was engaged in the transportation of water
    whenever he pumped a pail of water from his well to
    his house. So as to oil. When, as in this case, a
    company is simply drawing oil from Its own wells across
    a stat4 line to Its own refinery, for its own use,
    and.that is all, we do not r4gard it as falling with-
    in the description of the act, the transportation
    being merely an incident to us4 at the end."
          Although Involving an occupation tax upon the
operators ~of plpe lines rather than a tax on intangible assets,
as the case under consideration, the Supreme Court of Texas
in Texas Company vs. Stephens, 103 S.W. 481, pointed to a
distinction between owners of pip4 line companies who operate
for hire and those who operate merely to transport their
own commoditiest The court said:
           "Section 12 declares that 'every individual, joint-
    stock association, company, copartnershlp or corporation
    . e . which owns or operates a pipe line or lines within
    the state of Texas, whether such pipe lines be used for
    the transmission of 011, natural or artificial gas,
    whether the same be for Illuminating or fuel purposes
    or for any other purpose, or for steam, for heat or
    power, or for the transmission of artlales by pneumatic
    or other power, shall be deemed and held to be a pipe
    1Fne company.' It then requires quarterly reports show-
    ing oharges and freights within this state paid to or
    uncollecte&by such pipe line company on account of any
    business transacted by it in the capacity of a pipe
    line company as defined, and that each pipe line company
    engaged in conveying oil shall report, as a part of Its
    gross receipts, such sums as it would have been compelled
    to pay for conveying oil owned by it and conveyed for
    itself if it had employed some other pipe 1Lne company
    to convey Lt. It then requires the payment of 2 per
    cent .on the gross receipts as shown by such report. It
    is easily deduced from all of the provisions together
    that the tax is levied upon those engaged in the business
~   . .   .




              Hon. Geo. H. Sheppard, page 9         o-892


                  of transportation by pipe lines for others for
                  hire or profit, and the title of the act re-
                  enforces this idea, In that all of the businesses
                  specified In it are to be conducted for profit.
                  To all such section 12 applies, and the position
                  cannot be maintain& that it exempts from the
                  burden imposed any business of the same class;
                  that Is, such as are engaged Fn serving the public
                  for hire. There is no doubt that those carrying
                  on such businesses may be properly classified
                  for taxation, apart from the owners of different
                  businesses who, es an incident of their ,buslnesses,
                  use pipe lines to transport exclusively their own
                  commodities."
                        To further fortify our conclusion w4 point to WT~’ 1
              provisions ,ofChapter 15 of Title '32,Revissd 'CivilBtaMes,,
              governing corporations organized under Subd~ivIslon36 nF
              Article 1302, Revised Civil Statutes, '*tostore, transport,
              buy-and sell oil, .gas, salt, brine and -othermInera aolntians
              end liquified minerals.." .&Insofaras pertinent 'toths In&ant
              questi-on/Article Q@6, ~Revisea %Pvil Stxitutes,prxn+i&es
              that such corporations ahaX have the power:
                        "1. ,To,atore and transport oil, gas, brine and
                  other mInera solutfons, and also sand, clay9ti clay
                  products,,'
                            and to make reasonable charges &harefor.
                       ,"2. 'Tobuy, sell and furnish ail and 'gasfor    .
                 light, 'heat,andother purposes~;to lay dovn,,'construct,
                 maintain and operate pipe lines, tubes, tanks, pimnp
                 stations, connections, fixtures, storage hous,esand
                 such mach~inery,apparatus, devices and arrangsmsnts as
                 may be necnssarg to operate such pipes ana.plp4 Unes
                 between different points In this State."
                        The point we make here Is that corporations urganieed
              for the'purpose of engaging in the business of transporting
              crude oil by pipe line exist under an entirely lndapendent
              purpose clause ,thando corporations engaged in the dlff~erent
              business of produ~clngcrude petroleum, and are subjectto 7
              special statutory regulations. And to our minds, hitwas
              such a corporation, created for the purpose of .engaglngin
              the business of transporting crud4 petroleum by pipe lines.,~~~-
              rather than a corporation created for the purpose of produc-
              ing crude,petroleum or for the purpose of refining ,crude
              petroleum and incidentally using pipe lines to this end, ,vhich
              was within the cont4mplatFon of ,theLegislature ~tihant.hay
              used the ~term "oil pipe line company" in the lntangiblc tax
              statute. That a corporation owning and operating pipe lines
                                                           .    . .   _




Hon. Geo. H. Sheppard, page 10        o-892


Fn the business of transporting crude petroleum is to be
distinguished from a corporation engaged In another business
such as the producing budness or the refining b~usiness,ati
owning and operating pipe linas as an Incident of and to
such business, is made plain by Article 1503, Revised Civil
Statutes, which provides as follows:
          "Nothing in this chapter shall preclude the
   ownership or operation by any corporation, of private
   pipe lines in and about its refineries, fields or
   stations, even though such corporation may be engaged
   ,Fn the producing business."
          In summation, it is the opinion of this~Department
that COMPANY A and COMPANY B, as dsscribed in your letter,
ar4 not liable for the ad Wlorem tax on their Intangible
assets, levied by Article 7105, as ambnded, Vernon's Annotated
Civil Statutes because thej ar4 neither an "oil pipe l,lne
company" or a f!commoncarrier pipe line company" within the
statute. But with reference to COMPANY C and COWANY D, w4
are of the opinion that.although they are not "common carrier
pipe line companies," they are each en "oil,pipe line com-
pany" within the statute so as to be and become liable to
such tax on their intangible assets.
          You ask If ourruling would be altered should any
or all of,these companies oharge aid publish a tariff for
gathering and transporting this oil. Our answer is in the
nbgative. The charging and publlshlng of a tariff for the
transportation of crud4 oil for the public for hire, subject
to revision by regulatory boards and commissions, Is one of
the lndlcia of a common carrier pipe line company, but Is
not necessarily present in the case of private carriers of
petroleum by pipe lines, because the compensation or hire
in such cases is gbnerally controlled by contract. It Is
difficult to conceive any reason why the four companies In-
volved here should operate under a tariff for the trenspor-
tation of oil, as the term Fs commonly understood, but even
should they do so it would not change their status, under
the basic facts of their operations herefnabove discussed.
          You further point out that in the case of each of
the four companies mentioned, the United States of America,
through its Internal Revenue Department, collects a trens-
portatlon tax of 45 on the gross revenues. This has no
bearing upon the foregoing opinion because the tax under con-
sideration here is levied by the State upon corporations ~'
engaged in a certain designated business, while the.trens-
portation tax lsvied by the United States of America is an
excise tax upon the mere act or privilege of transporting oil
Hon. Geo. H. Sheppard, page 11         o-892


in a pipe line. In the former case the incidence of the tax
is fixed by the nature of the business conducted, while in
the latter it is fixed by the fact or act of transporting oil,
and thus no basis of comparison is afforded.
          Trusting the foregoing will satisfactorily answer
your inquiries, we are
                                 Yours very truly
                            ATTORNEY GENERAL OF TEXAS


                                 By s/Pat M. Neff, Jr.
                                      Pat M. Neff, Jr.
                                             Assistant
PMN:N:wc

APPROVED JULY 20, 1939
s/l?.F.Moore
FIRST ASSISTANT
ATTORNEY GENENAL
Approved Opinion Committee By s/WRE ,Chalrman




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