THEA~TORNEY GENERAL
OF TEXAS
Aue- 11. ‘X’EXAS
Hnnornbl~,e
Robe~,tS. Cs~lvert Opinl~onNo. w-477
Comptroller of Public Accounts
Cap1to1 Station Re: Proper lnterpretation to
Austin, Texzs be placed on Sub-section
2 ,ofSection 2s of .Lrtl-
cle 7047b relating to the
amount of taxes to be
pa1.don gas where’the
seller ha3 an escalator
cl~a~1~3e
In,their,contrnct-
-when the final declolon
of the Federal Power Com-
mission Is pending.
Dwrir Mr. Cnlvert:
You request the opinion of thi3 offi.ceupon the ques-
tions pI?esentedin your letter of June 12, 1958. For o
bt-,tt.cr of the questI.onsa.ndthe factual.basin
l~?rje.,t;,~rridi,ng
upsr! ,:ri.li.rt-:
they RW(?predicated, we quote the pertinent part
(ofpw letter :rzfoll.ows:
"Artlcl,e 7047b, V.A .C.S, levies a tax on the business
and occupnt;1on of producing go3 tl%,thinthis State
t.ia:;ed
on ‘themarket vnlue of the gas as and when
gr*oduccB.
“Sec.ti.on
2 of Article 701+7b,V.A.C.S. reads as follow3:
‘The mrkct veluw of gas prodmod In this
St*oLeshell bc t.hevalue thereof at the
muth of the well: however, in case gas
in sold I’orcash only.,the tax shall be
computed on t,heproducer’s gross cash re-
ct,i~I’tr!
. Payments made by purchasers to pro-
ducer:Jfor the purpone of reimbursing such
producer3 for taxes due hereunder shall not
he consl,deredR part;of the prod,ucwr’sgross
c;33hrec+i,pt,:s. In a’11case3 where the whole
or n pal:bt of’the considcretion for the sale
(:ffrt113i:;H por,tionof the products extracted
I”rcon:
the:i~:!!lucebb’3 gn3 or 3 portion of the
rczidu,e):;I:;,or both, the tnx shall be com-
p~l;txlon t:,hegross value of all things of
value rocoiv~~~~ by, the producer, Including
any Lion11::cj~’
pr~emi.um :’
"Sub-section 2 of Section 28 of Article 7011Tb,V.A.C!.S.
reads 8.sfollows:
'When it shall appear that a taxpa:yerto
whom the provisions of this Article shall
apply has erroneously paid more taxes than
were due during any taxpaying period either
on account of a mistake of fact or law, i,t
shall be the duty of the State Comptroller
to credit the total amount of taxes due by
such taxpayer for the current period with
the total amount of taxes so erroneously
paid.’
"The Federal Power Commission has suspended various
applIcatlons for scheduled contract rate increases
on gas sales subject to Federal Power Commlsalon
regulation. The Natural Gas Act provides that if a
final decision has not been rendered within five
months following the proposed effective date of tbe
increased rate on motion of the filing producer,
the proposed rate change shall go into effect. In
this event, where increased rates become effective,
the Commission may require the producing company to
furnish a bona or file under 'Corporate Undertaking'
eu of bona) to refund any amounts ordered by
$2 Enmission , pending a hearing and final decision.
In the event the Commission in Its :finaldecision
disallows the rate lncreixse,the amounts collected
under 'Corporate Undertaking' or under bond plus
interest at six pe:rcent per annum must be refunded
to the purchaser of the gas.
"Gas soles affected by this procedure fall Into two
categories; (1) sale from leases and (2) residue
sales from gasoline plants.
"A ouestion has arisen as to whether the gas produc-
tion tax provided for by Article 7047b, V.A.C.S. sir:
due on the increased rates received under bond or
under 'Corporate Undertaking' at the time that .thc
amounts are collected or whether the tax becomes due
at the time the Federal Power Commission reaches a
final decision. It is my understanding tha,tit may
be as long as five years before a final decision ic
I,reached in some of the cases now pending.
"A number of the taxpayers are currently remlttlng
the tax on the rate increases received under bond
Honorable Robert,S. Culvert, page 3, Opinion No. WW-477
or under 'Corporate Undertaking' and have Indicated
that should the Federal Power Commission In Its final
declslon require that part or all of the increased
rates be refunded that credit will be taken against
future gas production taxes for the amount of tax
previously paid on that part of the rate increase
refunded."
You asked two questions, as follows:
QUESTION NUMBER ONE:
"Please advise me whether or not the tax becomes
due at the time the Increased rate is received
under bona or 'Corporate Undertaking' on sales
from leases and residue sales from gasoline plants
or whether Ft Is due at the time the Federal Power
Commission reaches a final declslon."
QUESTION NUMBER TWO:
"If your answer is that the,tax becomes due at the
time the increases are received under bona or 'Cor-
porate Undertaking', please advise me whether or
not the taxpayer will be entitled to take credit
against future gas production taxes for the tax
paid on any part or all of the rate Increase re-
quired to be refunded by the Federal Power Commls-
sion jn Its final decision."
The pertinent portion of Article 704'j'b,
Vernon's Civil
Statutes, which levies this tax, is as follows:
"Section l(1). There is hereby levied an occupa-
tion tax on the business or occupation of producing
gas withln this State, computed as follows:
"(a) From the effective date of this Act
until September 1, 1955, a tax shall
be paid by each producer on the amount
of gas produced and spved within this
State equivalent to nine per cent (9%)
of the market value.thereof as and when
produced;
"(b) From Sep'tember1, 1955, until September 1,
1956, the rate of said tax shall be eight
per cent (8%) of the market value of the
gas as and when produced.
. ,
Honorable Robert S. Calvert, page 4, OpLnLon No. VW-477
"(c) From and after September 1, 1956, the
rate of said tax shall be seven per cent
(746)of the market value of the gas as and
when produced."
You will observe that under sub-section (a) the tax is
levied upon the market value of the gas "as and when pro-
duced," and the same language is used in sub-section (b)
ana (c). Therefore, under the plain terms 'ofthe statute,
the tax accrues as and when produced and is payable at the
time and in the manner prescribed by sub-section (c) of
,Article 7047b, V.C.S.
You will also observe that the tax is calculated upon
the market value of the gas. The Supreme Court has said
that the term "market value" is the prioe for which the
producer sells his gas. W.R. Davis, Inc., v, State 142
Tex. 637 180 S.W. 2a J+29. It is quite apparent that the
producer sells the gas not only at~the permissible rate
prior to the rate increase but in addition to the,increased
rate effective under a bond or Corporate'Undertaklng. Stated
another way, the producer sells the gas at the permissible
rate and in addition thereto the increased rate or both com-
bined and the tax accrues on the combined rates "as and when
produced" and is payable at the time and in the manner pre-
scribed by the statute.
Therefore, in answer to your question Number One, you
are advised that the tax should be calculated by taking into
account the increased rate which the producer may receive
under a bona or Corporate Undertaking, and this, regardless
of whether the increased rate is from leases or residue gas
from gasoline plants. Payment of the tax may not be post-
poned until the final determination by the Federal Power
Commission of the validity of producer's application for the
increased rate.
In answer to question Number Two, you are advised that
if the increased rate should finally be disalloWed by the
Federal Power Commission and the producer required to refund
to its customers the increased rate, the producer or taxpayer
would be entitled to take credit on its subsequent reports
for the taxes aid upon the increased rate as provided in
sub-section (2P of Section 2a of Article 7047b, V.C.S. The
length of time taken by ,thePower Commission to finally
determine the validity of the producer's application for
an increased rate is not material.
. -
Honorable Robert S. Calvert, page 5, OpLnion No. W-477
SUMMARY
A producer should pay the gas production tax
imposed by Article 7047b, V.C.S., taking into ac-
count any Increased ,rate put into effect by a
bond or Corporate Undertaking in lieu of a bond.
If the Increased rate is denied by the Federal
Power Commission and the producer Is required to
refund the Increased rate to its customers, the
tax so paid by reason of the increased rate should
be allowed as a credtt on subsequent repor,tsas
provided by the taxing statute.
Yours very truly,
WILL WILSON
Attorney General of Texas
By s/L. P. Loller
L. P. Lollar
Assistant
LPL:db:wc
APPROVED:
OPINION COMMITTEE:
J.C. Davis, Jr., Chairman
Tom I. McFarling
Jack Goodman
Henry G. Braswell
REVIEWED FOR THE ATTORNEY GENERAL
By : W. V. Geppert