Untitled Texas Attorney General Opinion

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