Untitled Texas Attorney General Opinion

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