The Attorney General of Texas
March lg. 1983
JIM MAlTOX
Attorney General
Honorable Warren New Opinion No. JM-16
Supreme Court Building
P. 0. BOX 12548
Yoakum County Attorney
Austin. TX. 78711. 2548 P. 0. Box 359 Re: Whether charge imposed on
5121475-2501 Plains, Te*gs 79355 telephone company by city may
Telex 9101874.1357 be passed on to county as a
Telecopier 512/4750268 customer of telephone company
1607 Main St., Suite 1400 Dear Mr. New:
Dallas. TX. 75201.4709
2141742.6944 You have been notified by the telephone utility which serves your
county that it is imposing an extra charge on the bills of Its
4824 Alberta Ave.. Suite 160
customers receiving service within the city limits of Plains. The
Et Paso. TX. 79905.2793 extra charge was initially denominated a "city gross receipts tax,"
9156333484 but was subsequently referred to in later correspondence as a
P "franchise fee.” This "franchise fee" $8 equivalent to a charge that
the city imposed upon the telephone utility and which the telephone
1220 Dallas Ave.. Suite 202
Hpuston. TX. 770026986
utility seeks to pass through to its customers. You have refused to
713/650-0666 pay the extra charge and have asked whether such pass-through charge
can permissibly be imposed upon the county. You claim that the charge
Is. in reality, a tax and cannot be levied against the county lest
806 Broadway. Suite 312 article XI. section 9 of the Texas Constitution, which exempts from
Lubbock, TX. 79401.3479
8061747.5238
taxation the property of counties devoted exclusively to the use and
benefit of the public, be violated. We reject your contention and
conclude: that the telephone utility Is not prohibited from passing
4309 N. Tenth. Suite B through to the county the extra fee imposed by the city. '~
McAllen. TX. 78501.1685
512,682-4547
This office addressed a similar issue fin an earlier opinion and
concluded,that state agencies may pay a so-called "municipal franchise
2W Main Plaza. Suite 400 charge" imposed by the telephone company upon all of Its customers,
San Antonio, TX. 78205-2797 including state agencies. As noted in Attorney General Opinion H-1265
5121225~4191 (1978). utility companies frequently enter into franchise agreements
with cities authorizing them to use the city's streets~in exchange for
An Equal Opportunity/ a franchise fee. uhlch is-usually calculated as a percentage of the
Affirmative Action Employef gross receipts received on services locally rendered. The Public
Utility ~Cosauission requires .regulated utilities to file with the
commission tariffs which provide that any municipal franchise charge
will be passed on to the utility customers within the affected
municipality.
Article 1175, section 12. V.T.C.S.. requires telephone companies,
before using the grounds or streets of a home rule city, to first
p. 62
Honorable Warren New - Page 2 (JM-16)
obtain the consent of the governing authorities and pay prescribed
compensation. Article 1181. V.T.C.S.. sets forth other conditions
which relate to the grant by a home rule city of a "franchise to use
or occupy the public streets, avenues, alleys or grounds" of the city.
Pursuant to these provisions, home rule cities may grant utility
franchises to use the public streets in exchange for compensation
measured by a percentage of gross receipts. See City of Tyler v.
Television Cable Service, Inc., 493 S.W.2d 322 (% Civ. App. - Tyler
1973, writ of Weslaco v. General Telephone Company
of the Southwest, 359 S.W.2d 260 (Tex. Civ. App. - San Antonio 1961,
writ ref'd n.r.e.). General law cities have authority under article
1016. V.T.C.S.. to arant franchises to telenhone companies conducting
a local business. Fleming v. Houston Lighting and Power Company, 138
S.W.2d 520. 522 (Tex. :1940).~ cert. denied, 313 U.S. 560 (1941);
Southwestern Telegraph and Telephone Company v. City ,of Dallas, 174
S.W. 636 (Tex. Civ.' ADD. - Dallas 1915. writ ref d). See also
V.T.C.S. art. 1446~. §21;-Tax Code 1182.064.
Relying on language in Fleming v. Houston Lighting and Power
Company. s, which characterized such franchise charges collected
by utilities as rentals for the use of city streets rather than as
G&es, and cases in accord from other jurisdictions, this office
concluded that such a franchise charge is no'ca tax. Attorney General -,
Opinion H-1265 (1978). Despite dicta .in Payne v. Massey, 196 S.W.2d
493 (Tex. 1946) and City of Alvin v. Southwestern Bell Telephone
Company, 517 S.W.2d 689. 692 (Tex. Civ. App. - Houston (1st Dist.)
1975. writ ref'd n.r.e.). which appear to characterize such franchise
charges as gross receipt taxes. the great weight of authority supports
the conclusion set forth in Attorney General Opinion H-1265, and we
reaffirm it here. The franchise charges imposed by the city and
measured as a percentage of the gross receipts of the utility are not
a tax, but rather a rental charge paid in compensation for the use of
the streets. You claim. however, that the charge is a tax and that
the imposition of the charge violates article XI,, section 9 of the
Texas Constitution which provides, inter alia. that the property of
counties devoted exclusively to the use and benefit of the public
shall be exempt fronttaxation.
Assuming. arguendo. that such charge could fairly be denominated
a tax, it is clear that article XI, section 9 has no relevence in this
instance. Article XI, section 9 prohibits, inter alia. any political
subdivision from imposing ad valorem taxation on the property of any
county, city, or town which is devoted exclusively to the use and
benefit of the public. NO property of the county is even conceivably
beinn taxed in this instance: no county property is involved. See,
*t Wichita County Water Improvement District No. 2 v. City of
Wichita Falls, 323 S.W.2d 298 (Tex. Civ. App. - Fort Worth 1959. writ
refmn.r.e.); City of Fort Worth,v. Reynolds, 190 S.W. 501 (Tex. Civ.
APP. - Fort Worth 1916. writ dism d).
p. 63
.
,-
Honorable Warren New - Page 3 (JM-16)
We find no statutory or constitutional prohibition against the
payment of properly established telephone rates by counties. We
conclude that the charge imposed by the telephone utility is not a
tax; rather it is a rental imposed for the use of the streets. Were
we to conclude, however, that such charge were a tax, we also conclude
that such charge does not violate any constitutional or statutory
provision which we have found or to which we have been directed.
SUMMARY
A charge imposed by a municipality upon a
telephone utility denominated a franchise fee and
measured by a percentage of the gross receipts of
the utility Is not a tax; rather such charge is a
rental imposed for the use of the streets. A
telephone utility may pass through such charge to
its customers. including the county, without
violating statutory or constitutiofal provision+
JIM MATTOX
Attorney General of Texas
TOM GREEN
First Assistant Attorney General
DAVID R. RICHARDS
Executive Assistant Attorney General
Prepared by Jim Moellinger
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Susan L. Garrison, Chairman
Rick Gilpin
Jim Moellinger
Bruce Youngblood
p. 64
Untitled Texas Attorney General Opinion
Combined Opinion