I\ OFFICE OF THE ATTORNEY GENERAL OF TEXAS
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0 AUSTIN
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flonoreble Weaver 3. Baker, Chelrman
atate Board of control
Awtin, Texas
Dear ;ir:
Your letter
a1 fOllOV8 :
e aame article pro-
pollti.oal rubalvialorliJ
rges upon 6uoh public
the uue of street@,
Vaya, 8u@ ohargee not to exoeed
e equivalent of 2% of the groa6
by the list ettaohed hereto, eevoral
eemoeynary insltftutiano are r4ov pay-
ing dlreotly their proportionate part of the Increai-
ed grors reoeipts tax levied under Howe Bill 6,
eupra, in the form of additions made to the con-
Weat rates on their monthly bill5 for electrio
service. Alao etteehed iii a certified copy of an
ordinance of’ the City of Terrell, enacted under au-
thority of House Bill8, levying E etreet and alley
Qee tax bared upon the gross rectiipts of the local
gonoreble Weaver B. Baker, page 2
g a s~o mp a y,a r ido ~mp ~y h a slignlfled its lnten-
tlon to add the amount of this tax to the nmnthly
gaa bills OS the Terre11 State Hospital, vhleh is
located within the oity llmlta of the olty of Ter-
rell.
“Your opiaio~ is requested as to vhether or not
the State eleemoaynary lnatltutiana are chargeable
with the State groae reoeipta and n~unioipal street
and alley use taxes dlnauaaed above.’
Your ~ueation, It seems to ua, lnvolvaa tvo diatinot
popoaitlons :
(1) Doer 6 state or olty tar upon publio utLl.lty mm-
penisa (vhether it be a Sra~Ohiae See or rental or an oaoupation
tax) vhioh is measured by the groaa reeelpta of the aoqpany eon-
rtltute a tax upon a governmental lnatrumantalfty lnaofar aa it
ia baaed on the gross reaelpta Srom gas and eleatrioity Surniah-
ed to state eleemoaynary inrtltutionr?
(2) &Laythe rates for gaa and eleotriolty Surriiahed
by the utiUty oompany to atate eleaaoaynery lnst~tutlona be in-
creased by the emouub OS awh tax?
With reference to the Sirat of t$.eae tvo propoaltlone,
it is our opinion that rulther the atate oooupation t4x upon
utilltlea levied by &Mole 7060, B. C. S., 1925, as amended
by Aota 1941, 47th Laglalature, R. S., Iiouae Bill 8 Article
V, nor a rental or S-rmchl~e fee Imposed by a city (under the
authority of aaid Aat) upon a utility for uae of the streets cmd
alleys, not In exaeaa of 22 OS the gross reoelpta OS auoh util-
ity tithin euoh city can be conatrued ae being 4 tax upon a
government*1 Inatrumentalftg (vhether Federal, State or Hunloi-
pal) by reaam of the SaOt thet the gross reoelpta OS auah util-
ity mey include, in part, reaeipta Srom gas, electrtalty or vater.
furnished to governmental agencies. The tax or See is levied
upon the utility end not upon the governmental agency. The aon-
neCtiOA betvew the gas, water arnd,eleatrloity bought sad pstd
Sor by the governmental agenoy and the tax upon the utility
measured in part by the groae receipts therefrom ie too remote
to offend the oonatitutlonel tax iunaunlty OS governmental lnatru-
Prentautiea.
The altuetion la amlagoua to that before the United
Btatea Supreme Court IR Jesea v. Dravo Controeting Co., 302 U.S.
Honorable Weaver B. ESkeP, page 3
134, wherein It var held that the &ate of West Virginia might
collect a tax of 2% on the groaa reoeipta of a oontraotor S~om
vork performed by him In the oonatruotlon of dm end looka for
the Federal Government iA the State. Chief JuStiCe Hughes, In
the opinion In that cese declared, at page 160:
“But IS it be assumed that the groaa recelpta
tax may Increase the aoat to the Government, thet
feet would not invalidate the tax. With respeot to
that effeot, a tax OA the OOntPeotOP’S gross reOeipt5
would not dfffer from a tax OA the aontraotorta pro-
perty and equipment neceaaarlly uaed in the perform-
81168 of the contract. Conoededly, such a tax may
validly be laid. Property taxes sre naturally, as
Ln this oaae, reckoned as a part of the expense of
doing the vork. Texea may validly be laid not only
OA the contractor’s macbine~y but on the fuel used
to 02erate It. In Trinity SaPm Conatruotion Co. v.
Oroajean, 291 U. 3. 466, the taxpayer entered Into a
eontract with the Federal Government for the conatruo-
tlon of levees In aid of navigation end gasoline vu)
used to supply power for taxpayer*e machinery. A
state excise tax on the gasoline 80 used was suataln-
ed. The Court said that $S the payment of the atate
taxes imposed on the property aud operations of the
taxpayer (affects the federal goVeFMtsnt et all, It
at mat gives rime to a burden which Ia oonaequentlal
and remote end not to one that is neoeasary, ipoaed-
iate or dIreot.* But a tax of that sort uupuestlon-
ably increases the expense of the contraolmr in per-
forming his aervioe md may, if it enter5 into the
oontraetor(a estimate, lnareaae the coat to the Gov-
ernment . The Saot that the tax on the groaa reoeipta
of the contraOtoP In the Alvard aa8e (Alvard v. John-
son, 282 U. S. 509) might have increased tha Oost
to the Government of the aarriage of the malls did
not lmpreaa the Court as mllItatIng sgalnat its
validity. n
While the *avo case vaa decided by a divided Court,
its authority cannot nov be questiened, having been reoently
cited with approval by the Uaited jtatea Yupreme Couct in the
inion by Chief Juatloe Stone, 5nnowwIng the unanlmoua deol-
2
a on of the oorrrt ln Alabama v. EIng bc Bobaer, 86 L. Ed. l.,
wherein a state sales tax of 2% upon btild%ng materisle was sua-
tained as applying to materials purohaaed by a aontrabtor an-
gaged In conatruow an umy opnrp for the United %tatsa under a
:, ,..
. :i
*oFable Weaver H. Baker, page 4
Qoat-plus-a-fixed-fee” oontxaot. we quote I’IWIUthe OpiniOA in
*& King L Boozer arae:
“So far as such a nondisorimlnatory state tax
upon the contraotor enters into the ooat of
the
.materiala to the ~ovemment, that is but a normal
insideAt of the organlaatlon WithIn tha aame terrl-
tory, of tvo independent WxIng lovereigntlea. The
asserted right of the one to be Sree of taxation by
the other doea not spa11 Immunity StrompayWg the
added ooata, attributable to the taxation of those
vho furnish supplies to the Qovernment and vho have
been groated PO tax Immunity. So far as a dISSeraAt
view haa prevailed, aee Panhandle 011 Co. v. Mlaa-
iaaippl 277 U.S. 218) and Qravea v. Texaa Co. (298
U.S. 393 I , ve think it no longer tenable.”
This dootrlne announced by the United States Supreme
Coopt IA the Ilfavo and King & Booser aaaea, that a tax, other-
xtre~velld, will not be atrloken down beoauae the eaonomI5 burden
OS the tax may be “passed on” by the taxpayer to governmanta
agemiea or other eAtItIea thamaelvsa UumuneSrom dlreot taxa-
tion haa been adopted by the Su eme Court of Texas. See Qray-
burg 011 Co. v. State, 3 S. W? r 26) $27. In State of Texas v.
Cltt OS El Paso, 135 Tex. 359, 143 9. W. (2d) 366, J6r. Juatloe
Orits deolared,:
“we AOV oometo determine whether OF not a
dealer who aella motor fuel to a city for muuiol-
pal uae by auoh olty on~the publlo highvaya OS the
State ia exempt from the four’oenta per gallon motor
Sub1 tax levied by our motor fuel tax lava. Agaln
referring to #a above quoted atatutoa, we find
that they OOAt5IA A0 diIWit prOvi5IQA MkIAg luoh
bxemptlon. Alao, ve Si.nd that such atatutea oon-
taln no language vh%oh would jwtI.Sy ua In aonstru-
Ing them aa l.ntenAl.ng auah an exelpgt&on. It Sol-
lova that dealera who sell motdr fuel to cities IA
thIa State for use 00. pub110 highwaya are liable to
pay the atatutory Sour oenta per gallon motor fuel
tax levied by our rotor fuel tax lava.”
The foregoing authorltlea amply support our conolualon
that a taq or See, ‘be it state or munIuipa1, measured by a per-
gonorable Ueaver Ii. Baker, page 5
oentage of the gross reoeipts of a utility doe8 not oomtitute
a tax upon a atate eleemoaynary lnatitution to the extent of
the utility’s reVenU38 fiOXI 8UOhinrtitUtiOIL
We turn POWto the second phase of your quertlon --
*ether the rate6 for gas and eleotriolty furnished by the utll-
Lty oompang to atate eleemoaynary inatltutlona may be inoreaaed
by the amount of the taxi or in other word8 vhether the atate
~oupation tax or the city franohlae fee may be “pa88ed on” by
the utility to the atate in8titution lo the form of higher rater.
m anaver to thla que8tion would in each inrtanoe deperid upon
the contract under vhioh the eleotrlclt~ or gaa le be- f$miz-
Since in your letter you refer to contract rater
&me that in each lmtanoe the rate8 are preeoribed iy ln-
dlvidu81 oontraota between the reupectlve utility company and
the Board of Control, rather than by munlolpal ordinance in the
oitlea vhere the Snatltutlona are located. If we are oorreot in
our aammptlon that the rate8 for the aeveral inrtitution8 are
pre8orlbed by contract -- then the term8 of luoh exlatlng con-
tracta vi11 determine vhether the nev taxer may be ‘parred on”
by the utility.
We have exmined one of the contract8 involved in your
quertion, being an *Agreement for Indw5trlal and Com8eroial
Eleotrloal Service,* dated July, 1940, between the Zexaa Power
C Mght Company and the State of Texa8, acting by and through
the State Board of Control for eleotriolty to be delivered at
the State Iiome for Dependent aud gegleoted Children at Uaoo. Thir
contract, ‘after aettlng out the rchedule of rate8, oontaia8 the
f ollowlng prOVi8ion I
‘Plu8 the proportionate part of 85~ new tax,
or increa8ed rate of tax, oc governmental lmporl-
tion or oharge (except atate, oounty. city and rpe-
air1 dialplot ad valorem taxer 8.nd any taxee on net
Income) levied or aa8e88ed age-t the fkmp8uy or
upon it8 electric bu8ine88 a8 the result of pay nev
or amended IJWS or ordlnanoea after Janwry 1, 1938.”
Under a contract containLug the foregoing or a 8lmllar
provl8lon, the utlllty would be authmlmed to lnorea8e the rate6
8peoified in the contract by the “proportionate part of any nev
tax” ruoh a8 that provided by Artiole V of House Bill 8, Act8
47th Legislature or by a nev munloipal tax woeed slnoe the date
of the aontraot. In the absenoe of 8uoh a provision in the oon-
traot under which ger or electricity 5.8 being fuminhed to a
gonorableWeaver H. Baker, page 6
Q-tamer, any nev tax impo8ed upon the utility oould not affect
the rates presoribed in the oontraat. Plria d.laow8lon, we re-
pat, ia baaed on the assumption that the rates for gee and
eleotriclty being paid by the aeveral etate eleemosynary inati-
tution& are not fixed by muniaipal ordinanoe.
Yours very truly
ATTORNEY
OEHERALOF TEXAS