March 14, 1952

Hon. Robert S. Calvert Opinion No. V-1421 Comptroller of Public Accounts Austin, Texas Re: Occupation tax rate on liquid hydrocarbons recovered ,i from gas by means of a sep- -_ arator. or other non-mechanical methods incidental to Dear Mr. Calvert: the production of the gas.

Your request for an opinion of this office reads in part
as foUows:
“Please advise me whether liquid hydrocarbons recovered from-gas by means of a separator or other non-mechanical methods incidental to the production of said gas are tobe taxed at 4.125$ per barrel whenever the value is less than $1.00 per barrel and at 4-l/8% ofthe value whenever the value is more than $1.00 per barrel, or if the rate should be 4.6$ per barrel whenever the value is less than $1.00 per barrel and 4.6% of the value whenever the value is more than $1.00 per barrel.

‘It has been my interpretation that the tax rate, effective September 1, 1951, on liquid hydrocarbons recovered from gas by means of a separator or other non-mechanical methods incidental to the production of said gas is 4.6$ per barrel whenever the value is less than $1.00 per barrel and 4.6% of the value whenever the value is more than $1.00 per barrel. However, due to the large number of taxpayers who have taken exception to this interpretation, Iwill appreciate your opinion as to the correct tax rate.

. . .”

Section III ofHouse Bill 285, Acts 52nd Leg., R.S. 1951, ch. 402. p. 695, amends Section l(1) ofArticle 7047b, V.C.S., by increasing the tax on production of gas from 5.2 per cent to 5.72 per cent of the market value, and reads in part as follows:

‘There is hereby levied an occupation tax on the business or occupation of producing gas within this State, computed as follows:

# 22% Hon. Robert S. Calvert, Page 2 (V-1421)

“A tax shall be paid by each producer on-the*-

‘mount of gasproduced andsaved within~this State equivalent to:5.72% of the market value thereof~ssand when produced; provided that the amount of such tax on sweet and sour natural gas shall never be less than 121/1500 of One Cent (10 per one thousand (1,000) cubic :fggt*”
Seiti&i(3) ofArticle-7047b,.V.‘C.‘S.,:~piovid&: I@

-, “All liquid hydrocarbons that are recovered from-gas .by means of a separator or by other.~non- ,~mechanical methods, incidental to the production~df said.gas;~shall Abe.taxed at the same rate as oil--as Llevied by:Acts-of 1941. Forty-seventh’,LegislaaWr.e, Chapter 184,-Article I,‘Section-ll”
Article-7047b. V;CiS.. levies an occunation tax on-the

‘business of produc~ing gas inthis State. -The tax isbased upoarthe .:.market~valrie:,.bf the.gas as produced. ~W.-R.-Davis v..State,.i42 -T.ex.’ 637; 180.S.W-.2d 429 (1944); Car&an River, ~Gas~Co.v.Bivins, .-137-T&, 347,~153‘S.W.2d 432 (1941).

?Sectlonll(3) ofArticle-7047b~spec’ifically.:provides!’the “manner’ and-raie-of taxing certain liquid hydrocarbons-recovered ’from-,the:gas by me&s of a separator cr.other~‘non-mechanitil ,^-means. .This‘ provision, which has’ the.effect-of taxing.~those.liquid :hydrpcarbonsl produced with the.gas-at the lower: rate pr,ovided for: oil’&thii than:,ht the.same’iate aslg6s;had. its-origin:i&krticle--~,ofHotis~Bill.8, Acts 47th-Leg.,-.R-.S.- 1941,:ch.. 184,?p.1269. The pertinent part ofparagraph (1)’of Section 1~ ofArticle:IIzof that~Act read.as follows:

. . ;--Allliquid hydrocarbons- thattare’recov3’erkd friim’g+by means of a separator: or:byy~dther nonmechanical~inethods shall~be taxed at the:same

‘r&e.as oil-as levied by Article Iof this-Act.”

Article Iof House Bill 8referred tom above levied-anoc- ’cupitibn tax.Lpon the production ofoil at the rate of 4.12~:perrcent !~.ofthe ‘market value thereof whenever such valueswas .in~ excesszof $1.00’ per barrel.

Article 7047b was amended in 1945 byechanges In~.the wording of and in the addition of certain sections. Acts 49th Leg.. R.S. 1945, ch. 269; p. 423. There was no change in the amount of the tax levied upon the production of gas. That portion of--Section 1of Article II ofHouse Bill 8relating to ‘thetaxation of‘the.liqtid hydrocarbons-in question was amended totread:Hon. Robert S. Calvert, Page 3 (V-1421)

“All liquid hydrocarbons that are recovered from gas by means ofa separator or by other non-mechanical methods, incidental to the production of said gas, shall be taxed at the same rate as oil as levied by Acts of 1941, Forty-seventh Legislature, Chapter 184, Article I, Section **1. ”** 
The 52nd Legislature increased the occupation taxes onthe production of oil and gas, making the tax equivalent to 4.6 per cent of the market value of oil and 5.72 per cent of the market value of gas produced. Sections Iand III, Acts **52nd** Leg., R.S.1951, ch. 402, p. 695. Section l(3) ofArticle 7047b was not amended by this Act. -~

The only question presented here is that of determining whether the liquid hydrocarbons should be taxed at the rate 

### of 4.125 per cent or at 4.6 per cent of their market value. Taxation 

### ofthe liquid hydrocarbons at the lower rate, 4.125 ‘per cent, may be supported by the theory that this was the tax levied upon oil by House Bill 8 of the 47th Legislature and this rate was specifically adopted by reference to that **act.** Taxation of the liquid hydrocarbons on the basis of the present rate-at which oil is taxed (4.6 per cent) may be maintained on the assumption that the Legislature intended that oil and these liquid hydrocarbons were to be taxed at the same rate.

It is a ge~neral rule that a statute which adopts another statute or a part thereof by specific reference incorporates or takes the adopted statute as it existed at that time notwithstanding subsequent repeal, amendment or modification of the adopted statute. 50Am. Jur. 58. Statutes, Sec. 39; 39 Tex. Jur. 129, Statutes, Sec. 66; Annotation, 168A.L.R. 627; 59 C.J. 610, 937, 1058, Statutes, Sets. 167. 548, 624; 2 Sutherland, Statutory Construction (3rd Ed. 1943) 548. As in the case of most general rules, however, this rule has its exceptions. The two exceptions applicable here are: (1) where the Legislature evidences such an intent, either **express or**  implied, the subsequent amendments of the adopted statute are incorporated within the adopting statute; and (2) subsequent amendments of the adopted provisions will be incorporated where both adopted and adopting sections are part of the same act or statute. Annotation, 168A.L.R. 627; 50 Am. Jur., supra; 59 C.J. 1058, Statutes, Sec. 624; 1Sutherland, Statutory Construction (3rd Ed. 1943) 432.
The occupation taxes on oil and gas were both enacted by the 47th Legislature in substantially their present form inHouse Bill 8,, supra, commonly referred to as the Omnibus Tax Bill. The two taxes are closely related and have a similar background in many respects, and they are taxes in the nature of severance taxes levied upon companion industries or occupations. //**&:,.**

**. .4** 

**2w** Hon. Robert S. Calvert, Page 4 (V-1421)

We are ofthe opinion that the Legislature -intended that

‘the liquid hydrocarbons **recovered** from gas by ‘separators or other 5 non-mechanical means were to.,be taxed at-the same rate as oil. These liquid hydrocarbons were, for the purpose ofthis tax, to’be treated as oil. If the Legislature had intended otherwise, a specific

‘-rate would have been set out inArticle 7047b. This intent ofthe ~Legislature .isclearly evidencedhy thefact that when.the 5lst Legislature, at its Special Session, passed House Bill 3 temporarily increasing tiy ten per cent the various sales, occupation, handlitense taxes, etc., finorder.to provide additional revenues, the,Act specifically provided that the liquid hydrocarbons recovered by separators or noon-mechanical means were.t-o Abetaxed at the same irate as oil under the-Act, i.e., 10% of 4.125. Acts 51st ‘Leg., kt %.S. .1950’,rh. t, 9. :I&

.l-Iouse ‘Bill ‘Zg5, Acts 52nd ‘Leg., R.S. 1951, ch. 492, p. 695, ~generally car-r&d over and;~in effect. made permanent the temporary increas’e~ of ten per c~entimposed by **House** BiLl -3. The caption to House .-Bill .2&Eclearly **evidences** the intent ofthe Leg-

‘

..islature ‘,toincrease the occupation taxes levied onthe prodtiinn of oil and gas; In this connection-we ‘quote from,Attorney Genek’fk ~0pihion V--1246 (.i9St) as ~filtows:

‘!After %h’ectose of~the‘Re~gularSessinn dfr&e ;3tst’L;~~iStaWre:in’~49, it,became apparent*at’the

.~, . ‘revenues to’& -collected under’the rntes:prm+lediin

‘the **taxing** -&dtrites then in effect.would be insafficimrt :PO-meet :the**:neces~sary** current expenditures r&the ,Stateforthe~biennium ending August.,31, 1951,andim order ‘to-avert’the deficit forecas~t by-the Comptrxiller and to pr-ovide :suificient funds ~forthe operation ofklre State’Hospitals and Special Schools, the Legislature
was called ,into-Special Session for the purpose of~%n- :acting ‘tax le.gielation to raise revenues in anamount .stifficient to-averts the deficit and provide-forthe ~ne&s 

### ofthe State.Hospitals and Special Schools. 

### House Bill 3, adopted byZhe Legislature at theSpecial Session (Acts 5Is.t Leg., 1st C.S. 1950, ch. 2. p. 10) pr~ovided **~for**fanadditional tax of 10% of thebasic levies of~a11 the taxing statutes, with certain exceptions not’herre pertinent, such additional tax-to’be in effect’for .the years 1950’and that part of 1951 ending onAugust 31gt.

‘The revenues derived therefrom were allocate,d to the State~Hospital %und with the exception ofthe portion required .by Section 3, Article VII of the Constitution ~ofTexas to.be:set apart for the benefit of the public :fru-es&6oEs.Hon. Robert S. Calvert, Page 5 (V-1421)

“At the Regular Session of the 52nd Legislature in 1951, House Bill 285, as introduced in its original form, provided for a continuation of the taxing statutes therein contained at the rates then in effect and contained the customary form of emergency clause. While in committee, the .original bill was amended as a whole by increasing the basic rate of all of the taxing statutes by lo%,, using practically the identical language contained inHouse Bill 3‘with certain ezceptions for the purpose of clarifying the application of the increased rate.

. . .

“In construi~ng a statute, the cardinal rule is to ascertain the-intention of the Legislature in enacting the law.-This intention, once ascertained, must be enforced although it may not be consistent with the strict letter of the statute. In ascertaining the true intention of the Legislature, the existing condition of the law at the time of its enactment and the general rules then established and applicable to its subject matter should be considered.. State v. Dyer, 145 Tex. 586, 200 S.W. 2d 813 (1947). If the language used inthe act leaves ,its intent obscure, the courts may resort to certain .aids in construction such as the nurnose sounht tobe ,accamplished, the history of the-legislation, and the public policy of the State. Harris v. City of Fort Worth, 142Tex: 600. 180 S.W.td 131U(l944]. The object in construing any statute is to as&?&a& from the langua,ge used in the statute the intention of the Legislature, and where the statute is a taxing statute, the act should be construed in connection with other laws relating to the assessment and collection of taxes. White v. McGill, 131Tex. 231, 114S.W.td 860 (1938). The Legislature is free to fii in each act the time it, as a whole or in part; shall take effect, and may therefore provide that it shall takewect in whole or in part from its passage, approval, or%% fled date. Chambers v. Baldwin, 274 S.W. 1011(Tex. Civ. App. 1925). The intention of the Legislature being clearly manifested by its history and by the emergency clause that it should become effective
as a revenue producing measure upon its effective date, that intention should control. Texas Co. v. Stephens, 100Tex. 628, 103 S,W. 481 (1900). In determining the legislative intent, the entire act should be looked to and this includes the caption, the body of the act, and the emergency clause. -Popham v. PHtterson, 121Tex. 615, 51S.W.2d 680 (1932).-. .

Hon. Robert S. Caivert, Page 6 (V-1421)

-Applying these rules of statutory construction toHouse Bill 285, and bearing in mind that House Bill 3 imposed an additional tax of 10% in practically all of the taxing statutes amended by House Bill 285, with certain exceptions above noted, the continuance ofthe 10% increase in effect after>he expiration date of House Bill 3 on August 31, 1951, makes it a reasonable conclusion that the Legislature intended to carry the 10% increase into effect for the entire calendar
vear 1951except in cases where such increase was specifically repealed. Construing all of the provisions -,~ofHouse Bill 285 together, the intendment was tokeep the 10% additional levy except where the basic levy of the taxing statute was raised, inwhich case the ini
crease was to become effective upon September 1, 1951. wtthout regard towhether the tax was payable in adVance upon an annual, quarterly, or monthly basis.” (Emphasis Added).
The liquid hydrocarbons in question are actually produced as a part or component of the gas and would be taxed as such except for the express provision that they were tobe taxed at the ijame rate as oil. We believe that it is obvious that the Legislature intended to increase these occupation taxes by approximately the
same amount and that since the occupation tax onthe production of oil was raised from 4.125 to 4.6 per cent, it follows that the tax nn these liquid hydtocarbons was aIso to be increased to4.6 per cent Oftheir rixaiket WAS.

, in &n&usion, it is 

### our opinion that the 52nd Legislature intended in House Bill 285 to carry over and to continue in effect the gene*&1 ten per cent increase invarious taxes imposed by House Bill 3, and that the liquid hydrocarbons recovered from gas by separators or other non-mechanical means under the provisions of~paragraph (3) of Section 1ofArticl~e 704i’b, V.C.S., should be taxed ‘atthe same rate Bs oil or at~4.6 per cent oftheir market v%lui?~whenever such value is in excess of $1.00 per barrel.

Liquid hydrocarbons recovered from gas by separators or other non-mechanical means are tax--*

.

Hon. Robert S. Calvert, Page 7 (V-1421) 

# 24-a

able at the same rate as the occupation tax levied upon the production of oil, which is 4.6 per cent of the market value. Arts. 7047b and 7057a, V.C.S.;

. H. B. 285, Acts 52nd Leg., R.S. 1951, ch. 402, p. 695; Att’y Gen. Op. V-1246 (1951).

Yours very truly,

APPROVED:

,- W; V. Geppert _, Taxation Division

E.Jacobson Reviewing Assistant PRICE DANIEL Attorney General

Assistant
Charles D. Mathews First Assistant

., FL:meh ’