RNEY GENERAL

CD EXAS

Honorable Robert S. Calvert Comptroller of Public Accounts Capitol Building Austin, Texas
Opinion No. M-83

Re: Whether corporations created for the purpose of providing TV cable services are required topay the gross receipts tax provided by Article 11.02, Title 122A, Taxation-General, Dear Mr. Calvert: V.C.S.

You have requested the opinion of this Office on the above captioned question. Section (1) of Article 11.02, Title 122A, Taxation-General,Vernon's Civil Statutes reads, in part, as follows:
"(1) Each individual, company, corporation, or association owning, operating,managing
or controlling any telegraph lines in this State,
or owning, operating, controlling or managing what is known as wireless telegraph stations, for the transmissionof messages or aerograms, and charging for the transmission of such messages or aerograms, shallmake quarterly, on the first days of January,April, July and October of each year, a report to the Comptroller,under oath of the individual, or of the president, treasurer, or superintendentof such company, corporation, or association, showing the gross amount received from all businesswithin this State during the preceding quarter, in the payment of telegraph or aerogram charges, including the amount received on full rate messages and aerograms, and half ratemessages and aerograms, and from the lease or use of any wires or equipment within the State during said quarter,

... Said individuals, companies, corporations,and
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associations,at the time of making said report, shallpay to the State Treasurer, and there is hereby levied upon said individuals,companies, corporations,and associations,an occupation tax for the quarter beginning on said date, -a.'

We think thata determination of whether corporationswhich provide TV cable serviceare subject to the provisions of Article 11.02 requires a detailed examination of the facts. The following is an excerpt from one of the briefs submitted in connectionwith this request.

'IE. Stratford Smith' in his March 7, 1967, position paper entitled Legal Status of Communit Antenna Television SystemsUndmeral and S ate -----+ ming Statutes,writeszomn this connection: 1) t

. . .
"'A community antenna television system is a facility utilizing a receiving antenna or antennas, connectionwire, cable or relay facilitiesand associated equipment, for the reception by subscribingmembers of thepublic of the signals of one or more broadcast stations.

"A communityantenna is, as the term implies,
a master television receivingantenna erected and designed to service a community, or suchpart thereof as is practical to serve, or as may have a requirement for the service. It is technicallyand functionallyanalogous to themaster antenna systems installed in apartment houses and hotels to permit service to part or all of the apartments, rooms, or suites by means of a single antenna system. Generally, community antennas are found in areas where, because of the interaction of topographicor geographic or structural conditions, and technological and economic factors, reception of television signals

1. Former executive secretaryand general counsel of the National CommunityTelevisionAssociation, Inc., and
now seniorpartner, Smith, Pepper, Shack & L'Heureux, 1101 17th St., N.W., Washington, D.C. 20036.

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by conventionalantennas is either: (1)nonexistent, (2) of unsatisfactory quality, or (3)possible only with the aid of costly, tall and sometimesunsightly roof-top antennas or by
means of antennas placed on high elevations or other suitable locations. For example, distance from originating stations, interveningobstacles such as mountains or high buildings,poor ground conductivity or seasonaland other changes in atmospheric conditions can often impair or make impossiblegood televisionreception. Where such conditionsprevail a master communityantenna is erected at a suitable loca,tion, usually on a high elevation or the top of a very tall tower erected for that purpose, where reception of the signals of the desired stations is available in sufficient field strength to produce good quality pictures.

“A coaxial cable or other type of antenna lead or run extends from the antenna to the’area of community to be servedwhere connection is made with coaxial or other wire distribution lines which, in turn, serve the individual subscriber “house drops.’ The antenna lead and distribution cable facilities are generally supported on electric power or telephoneutility poles for which rentals are paid under contractwith those companics, In a few cases these facilitiesare placed underground or on privately owned poles. Easements and right-of-way to use streets and alleys are generally obtained from themunicipal governments. In a limitednumber of cases these are exclusive rights, but for themost part are not. “‘Describing the technical function of a community antenna system generally, the signals received from the distant stations,as well as from local stations in many instances,are received at themaster antenna and passed through amplifying equipment at thatpoint and at appropriate locations along the antenna run and distribution trunks. This procedure is employed tomaintain adequate signal strength for the signals to pass through the system to the televisionreceivers in the home, and to produce acceptable or better pictures on those receivers.

... -372-Honorable Robert S. Calvert, page 4 (~-83)

11 I 0.. “‘Communityantennas are capable of receiving the signals of more than one station simultaneously. As a general rule, antenna sites are selectedwhere themaximumnumber of nonduplicating and noninterfering television channels can be received in sufficient strength and quality to produce acceptable pictures. The antennas are designed and oriented,when installed, to receive the desired signalsand to reject, to the extent possible, the undesired channels. Electrical interference can be caused by the channels on the cable radiating outside of the confines of the cable into the sameoradjacent channels which are being received directly off-theair. In order tominimize such interferenceand permit the compatible operation of CATV systems with direct off-the-air reception, the Federal CommunicationsCommissionhas promulgated specific rules and regulationsapplicable ,tocommunity antenna television systems to limit such “incidental radiation.” Thus, by Order adopted July 11, 1956, the Commission adopted Subpart D of Part 15 of its Rules and Regulations applicable to “Incidental and Restricted Radiation Devices,” entitled “CommunityAntenna Television Systems.‘I”

.Letus examine the plain language ofArticle 11.02. The specific individuals, companies, corporationsor associations subject to this tax are those “owning, operating,managing or controllingany telegraph lines in this State, or owning, operating, controlling or managing wha,tis known as wireless tele- ~~~p~~~i,“h~u~,‘~~~~~~si~~~,“~r~~~~~~~~~~~do~o~e~~~ purpose of providing TV cable servicesare not providing the services above quoted. Rather, the occupation in which such corporationsare engaged is an adjunct to the occupation of television corporations operating television stations. Therefore, under the plain and unambiguous language of the statute,TV cable service corporationsare not subject to the occupation tax imposedby Article 11.02.

If we be in error in so grounding our holding, and if the statutemay properly be subject to construction, the law has long been settled in this State that ambiguous tax statutesmust be

373-HonorableRobert S. Calvert, page 5 (M-83)

strictly construed in favor of the taxpayerand that the courts will not extend the scope of a taxin 54 Tex.Jur.2d 166, 167, Taxation, B Jfstatuteby implication. 1. The authorities in support of the foregoing propositionsare legion. Western Union Tel. Co. v. State of Texas, 62 Tex. 630 (1884); Philtex Chemical Co. v. Sheppard, 219 S.W.2d 1010 (Tex.Civ.App.199 error ref., n.r.e.)* Calvert v. App. l&l, error re 346 S.W.2d 420 (Tex.Civ.

Comm. v. Bass, 137 Oil & Refining Co., n.r.e.).

We are aware that this Office has held in Opinions C-702 and C-702-A (1966) tha,t TV cable corporationsare within ,theprovisions ofArticle 1416, V.C.S., which authorizes corporations created for thepurpose of constructingand maintainingmagnetic telegraph lines to set theirpoles, wires and other fixtures across public roads, streets and waters of this State in suchmanner as not ,toincommode the public. Opinion C-702-A expresslymodified C-702 in so far as it contained statements to the effect thatTV cable corporationsare public utilities, but adhered to the result reached in C-702 on the ground that such corporationsare subject to regulation and that this regulationwas limited to the exercise of thepolice power of the State.

Various cases are ci,tedin C-702 in which courts have held that television transmission is an integralpart of the telephone and telegraphbusiness regardless of the type of systemused, i.e., coaxial cable or ordinary telephonewires. These cases were concerned 2ither with the jurisdiction of a State Public Service Commission or with eminent domain problems.3

Whether a particular State Public Service Commissionhas jurisdiction of regulating the transmissionof televisionbroadcasts by wire depends, of course, upon thepcwer of regulation granted the Public Service Commission under the State laws.

The statutes authorizing the extent of the jurisdictionof the New York Public Service Commission at the time of the decision

2. IndependentTheatre Owners v.Arkansas Public Service a., 235 Ark. bbti,361 S.W.2d 642 (1962).

3. Ohio Tel. & Tel. Co. v. Steen, 85 N.E.2d 579 (1949); Ball v.American Telephone and Telegraph Co., 227 Miss. 218, 86 So.2d 42 (1956).

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in CerrachiTelevision Corp. v. Public Service Com'n, 267 N.Y.S. 2d 969 (Sup.Ct.,Albany County,New York, 1960), authorized the regulationby the Commission of the business of affording telephonic communicationfor hire. The court held thata telephone company'srental of pole space to the televisioncorporationwhich
was engaged in the business of transmittingTV broadcasts over wires to customerswas not part of thepublic serviceperformed by the company in the business of telephoniccommunicationand, therefore, was not subject to regulation by the Public Service Commission. We quote the following excerpt from pages 972-975 of the opinion:

"Thebusiness of the petitioner is of recent origin arising from the rapid expansion of the television industry. Patently thepicking off-the-air standardbroadcasts of commercial television stationsand by amplification transmitting 'thesame over wires directly to thehousehold patron is not in any sense telephonic communication. Basically, then, thepetitioner's business is not 6ubjec.tto the jurisdictionof the commission as the statutes are now written. Whether such an industry should be regulated is for the legislatureand not for the courts.

"The petitioner argues that since the company's poles are, by statutory definition, (PublicService Law, fi2, sub. l8), a part of the company's 'telephone line' and since the commissionhas regulatory jurisdictionover all telephone corporationsand their equipment, the poles and the use of the poles by the attachment of the petitioner's facilities are subject to the commission's regulation. The petitioner argues that since the poles and theattachments fall within the regulatory sphere of the commission that the commission should assume to regulate the charges for the attachment of petitioner'swires thereto.

"The rental of thepole space by the company to the petitioner is not part of thepublic service performed by the company in thebusiness of telephonic communication. (Matterof Gamewell Co. v. Public Service Commission of State of N.Y., 8A.D.2d 232, 188 N.Y.S.2d 107, leave to appeal denied 7 N.Y.2d 706, 195 N.Y.s.2d 1027, 162 N.R.2d 754). such a non-utility activity of a telephone company is not subject to regulation by the commission. (Matterof Solomon v. Public

-375..Honorable Robert S. Calvert, page 7 (M-83)

Service Comm. supra.Matter of National Merchandising Corp., supraj

."

It is evident that entirely different rules of construction are applicable to statutespertaining to the regulation of television service corporationsand their powers of eminent domain, and that these rules cannot'be applied when a tax statute is being construed.

The source ofArticle 11.02 was Article 7059,V.C.S. Article 7059 was last amended by Acts 1945, 49th Leg., p. 471, ch. 299, 131, and was brought forward unchanged as Article 11.02 in the recodification of the tax laws enacted byActs 1959, 56th Leg., 3rd C.S.; p, 187, 'ch.1. The 1959 codification is carried in 2OA, Title 122A, Tax.-Gen.,V.C.S. Since TV cable corporationswere in existence'at the time of the last amendment of Article 7059 and at the time~ofits being carried forward into Title 122A, it must be assumed that,had the Legislature intended to tax such corporations, it would have done so. Section 3 of Title 122A, enacted at the time of the codification of the taxa',tion statutes, reads as follows:

"Thisact shall be construed tomake a substantive change in the prior-law only where the language of this act manifests a clear intent to make such a change."

In Humble Oil & Refining Co. v. Calvert, 10 Tex.Sup.Ct. Journal No. 23, p. 254 (March 15, 1967) the courtwas concerned with the question of whether the Legisliture by enactingArticle 12.02, Title 122A, Tax.-Gen.,V.C.S., in 1959 intended to change the corporate franchise tax allocation formula with respect to receipts from intangibles. The Comptroller’s contentionwas tha,t Article 12.02 not only codifiedArticle 7084, but also amended it. The court refused ,tosustain this contention. In the course of the opinion the court pointed out that the only difference betweenArticle 7084 and Article 12.02was the addition of four subsectionswhich specificallyallocated certain items to *businessdone in~Texas.” The court held thaf'these','subsections were'ihsufficient to constiture an amendment as claimed and did not effectuate a change in the ambiguous phrase “business done in Texas.” For over forty years theTexas -,rule

for determiningwhich receipts from intangibles should be al-locatedin Texas had been the “locationof payor” test. ‘Thecourt deemed it of importance that the Comptiollerhad’fiist asserted the ‘loouunerclal domiciloH test dm 1963,.At page 257 .of the opinion, the court quoted Section 3 of Title 122A, above quoted, and concluded that in the absence of specific statutory language

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specifying "commercialdomicile," theComptrollerwas at,tempting~to look outside the statute and outside the common law. At page 257, the court said:

"Section 3, supra, forbids the Comptroller to look anywhere except 'thelanguage of thisAct,' and any changemust there be manifested clearly."

Your departmental construction ofArticle 7059 prior to the 1959 codificationdid not include TV cable service corporations as being within the provisions ofArticle 11.02. As aforesaid, the 1959 codificationsmade no change inArticle 7059, nor have you changedyour construction thereof to this date. It is
common knowledge thatmany TV cable service corporationshave been in existence for a good many years. Therefore, even if we were in error in holding that the plain language of Article 11.02 excluded TV cable corporations from the tax therein imposed,Humble precludes any other construction.

SUMMARY Corporations created for the purpose of providingTV cable servicesare not required to pay the gross receipts tax provided by Article 11.02, Title 122A, Tax.- Gen.,V.C.S.

rs very truly,

MMP:ms General of Texas

Prepared by Marietta McGregor Payne Assistant Attorney General

APPROVED: OPINION COMMITTEE Hawthorne Phillips, Chairman W. V. Geppert, Co-chairman Ralph Rash ,JohnReeves J. Arthur Sandlin W. E. Allen

STAFF LEGAL ASSISTANT A. J. Carubbi, Jr. -377-