Mr. Ben Ramsey, Chairman Opinicn No. C-784

Railroad Commission of Texas Austin, Texas Re: Applicability of Utility

Dear Mr.

YOU Vernon's Tax under Article 6060,- V.C.S., concerning certain sales of the ShamrockOil Ramsey: & Gas Corporation. have requested this office to construeArticle 6060, Civil Statutes, to determine its application to certain sales of Shamrock Oil and Gas Corporation. Shamrock Oil and Gas Corporationproduces oil and gas, operates a refinery and gasoline plant inMoore County,Texas, andmarkets refined products. Natural gas is gathered from approximately450 wells from an extensive gathering system and processed at theMoore County,Texas, plant. You state in your opinion request that theRnilroad Commission has never attempted to collect the tax imposedby Article 6060 on salesmade at or prior to the tailgate of the gasoline plant or on salesmade commerce. in interstate

Shamrockmakes

. -._.. You further state in your request that five certain sales not at the tailgate of tneplant but at a distance varying from one and one-halfmilesfrom the plant up to 49 miles from the tailgate of the plant. In order to serve thesemarkets, it was necessary for Shamrock to build pipelines which cross var%ous State highways or farm roads. In your opinion request you gave this office five instances of salesby Shamrock and asked us to determinewhether the sales are exempt from the gross receipts tax imposedby Article 6060. The five illustrationswere as follows: 1. To SouthwesternPublic Service Company for use as fuel in itsMoore County Plant. The line used in connection with this sale is ownedby Shamrock and is crossedby a road which runs a short distance from Farm Road 119 to Continental Carbon Company's carbon black plant. This line is approximately l-1/2miles long. The pipeline, although crossed by a road,was put in before the road right of way was established.

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2. To Continental Carbon Company for use in its carbon black plant. The lineused in connectionwith this sale is ownedby Shamrock and is crossedby the above-mentionedroad running from Farm Road 119 to Continental'splant. This line is approximately2 miles long.
3. To American Zinc Company for use as fuel in its smelter. The lineused in connectionwith this sale is owned by Shamrock and is crossedby~FarmRoad 119. This line is approximately 3-i/2 miles long. 4. To Western Gas Service Company for its own use and for resale to others. The Shamrock line used in connection with this sale is crossedby Farm Road 119 and is approximately 3 miles long.
5. To SouthwesternPublic Service Company as fuel for itsNicholsPlant in Potter County,Texas. This line, approximately 'rg

miles in length, is owned by Shamrock and is crossed by severalpublic roads. Article 6060 places a tax on one of the three types of gas utilities described inArticle 6050, Vernon's Civil Statutes. The classificationof gas utilities set out inArticle 6050 describes three general categories,being persons, companies and corporationsengaged in "one or more of the following kinds of business":

"1. Producing or obtaining, transporting, conveying,distributingor deliveringnatural gas: (a) forpublic use or service for com- ~~~~",rtii"",~

L!pLies or sale to municipalities or in those cases referred to in Paragraph 3 heieof, engaged in distributing or sellingnatural gas to thepublic; (c) for sale or delivery of natural gas to any person or firm or corporationoperating under franchise or a contractwith any municipality or other legal subdivisionof this State; or (d) for sale or delivery of natural gas to the public for domestic or other use. “2. Owning or operating or managing a pipeline for the transportationor carriage of natural gas,whether for public hire or not, if any part of the right ofway for said line has been acquired,or may hereafterbe acquired by the exercise of the right of eminent domain; or if said line or any part thereof is laid -3761-. -

.

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upon, over or under any public road or highway of this State, or street or alley of any municipality, or the right of way of any railroad or other publicutility; including also any natural gas utility authorizedby law to exercise the right of eminent domain.
“3. Producing or purchasingnatural gas or transportingor causing the same to be transported by pipelines to or near the limits of any municipality in which said gas is received and distributed or sold to the publicby another public utility or by saidmunicipality, in all caseswhere suchbusiness is in fact the only or practically exclusive agency of supply of natural gas to suchutility or municipality, is hereby declared to be virtual monopoly and a business and calling affected with a public interest,and the saidbusiness and property employed thereinwithin this State shallbe subject to theprovisions of this law and to the jurisdictionand regulation of the Commission as a gas utility."
In 1931 the Legislature, however, limited the applicability of the tax by enactment of Section 10, Cha~pter 73, Acts 42nd Legislature,which provided as follows:

"ThatArticle 6060 of the Revised Civil Statutes of 1925, except insofar as it imposes a license fee or tax of one-fourth of one per cent against persons owning, operating or managing pipe lines, as provided in Section 2 of Article 6050, is hereby repealed and said fund shallbe used for enforcing theprovisions of Articles 6050 to 6066, inclusive."
In construing the 1931 statute, the court said in Thompson v. United Gas Corp., 190 S.W.2d 504 (Tex.Civ.App. 1945, error ref.):

II

. .Thegas utility described in each of Sections 1, 2 and 3 of Art. 6050 has the right of eminent domain, and each necessarily carries on its utility business by the use of pipe lines. The Legislature, however, in regulating and controlling all such utilities had theretofore classified them into three classifications in accordancewith the -3762-. .

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character of business done by each group. These groups generally represent three businesses, namely,production, transportation, and distributionand sale of gas. Before the repeal of a portion of Art. 6060 the Legislaturehad imposed the taxupon 'everygas utility' described in all three classifications. By the repealingAct it continued to impose the tax only upon the i? as utility described in Section 2 of Art. 050. Thus it definitelyand clearly imposed the tax upon the gas utility described as being persons engaged in 'owningor operating ormanaging a pipe line for the transportation or carriage of natural gas, whether for public hire or not, if any part o,fthe right of way for said line has been acquired.

. .by the exercise of the right of eminentdomain.

. .I The distinguishing feature of this section, however, is that the business is a pipe line for transportationor carriage of natural gas by pipe line, and the repealingAct continued to impose the taxupon it only."
In view of the Thompson v. United Gas Corp. case, the gas utility tax provided inArticle bob0 only applies to those gas utilities described in Section 2 ofArticle 050. The basic question to be determined is whether part of Shamrock'soperations can be clas,sified as fallingwithin Section 2 of Article 6050 sinceprimarily Shamrock is a producer andwould comewithin thatpart of theAct thatwas repealed in 1931. Of course, an operatormight well be engaged inmore than one of the three types of businesses described in Article 6050. PriorAttorney General opinionshave held that a gas producerwas exempt from the tax even though itwas engaged in the business of producing gas and was operating a gas gathering system for its own gas. 0-3524-A;w-625. However, those opinions can be distinguished from the questionshere presented. As stated in your opinion request, there is no attempt to collect any tax on the gathering of gas from approximately 450 wells by means of a gathering systemwhich undoubtedly crossesunder many public roads. All the gas gathered is processed for the removal of liquidhydrocarbons and the3Tgfeteningof sour gas at the. .

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Shamrock gasolineplant. Once the gas goes into the Moore plant, the producing and gathering of gas comes to a definite stoppingplace and "processed"gas or sas leaving the tailgate of the,,plant is treated"gas and thusmust be transported by pipeline" tomarkets. It is the general and accepted practice in the gas industry that contractsusually require 'takes"from the tailgateof gasoline plants. A producer that operates a pipeline to transporthis "processed"gas fromhis gasolineplant tomarkets shouldnot be classified as a producer of gas, but must fallwithin Section 2 of Article 6050 and is therefore "operating or managing a pipeline for the transpcrtationor carriage of natural gas." Therefore, it is the opinion of this office that gas transportedby pipeline from the tailgate of the Shamrock gascline plant tomarkets is subject to the tax imposed by Article 6060, "if any part of the pipe line is laid upon, over or under any public road.

. ."
In the five sales of gas by Shamrock only the gas sold to SouthwesternPublic Service Company (QuestionNumber 1) would be exempt since the pipelinewas built before the road was established. The utility tax is thereforeapplicable to the other four salesby Shamrock. SUMMARY
A gas producer that transportsgas from the tailgate of a gasoline plantby means of a pipeline that is crossedby a public road is subject to theutility tax imposed by Article 6060, V.C.S. Yours very truly, WAGGONER CARR Attorney General of Texas

AssistantAttorney General LS:bp

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APPROVED: OPINION COMMITTEE
W. V. Geppert,Chairman J. Arthur Sandlin Jim Broadhurst Milton Richardson Paul Phy APPROVED FOR THE ATTORNEY GENERAL BY: T. B. Wright

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