# The Attorney General of Texas

March lg. 1983 JIM MAlTOX Attorney General

Supreme Court Building P. 0. BOX 12548 Austin. TX. 78711. 2548 5121475-2501 Telex 9101874.1357 Telecopier 512/4750268

1607 Main St., Suite 1400 Dallas. TX. 75201.4709 2141742.6944

4824 Alberta Ave.. Suite 160 Et Paso. TX. 79905.2793 9156333484 P
1220 Dallas Ave.. Suite 202 Hpuston. TX. 770026986 713/650-0666

806 Broadway. Suite 312 Lubbock, TX. 79401.3479 8061747.5238

4309 N. Tenth. Suite B McAllen. TX. 78501.1685 512,682-4547

2W Main Plaza. Suite 400 San Antonio, TX. 78205-2797 5121225~4191

An Equal Opportunity/ Affirmative Action Employef HonorableWarren New Yoakum CountyAttorney P. 0. Box 359 Plains,Te*gs 79355 OpinionNo. JM-16
Re: Whether charge imposedon telephone company by city may be passed on to county as a customerof telephonecompany
DearMr. New:
You have been notifiedby the telephoneutilitywhich servesyour county that it is imposing an extra charge on the bills of Its customers receiving service within the city limits of Plains. The extra charge was initially denominated a "city gross receipts tax," but was subsequently referred to in later correspondence as a "franchise fee.” This "franchise fee" $8 equivalent to a charge that the city imposed upon the telephone utility and which the telephone utility seeks to pass through to its customers. You have refused to pay the extra charge and have asked whether such pass-through charge canpermissiblybe imposedupon the county. You claim that the charge Is. in reality, a tax and cannot be levied against the county lest article XI. section 9 of the Texas Constitution, which exempts from 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 through to the countythe extra fee imposedby the city. '~ This office addressed a similar issuefinan earlier opinion and concluded,thatstate agenciesmay pay a so-called "municipal franchise charge" imposed by the telephone company upon all of Its customers, including state agencies. As noted inAttorney GeneralOpinionH-1265 (1978). utility companies frequently enter into franchise agreements with cities authorizing them to use the city's streets~inexchange for a franchise fee. uhlch is-usually calculated as a percentage of the gross receipts received on services locally rendered. The Public Utility~Cosauissionrequires .regulatedutilities 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 telephonecompanies, before using the grounds or streets of a home rule city, to first

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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 thepublic 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. TelevisionCable Service,Inc., 493 S.W.2d 322 (% Civ.App. - Tyler 1973,writ ofWeslaco v. GeneralTelephone 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 franchisesto telenhone companies conducting a local business. Flemingv. Houston Lighting and Power Company, 138 S.W.2d 520. 522 (Tex. : 1940).~cert. denied, 313 U.S. 560 (1941);
S.W. phone Company v. City ,ofDallas, 174 636 (Tex. Civ.'ADD. - Dallas 1915. writ ref d). See also Southwestern Telegraph and Tele
V.T.C.S.art. 1446~. §21;-TaxCode 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 concludedthat such a franchisecharge is no'c a tax. AttorneyGeneral -, Opinion H-1265 (1978). Despite dicta .inPayne 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 chargesas gross receipt taxes. the greatweight 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 percentageof the gross receipts of the utility are not a tax,but rathera rental chargepaid 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 Constitutionwhich provides, inter alia. that the property of counties devoted exclusively to the use and benefit of the public shallbe exempt front taxation. Assuming. arguendo. that such charge could fairly be denominated a tax, it is clear thatarticleXI, 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 FortWorth,v.Reynolds, 190 S.W. 501 (Tex.Civ. APP. - Fort Worth 1916.writ dism d).

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We find no statutory or constitutionalprohibition 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 chargewere a tax,we also conclude that such charge does not violate any constitutional or statutory provisionwhichwe have foundor towhichwe have been directed.
SUMMARY
A charge imposed by a municipality upon a telephoneutility denominateda 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 telephoneutility may pass through such charge to its customers. including the county, without violating statutoryor constitutiofalprovision+

JIM MATTOX Attorney General of Texas
TOM GREEN FirstAssistantAttorney General
DAVID R. RICHARDS ExecutiveAssistantAttorneyGeneral Preparedby Jim Moellinger AssistantAttorneyGeneral
APPROVED: OPINION COMMITTEE
SusanL. Garrison,Chairman Rick Gilpin Jim Moellinger BruceYoungblood

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