Honorable Geo. H. Sheppard

Comptroller of PublicAccounts Austin, Texas

Dear Sir: OpinionNo. O-892 Re: Liability of certain corporations, owningand us&ng pipe lines for the transportationof oil under certain fact situations,to an 

### aa valorem tax on their intangible assets under Art. 7105, R.C.S.

By your letter of May 29, 1939, you seek ,theoplnion of thisDepartment upon the liability of four corporaltions forthe intangibleassets tax levied by Article 7105,
as amencled;Vernon'sAnnotated Clvll Statutes, under the followingfact situation in each instance,which we quote from your letter:

"COMPANYA owns a gathering systemwhich transports oil from Its producing leases to the purchasing company'spipe line. They do not charge a tariff and do not separate their expenses of operating the lease from those of operating the pipe line.

"COMPANYB owns itsproduqlng lease and pipe line that transports the oil to their refinery. They do not set up a tariff and do not charge the pipe linewith its portlon of the expenses.

"COMPANYC operates its own lease and buys Oil from~other producers in that field and gathers and transports all of this oil to connecting trunk lines.

"COMPANYD gathers its own 011 togetherwith other oil purchased in the field and transports same to.its own refinery for processing. This company claims that all of the 011 transportedbelongs to it at the lease tank and therefore theg,chargeno tariff."

Article 7105, as amended,Vernon's Annotated Civil Statutes, levies's tax on the intangibleassets of certain designated corporations in the following language:Hon. Geo. H. Sheppard, page 2 O-892

"Each incorporatedrailroad company, ferry company,bridge company, turnpile or toll company, oil pipe line company, and all common carrierpFpe line companies of every characterwhatsoever, .engaged in the transportation of 011, doing business wholly or in part within this State, whether incorporated under the.laws'of this State, or of any other State, territory, or foreign country, and every other individual, company, corporation or associationdoing business of the same character in thLs State, in addition to the ad valorem taxes on tangiblepropertles which are or may be Imposedupon them respectively, by law, shallpay an annual tax to the State, beginning with the first day of January of each year, on their intangibleassets snct property, and local taxes thereon to the counties inwhYtchIts business Is carried on;which additional tax shall be assessed and levled upon such intangibleassets and property in the manner provided in this chapter. The county or counties inwhich such taxes are to be paid, and.':the manner of apportionment of the same, shall be determIned In accordancewithi:the provisions of this Chapter."

Itwill be noted that the foregoing statute expressly designates two corporationswhich could relate to the instantquestian,namely, oil pipe line company" and "all common carrier pipeline companies of every characterwhatsoever." The question first presented iswhether or not the Legislature of Texas used the two terms interchangeablyto describe one corporation,that is, a common carrlerplpe lrne company, or employed the two descriptive terms advisedly to bring within the scope of the taxingmeasure two distinct and separate types of corporationsengaged In the pipe line business.

Althoughwe have been unable to find any satisfactory definition or distInctionby the courts in this or other states between an "oil pipe line company" and a "oommoncarrier pipe line company," the case of Reagan County Purchasing Co. v. State, 110 S.W. (26) 1194,resolves ~~11 doubts as to whether the Legislatureby such language, intended to single out for
an intangibleassets tax only one oorporationor two corporations pursuingdifferent character of businesses. This case involveda suit by the State of Texas, in behalf of Itself and Reagan County, againstReagan County Purchasing Company to recover ad valorem taxes alleged to be-due on intangible assets of said company, assessed by the State Tax Board aiia certified to the Tax Assessor of Reagan County ~forthe year1935 - -The assessmentwas made and the suit based upon Article 7105, as amended,Vernon's Annotated Civil Statutes, and ~the prlnclpaldefense urged by the cornpawwas that the intangibleHon. Geo. H. Sheppard, page 3 o-892

tax law did not apply to transporters of 011 by pipe lines who are not common carrier pipe line companies, and who are not incorporatedoil pipe line companies in the sense that they are In the business of transportingoil for hire. Under pertinent findings of,factmade by the court it appeared that theecompany in question, although authorized by its charter And permit to engage in the business of transporting 011 by pipe line, haa never engaged in the business of transportingoil for others for hire or otherwise, all of the 011 which is transported through its pipe line system having been purchased by It from~ all of the producers inReagan County under contractswith them, and in turn resoldunder pre-existing contracts to the Humble Oil and Befining Company,at a price equal to the price paid for the oil plus 20# per barrel on each barred delIvered. Upon this state of the record, the court answered t,he contention of the companywith the following interpretationof the intangibletax statute:

"The text of the amendment provides that: 'Each Incorporated

. . . 011 pipe line company, and all common carrierpipe line companies of every characterw~hatsoever, engaged in the transportationof oil,

. *

. in addition to the ad valorem.taxes on tangiblepropertiesw,hich are or may be imposedupon them respectively,by law, shall pay an annual tax to the~State,

. - .on their intangible ,assets and .property,~

and local taxes thereon to the countIesIn which its business 1s carried on.' Itwill be observed that both 'pipeline companies' and common carrier pipe line companies are enumerated .among thosewho are to pay the tax upon intangibleassets. The language is plain, and Ifwe are to giv~eto it its plain meaning,we must hold that appellant comes within the enumeratedclasses. We are reinforced in this belle; by the fact that the caption, in stating the purposes of the act, likewise uses the same terms in the same sequence. Had the Legislature intended to limit the application of the act to pipe lfne companies transactingt~he business of common carriers of oil, It cou'ld

very reaaily have done so. The meaning 1s clearly expressed. to implication.'" 'Athing expressedputs and end

Although the court goe,sfurther in this ,case and holds that the company in question 1,s also a ,commoncarrier pipe line c~ompany, this does not impair its ruling that Article 7105,as amended, Vernonas Annota~ted Civil Statutes, comprehendswithin Its scope and terms not only common carrier pipe lines, as commonlyaeflnea by our courts, but in addition, private carrierpipe line companies..

Hon. Geo. H. Sheppard, page 4 O-892

To which of these two general classes of pipe line companies, embracedwithin the purview of the intangibletax act, can the four corporationsmentioned in your letterbe assigned? A common carrier pipe llne company has been unlformlg defined by the courts as one which offers its pipe line facilities or services to,thepublic generally or holds itself out as a carrierof 011 for hire. The usual accompanying attributes or powers are the right of eminentdomain, and the publishing and filingwith a regulatorybody of tariffs or-rates for the transportationof oil. As declaratory of~thls,the Legislature,by Article 6018, Revised Civil Statutes, has defined a common carrierpipe line as follows:

'Everyperson, firm, corporation, limited partnership, joint stock association or association of any kind whatsoever;

"1

. Owning, operating or managing any pipe line or any part of any pipe line within the State of Texas for the transportationof crude petroleum to or for the public for hire, or engaged in the business of transportingcrude.petroleumby.pipe line; or

"2

. Owning, operating or managing any pipe line or any part of zanypipe line for the transportation of crude petroleum, to or forthe public for hire, and which saidpipe line~is constructedor maintained upon, over or under'anypublic road or highway, or In favor of whom the right of eminentdomaln exists; or

"3

. Owning, operating or managing any pipe line or any part of any pipe line or pipe lines for transportationto or for the public for hire, of crude petroleum,and which said pipe line,or pipe lines is or may be constructed, operated or maintained across, upon, along, over or under the right ofway of any railroad, corporationor other common carrier required by law to transport crude petroleum
as a common carrier; or

"4

. Owning, operating or managing or particlpating In ownership, operation or management, under lease, contract of purchase, agreement to buy or sell,
or other agreement or arrangement of any kind whatsoever,any pipe lineor pipe lines, or part of any pipe line, for the transportation from any oil field
or place of productionwithin this-State to any distributlng,refining or marketing center or reshipping bHon. Geo. H. Sheppard,page 5 O-892

point thereof,within this State, of crude petroleum bought of others;

"Isherebydeclared to be a common carrier and subject to the provisions of this law. The provl.- sions of this law shall not apply to those pipe lines which are limited in their use to thewells, stations, plants and reflnerles of the owner and which are not
a part of the pipe line transportation system of any common carrier as a,,bove defined; nor shall such provisions apply to any property of such a common carrier which is not a part of or necessarily incident to its pipe line transportation system."

It is readily apparent that neither.of~thefour companies described in your letter are.~common carrierpipe line companiesunder the foregoing judicialand statutorydefinltions, because they do not hold themselves out to the public
as transporters of oil for hire. And although COMPANY C ARD GOMPANYD, under the facts stated,byyou, do transport by pipe lin~e

crude petroleum bought of others,and consequently, at first ,blush,

comewithin the.purviewof subdivision (4) of Article 6018, Revised Civil Statutes, we believe closer analysiswill demonstrate that the pipe lines involved are not a part of any pipe line system for the transportation of crude oil from the place of~productlonto any "distributing, refining or marketing center or reshipping point," but rather fall wlthfn the exception contained in ,thelastparagraph of the statuteas being "llmited in their use to the wells, stations
, plants and refineries of the owner."

Ifwe are correct In our conclusion that the four companies Involve&in your letter are not common carrierpipe line companies, It but remains "oilpipe line companies," to be determined if they are within the contemplationof Article 7105, as amended,Vernon's Annotated Civil Statutes. This question affordsmore difficulty because the case of Reagan County Purchasingcompany vs. State, supra, is the only case in Texas bearing upon this question and it unfortunately falls to define or delimit the term "oilpipe line company" used in the,intangibletax act, but merely held that under the facts of this particular case, the company in question
was an "oilpipe line company"within the meaning of the act. It should be remembered,however, that under the facts of this case the court found and held that therewas a virtual charge for the service of transportingthe oil in question, despite the fact that the oilwas purchased at the.well by the pipe line company. In this connection the court spoke
as follows:Hon. Geo. H. Sheppard,page 6 o-892

:::lAs-~heretbfo*4~st~ted,' Its charter, granted subsequent to the enactment of said provision, permits the transaction of the business of a common carrier, as-does Its permFt to do business. The profit of 20;cents per barrel stipulated In Its contract with the Humble Oil & Refining Company has all the characteristicsof a charge for service. It is not dependent upon the State of the market. It is fixed; and market fluctuations cannot affect It. The hazards of themarket have no place in appellant's scheme of things. Its return is as definite as the compensation of employees in the office and the field. Why should the Humble 011 & Refining Company pay this definite charge in excess of the markst price unless it be for transportationof the oil from the producer to the yrchaser,, togetherwith incidental storage ssrvlce?

With further.,reference to the status of a pipe line companywhich transports crude 011 bought,of other% such as. COMPAWY C and COMPANPD under cnnslderationhere, the Supreme Court of the UnIted States In United States vs. Ohlo'Oll‘Co~~, 234 U.S.,548, 34 Sup. Ct. 956, 58 L. Rd. 1459, commonly cited
as the,"PipeLine Cases," held that a company which transports only oil that is sold to 'itby otherproducers; and which refuses to carry oil vhlch is not sold to It on practically its ovn terms, is a commoncarrier ~withinthe meaning of an Act of Congress extendingths operation of the Interstate -. CommerceAct to persons and corporations 4ngaged in the transportation of oil by pipe lines. The justificationof this ruling Is doubtless found in th4 fact that a forced sale of crude petroleumby the producers to the plpe line company In order to find a market or outlet for thsir oil, is a subterfuge resorted to by the pipe,line companies to avoid oertaln tax and regulatorymeasures, andtitually amounts to a carriage of the oil for hire.

It appearsfrom your letter that COMPARYC "operates its own lease and buys oil from other producers 1n the field and gathers and transportsall of Its oil to connecting trunk lines," and that COMPANYD;~"gathersIts own 011, together :F: with other ail purchased in the field, and transports same to Its own refinery for processing. Although it does not appear that the oil.sopurchased by each of these companies is resold, under contract,at a fixed profit per barrel as in the case of Reagan County Purchasfng Company v. State, supra, or that the same conditions of monopoly and coercion exist as in the case of United States vs. Ohio 011 Co., supra, whereby the producerswere foroed to sell to ths pipe line oompani4s at the*r own terms in order to get a market for their oil, ~4 neverthaless incline to the view, unbar these.

Hon. Geo.H. Sheppard,page 7 o-892

authorities, that COMPANY C and COMPANYl2are "oilpipe line companies"within the terms of Article 7105, as amended, Vernon's Annotated Civil Statutes, so as to be 1Lable for the tax on intangibleassets thereby levied. That each of such comnanies is calculatedto receive a profit from transporting this purchased 011 from the place of production to connection trunk linesand on to market, or to a refinery for proce~sslng,

cannot be gainsaid. And this expected or poss,ible

profitmay be reasonably consIderedas in the nature of compensationor hfre for the transportationof crude petroleum by,such companiesas private pipe line carriers. Inany event, such companiesare, in effect, offering their pip4 line servicesand facilities to anotherperson or corporation, and to that extentmay byeconsidered "oilpipe line companies."

,But~ we cannotbring ourselves to hold that COMPANY A and COMPANYB occupya like status,but on the contrary, giv4 Ft as our opinion that neither of such companies~constitute an "oilpipe line company"within the meaning of--the intangibletax statute. You state that COMPANY A "ownsa gathering systemwhich transports oil from its- producing leases to the purchasing c~ompany.'s~ pipe line" and that COMPANY B~"owns itspro&ucuc-ing Ieas.e and pipe lines that trans-~ portthe oil to their own refLnery." Nonoil is bought from other producers for transportation8s in the~zcase of CGMPANY C and COMPANYD. We point wfth stress totheffact thn-tthe. intangIbletax,statuteunder consideration- employs the lan-~ guak3e"engag-& in the,transportationof oil, doping business wholly or 1n part 'withinthis State'l as descript~ive

of and following the enumerationof "oilpZp4 line company" and "common carrter pipe line company." It would indeedbe a stralned constructionof the statute to say that COMPANYA an& COMPANY B, under the facts outlined in your letter,w4rt engaged in the business of transportationof oil, when~they own all the properties lnvolvsd, including the oil run through the pipe lines, and have no dealings, contractual or otherwise,with any oth4r person or corporation. It is our opinion that COMPANYA is Ln the producing 'business and the gathering systemwhich Fs ownedby it is a mere incidentto suchbusiness. Similarly; the system of pipe lines which COMPAXY B
owns and uses for the transportation of oil from their own producing leases to their own refinery should be considered

as a mere incident to their business of producing crude'oil and reftning or processing such oil.

The Supreme,

Court of the United States Ln the case of United States vs. Ohio Oil Co., supra, in holding tha-t an oil company using a pip4 lfne xholly for the purpose of conducting its ovn oil from its own wells in one state to Its
own refinery in,

another State was not an oil,plpe line CarriersHon. Geo. H. Sheppard, page 8 o-892

so as to be comprehendedby the provtsFonsof an Act of Congress extending the InterstateCommerceAct to such carrier, expressed the conclusionwhich we have reached as to COMPANYA and COMPANY B in the followingapt language:

"Thereremalns to be considered only the Uncle Sam 011 Company. This company has a refinery in Kansas and 011 ~411s in Oklahoma,with a pipe lLn4 connecting the two which it has used for the .solcpurpose of conducting oil from its own wells to its own refinery. Itwould ba a perversion of language,conslderingthe
sense inwhich it is used in the statute, to say that
a man was engaged in the transportationof water whenever he pumped a pail of water from his well to his house. So as to oil. When, as in this case, a company is simplydrawing oil from Its own wells across a stat4 line to Its own refinery, for its own use, and.that is all, we do not r4gard it as fallingwithin the description of the act, the transportation being merely an incidentto us4 at the end."
Although Involvingan occupationtax upon the operators~ofplpe lines rather than a tax on intangibleassets,
as the case under consideration,the Supreme Court of Texas in Texas Company vs. Stephens, 103 S.W. 481, pointed to a distinctionbetween owners of pip4 line companieswho operate for hire and thosewho operatemerely to transport their
own commoditiest The court said:

"Section12 declares that 'everyindividual, jointstock association, company, copartnershlpor corporation

. e

.which owns or operates a pipe line or lines within the state of Texas,whether such pipe lines be used for the transmission of 011, natural or artificialgas, whether the same be for Illuminatingor fuel purposes or for any other purpose, or for steam, for heat or power, or for the transmission of artlalesby pneumatic
or other power, shall be deemed and held to be a pipe 1Fne company.' It then requires quarterlyreports showing oharges and freightswithin this state paid to or uncollecte&by such pipe line company on account of any business transactedby it in the capacity of a pipe line company as defined, and that eachpipe line company engaged in conveying oil shall report, as a part of Its gross receipts, such sums as itwould have been compelled to pay for conveying oil owned by it and conveyed for itself if it had employed some other pipe 1Lne company to convey Lt. It then requires the payment of 2 per cent .onthe gross receipts as shownby such report. It is easilydeduced from all of the provisions together that the tax is levied upon those engaged in the business~ . . .

Hon. Geo. H. Sheppard, page 9 o-892

of transportationby pipe lines for others for hire or profit, and the title of the act reenforces this idea, In that all of the businesses specified In it are to be conducted for profit. To all such section 12 applies, and the position cannot be maintain& that it exempts from the burden imposedany business of the same class; that Is, such as are engaged Fn serving the public for hire. There is no doubt that those carrying
on such businessesmay be properly classified for taxation, apart from the owners of different businesseswho, es an incident of their ,buslnesses,
use pipe lines to transport exclusivelytheir own commodities."

To further fortify our conclusion w4 point to WT~’ 1 provisions ,of

Chapter 15 of Title '32, Revissd 'Civil

BtaMes,, governing corporationsorganized under Subd~ivIslon 36 nF Article 1302,Revised Civil Statutes, '*to store, transport, buy-and sell oil, .gas,salt,brine and -other mInera aolntians end liquifiedminerals.." .&Insofar as pertinent 'toths In&ant questi-on/ArticleQ@6, ~Revisea%Pvil Stxitutes, prxn+i&es that such corporationsahaX have the power:

"1. ,To,atoreand transport oil, gas, brine and other mInera solutfons, and also sand,clay9ti clay products,,'

and to make reasonablecharges &harefor.
,"2

. 'Tobuy, sell and furnish ail and 'gasfor

. light, 'heat,andother purposes~; to lay dovn,,'construct, maintain and operate pipe lines,tubes, tanks, pimnp stations, connections, fixtures, storagehous,es and suchmach~inery,

apparatus,devices and arrangsmsntsas may be necnssarg to operate suchpipes ana.plp4 Unes between different points In this State."

The point we make here Is that corporationsurganieed for the'purposeof engaging in the business of transporting crude oil by pipe line existunder an entirely lndapendent purpose clause ,thando corporations engaged in the dlff~erent business of produ~clng crude petroleum,and are subjectto 7 special statutoryregulations. And to our minds, hit was such a corporation, created for the purpose of .engaglngin the business of transporting crud4 petroleumby pipe lines.,~~~- rather than a corporation created for the purpose of producing crude,petroleum or for the purpose of refining ,crude petroleum and incidentallyusing pipe lines to this end, ,vhich
was within the cont4mplatFonof ,theLegislature~tihan t.hay used the ~term"oilpipe line company" in the lntangiblc tax statute. That a corporation owning and operatingpipe lines. . . _

Hon. Geo. H. Sheppard,page 10 o-892

Fn the business of transporting crude petroleum is to be distinguished from a corporation engaged In another business such as the producingbudness or the refining b~usiness, ati owning and operatingpipe linas as an Incident of and to such business, is made plain by Article 1503,Revised Civil Statutes,which provides as follows:

"Nothing in this chapter shall preclude the ownership or operationby any corporation,of private pipe lines in and about its refineries, fields or stations, even though such corporationmay be engaged ,Fnthe producingbusiness."

In summation, it is the opinion of this~ Department that COMPANYA and COMPANYB, as dsscribed in your letter, ar4 not liable for the ad Wlorem tax on their Intangible assets, leviedby Article 7105, as ambnded,Vernon's Annotated Civil Statutes because thej ar4 neither an "oilpipe l,lne company" or a f!common carrierpipe line company"within the statute. But with reference to COMPANY C and COWANY D, w4
are of the opinion that. although they arenot "commoncarrier pipe line companies,"they are each en "oil, pipe line company"within the statute so as to be and become liable to such tax on their intangibleassets.

You ask If ourruling would be altered should any or all of,these companies oharge aid publish a tariff for gathering and transportingthis oil. Our answer is in the nbgative. The chargingand publlshlng of a tariff for the transportation of crud4 oil for the public for hire, subject to revision by regulatoryboards and commissions, Is one of the lndlcia of a common carrier pipe line company,but Is not necessarily present in the case of private carriers of petroleum by pipe lines, because the compensationor hire in such cases is gbnerally controlledby contract. It Is difficult to conceive any reason why the four companies Involved here should operateunder a tariff for the trensportation of oil, as the term Fs commonlyunderstood,but even should they do so itwould not change their status,under the basic facts of their operations herefnabovediscussed.

You further point out that in the case of each of the four companiesmentioned, the United States of America, through its InternalRevenueDepartment, collectsa trensportatlon tax of 45 on the gross revenues. This has no bearing upon the foregoing opinion because the tax under considerationhere is levied by the State upon corporations ~' engaged in a certaindesignated business,while the.trensportation tax lsvied by the United States of America is an excise tax upon the mere act or privilege of transporting oilHon. Geo. H. Sheppard,page 11 o-892

in a pipe line. In the former case the incidenceof the tax
is fixed by the nature of the business conducted,while in the latter it is fixedby the fact or act of transporting oil, and thus no basis of comparison is afforded.

Trusting the foregoingwill satisfactorilyanswer your inquiries,we are

Yours very truly

ATTORNEY GENERAL OF TEXAS

By s/PatM. Neff, Jr. Pat M. Neff, Jr.

Assistant

PMN:N:wc

APPROVED JULY 20, 1939 s/l?.F. Moore FIRST ASSISTANT ATTORNEYGENENAL
Approved Opinion CommitteeBy s/WRE ,Chalrman

.