Honorable Geo. H. Sheppard 

Comptroller of Public Accounts 

Austin, Texas 

Dear Sir: Opinion No. O-892 

Re: Liability of certain corporations, 

owningand us&ng pipe lines for 

the transportation of 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 ,the oplnion of this Department upon the liability of four corporaltions forthe intangible assets tax levied by Article 7105, 

as amencled;Vernon's Annotated Clvll Statutes, under the followingfact situation in each instance, which we quote from 

your letter: 

"COMPANY A owns a gathering system which 

transports oil from Its producing leases to the 

purchasing company's pipe line. They do not 

charge a tariff and do not separate their expenses 

of operating the lease from those of operating the 

pipe line. 

"COMPANY B owns its produqlng lease and pipe 

line that transports the oil to their refinery. 

They do not set up a tariff and do not charge the 

pipe line with its portlon of the expenses. 

"COMPANY C 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. 

"COMPANY D gathers its own 011 together with 

other oil purchased in the field and transports same 

to.its own refinery for processing. This company 

claims that all of the 011 transported belongs to 

it at the lease tank and therefore theg,charge no 

tariff." 

Article 7105, as amended, Vernon's Annotated Civil 

Statutes, levies's tax on the intangible assets of certain 

designated corporations in the following language: 
Hon. Geo. H. Sheppard, page 2 O-892 

"Each incorporated railroad company, ferry 

company, bridge company, turnpile or toll company, 

oil pipe line company, and all common carrier pFpe 

line companies of every character whatsoever, .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 association doing 

business of the same character in thLs State, in 

addition to the ad valorem taxes on tangible propertles 

which are or may be Imposed upon them respectively, 

by law, shall pay an annual tax to the State, beginning 

with the first day of January of each year, on their 

intangible assets snct property, and local taxes thereon to the counties in whYtch Its business Is carried 

on; which additional tax shall be assessed and levled 

upon such intangible assets and property in the manner 

provided in this chapter. The county or counties 

in which such taxes are to be paid, and.':the manner 

of apportionment of the same, shall be determIned In 

accordance withi:the provisions of this Chapter." 

It will be noted that the foregoing statute expressly 

designates two corporations which could relate to the instantquestian, namely, oil pipe line company" and "all common carrier pipeline companies of every character whatsoever." The 

question first presented is whether or not the Legislature 

of Texas used the two terms interchangeably to describe one 

corporation, that is, a common carrlerplpe lrne company, or 

employed the two descriptive terms advisedly to bring within 

the scope of the taxing measure two distinct and separate 

types of corporations engaged In the pipe line business. 

Although we have been unable to find any satisfactory 

definition or distInction by the courts in this or other states 

between an "oil pipe line company" and a "oommon carrier pipe 

line company," the case of Reagan County Purchasing Co. v. 

State, 110 S.W. (26) 1194, resolves ~~11 doubts as to whether 

the Legislature by such language, intended to single out for 

an intangible assets tax only one oorporation or two corporations pursuing different character of businesses. This case 

involved a suit by the State of Texas, in behalf of Itself 

and Reagan County, against Reagan 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 ~for the year1935 - -The assessment was made and the suit based upon Article 

7105, as amended, Vernon's Annotated Civil Statutes, and ~the 

prlnclpal defense urged by the cornpaw was that the intangible 
Hon. 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 incorporated oil pipe line companies in the sense that 

they are In the business of transporting oil for hire. 

Under pertinent findings of,fact made 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 transporting oil 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 

in Reagan County under contracts with them, and in turn resold under 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 company with the following interpretation of the 

intangible tax statute: 

"The text of the amendment provides that: 

'Each Incorporated . . . 011 pipe line company, and 

all common carrier pipe line companies of every 

character w~hatsoever, engaged in the transportation of 

oil, . * . in addition to the ad valorem.taxes on 

tangible properties w,hich are or may be imposed upon 

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.' It will be 

observed that both 'pipe line companies' and common 

carrier pipe line companies are enumerated .among 

those who are to pay the tax upon intangible assets. 

The language is plain, and If we are to giv~e to it 

its plain meaning, we must hold that appellant comes 

within the enumerated classes. 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 transacting t~he business of common carriers 

of oil, It cou'ld very reaaily have done so. The meaning 

1s clearly expressed. 

to implication.'" 

'A thing expressed puts and end 

Although the court goe,s further in this ,case and 

holds that the company in question 1,s also a ,common carrier 

pipe line c~ompany, this does not impair its ruling that 

Article 7105, as amended, Vernonas Annota~ted Civil Statutes, 

comprehends within Its scope and terms not only common carrier pipe lines, as commonly aeflnea by our courts, but in 

addition, private carrier pipe line companies. 
. 

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

To which of these two general classes of pipe line 

companies, embraced within the purview of the intangible tax 

act, can the four corporations mentioned in your letter be 

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,the public generally or holds 

itself out as a carrierof 011 for hire. The usual accompanying attributes or powers are the right of eminent domain, 

and the publishing and filing with a regulatory body of tariffs or-rates for the transportation of oil. As declaratory 

of ~thls, the Legislature, by Article 6018, Revised Civil 

Statutes, has defined a common carrier pipe line as follows: 

'Every person, 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 transportation of crude petroleum 

to or for the public for hire, or engaged in the 

business of transporting crude.petroleum by.pipe 

line; or 

"2 . Owning, operating or managing any pipe 

line or any part of zany pipe line for the transportation of crude petroleum, to or forthe public for 

hire, and which said pipe line~is constructed or 

maintained upon, over or under'any public road or 

highway, or In favor of whom the right of eminent domaln 

exists; or 

"3 . Owning, operating or managing any pipe 

line or any part of any pipe line or pipe lines for 

transportation to 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 

of way of any railroad, corporation or 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 line or pipe lines, or part of any 

pipe line, for the transportation from any oil field 

or place of production within this-State to any distributlng, refining or marketing center or reshipping 

b 
Hon. Geo. H. Sheppard, page 5 O-892 

point thereof, within this State, of crude petroleum 

bought of others; 

"Is hereby declared 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 the wells, 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~the four companies described in your letter are.~common carrier pipe line 

companies under the foregoing judicial and statutory definltions, 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,by you, do transport by 

pipe lin~e crude petroleum bought of others, and consequently, 

at first ,blush, come within the.purview of subdivision (4) 

of Article 6018, Revised Civil Statutes, we believe closer 

analysis will 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 ~productlon to any "distributing, 

refining or marketing center or reshipping point," but rather 

fall wlthfn the exception contained in ,the lastparagraph of 

the statute as being "llmited in their use to the wells, 

stations , plants and refineries of the owner." 

If we are correct In our conclusion that the four 

companies Involve&in your letter are not common carrier pipe 

line companies, It but remains 

"oil pipe line companies," 

to be determined if they are 

within the contemplation of Article 

7105, as amended, Vernon's Annotated Civil Statutes. This 

question affords more 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 "oil pipe line company" 

used in the,intangible tax act, but merely held that under 

the facts of this particular case, the company in question 

was an "oil pipe 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 there was a virtual 

charge for the service of transporting the oil in question, 

despite the fact that the oil was 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 characteristics of 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 the market 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 transportation of the oil from the 

producer to the yrchaser,, together with incidental 

storage ssrvlce? 

With further.,reference to the status of a pipe line 

company which transports crude 011 bought, of other% such as. 

COMPAWY C and COMPANPD under cnnslderation here, 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,"Pipe Line Cases," held that a company which transports 

only oil that is sold to 'it by other producers; and which 

refuses to carry oil vhlch is not sold to It on practically 

its ovn terms, is a commoncarrier ~within the meaning of an 

Act of Congress extending ths operation of the Interstate -. 

Commerce Act to persons and corporations 4ngaged in the transportation of oil by pipe lines. The justification of 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 regulatory measures, 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 transports all of Its oil to connecting trunk 

lines," and that COMPANY D;~"gathers Its 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.so purchased 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 producers were 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 COMPANY l2 are "oil pipe line 

companies" within the terms of Article 7105, as amended, 

Vernon's Annotated Civil Statutes, so as to be 1Lable for 

the tax on intangible assets thereby levied. That each of 

such comnanies is calculated to receive a profit from transporting this purchased 011 from the place of production to 

connection trunk lines and on to market, or to a refinery 

for proce~sslng, cannot be gainsaid. And this expected or 

poss,ible profit may be reasonably consIdered as in the nature 

of compensation or hfre for the transportation of crude 

petroleum by,such companies as private pipe line carriers. 

Inany event, such companies are, in effect, offering their 

pip4 line services and facilities to anotherperson or corporation, and to that extent may bye considered "oil pipe 

line companies." 

,But~ we cannot bring ourselves to hold that COMPANY 

A and COMPANY B occupy a like status, but on the contrary, 

giv4 Ft as our opinion that neither of such companies~ constitute an "oil pipe line company" within the meaning of--the 

intangible tax statute. You state that COMPANY A "owns a 

gathering system which transports oil from its- producing 

leases to the purchasing c~ompany.'s~ pipe line" and that 

COMPANY B~"owns its pro&ucuc-ing Ieas.e and pipe lines that trans-~ 

portthe oil to their own refLnery." Non oil is bought from 

other producers for transportation 8s in the~zcase of CGMPANY 

C and COMPANY D. We point wfth stress to thef fact thn-t the. 

intangIble tax,statute under consideration- employs the lan-~ 

guak3e "engag-& in the, transportation of oil, doping business 

wholly or 1n part 'within this State'l as descript~ive of and 

following the enumeration of "oil pZp4 line company" and "common carrter pipe line company." It would indeed be a stralned 

construction of the statute to say that COMPANY A an& COMPANY 

B, under the facts outlined in your letter, w4rt engaged in 

the business of transportation of 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 

COMPANY A is Ln the producing 'business and the gathering 

system which Fs owned by it is a mere incident to such business. 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 Carriers 
Hon. Geo. H. Sheppard, page 8 o-892 

so as to be comprehended by the provtsFons of an Act of 

Congress extending the Interstate Commerce Act to such carrier, expressed the conclusion which we have reached as to 

COMPANY A and COMPANY B in the following apt language: 

"There remalns 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 .solc purpose of conducting oil from its own wells to its own refinery. 

It would ba a perversion of language,consldering the 

sense in which it is used in the statute, to say that 

a man was engaged in the transportation of 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 simply drawing 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 falling within the description of the act, the transportation 

being merely an incident to us4 at the end." 

Although Involving an occupation tax upon the 

operators ~of plpe lines rather than a tax on intangible assets, 

as the case under consideration, the Supreme Court of Texas 

in Texas Company vs. Stephens, 103 S.W. 481, pointed to a 

distinction between owners of pip4 line companies who operate 

for hire and those who operate merely to transport their 

own commoditiest The court said: 

"Section 12 declares that 'every individual, jointstock association, company, copartnershlp or 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 artificial gas, 

whether the same be for Illuminating or fuel purposes 

or for any other purpose, or for steam, for heat or 

power, or for the transmission of artlales by pneumatic 

or other power, shall be deemed and held to be a pipe 

1Fne company.' It then requires quarterly reports showing oharges and freights within this state paid to or 

uncollecte&by such pipe line company on account of any 

business transacted by it in the capacity of a pipe 

line company as defined, and that each pipe line company 

engaged in conveying oil shall report, as a part of Its 

gross receipts, such sums as it would 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 .on the gross receipts as shown by such report. It 

is easily deduced 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 transportation by 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 imposed any 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 businesses may be properly classified 

for taxation, apart from the owners of different 

businesses who, es an incident of their ,buslnesses, 

use pipe lines to transport exclusively their own 

commodities. " 

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

provisions ,of Chapter 15 of Title '32, Revissd 'Civil BtaMes,, 

governing corporations organized 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 liquified minerals.." .&Insofar as pertinent 'to ths In&ant 

questi-on/Article Q@6, ~Revisea %Pvil Stxitutes, prxn+i&es 

that such corporations ahaX have the power: 

"1. ,To ,atore and transport oil, gas, brine and 

other mInera solutfons, and also sand, clay9ti clay 

products,,' and to make reasonable charges &harefor. 

,"2 . 'To buy, sell and furnish ail and 'gas for . 

light, 'heat ,and other purposes~; to lay dovn,, 'construct, 

maintain and operate pipe lines, tubes, tanks, pimnp 

stations, connections, fixtures, storage hous,es and 

such mach~inery, apparatus, devices and arrangsmsnts as 

may be necnssarg to operate such pipes ana.plp4 Unes 

between different points In this State." 

The point we make here Is that corporations urganieed 

for the'purpose of engaging in the business of transporting 

crude oil by pipe line exist under an entirely lndapendent 

purpose clause ,than do corporations engaged in the dlff~erent 

business of produ~clng crude petroleum, and are subjectto 7 

special statutory regulations. And to our minds, hit was 

such a corporation, created for the purpose of .engaglng in 

the business of transporting crud4 petroleum by pipe lines.,~~~- 

rather than a corporation created for the purpose of producing crude,petroleum or for the purpose of refining ,crude 

petroleum and incidentally using pipe lines to this end, ,vhich 

was within the cont4mplatFon of ,the Legislature ~tihan t.hay 

used the ~term "oil pipe line company" in the lntangiblc tax 

statute. That a corporation owning and operating pipe 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 producing budness or the refining b~usiness, ati 

owning and operating pipe 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 operation by any corporation, of private 

pipe lines in and about its refineries, fields or 

stations, even though such corporation may be engaged 

,Fn the producing business." 

In summation, it is the opinion of this~ Department 

that COMPANY A and COMPANY B, as dsscribed in your letter, 

ar4 not liable for the ad Wlorem tax on their Intangible 

assets, levied by Article 7105, as ambnded, Vernon's Annotated 

Civil Statutes because thej ar4 neither an "oil pipe l,lne 

company" or a f!common carrier pipe line company" within the 

statute. But with reference to COMPANY C and COWANY D, w4 

are of the opinion that. although they are not "common carrier 

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 intangible assets. 

You ask If ourruling would be altered should any 

or all of,these companies oharge aid publish a tariff for 

gathering and transporting this oil. Our answer is in the 

nbgative. The charging and publlshlng of a tariff for the 

transportation of crud4 oil for the public for hire, subject 

to revision by regulatory boards 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 compensation or hire 

in such cases is gbnerally controlled by contract. It Is 

difficult to conceive any reason why the four companies Involved here should operate under a tariff for the trensportation of oil, as the term Fs commonly understood, but even 

should they do so it would not change their status, under 

the basic facts of their operations herefnabove discussed. 

You further point out that in the case of each of 

the four companies mentioned, the United States of America, 

through its Internal Revenue Department, collects a trensportatlon tax of 45 on the gross revenues. This has no 

bearing upon the foregoing opinion because the tax under consideration here is levied by the State upon corporations ~' 

engaged in a certain designated business, while the.trensportation tax lsvied by the United States of America is an 

excise tax upon the mere act or privilege of transporting oil 
Hon. Geo. H. Sheppard, page 11 o-892 

in a pipe line. In the former case the incidence of the tax 

is fixed by the nature of the business conducted, while in 

the latter it is fixed by the fact or act of transporting oil, 

and thus no basis of comparison is afforded. 

Trusting the foregoing will satisfactorily answer 

your inquiries, we are 

Yours very truly 

ATTORNEY GENERAL OF TEXAS 

By s/Pat M. Neff, Jr. 

Pat M. Neff, Jr. 

Assistant 

PMN:N:wc 

APPROVED JULY 20, 1939 

s/l?.F. Moore 

FIRST ASSISTANT 

ATTORNEY GENENAL 

Approved Opinion Committee By s/WRE ,Chalrman 

.