Honorable George I-I. Sheppard Comptrollerof hblio Accounts Austin, Texas

Dear Sir: Opinion No. O-3923 Rer Is the holder of a "oontraot oarrier" permit, issued under the authority of the Railroad Commission of Texas, subject to the ocaupation tax on gross receipts levied by Article ?066b, Vernon's Texas Civil Statutes,despite the fact that suah grose reoeipts are derived exclusively from trensporting property for hire or oompensation for the United 3tates Army, on shipmentsoriginatingand terminatingat srmy camps, posts, depots and sitesbut passing through two ormore inaorporatedcities, tomns or villages?

Your letter of March 10, 1942 submits for our opinion the following question, which we quote therefrom;

%rtiale XIV of House Bill No. 8 of the Forty-seventh Legislatureprovides for P quarterly gross receipts taxiof 2.2% on~bcsiats earned by ContractCarriers and such Contra& Carrier being identified in Chapter 277, Acts of the Regular Session of the Forty-seaondLegislature.

"This departmenthas been holding that a Contract Carrier, operatingunder a permit from the Railroad Commission, rho makes hauls between one incorporated town and another incorporatedtown within this State is subject to the gross receipts tax.

"I now have an inquiry from Spears, Taylor & Spears of San Antonio, Texas, copy of which I am enclosing, on behalf of one of their clientswho hauls commoditiesfor the United States Army. You will note they state that none of themerchandise bs picked up or delivered in inoorporated towns or cities,but it is my understanding that theymay traverse through tmo or more inoorporatedtoaas to reaoh their destination.",Ploesc tell me if, in your opinion. the faot that the receiptsare earned on hauls for the -United States :~rey would exempt them from payment of gross receipts tax
es provided for inArticle XIV of House Hill No. 6 of the Torty-seventhLegislature."

You also attach copy of letter from Spsars, 'luylor end kjpoers, Attorneys of Sen Antonio, l’exeS, pointing cut that the haulsmade by the contract carrier in question era not picked up or delivered in incorporated cities or towns but are exolusive~ly for the IJnited

States Army, originatingend terminating in army camps, depots, posts and sitos. It is suggestedtherein that in view of such ciroumstances,said carrj,er does not fallwithin the scopeand purview of the taxing Aot.

Article 7066b,Vernon's Texas Civil Statutes, levies the following ocoupetion tax upon the gross receipts of each "motor bus company," "motor carrier"or "contreat carrier:"

"(a) Each individual,partnership, oompeny,assoc;ati,on,
or corporet$ondoing business as e 'motorbus company' es defined in Chapter 270, Acts Regular Session of the Fortieth Legislature,
as amended by the Acts of 1929, First Called Session of the Forty-firstLegislature, Chspter 78, or es 'motor c&wrier* or 'contractcarrier'es defined in Chapter 277,Acts Regular Session of the Forty-seoondLegislature,over end by use of the public highways of this State, shellmake quarterly on the first day of January,April, July, and October of each year, a report to the Comptroller,under oath, of the individual,partnership, company, essocietion, or corporationby its president, treasurer, or secretary. showing the gross amount received from intrastate business done within this State in the payment of charges for transportingparsons for compensationand any freight or commodity for hire, or from other souroes of revenue reoeived from intrestate businesswithin this Stats during the quarternext preoeding. Said individual,partnership, company,assoaietion, or corporation et the time of making said report, shall pay to the State Treasurer
en oocupetiontax for the quarter beeinning on said date equal to two and two tenths (2.2)per cent of said gross receipts, as shown by said report. l'rovided, however, carriers of parsons or propertywho era required to pay an intangihlc assets tax under the laws of'this State, are here'by exempted from the'prcvisions of this Article of this Act."

The above tax Act refers to Chapter 277, Ants, koeular Soss5.on. 42nd Legislature,Artj~cle Sllb,Vernon's Texes i'ivil:itatutes, for tha cic?inition

Of a . "contreot.ccirrieren sub-loot

to the tax ttierebylcvied.

ho quatc said definition from the stetuto edviscd to:
"(h) v)!e <pi".!

'aontractcarrjer'm031':s n'~y m&or cnrrjcrIionorable George H. Sheppard,page 3 O-3923

as hereinabove defined transportingproperty for compensation
or hire over eny highway in this State other than 88 a common carrier.'

"Motor carrier" as used in the foregoing definition, is, in turn, definedby subdivision (g) of saidAct as follows;

"The term 'motor carrier'means any person, firm, ccrporation, wnpany, co-partnership.association or joint stock association,and their lessees, reoeivers or trustees appointed by any Courtwhatsoever, owning, controlling, managing, operating or causing to be operated any motor propelledvehicle used in transportingproperty for compensation or hire over any publichighway in this State, where in the course of such transportationa highway besen two ormere incorporatedcities, towns or villages is traversediprovided that the term'motor carrier'as used in this Aot shall not include and this Aat shall not apply to motor vehicles operated exclusivelywithin the incorporated limits of cities or towns." (Emphasis curs)

The requirementsof the statutory definition of a "motor carrier," underlined above, have, by cur opinion No. O-1692, been held to bemet and satisfiedwhere two ormere incorporated cities, towns or villages em involved or traversedby e person, firm or corporationtransporting property for hire, even though such incorporatedoity, town or village is not the point of origin or the terminus of the shipnent. We believe such opinion to be determinative of the status of the subject
concern es * "motor Carrier," subject to the jurisdiction of the Railroad Commissionand this gross receipts tax, despite the fact that the goods transportedere picked up and delivered on army posts, camps, depots and sites and not in incorporated cities, towns orvillages, provided two or more incorporated cities, towns or villages are traversed en route. We enclose e copy of such opinion for your aonsideration.

It remains to be determinedwhether or not the "contract oarrier" in question is exempt from reporting and paying the occupation tax levied by Article 7066b,Vernon's Texas Civil Statutes,by virtue of the fact that its gross reoeipts.upon which said tax is computedunder the Aot, are derived exclusivelyfrom payments or compensationfrom the TJnited

States of America for the transportationof property for and on behalf of the Army of the United States. The only theory upon which such immunity from State taxation could rest in the instant oesewould be thet the levying of such tax upon gross receipts derived from the U. S. Treasurywould be tantamount to e tax burden upon the United States Government or an agency or instrumentalitythereof and thereforeunconstitutional. We will address ourselves to that point.

The incidence of the tax levied upon a "contraat carrier"f*llS squarelyupon suoh carrier, for the privilege of conductingthe business ellcmd by its permit and there is no 'requirementin the statute thatEcncrebleGeorge H. Sheppard, page 4 o-392:5

such tax shouldbe passed on end collected from the shipper or the person peying for such transportation services. The tax is en cccupation tax directlyupon the person, firm or ccrpcreticnpursuing the describedbusiness, end the quarterly gross receiptstire merely used
es e medium for cwputing such tax, the source of such receipts Fair? of no materiality. hven though the amount of such tax should, es s matter of soundbusiness prsctice,be passed on the the Federal Gcvernment, es part of the cost or compensationfor transporting goods for the Army, nevsrtheless, such tax or burdenwould be too remote and indirect to be aonsideredunconstitutional.

The situation is analogous to that before the United States Supreme Court in Jamesv. Dravc ConstructionCo., 302 IT.S. 134, wherein itwas held that the State of West Virginiamight collecta tax of 2%
on the gross receipts of e contractorfrom work performedby him in the construction& dams and locks for the FederalGovernment in the State. Chief JustioeHughes, in the opinion in that case declared, et page 160:

"But if if be assumed that the gross receipts tax may increase the cost to the Government, that fact would not invslid,ete

the tax. With respect to that effect, e tax on the oontreotor'sgross receiptswould not differ from e tex on the oontraotcr'sproperty end equipment necessarily used in the perfarmenoe of the contract. Ccncededly, suoh a tax may validly be leid. Property taxes *r-e naturally, es in this ease, reckoned as a pert of the expense of doing the work. Texesmey validly be laid not only on the contractor's machinery but on ths fuel used to operate it. In Trinity Farm ConstructionCc. v. Grcsjean. 291 77.S. 466, the taxpayer entered into e contractwith the Federal Government for the constructionof levees in aid of navigation and gasoline
was used to supply power for taxpayer'smachinery. A state excise tax on the gasoline so used vs.8sustained. The Court said that if the payment of the stats taxes imposed on the property end operations of the taxpayer 'affectsthe federal government et all, it et most gives rise to a burden which is consequentialend remote end not to one that is necessary, immediate or direct.' But 8 tax of that sort unquestionably increases the expense of the acntractcr in performinghis servioe end may, if it enters into the contractor'sestimate, increesethe cost to the Government. The fact that the tax on the gross receipts of the contractor in the Alward case (Alwardv. Johnson, 282 U. S. 509)might have increased the cost to the governmentof the carriage of themails did not impress the Court es militating against itsvalidity."

While the Dravc cesewas decided by e divided court. its authority cannotnow be questioned,having .beenrecently citedwith epprove1 by the United States,Supreme Court in the opinion by Chief Justioe Stone, announcing the unanimous decision of the court in Alabama v. Ring~cncrableGeorge H. Sheppard, page 5 o-3923

& Boozer, 86 L. Ed. 1, wherein a state sales tax of 2% upon building materialswea susteinedas applying to materials purchased by 8 con-* tractor engaged inconstructingan army oamp for the United States under 8."cost-plus-a-fixed-fee"contract. We quote from the opinion in the King & Boozer oese:

"So far es such e nondiscriminatorystate tax upon the contra&or enters into the cost of themeterials to the Government, that is but a normal incident of the organizationwithin the same territory, of two independent taxing scveieignties. The asserted right of the one to be free of taxation by the other does not spell immunity from paying the edded costs. attributable to the taxation of those who furnish supplies to the Government end who have been grantedno tax immunity. So far es a different view has proveiled, 444 PanhandleOil Cc. v, lvIississippi (277 U. 5. 218) and Gravesv. Texas Co. (298 IJ. S. 393).
we think it no longer tenable."

We think the question submittedby you is foreclosedby the Phove decisions and should accordinglybe answered in the negative.

Yoursvery truly

ATTOR%Y GN!XAL OF TEXAS

BY s/PatM. Neff, Jr. Pat M. Keff, Jr. Assistant
Pm:ej:ro

ADPROVEO APLlIL8, 1942 s/Grover Sellera FIRST ASSISTAN' ATTORNEY GEWRAL
Approved Opinion Committee By B!"IB Chairman