I\ lb. OFFICE OF THE ATTORNEY GENERAL OF TEXAS 0 AUSTIN
rzgm&wGwAml-eflonoreble 

### Weaver 3. Baker, Chelrman atate Board of control Awtin, Texas Dear ;ir:

Your letter a1 fOllOV8:

e aamearticle propollti.oal rubalvialorliJ rges upon 6uohpublic the uue of street@, Vaya, 8u@ ohargee not to exoeed e equivalent of 2%of the groa6
by the list ettaohed hereto, eevoral eemoeynary insltftutiano are r4ovpaying dlreotly their proportionate part of the Increaied grors reoeipts tax levied under Howe Bill 6, eupra, in the form of additions madeto the conWeat rates on their monthly bill5 for 

### electrio service. Alao etteehed iii a certified copy of an ordinance of

’ the City of Terrell, enacted under authority of House Bill8, levying Eetreet and alley Qeetax bared upon the gross rectiipts of the localgonoreble WeaverB. Baker, page 2

gas~ompay,

arid o~mp~y haslignlfled its lntentlon to add the amount of this tax to the nmnthly gaa bills OSthe Terre11 State Hospital, vhleh is located within the oity llmlta of the olty of Terrell.

“Your opiaio~ is 

### requested as to vhether or not the State eleemoaynary lnatltutiana are chargeable with the State 

### groae reoeipta andn~unioipal street and alley use taxes 

### dlnauaaed above.’ Your ~ueation, It seems to ua, lnvolvaa tvo diatinot popoaitlons :

(1) Doer 6 state or olty tar uponpublio utLl.lty mmpenisa (vhether it be a 

### Sra~Ohiae See or rental or an oaoupation tax) vhioh is measured by the 

### groaa reeelpta of the 

### aoqpany eonrtltute a tax upon a governmental lnatrumantalfty lnaofar aa it ia baaed on the gross reaelpta Sromgas and eleatrioity Surniahed to state eleemoaynary inrtltutionr?

(2) &Lay

the rates for gaa and eleotriolty Surriiahed by the utiUty oompanyto atate eleaaoaynery lnst~tutlona be increased by the emouubOSawh tax?

With reference to the Sirat of t$.eae tvo 

### propoaltlone, it is our opinion that rulther the atate oooupation t4x upon utilltlea levied by &Mole 7060, B. C. S., 1925, as amended byAota 1941, 47th Laglalature, R. S., Iiouae Bill 8 Article V, nor a rental or S-rmchl~e fee Imposed by a city (under the authority of aaid 

### Aat) upon a utility for uae of the streets cmd alleys, not In 

### exaeaa of 22 OSthe gross reoelpta OSauoh utility tithin euoh city can be conatrued ae being 4 tax upon a government*1 Inatrumentalftg (vhether Federal, State or Hunloipal) by reaam of the SaOt thet the gross reoelpta OSauah utility meyinclude, in part, reaeipta Sromgas, electrtalty or vater. furnished to governmental agencies. The tax or See is levied uponthe utility end not upon the governmental agency. The aonneCtiOA betvew the gas, water arnd,eleatrloity bought sad pstd Sor by the governmental agenoy and the tax upon the utility measured in part by the groae receipts 

### therefromie too remote to offend the oonatitutlonel tax iunaunlty OSgovernmental lnatruPrentautiea.

The altuetion la amlagoua to that before the United Btatea SupremeCourt IR Jesea v. Dravo Controeting Co., 302 U.S.Honorable Weaver B. ESkeP, page 3

134, wherein It var held that the &ate of West Virginia might collect a tax of 2%on the groaa reoeipta of a oontraotor S~om vork performed by him In the oonatruotlon of dm end looka for the Federal Government iA the State. Chief JuStiCe Hughes, In the opinion In that cese declared, at page 160:

“But IS it be assumed that the groaa recelpta tax mayIncrease the aoat to the Government, thet feet would not invalidate the tax. With respeot to that effeot, a tax OAthe OOntPeotOP’S gross reOeipt5 would not dfffer from a tax OAthe aontraotorta property and equipment neceaaarlly uaed in the perform81168of the contract. Conoededly, such a tax may validly be laid. Property taxes sre naturally, as Lnthis oaae, reckoned as a part of the expense of doing the vork. Texea mayvalidly be laid not only OA the contractor’s macbine~y but on the fuel used to 02erate It. In Trinity SaPmConatruotion Co. v. Oroajean, 291 U. 3. 466, the taxpayer entered Into a eontract with the Federal Government for the conatruotlon of levees In aid of navigation end gasoline vu) used to supply power

### for taxpayer*e machinery. A state excise tax on the gasoline 80 used was suatalned. The Court said that $Sthe payment of the atate taxes imposed on the property aud operations of the taxpayer (affects the federal goVeFMtsnt et all, It at mat gives rimeto 

### a burden which Ia oonaequentlal and remote end 

### not to one that 

### is neoeasary, ipoaediate or dIreot.* But 

### a tax of that sort uupuestlonably increases the expense of the contraolmr in performing his 

### aervioe md may, if it enter5 into the oontraetor(a estimate, lnareaae the coat to the Government

. The Saot that the tax on the groaa reoeipta of the contraOtoP In the Alvard aa8e (Alvard v. Johnson, 282 

### U. S. 509) might have increased tha Oost to the Government of the aarriage of the malls did not lmpreaa the Court 

### as mllItatIng sgalnat its validity. n While the *avo 

### case vaa decided by a divided Court, its authority cannot nov be questiened, having 

### been reoently cited with approval by the Uaited jtatea YupremeCouct in the 2inion by Chief Juatloe Stone, 5nnowwIng the unanlmoua deola on of the oorrrt ln Alabamav. EIng bcBobaer, 86 L. Ed. l., wherein a state sales tax of 2%uponbtild%ng materisle 

### was suatained as applying to materials 

### purohaaed by a aontrabtor angaged In conatruow an umy opnrpfor the United %tatsa under 

### a:,,..

. :i

*oFable Weaver H. Baker, page 4

Qoat-plus-a-fixed-fee” oontxaot. **we quote**  **I ’** **IWIU** the OpiniOA in *& King L

### Boozerarae:

“So far as such 

### anondisorimlnatory state tax upon the contraotor enters into the ooat of the .materiala to the ~ovemment, that is but a normal insideAt of the organlaatlon WithIn tha aameterrltory, of tvo independent WxIng 

### l overeigntlea. The 

### asserted right 

### of the one to be Sree of taxation by the other doea not spa11 ImmunityStrom payWg the added ooata, attributable to the taxation of those vho furnish supplies to the Qovernment andvho have been groated POtax Immunity. So far 

### as a dISSeraAt view 

### haa prevailed, 

### aee P anhandle 011 Co. v. Mlaaiaaippl I277 U.S. 218) and Qravea v. Texaa Co. (298 U.S. 393 , ve think it no longer tenable.”
**This dootrlne**  announced by **the** United **States Supreme**  Coopt IA the Ilfavo andKing &

### Booseraaaea, that a tax, 

### other**xtre~velld,** will not be atrloken downbeoauae the eaonomI5 burden OSthe tax maybe “passed on” by the 

### taxpayerto governmanta agemiea or other eAtItIea thamaelvsa UumuneSromdlreot taxation haa been adopted by the Su r emeCourt of Texas. See Qray**burg** 011 Co. v. State, 3 S. W? 26) $27. In State of Texas v. Cltt OSEl **Paso,** 135 Tex. 359, 143 9. 

### W. (2d) 366, J6r.Juatloe Orits deolared,:

**“we AOV** **oome to**  **determine whether** **OF**not a 

### dealerwhoaella motor fuel to a city for muuiolpal uae

### by auoh olty on~the publlo highvaya OSthe State 

### ia exempt from the four’oenta per gallon motor Sub1tax levied by our motor fuel tax lava. Agaln 

### referringto #a above quoted atatutoa, wefind that they OOAt5IAA0diIWit prOvi5IQA MkIAg l uoh bxemptlon. Alao, ve Si.ndthat such atatutea oontaln no language vh%ohwould jwtI.Sy ua In aonstruIng them aa l.ntenAl.ng auah an exelpgt&on. It Sollova that dealera whosell motdr fuel to cities IA thIa State 

### foruse 00.pub110 highwaya are liable to pay the atatutory Sour oenta per gallon motor fuel tax levied by our rotor fuel tax lava.”
The foregoing authorltlea amply support our conolualon that a taq or See, ‘be it state or munIuipa1, measured by a per-gonorable Ueaver Ii. Baker, page 5

oentage of the gross reoeipts of a utility doe8 not oomtitute a tax upon a atate eleemoaynary lnatitution to the extent of **the utility** **’ s**  **reVenU38 fiOXI** **8UOh inrtitUtiOIL** 

Weturn POW

to the second phase 

### of your quertlon -- *ether the rate6 for gas and eleotriolty furnished by the utllLty oompangto atate eleemoaynary inatltutlona maybe inoreaaed bythe amount of the taxi or in other word8 vhether the atate ~oupation tax or the city franohlae fee maybe “pa88ed on” by the utility to the atate in8titution lo the form of higher rater. m anaver to thla que8tion would in each inrtanoe deperid upon the contract under vhioh the eleotrlclt~ or gaa le be- f$mizSince in your letter you refer to contract rater &me that in each lmtanoe the rate8 

### arepreeoribed iy lndlvidu81 oontraota between the reupectlve utility companyand the Board of Control, rather than by munlolpal ordinance in the oitlea vhere the Snatltutlona are located. If weare oorreot in our aammptlon that the rate8 **for** the aeveral inrtitution8 are pre8orlbed by contract -- then the term8 of l uoh exlatlng contracta vi11 determine vhether the nev taxer maybe **‘ parred**  on” bythe utility.

Wehave exmined one of the contract8 involved in your quertion, being an *Agreement **for** Indw5trlal and Com8eroial Eleotrloal Service,* dated July, 1940, between the Zexaa Power CMght Companyand the State of Texa8, acting by and through the State Board of Control for eleotriolty to be delivered at the State Iiomefor Dependent audgegleoted Children at Uaoo. Thir contract, ‘after aettlng out the rchedule of rate8, oontaia8 the followlng prOVi8ion I

‘Plu8 the proportionate part of 85~ newtax, or increa8ed rate of tax, oc governmental lmporltion or oharge (except atate, oounty. city **and** 

### rpeair1 dialplot ad valorem taxer 8.ndany taxee on net Income) levied or aa8e88ed age-t the fkmp8uy 

### or upon it8 electric bu8ine88 a8 the result of pay nev or amendedIJWSor 

### ordlnanoea after Janwry 1, 

### 1938. ” Under a contract containLug the foregoing or 

### a 8lmllar provl8lon, the utlllty would be authmlmed to lnorea8e the rate6 8peoified in the contract by the “proportionate part of anynev tax” ruoh a8 that provided by Artiole V of House Bill 8, Act8 47th Legislature or 

### by a nev munloipal tax woeed slnoe the date of the aontraot. In the absenoe of 8uoh a provision in the oontraot under which ger or electricity 5.8being fuminhed to **a**

### gonorableWeaver

### H.Baker, 

### page6

Q-tamer, any nev tax impo8ed upon the utility oould 

### not affect the rates presoribed in the oontraat. Plria d.laow8lon, werepat, ia baaed on the assumption that the rates for gee and eleotriclty being paid by the aeveral etate eleemosynary inatitution& are not fixed by muniaipal ordinanoe. Yours very truly ATTORNEY

OEHERAL

OFTEXAS