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 aame article propollti.oal rubalvialorliJ 

rges upon 6uoh public 

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 r4ov paying dlreotly their proportionate part of the Increaied grors reoeipts tax levied under Howe Bill 6, 

eupra, in the form of additions made to 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 E etreet and alley 

Qee tax bared upon the gross rectiipts of the local 
gonoreble Weaver B. Baker, page 2 

g a s ~o mp a y, a r id o ~mp ~y h a s l ignlfled its lntentlon to add the amount of this tax to the nmnthly 

gaa bills OS the 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 and n~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 upon publio 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 Srom gas and eleatrioity Surniahed to state eleemoaynary inrtltutionr? 

(2) &Lay the rates for gaa and eleotriolty Surriiahed 

by the utiUty oompany to atate eleaaoaynery lnst~tutlona be increased by the emouub OS awh 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 

by Aota 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 OS the gross reoelpta OS auoh 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 OS auah utility mey include, in part, reaeipta Srom gas, electrtalty or vater. 

furnished to governmental agencies. The tax or See is levied 

upon the 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 therefrom ie too remote 

to offend the oonatitutlonel tax iunaunlty OS governmental lnatruPrentautiea. 

The altuetion la amlagoua to that before the United 

Btatea Supreme Court 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 may Increase the aoat to the Government, thet 

feet would not invalidate the tax. With respeot to 

that effeot, a tax OA the OOntPeotOP’S gross reOeipt5 

would not dfffer from a tax OA the aontraotorta property and equipment neceaaarlly uaed in the perform81168 of the contract. Conoededly, such a tax may 

validly be laid. Property taxes sre naturally, as 

Ln this oaae, reckoned as a part of the expense of 

doing the vork. Texea may validly be laid not only 

OA the contractor’s macbine~y but on the fuel used 

to 02erate It. In Trinity SaPm Conatruotion 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 $S the payment of the atate 

taxes imposed on the property aud operations of the 

taxpayer (affects the federal goVeFMtsnt et all, It 

at mat gives rime to 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 Yupreme Couct in the 

2 

inion by Chief Juatloe Stone, 5nnowwIng the unanlmoua deola on of the oorrrt ln Alabama v. EIng bc Bobaer, 86 L. Ed. l., 

wherein a state sales tax of 2% upon btild%ng materisle was suatained as applying to materials purohaaed by a aontrabtor angaged In conatruow an umy opnrp for 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 Boozer arae: 

“So far as such a nondisorimlnatory 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 aame terrltory, of tvo independent WxIng l overeigntlea. The 

asserted right of the one to be Sree of taxation by 

the other doea not spa11 Immunity Strom payWg the 

added ooata, attributable to the taxation of those 

vho furnish supplies to the Qovernment and vho have 

been groated PO tax Immunity. So far as a dISSeraAt 

view haa prevailed, aee P anhandle 011 Co. v. Mlaaiaaippl 

I 

277 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 and King & Booser aaaea, that a tax, otherxtre~velld, will not be atrloken down beoauae the eaonomI5 burden 

OS the tax may be “passed on” by the taxpayer to governmanta 

agemiea or other eAtItIea thamaelvsa Uumune Srom dlreot taxation haa been adopted by the Su 

r 

eme Court of Texas. See Qrayburg 011 Co. v. State, 3 S. W? 26) $27. In State of Texas v. 

Cltt OS El Paso, 135 Tex. 359, 143 9. W. (2d) 366, J6r. Juatloe 

Orits deolared,: 

“we AOV oome to determine whether OF not a 

dealer who aella motor fuel to a city for muuiolpal uae by auoh olty on~the publlo highvaya OS the 

State ia exempt from the four’oenta per gallon motor 

Sub1 tax levied by our motor fuel tax lava. Agaln 

referring to #a above quoted atatutoa, we find 

that they OOAt5IA A0 diIWit prOvi5IQA MkIAg l uoh 

bxemptlon. Alao, ve Si.nd that such atatutea oontaln no language vh%oh would jwtI.Sy ua In aonstruIng them aa l.ntenAl.ng auah an exelpgt&on. It Sollova that dealera who sell motdr fuel to cities IA 

thIa State for use 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 

We turn POW to the second phase of your quertlon -- 

*ether the rate6 for gas and eleotriolty furnished by the utllLty oompang to atate eleemoaynary inatltutlona may be inoreaaed 

by the amount of the taxi or in other word8 vhether the atate 

~oupation tax or the city franohlae fee may be “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 are preeoribed iy lndlvidu81 oontraota between the reupectlve utility company and 

the Board of Control, rather than by munlolpal ordinance in the 

oitlea vhere the Snatltutlona are located. If we are 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 may be ‘parred on” 

by the utility. 

We have 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 

C Mght Company and the State of Texa8, acting by and through 

the State Board of Control for eleotriolty to be delivered at 

the State Iiome for Dependent aud gegleoted Children at Uaoo. Thir 

contract, ‘after aettlng out the rchedule of rate8, oontaia8 the 

f ollowlng prOVi8ion I 

‘Plu8 the proportionate part of 85~ new tax, 

or increa8ed rate of tax, oc governmental lmporltion or oharge (except atate, oounty. city and rpeair1 dialplot ad valorem taxer 8.nd any taxee on net 

Income) levied or aa8e88ed age-t the fkmp8uy or 

upon it8 electric bu8ine88 a8 the result of pay nev 

or amended IJWS or 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 any nev 

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 5.8 being fuminhed to a 
gonorable Weaver H. Baker, page 6 

Q-tamer, any nev tax impo8ed upon the utility oould not affect 

the rates presoribed in the oontraat. Plria d.laow8lon, we repat, 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 OF TEXAS