December 31, 1990 

Honorable Bob Bullock Opinion No. JM-1280 

Comptroller of Public 

Accounts Re: Gross receipts assessment for 

L.B.J. Office Building for telephone companies under secAustin, Texas 78774 tions 78 through 82 of article 

1446c, V.T.C.S., the Public Utility 

Regulatory Act (RQ-2090) 

Dear Mr. Bullock: 

Sections 78 through 82 of article 1446c, V.T.C.S., the 

Public Utility Regulatory Act [hereinafter PURA], impose a 

regulatory fee on each public utility falling within the 

Public Utility Commission's [hereinafter PUC] jurisdiction 

for the purpose of defraying the costs and expenses incurred 

by the commission in the administration of PURA. The fee is 

calculated as a percentage of the gross receipts from rates 

charged by public utilities to ultimate consumers. 

You ask a series of nine questions regarding the application of the gross receipts fee to telecommunications 

carriers operating in Texas. Specifically, you ask whether 

and under what circumstances the fee may be imposed upon 

certain telecommunications carriers, in light of the divestiture by American Telephone & Telegraph Company [hereinafter AT & T] of Bell operating companies imposed in an 

antitrust consent decree entered by order of the federal 

courts. Essentially, you wish to know which carriers are 

subject to the jurisdiction of the PUC and who is an 

"ultimate consumer" under certain circumstances for purposes 

of section 78 of PUPA. 

Section 78 of PURA imposes an assessment upon each 

"public utility" subject to the PUC's jurisdiction that is 

based upon the "rates" charged to the "ultimate consumers." 

Section 78 of PURA provides: 

An assessment is hereby imvosed uvon each 

public utilitv within the commission's iurisdiction, includinu interexchanue telecommunications carriers. servina the ultimate consumer eoual to one-sixth of one percent of 

its oross receints from rates charsed the 

ultimate consumers in Texas for the wurwose 

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of defravina the costs and exnenses incurred 

in the administration of this Act;. Thereafter the commission shall, subject to the 

approval of the Legislature, adjust this 

assessment to provide a level of income 

sufficient to fund the commission and the 

office of public utility counsel. -Y 

interexchange telecommunications carrier 

found dominant as to any service market under 

Section 100(b) or filing a petition under 

Section 100(f) of this Act shall be required 

to reimburse the Office of Public Utility 

Counsel for the costs of participation before 

the commission on behalf of residential 

ratepayers in. any of the proceedings under 

Section 100 of this Act to the extent found 

reasonable by the commission. Recovery of 

costs under this section by the Office of 

Public Utility Counsel shall not exceed 

$175,000 per annum. Nothina in this Act or 

any other nrovision of law shall nrohibit 

interexchanae telecommunications carriers who 

do not vrovide local exchanue teleuhone 

service from collectina the fee imnosed under 

this Act as an additional item senaratelv 

stated on the customer bill as 'Utilitv Gross 

Receints Assessment*. (Emphasis added.) 

You first ask: 

What telephone companies should be paying 

this assessment -- does it apply to all 

telephone companies which may be subject to 

any facet of the PUC's jurisdiction, whether 

for rate making purposes or for more limited 

purposes? 

You inform us that you have advised all "long distance 

telephone companies" that they fall within the reach of 

section 78 and are thereby subject to the assessment, but 

that several carriers disagree with your construction. We 

assume that there is no question that local exchange 

carriers (known as LECs) who provide local services to 

residential and business subscribers fall within the ambit 

of the act. We assume that, with the phrase "long distance 

telephone companies," you refer to interexchange carriers 

(known as IXCs) that offer either interLATA or intraLATA 

long distance service. You state that the PUC has failed to 

take any consistent position on whether the assessment 

applies to all carriers subject to any facet of its 

jurisdiction or just to "dominant carriers" as defined in 

section 3(c)(2)(B) of PURA. It is suggested that section 78 

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Honorable Bob Bullock - Page 3 (JM-1280) 

reaches only those carriers over which the PUC has ratemaking authority. We disagree. 

In Attorney General Opinion H-811 (1976), this office 

was asked, inter alla whether section 70 reached only those 

utilities over which'the PUC had ratemaking authority or 

whether it extended to any utility over which it exercised 

any type of jurisdiction. The opinion concluded: 

The quoted language of section 78 is 

unqualified. Consequently, the Commission 

need not exercise any particular form of 

jurisdiction over a utility in order to 

assess the utility. In our view, the term 

\Commission's jurisdiction' may best be 

defined by reference to article III of the 

Act, entitled 'Jurisdiction.' Therein the 

Commission is given jurisdiction over various 

utilities. 

The relevant language of section 78 has not been amended 

since the issuance of Attorney General Opinion H-811, except 

for the addition of the phrase llincluding interexchange 

carriers." 

Any doubt as to whether section 78 now' reaches all 

interexchange carriers is resolved by examining the legislative history for Senate Bill No. 229, which was enacted in 

1987. Prior to the enactment of that bill, section 78 

provided that the assessment was l'imposed upon each public 

utility within the commission's jurisdiction serving the 

ultimate consumer." The bill added the phrase "including 

interexchange telecommunications carriers.*' Acts 1987, 70th 

Leg., ch. 414, 5 3 at 1950. Moreover, the bill amended 

subsections 3(c) and 18 (c) and (d) of PUHA, which had 

effectively provided that IXCs other than AT & T were not 

"public utilities" for purposes of section 3 and not subject 

to the PUC's jurisdiction under section 18. Subsequent to 

the enactment of Senate Bill 229, IXCs other than AT & T 

became "public utilities II for purposes of conferring limited 

jurisdiction over them on the PUC. 

The *@Background" section of the bill analysis for the 

bill provides: 

Current Texas law requires a public utility 

to submit to the jurisdiction of the Public 

Utility Commission (commission). There are 

now at least 70 interexchange telecommunications carriers operating in the state that do 

not fall under the definition of a public 

utility because they do not provide local 

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Honorable Bob Bullock - Page 4 (JM-1280) 

exchange telephone service. Because they do 

not fall in the category of a public utility, 

they are not subject to regulations that 

carriers who provide local telephone service 

are subject to. For examvle. wrier6 who 

provide local exchanae telenhone service must 

pav one-sixth of one nercent of the aross 

receints from rates charaed consumers to the 

PlJC, which is used to defray the exoen e 

incurred in runnina the commission. (Emp:as 

sis added.) 

Bill Analysis, S.B. 229, 70th Leg. (1987). 

The l'Purpose*@ section of the bill analysis stated: 

As proposed, S.B. 229 amends the Public 

Utility Regulatory Act by making interexchange telecommunications carriers public 

utilities, thereby placing them under the 

jurisdiction of the Public Utility Commission. S.B..229 also requires that the long 

distance rates be averaged statewide and that 

long distance carriers not discontinue 

service to any area of the state without 

permission of the PUC. 

And finally, the qqSection by Section Analysis" portion 

of the bill analysis described the bill in the following 

way: 

SECTION 1. Amends Section 3(c), Public 

Utility Regulatory Act (PURA), Art. 1446c, 

V.T.C.S., to define a public utility as it 

affects telecommunications. Provides for the 

term 'interexchange telecommunications 

carriers' to be substituted for the terms 

*specialized communications common carriers' 

and 'resellers of communications and other 

common carriers.' Provides that the commission's iurisdiction over those interexchanae 

telecommunications carriers who do not 

provide local exchanae telephone service will 

be limited to the extent defined in PURA. 

Strikes from the amendment to the definition 

of a public utility any reference to the term 

'dominant carrier' as defined in Section 

3(c) (2) (b). 

SECTION 2. Amends Sections 18(c) and (d), 

PURA, Art. 1446~. 

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Subsection (cl DrOVideS swecific iurisdiction of the commission over 'interexchm 

telecommunications carriers who do not Drovide local exchanae televhone spwic e. ' Removes the reference to *dominant carriers.' 

Provides for the commission to conduct investigations regarding competition in the 

industry. 

(c)(4) Requires the commission to maintain 

statewide average rates or prices of message 

telecommunications service. 

*i;)(5) Authorizes the commission to reclul that interexchanae telecommunications 

carriers mav not abandon or discontinue 

messaae telecommunications service in or to a 

local exchanae area unless the commission 

swecificallv so orders. 

(d) Provides that an interexchange telecommunications carrier must maintain its 

tariffs or service lists on file with the 

commission. 

SECTION 3. Amends Section 78. PURA. Article 

1446~. V.T.C.S.. to recniire that interexchanae telecommunications carriers be 

included amoncl those Dublic utilities that 

must suwwort the Public Utilitv COmmiSSiOn 

throuah an assessment of one-sixth of one 

percent of their aross receivts. (Emphasis 

added.) 

We conclude that, with the enactment of Senate Bill 229 

in 1987, the legislature clearly intended to confer jurisdiction, however limited, to the PUC over all interexchange 

common carriers. Therefore, we conclude that the section 78 

assessment reaches all local exchange carriers and all 

interexchange carriers operating in Texas. 

Your second question asks: 

Are local access charges subject to the assessment? 

Section 78 imposes an assessment that is calculated on 

the basis of the "rates charged the ultimate consumer." The 

phrase "ultimate consumer" is not defined anywhere in PURA, 

but the term "rate" is. Subsection (d) of section 3 of PURA 

defines l'rate" and provides: 

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Honorable Bob Bullock - Page 6 (JM-1280) 

The term 'rate,' when used in this Act, 

means and includes every compensation, tariff, charge, fare, toll, rental, and classification, or any of them demanded, observed, 

charged, or collected whether directly or 

indirectly by any public utility for any 

service, product, or commodity described in 

Subdivision (c) of this section, and any 

rules, regulations, practices, or contracts 

affecting any such compensation, tariff, 

charge, fare, toll, rental, or classification. 

End user access charges exacted upon residential and 

business subscribers by an LECs or IXC are "rates charged to 

the ultimate consumer" for purposes of the regulatory assessment imposed by section 78 of PUBA. You ask whether 

interexchange carrier access charges received by an LEC from 

an IXC are "rates charged to the ultimate consumer." That 

they fall within the definition of VateNt is clear. The 

issue is whether the interexchange carrier, in paying an 

access charge to a local exchange carrier is, an Qltimate 

consumer." 

Prior to the divestiture, charges analogous to those 

about which you ask were held by the PUC not to fall within 

the section 78 assessment. In Docket 2054, 23 P.U.C. Bull. 

vol. IV, No. 23, 2074 (1979), the PUC held,that charges 

imposed upon telegraph companies for access services 

provided by local telephone exchange companies were not 

charges imposed upon the @'ultimate consumer." See also 

Attorney General Opinion H-811. 

You suggest that that administrative holding is no 

longer controlling because of the court-ordered divestiture. 

You suggest that, because the Bell operating companies are 

restricted primarily to providing local exchange services 

and access to their local systems to interexchange carriers, 

while interexchange carriers are prohibited from providing 

local exchange service, an interexchange carrier is an 

"ultimate consumer" of the services provided to them in the 

identical way that residential and business subscribers are 

ultimate consumers of the services provided to them. For 

two reasons, we disagree. 

First, words ordinarily are given their plain meaning, 

unless the statute clearly shows that they were used in some 

other sense. Bia H Auto Auction. Inc. v. Saenz Motors, 665 

S.W.2d 756 (Tex. 1984); Tavlor v. Firemen‘s 8 Policemen's 

Civil Service Comm., 616 S.W.2d 187 (Tex. 1981). The ordinary meaning of the phrase Vltimate consumer" refers to 

someone who is last in the chain of sale or use. See, e.g., 

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Honorable Bob Bullock - Page 7 (JM-1280) 

Alto. Bev. Code SS 16.01, 16.05, 64.01; Nat. Res. Code 

5 113.081(a)(4). The final consumer in the chain created 

when someone makes a long distance telephone call is the 

residential or business subscriber who initiates the call. 

There are three essential components of any long distance telephone call. First, the calling party places a 

call through the facilities of an LHC serving his area. 

Second, the originating LEC connects the call to an IXC that 

transports the call to its destination. Third, the IXC 

accesses the local network of the destination LHC to 

complete transmission of the call to its destination. See 

National Ass'n of Rea Util. Comm‘rs v. F C.C., 737 F.2d 

1095 (D.C. Cir.), cert denied, 469 U.S. 1227 (1984). The 

interexchange access charge is imposed upon the interexchange carrier by both local exchange companies. These 

charges comprise part of the rate that interexchange 

carriers impose upon their customers. In effect, the access 

is Vesold,l* as it were, by the interexchange carrier to its 

customer. That the legislature understood that access by an 

IXC to local exchange companies is a resold service to the 

residential or business subscriber is evidenced by the 

legislative history of the statute that added section 

151.323 of the Tax Code.1 This provision exempts telecommunications services from the reach of the sales and use 

tax. See Bill Analysis, H.B. 1949, 69th Leg. (1985). 

Second, the section 78 assessment is imposed upon the 

interexchange carriers' gross receipts from its subscribers, 

which includes the charges passed through to their customers 

to recoup the access charges paid to local exchange 

carriers. If we were to conclude that interexchange 

carriers were %ltimate consumers" for purposes of the 

imposition of the interexchange carrier access charge, that 

charge would be included twice in the total assessment 

imposed upon the telecommunications industry. There is no 

indication that the legislature intended such a result. 

1. Section 151.323 of the Tax Code provides in part: 

There are exempted from the taxes imposed by this 

chapter the receipts from the sale, use, or other 

consumption in this state of: 

. . . . 

(3) access to a local exchange telephone company's network by a regulated provider of telecommuncations services. . . . 

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Honorable Bob Bullock - Page 8 (JM-1280) 

Your third, fourth, fifth, sixth, and seventh questions 

are as follows: 

If Question Two is answered 'yes', are local 

access charges subject to the assessment on 

calls from: 

(3) a point in Texas to another point in 

Texas in a different LATA; 

(4) a point in Texas to another state: 

(5) a point in another state to a point in 

Texas ; 

(6) a point in Texas to another country; 

and 

(7) a point in another country to a point 

in Texas? 

Because of our answer to your second question, we need not 

address your third through seventh questions. 

Your eighth question asks: 

Under the Supreme Court case of Goldbera 

Sweet, 488 U.S. 252, 109 S. Ct. 582, 112 

L.Ed.2d 607 (1989), it is clear that Texas 

could constitutionally impose this assessment 

on the long distance portion of a call that 

originates in or is received in Texas so long 

as the call is billed to a Texas address. 

Should the assessment on long distance calls 

be based on the formula approved by the court 

in Goldbera v. Sweet or, if not, what formula 

should be used? 

In Goldbera v. Sweet, 488 U.S. 252 (1989) the United 

Supreme Court held that the Illinois Excise Tax, which 

imposed an excise tax on interstate calls that separated 

local exchange costs from the costs associated with the 

actual use of the interstate interexchange carrier's line, 

did not violate the commerce clause of the United States 

Constitution. The Illinois statute imposed a five percent 

tax on the gross charge of interstate telecommunications 

originated or terminated in Illinois and charged to an 

Illinois service address regardless of where the telephone 

call is billed or paid. The statute imposed an identical 

five percent tax on intrastate telecommunications. In order 

to prevent actual multi-state taxation that would be violative of the commerce clause of the United States ConstiP. 6873 
Honorable Bob Bullock - Page 9 (JM-1280) 

tution, the statute provided a credit to any taxpayer that 

has paid a tax in another state on the same telephone call 

that triggered the Illinois tax. 

We do not understand you to ask whether you may promulgate administrative rules that would permit you to administer the section 78 assessment charge in a way that 

comports with the holding of Goldberq. We understand you to 

ask whether any rules so drafted would be constitutional. 

You have not submitted to us any specific proposed rules; 

therefore, any discussion by this office of any hypothetical 

formula would be speculative. This office does not answer 

hypothetical questions in the opinion process. Therefore, 

we decline to answer your eighth question. 

Your ninth question asks: 

Does the assessment apply to activities such 

as 'billing and collection services* performed by local exchange companies on behalf 

of, and billed to, long distance telephone 

companies? 

The definition of "rate" set forth in section 3 of PUPA 

includes '*services.lV Subsection (6) of section 3 of PUPA 

defines lVservice** and provides: 

'Service is used in this Act in its 

broadest and most inclusive sense, and includes any and all acts done, rendered, or 

performed and any and all things furnished or 

supplied, and any and all facilities used, 

furnished, or supplied by public utilities in 

the performance of their duties under this 

Act to their patrons, employees, other public 

utilities, and the public, as well as the 

interchange of facilities between two or more 

of them. Service shall not include the 

printing, distribution, or sale of advertising in telephone directories. 

Billing and collection services clearly fall within the 

definition of lVservices" and "services" falls within the 

definition of "rate." However, the section 78 regulatory 

fee may be imposed only on those t*rateslV charged to 

"ultimate consumers." We assume that these service charges 

are passed through to the IXC's subscribers. Because of our 

answer to your second question, we answer your ninth 

question in the negative. 

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Honorable Bob Bullock - Page 10 (JM-1280) 

SUMMARY 

The assessment imposed by section 78 of 

article 1446c, V.T.C.S., the Public Utility 

Regulatory Act, reaches all public utilities 

subject to the jurisdiction of the act. Interexchange carriers are not "ultimate 

consumers" for purposes of section 78, if the 

local access charges are passed through to 

their subscribers. 

JIM MATTOX 

Attorney General of Texas 

MARY KELLER 

First Assistant Attorney General 

I0U MCCREARY 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLKY 

Special Assistant Attorney General 

RKNEA HICKS 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, opinion Committee 

Prepared by Jim Moellinger 

Assistant Attorney General 

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