f 

. . ..I...~ 

1~ OFFICE OF THE ATTORNEY WERAL OF TEXAS 

i AUSTIN 

Thlr Department h6 

methi r0r 0p~rri0n 00n04m43 

7047b, whioh prorideuj 

. . . provldod thut 

vision herein to the 

miy other pro- 

'&an is processed 

nd the ‘realdue 

to the same gaaand from vhloh 

o of such gas 

088 value of 

8tiv4d rr0m 

04 porron or oonoern ir both produoer of 

regaling plant, ~01 the tax l oorue on 

of all produoh, based upon the wslue 

uo h l m rtiation gsrol%ne, aolveat8, do., 

It shoulb be noted rt the outset that the tax levied 

bi A&i010 7047b ir 8.aevemnoe tax. Thin statute oontains the 

rowmg language; "Them 18 horoby 14vi4d en ooaupation tax 

on'tho business or oocypation of produoins aa vithln thir State. 

. ..A tax &al;1 be pdd by oaoh roduoor on 

godud~~~~. ,a&va~4r7to5~-?Z-i3t okht?iit%%?:e.. . 

--- 
Bonoriable Q44rg4 H, Sheppard, page 2 

The r4oyoling pro~lslon of the st4tute merely provides 

the method of detamlnlng the nurrk4t value of th4 original gas 

ar 

E4-i thereoi Is taxed, not’tho roflnor. 

Davis Ino. V* St4t4 180 S.W. (al) 429, 433. only 

In order to xi1~lorst4nd pro$erlr the into&ion o? the 

I 

Th4 tirqt ~r4o~ollng plant4 v4r4 oonstruoted and put into 

operatloti in 1938. Theso first plant8 prOduo4d oondon8ato or dlatlllat4, r&v un?lnish4d pzykduots, vhloh wro Mrkoted to reflaer8. 

piua 4per4t4r;8 io 'tirs4 rQurd that tw 00tud mlqda0- 

fur4 ?ti$sh4d produotr, and that the l d@t1&41~inv48tment and 

merot 

Were jua 7 

6~n8e.~o4884ry ?or th4 aanufaoturo of those produote 

lfl4d by t&o inoreaso in tholh U&c4t oalu4.' phigzwa8 

the, stert 6? *ho, 

ished pr6duotr. 'S 

en4r41 $lsaa of o~bl.Lrig plantcr~ tb.pmdqo4 fin444w4 

havo.beon rowaped 

or the war, rloost~'rll 4~4lin& *lants 

produytr. 

to ppermlt the nmnu?aoturo of a va~$lety o? 

Th4 wollng plant operitlon oonrIst8 of rorubbing inooming rloh vapora with rbrorptioa'oll at presssgro8 msngLng up 

to 2,OOOpouada per ~QUWO lnoh. l%xe prooesred dry gfb8 14 than 

oompre88od and r4turmd to the ?orm4tlon, irhllo the absorption 

oll.ooatalnlng the rooovered heavier 

h.Id" 

uarbuna 14 rtrlpped of 

it8 oont4nt in w 4r a 84rler 0r rtll 8. S!h4 re44~4i4d 0 ndqnaato lr than promraod er re? iqed by mciddn aetheda of % 18.. 

tlllation md'?r&tl+@lqt lnto.8uoh pmdyotrr a8 mi1~r41 oil, 

bo$nCmd g44olin4,'4a4 into but4n4, prop~o l d othano ?r4iol 

moling p14ntr oan funotlon 4ith4r lmd4pod4ntl~ or 

In oompleto or pa&l&l Inta~atlon with ref&k&i operations. A 

oyol- p1ant 3 

orating lndopend4ntly of TofUmr7 opemtlon8 does 

no more than 4 zuut 1 the llqueflablohydrod~bons, vhloh are then 

dollrem to a mfiasry for fuH2~1$ treatment. 

In +llq platr psrtlill, into&ated rith ~iinery 

operationa, th4 ropane-4thano ?raotlon m4sf b4 r4turn4d to the 

r48ervolr, aad t L mixed butma fraotlon L8 drlltored to a 'ro- 

.tia*i7'. Th4 hrcivlor produot8;hommr, ~a~ roflrml in roflnory 
goaorablo ffeorge Ii. Shopp4rd, p4go 3 

57% 

! ,@pmeat added to the oyoling unit, to yield 4 number Of fiai8bed 

; p&UOt*. 

'. oper4tlon8 

CJoliag pl4at8 oompletoly iat4grated vlth r4rin4r7 

r etutrhe n l thrae-prop4n4 mlrture to ths form4tloa 

48 before, vhll4 the but4no ?r4otlon under gl ep4ratloa, o es in 

4rpenslYo rafln4ry 4qulpm4nt rddod to th4 o~oling unit, into 

~OlWdl bUtBa4 l Jld 18ObUt4Fh4. l'h4 bollor ?r40 ion 18 ?urthor 

JWfiJJOd i&O a V8riOt~ Of fiJJi8hOd produOt8. See J. I(. F14ltc, 

011 k 048 Journal, April 20, 1944~ Duokor 4nd Dottrnroloh, 011 

& 048 Journal, &I 

pooembor 6, 1943. 3 

11, 19441 Jam48 0. ?eY, fh@ oil !fOOfi~, 

Thor0 are 300,000 or more 0881\% ohomloal Oolqp9Unds 

Yhloh me7 oonoolnbly b4 mads from t L hydroosrbona ia gas. 

(011 k Oar Jouxzu~l, J4nuaay 21, 1943.) AB Dr. Ouakv Egiorr, 

the fOrOmO8t hydr6oorboa pJ'OtB@Jli8t, said, 

IIf v4 *tart vith mothane @?i8 eloao, l ll or the 

known *@hot10 pro&of8 that m4n h48 pruduood in 

organlo ohomistry oan be derived. . .I 

It vi11 b4 noted that in 411 typo8 0r oyollng plents 

4bove mentioned, the init% operation 18 the rooovery Of the 

ll~O?l4blO ~OOarbOa8, oalled OOndbMPt4 or dl8till4t4. The 

3’4OOtOr4d OOAd M8te 

?raotion4tion I 

18 fUrthOr pl’OO488Od by di8tilhtiOA and 

prodUOt8. 

refining uperetlona) Into the r-1 finished 

At the tia4 0r th4 pagram 0r th4 rnreadmat to Artlole 

7047b in 1941, there nr nut l pled ti oper4tloa vhloh turn& 

b ut mlng 0th ~ than o o a dea seto , a nd l fo v then more edvanood 

$lant4 vhioh obkiaed a prrtlrl r4oov4z7 of the butaao fraotlon. 

lb4 lat4greted qollng pl4nt8 nov la operrtlon over the. Stat4 

: .-E 

lid 8uoh 4 ?arletiy of pX’UdUOt8, l'4!qlng ?rom ~@O~rn.tMte'to the 

ghly r4riaod plroduOt8 msntloned l boY4, vitkrll *tag48 or partial 

. 4aaing in botvoon, that iC~18 not Z'448on4bZ$~tio be inisrred that 

th4 bgi8&Jt~,iJttOndOd to barie the tu trpon'~th4 ylue or the 

, .&rid or rsriaed produot. 

. . - 

"~ A 4lmllar ~U48tiCUI he8 4ri84n in 84v4r41 juri8diotioa8, 

inolud@g TOIA~, In r4gard to vhother the prUdUO4r~ vho UpeMt48 

l 0411, Should pa)’ ayoytJ1t7 mtaers oa the brm.4 or th4 mark& ralus 

; 0r,gea e8.p8, or ao,the b4818 -Or oert4ln produOt8 whioh ho menuf~OtUE4~fl'om tha -8. A roooat Tezaa 0184 la DurOlgeF 011 k 

~fiJJeri48, -0. 1 . -11 Dr ill* CO., l t 61.) ln 9.u. (2d) 

321~; by the supP4me Court. ti that ~680 gasrmiu 488igIWd t0 Den- 

/ Oigor a working interest in the leas4 in 

it84if Ba ovomldZag rglty 48 fOiiOW8J 

MtBiM 68 pa2’t Of th4 ouaalderatlon ?OT 

I', .rhall be eatltl4d to r0001~4 one~tweaty roupt+ 

5: th4 oil, gae, oaslngh44d gag, 4n& other'mln4r418 produoed, aaved 

;I md Ii%Srketsd 4t iihe prev811+ prlO4 paid by m4jOr OOmpaai48 . . . 
1’ 

gaor4ble thorgo H. Sh4pp4ml, p4g4 4 

579 

+ the proprrtle8 above d48OribOd fro0 and dear of operating 

et108 I?, 68 uid vh4a produoed, ravod 4~d mrk4t4d. . ." 

At th0 tiB4 Of th4 688igJJMJJt it ~48 knanr th8t th4 

@lo whloh h4d be4a drlll4d produood oaly avert 868, ur4 th4t 

' wr4 -8 no merkot la the vlolalty et thet tlae for 8woeb -8. 

pgaoigor 4r4ot4d 4a 4xpon8lv4 pleat on th4 le484d pr4mi808 for 

a4 pPrpO84 Of 8@gW8tbg ths #48 intO at8 OUIJ&WJJOJIt *X%8. 

ff14@4lf4* ~thMU#lth.PlUAt,Vh4M ltV48 8OpNWtedBt 

4onalderrblo l ~OJJ84 intO th484 O~tJJlWt8t &4801ill4, &48-011, 

dl8tilht4, kOrO*eaO, bukw, prepeao, 8&d re8idW gJI8. m888iii 

g Wd mAOig 4r for UJ l OOUUatb& OOntenbbg that it MI l a titl4 d 

$o be paid 1 24th of the (To88 Z’4OOipt8 of 411 prOhot mu&40~- 

tuJ-d*- de m8 produoed 4a the pZ'4ai848. .Tlio oourt hold 

that Wader the oontmot Burplill ~48 nut 4Atltled to hw4 the 

intO 8OPL4 0-J’ 006LWditf, but -8 b UUJJd to lOOOp g t 

r 

8 48 it V48 th.a beiry produoed ?rom the 

ho Court 84ldJ 

#I? Daa&4r ver not requlrod W’th4 oontraot 

t0 rOfiJJ4 the Oil 80 pCOdUO8d, .w Vht pFWi8iOJJ 

theroof ia it ~roquired 80 343%e any or the other 

b pl’OdUOt8 l14m4d therelat ~OlWTO~, I.? IOU 4? the 

i f$Utd~r~tiH$ be,M?iMd, t0 at'.?inaruti8 4r4 th4y 

‘.bk vimf & the variUU8 &5r408 Of iJttkJr4~iOa, Of ‘OJOi~ 

llnt8 vlth mfineriO8, l 8 point !:&ylt~ebOvO 

jh4 8Upl'omo COurt 18 PIOat p.J?tiJ$t in ,tho O;arsi;%~%~~ 

QU48ttbJllJ pZW8eat4d w ~~l'4QIO8ti I'. 

At this point v4 iiah to Pal fapr i 

7057a, VhiOh 14v1.8 U 4OOU@iOJJ tU ‘4JJ gir 

iC, iJJ w 2'4~OOt8, WlOgOW to h’tiOk0. 7 

.1nii8 8 tax Of '4.125 per OMt Of th4 mulbt 

y It h8 JJeverbeon ooateAd4dth4tthem4lk4tv4li4 thbCofIIro-~'. 

f4md t0 inOhd6d th4 MU4 Of th4 fini8h4d pr4dUOt8 rO?iZ#d 

fMm aaid oil. 

m th4 aSO HO? mri8, ma v.-skt4, l&.&v, (2d) 

th4 OOJJtontiOJJ V88 made tht if &tiOlO 7047b 18 OOA8trWd 48 

429, 

? lm aa OOUupBtiOa Sax On the ooollpatlOn Oi%'&i.atn(j liQuida 

g4s, it 18 tiol4tive o? Seotlon 35 or Art1014 III or the 

COn8tltutloa, vhloh prOvido8 J : 

'HO bill l 4 + 8hl1 O&kin mOl'0 thU OM subjoot,.whioh ah411 be 0~Fe88ti in it8 titb, l F F" 

Of thi8 tho OOU& raid: 
think th4 Aot 18 JJOt 8UbjOOt t0 Shl8 objaohydrooerbon OOnteJJl iid t the MIldU4 yr f6 

by ~%egOibg BOthOdS t0 th4 8-4 -I-pMdUOiJJg ?OFWt1oJl pndorlylq'ths lllnd fmm vhl4h the 

f 

48 

duoed, the taxable vale O? ruoh 

18 pro68 8l~ 1 k th%%e 

fifth8 Of the gr088 V4iUO Of en f t&O) pmUOt8 OXtluoted, 86~PBt6d and 84v4d ?Z'Om 8uoh w8,' but 

suoh quoted provl8loa m6roly pIPOvId the m&hod Of 

580 

(rzrare 18 a rLnri oon8lde~tlon vhloh ve virh to l dvaaoo. 

botiOa i 9if~mi014 vm 0f th~m~~titutio~ 0r th* skt4 or 

9-8 .proridOs thtlt 411 tBX48 8h411 b4 “4qtu1 UJd URifOd . s40- 

tlm 2 0r aaid Artlole VIII provid48 that "ell 0ooUpatlon %X48 

gmii b6 ~QUB~ &ad UJIifOFJII PpUJJ th0 8-4 0x488 Of 8UbjOOt8. ...' 

mmr0r.6, I* 18 the duty 0r the omrt4~to pl404 8 ooa8trm~tloa 

aa t4xingCt4tUt4th4tvllla4koth4 t4x 6qU4landtuLlr0rla 

wg a l n n subjeots Oitbe 8" 01488. It ir obylow th4t 411 

~.l'BtCW8 or OyOling plPnt8 vho er4 8180 p r uduo4r a 0r l a l r4 

fh8 8upO 01688, &Ad it 18 6qUBlly obvloua &l&t oaking &Lop". 

or 

44880r, vho 18 elao e r?bfln4r, pay 4 tar boaed ~poa the *a ue or 

th4 reria6d produots, BAd peamlttlng the 8irplO pZ’OO4880~ to peT 

l tat b484d on the value or the tmrermd ooademat*~V6uld ~6‘ 

gult la hU'8h insQBliti48 aad oomplste laok or pnLr0miit;J. Evea 

.~ 

. Xa aaawr to your first qwation, thonf4r4~yoU 4r4 

advlrwl that it 18 the Opinion Of th18.dwnt tb4t;: in;th4 

l ltU4tloa there presented, the tu should he b484d upon th6 me&et 

741~4 of 3/5thS Of the OOnd4MBt4 Or diat1114te OXtHOteb, 8bpaNted and 8av4d frcm 8Ucrh gas, aad AOt upon the market valua,~ot the 

r4rined, flniahed produot. . . 

Your 84OOad QlO8tiUJl 1st 

If 

Uher4 the produoor end the operator or th4 r44y4liag 

OhAnt 4r4 nut th4 aam6; huv vi11 the relue of the jjJtr.,)t? m668UMd 

Lo 0omputlJJg the taxt 
581. 

gooorable tiorgo H, Sheppard, pago 6 

If 18 iAd44d 8trBJago that, in the thirteen yeerr 

94XB8 h48 had 8 @8 tU l k tjJtOe, JJOlJW 068O4 o noor miit r r g 

w8 mohed the l ~elh t. OOUrt8. It 18 4tOJl MM 8tmXlg4 

vhea p0 ooaslder th4 8ktUti, vhloh o.Ft~i~d~ 18 w mod.1 

o? olmltr or oertalaty. hJU4QU4JJtlj, it 18 M8t U&O&l- 

&o tbt vheA thlr 0686 maohe th4 Suprem Court the larws 

v4r4 not 80 dravn th4t the Cotart oould olerl?y thb intoat of 

@JO 8ktUt4. 

v4 8 l ek Of 

160 S.W. (26) t29. 

th4 

Th 

4480 Of v. RI mri8, IJJO. 1; Skto, 

ere the produoorr ooatnot4d 1~1th D4Irir 

to pro0488 th0 868 PNdUOOd, urd t0 l’4- th. reaidw to the 

forwtloa from vhlah It had bemn kksn, uml in retma pro 

MriS OAO-hJiir Of the p8 prodUOt8 01p di8tilbt4 &4it4d tram 

suoh @aa, a&l retdning the other one-half or the prOdUOt8. 

D4ti8 th4JJ rrsde 8 OOJltlUOt Vith th. ~OdUOOM, 

vherqpyho pUrohr84d frOm themell of thdr one-Id? iJJtOM8t 

la the oond4Jasate Or diatilhto 

thl8 OoatraOt, Dati8 paid the prodwora 

from the #aa. Urdor 

their produot durlnsllay, 1941, rrrd 41. 

1.36 par krrel for 

for the ren8Forag tlao 

laVOlV4d iJJ the *tit. %x48 ver4 paid o n 3/ s or l ll or the 

oondsn84t4 HOOVOWd fX’Om the 668, 006@UtOd 8t tha YduO th4 

84A4 48 the prioo paid by D0pi8 to the pl’duoo~, f&i’ 8t 41.36 

en&@.44 ger barrels 

. . 

AftOr pUZ'4h48~ th0 O,OZLd4M4tO, ad.8 traA8port.d it 

to COlQnl8 Cbi*ti, ml'4 ho Sold it'8t pZ'iO.8 ww ?Pm $.1.% 

to $2.25 per bmml. %hhs stat4 8U4dmri8 iOr&&48 00mpUttwi~ 

et th4 prloe MOOiTOd by him et Corpus Chrirti, ,I048 th4 ooat 4r 

truqortation. 

produoor *hall b8 e good relth egruwn t-free 

fioaP fMUd UJd OOll\uiOn &I M&Wd8 th0 StBtO'B Ohi& 

$8r the taxer 1pnd6P thi8 Aot. WhWhV. ?Irp thi8 Aot 

48.i vhole, UJd UpOOiBl1y vh4A V4 04A8idW th4 

de?lAltloA of rnrket t41~* thenia o&Mnml, v4 

U-O o~~~vl~~ed that It demoa8trrte8 l olw lo&r- 
, 

582 

Honorable George II. Sheppard; peg4 7 

In 4~Mvlmg at thla o4n41~1oa, the Cm furthor Oon- 

‘sldored the portion 0r thl8 *tat&r requ¶ziJq the purohrrer to 

deduot the tUe8 w th4 ~Oh48. PX'iOe, %I4 COul't raid: 

. 

“Th4 purOh48er 4Oll4Ot8 th4 tU from tho pmduoer.by deduoting th4 amount bhweo? from the maeuat 

0r the puxwh484 prioe. . l Ar 4 edlJJg o fthep er t0? 

th18 8t8tUte 148t 4bOVO rUmti@Xd sXI+B&a WX'bw 

plake the pt~OhaSej! llrble t0 th0 St&O 

levied W thla Aat 

iOF,iBWtCnr 

the value ce mp 

rwuoor tmrbror. 

Ld 008 Mfj OQA+%4lJQJ 

pZy tho pmduoclr aae prloe, the kx dw the 

atate et that prloe, k44p th4 tax rt theta 

SO(p?eglkd a a d then p I the sta t@ l tU 6 

(&4#~818 OW8j 

e 

sloe 

BAOthW 

prloe.” 

vith the 4lk8VOh’ t0 @IOstiOn n Of t$d.JliOn %O. o-3&7, Bad OverZ’td48 thrt POrtiOJJ Of 8Bid Opinion. 

Your third Qieatlon 181 

III 

tfheo the 04n44aa18 bath roduoer end operator or the 

6Wh.00MeW~ h48 ?alled to 

.ep ra widea in botion 

.,.i? uaJ'prOthJ4er of-y8 8h4u f&t1 to lvdit the 

other pdr*imJt to 880ert4la 4 oerreot aamunt due, 

Mdt&apm Of 868 8hll b~ii~biO,,. 46 UI Bdt r 8b4 l'4484Ii4~O'WQB4MO8 OS 

the rUgid%% %~~O? 

totlveo of'the Wmptml 

tO8ti(trrfi4B Ubd wit;. 
mnorablo ObOr80 8. Sheppard, pI80 8 

Th4 vordillg or th4 aktute ir aloar* Aa l plwdu0.~, 

me 

P 

arson or oonoern inquired about In your third question is 

Ilab l for th. audit fee. 

Trurting that this fbllp anevers your lnqulrlea, vo 

br.9 

Tourr row bulJ,