**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 loorue on of all produoh, based upon the wslue uohlm **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 r4oyolingpro~lslon of the st4tutemerely 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 plant4v4r4 oonstruotedand put into operatloti

in 1938. Theso first plant8 prOduo4d oondon8ato**or** dlatlllat4, r&v un?lnish4dpzykduots, vhloh wro Mrkoted to reflaer8. piua 4per4t4r;8

io 'tirs4

rQurd that **tw** 00tud mlqda0- fur4 ?ti$sh4dproduotr, and that the 

### l d@t1&41~inv48tment and merot 7 Were jua 6~n8e.~o4884ry ?or th4 aanufaoturoof 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?aoturoof 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 oompre88odand 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.. tlllationmd'?r&tl+@lqt lnto.8uohpmdyotrr a8 mi1~r41 oil, bo$nCmd g44olin4,'4a4into but4n4, **prop~o** l d othano ?r4iol moling p14ntr oan 

### funotlon 4ith4r lmd4pod4ntl~ or In oompletoor pa&l&l Inta~atlon with ref&k&i operations. **A** oyol- p1ant 3 orating lndopend4ntly of TofUmr7 opemtlon8 does 1 

### no more 

### than 4 

### zuut 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?raotlonm4sf b4 r4turn4d to the L **r48ervolr,** aad **t** mixed butma fraotlon L8 drlltored to a 'ro- .tia*i7'.

Th4 hrcivlor

produot8;hommr, ~a~ roflrml in roflnorygoaorablo ffeorge Ii.Shopp4rd,p4go 3 

### 57%

! ,@pmeat added **to** the oyoling unit, to yield 4 number Of fiai8bed ; p&UOt*.

'.oper4tlon8

CJoliag pl4at8 oompletoly iat4gratedvlth r4rin4r7 

### re turn the l thrae-prop4n4 **mlrture to**  ths form4tloa 48 before, vhll4 the but4no ?r4otlon 

### undergoe s l ep4ratloa, in 4rpenslYorafln4ry 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& but mlng 0th~ than o oadeaseto, and l fov then more edvanood $lant4 vhioh **obkiaed** a prrtlrl **r4oov4z7 of**  **the butaao**  fraotlon. **lb4** lat4gretedqollng 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 

### r4riaodplroduOt8 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** rsriaedproduot.

. . - "~ 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 -Oroert4lnproduOt8 whioh ho menuf~OtUE4~fl'om

tha **-8.** A roooat Tezaa 0184 la DurOlgeF 011 k ~fiJJeri48, -0. 1 . - 11 D rill * C O., 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 ;Imd 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 

### tlaefor 8woeb -8. pgaoigor **4r4ot4d** 4a 4xpon8lv4pleat 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 

### gWd mAO ig4r

f or UJ l OOUUatb& OOntenbbg that it MI l atitl 4d $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 

### thatWader the 

### oontmot Burplill ~48 

### nut 4Atltled **to hw4**  **the** intO **8OPL4 0-J**  **’ 006LWditf,**  but **-8** 

### bUUJJd to l OOOpgt 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'.?inaruti84r4 th4y

**‘ .bk**  **vimf &**  **the variUU8**  **&5r408 Of**  **iJttkJr4~iOa, Of**  **‘ OJOi~**  llnt8 vlth mfineriO8, l8 point !:&ylt~ebOvO **jh4** 8Upl'omo

COurt 18 **PIOat** 

# p.J?tiJ$t **in** ,tho O;arsi;%~%~~ QU48ttbJllJ

pZW8eat4dw ~~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(jliQuida 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,.whiohah411 be 0~Fe88ti in it8 **titb,** l F F" Of thi8 

### tho **OOU&** raid:think th4 **Aot** 18 **JJOt 8UbjOOt**  **t0 Shl8**  **objao**



### hydrooerbon OO nteJJt l 

### iid the MIldU4 yr f6 **by** ~%egOibg BOthOdS t0 th4 8-4 **-I-pMdUOiJJg** ?OFWt1oJl pndorlylq'ths lllnd fmm vhl4h the f48 duoed, the taxable vale O? ruoh 18 pro**68** 8l~ 1 k th%%e **fifth8 Of**  the gr088 **V4iUO** Of en ft&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 tol 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 w gan l n subjeots Oitbe 8" 01488. 

### It ir obylow th4t 411 ~.l'BtCW8or OyOling plPnt8 vho er4 8180 p ruduo4ra 0r la lr4 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 advlrwlthat it 18 the Opinion Of th18.dwnt tb4t;: in;th4 l ltU4tloathere 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 

### marketvalua,~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 ktjJt e, OJJlJ OW 068 4 Oonoormi r rg

it w8 mohed the 

### l

~e lht.

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

vhlahIt 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 ren8Foragtlao laVOlV4d

**iJJ the**  ***tit.** %x48 ver4 paid on3/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. ?Irpthi8**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 

### furthorOon-

**‘ 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 4Oll4Ot8th4 tU from tho pmduoer.by deduoting **th4** amount

### bhweo? fromthemaeuat **0r the**  **puxwh484** prioe. 

### . lAr 4 ed lJJgofthe pe rt0? 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 adthe n pI the stat@ 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 **Over Z**  **’ 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 .ea p rw idea

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,