- - 

Hon. George H. Sheppard 

Comptroller of Public Accounts 

Austin, Texas 

Dear Mr. Sheppard: Attention of Mr. Farrar 

Opinion No. O-182 

Re: Taxes on confiscated oil 

This is in answer to your letter of JnnKary~ 19, 1939, in which you 

ask this Department for an opinion concerning taxes on confiscated oil. 

That part of your letter which sets out the facts involved and the 

questions you desire answered is as follows; 

"There have been a number of cases of confiscated oil sold 

by the State of Texas upon which the purchaser has paid 

the tax levied by Article 7057a. Such purchaser now 

claims that such tax was erroneously paid and makes demand 

on this department for credit as provided for in subsection 

13 of Section 1. This department therefor requests your 

opinion as to whether the Comptroller is authorized to give 

credit for taxes paid on oil confiscated by the State. 

flIn most cases the source of the confiscated oil is unlmown. 

There is one case, however, where the Thomas D. Humphries ~. 

lease produced 102,000 barrels of excess oil, and the 

source of the oil is not in question. The fact that it was 

produced illegally wss basis upon which the court held it 

subject to confiscation by the State. This department has 

made demand upon the owner of the lease for taxes, under 

Article 70578. The leaseowner has refused to pay the 

taxes on the ground the State acquired title to the oil and 

sold it, therefore, no tax accrues. I will thank you to advise 

the law under this condition of facts." 

We will endeavor to decide your first inquiry, which is whether or not 

the Comptroller should 'give credit for taxes paid by these parties 

under the facts stated by you. 

The producer of the oil in this case in the person who took the oil from 

the earth (which is the person from whom it was confiscated) by virtue 

of paraaaph (.l). of Section 1 of Article 7,057a,,which reads as follows: 
Hon. George H. Sheppard, Feb. 9, 1939, Page #S O-182 

"For the purpose of this Act "producer' shall mean any person 

owning, controlling, managing or leasing any oi'lwell and/ 

or any person who produces in any menner any oil by taking 

if from the earth or waters in this State, and shall include 

any person owning any royalty or other interest in any oil 

or its value whether produced by him, or by some other person 

on his behalf, either by lease, contract or otherwise." 

It was intended by the act that the "producer" pay the tax, whichis shown 

by the words of paragraph (12) as follows: 

"The tax herein imposed on the producing of crude petroleum 

shall be the primary liability of the producer as hereinbefore 

defined;V 

A "first purchaser" is defined in paragraph (2) as the "person purchasing 

crude oil from the producer"; and persons buying from the "first purchaser" 

are defined as "subsequent purchasers". A provision is made in paragraph 

(12) and in paragraph (15) whereby the "first purchaser" and "subsequent 

purchasers" are to aid in collecting this tax from the "producer" by 

deducting the amount of the tax from the purchase price and paying this 

amount to the Comptroller as the tax; and as this amount would be 

ultimately deducted from the sale price the "producer" received it 

would result in the "producer" paying the tax. 

The State is not a first purchaser under such conditions as these. As 

noted above, a first purchaser is the "person purchasing . . . . etc." 

The state is not a person, nor did it purchase. Furthermore, to require 

the purchaser to withhold 2-j/4 per cent of the purchase price from 

the State on the one hand and pay that sum to the Comptroller as taxes 

on the other hand would be equivalent to taxing property of the State. 

In no view of the situation can this be done in this instance. And, 

certainly there is no authority in the statutes for making the purchaser 

from the State pay this tax in addition to the purchase price. 

Therefore, when the purchaser paid the 2-314 per cent tax in addition to 

the purchae price, his mistake was one of law which we think would fall 

within Section 1 (13) of saiu Article 7057a, reading as follows: 

'ZJhen it shall appear that a taxpayer to whom the provisicns 

of this Act shall apply has erroneously paid more taxes then 

were due during any tax paying period either on the account 

of a mistake of fact or law, it shall be the duty of the 

State Comptroller to credit the total amount of taxes due by 

such taxpayer for the current period with the total amount 

of taxes so erroneously paid." 
Hon. George H. Sheppard, Feb. 9, 1539, Page # 3 O-182 

Our answer to your first inquiry is that the Comptroller should give 

these parties credit to the extent of 2-3/4# per barrel for the taxes 

paid on the occasions you refer to. 

We will now endeavor to decide your second irqljiry, which is whether 

or not the lease owner in these cases where t.ie oil has been confiscated 

is still liable for the tax of 2-,3/4# per barrel on the oil produced. 

We assume that the lease owner you refer to is the person who produced 

the oi~l and from whom the oil was confiscated. 

It is our belief that that part o1 *paragraph (12) quoted above plazas 

the primary liability for these taxes on the producer; and the 

producer in this case is the one from whom the oil was confiscated. 

As soon as the party in question became a Uproducer", that is had 

produced the oil, the liability for the tax became fixed on that person, 

and it made no difference as to what ha;)pened to the oil. The tax 

in question is a tax on the occupation, the act of producing the oil, 

such being the holding in the case of Group No. 1 Oil Corp. vs. Sheppard, 

89 S. W. (2d) 1021, which involved the statute in question, and in 

which the court said: 

"Nor is the tax levied on the oil in place. The tax is levied 

on the business or occupation of producing the oil." 

The fact that this oil was produced in an illegalmsnner should not excuse 

the producer from liability for the tax. In these instance the law will 

not permit s party to profit by his own wrong. In 4 Cooley on Taxation, 

4th Ed., 3337, it is said: 

"An occu;>ation tax is collectible without regard to whether 

the owner has operated under or in defiance 3f public regulations as to license. It is no defense to an action to 

collect a privilege tax that the business upon which the tax 

is assessed is illegal." 

This rule of law was followed in the cases of Foster v. Speed, I.20 

Tan. 111 S W. 925, 22 L. I?. A. (N. S.) $9, 15 Ann. Cas.:%o66;,aind 

Brunswicke-Balke-Collander Co. vs. Mecklerburg County, l&N. C. 386, 

S. E. 317. 

Our snswer to your second inquiry is that the lease owner (the person 

who produced the oil and from whom the,oilwas confiscated) is still 

107 

liable to the State for the tax of 2-3/w per 'barrel on the oil produced. 

Yours very truly 

ATTORNEY GENEPAL OF TEXAS 

s/ Cecil C. Rotsch 
Hon. George H. Sheppard, Feb. 9, 1939, Page #4 o-182 

BY 

Cecil C. Rotsch 

Assistant 

CCR:BT/ldw 

APPROVED 

s/ Gerald C. Mann 

ATTORNEYi @JYERUOFTFXAS