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Hon. GeorgeH. Sheppard Comptroller of PublicAccounts 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, inwhich you ask this Department for an opinion concerning taxes on confiscatedoil. That part of your letterwhich sets out the facts involved and the questions you desire answered is as follows; "Therehave been a number of cases of confiscated oil sold by the State of Texas uponwhich the purchaserhas paid the tax leviedby Article 7057a. Such purchasernow claims that such taxwas erroneouslypaid and makes demand on this department for credit as provided for in subsection 

### 13of Section 1. This department thereforrequests your opinion as to whether the Comptroller is authorized to give credit for taxes paid on oil confiscatedby 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 102,000barrels of excess oil, and the source of the oil is not in question. The fact that itwas produced illegallywss basis uponwhich the courtheld it subject to confiscationby the State. This departmenthas made demand upon the owner of the lease for taxes, under Article 70578. The leaseownerhas 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 iswhether or not the Comptroller should 'give credit for taxes paid by these parties under the facts statedby you. The producer of the oil in this case in the personwho took the oil from the earth (which is the person from whom itwas confiscated)by virtue of paraaaph (.l).

of Section 1 of Article 7,057a,,which reads as follows:Hon. GeorgeH. Sheppard, Feb. 9, 1939,Page #S O-182

"For the purpose of this Act "producer'shallmean any person owning, controlling,managing or leasingany oi'lwell and/ or any personwho 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 itsvalue whether producedby him, or by some other person on his behalf, eitherby lease, contract or otherwise."
It was intendedby the act that the "producer"pay the tax,whichis shown by thewords of paragraph (12)as follows:

"The tax herein imposedon the producingof crude petroleum shall be the primary liability of the producer as hereinbefore defined;V
A "firstpurchaser" is defined in paragraph (2) as the "personpurchasing crude oil from the producer";and personsbuying from the "firstpurchaser" are defined as "subsequentpurchasers". A provision ismade 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 purchaseprice and paying this amount to the Comptroller as the tax; and as this amountwould 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 conditionsas these.As noted above, a first purchaser is the "personpurchasing
.... etc." The state is not a person, nor did it purchase. Furthermore, to require the purchaser towithhold 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 thisbe 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 purchaseprice. Therefore,when the purchaser paid the 2-314 per cent tax in addition to the purchae price, his mistakewas one of lawwhich we thinkwould fall within Section 1 (13) of saiuArticle 7057a, reading as follows: 'ZJhen it shall appear that a taxpayer towhom the provisicns of thisAct shall apply has erroneouslypaid 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 dueby such taxpayer for the current periodwith the total amount of taxes so erroneouslypaid."Hon. GeorgeH. 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 occasionsyou refer to.
We will now endeavor to decideyour second irqljiry, which iswhether or not the lease owner in these caseswhere t.ie oil has been confiscated is still liable for the tax of 2-,3/4# perbarrel on the oil produced.
We assume that the lease owner you refer to is the personwho produced the oi~l

and fromwhom 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 fromwhom the oil was confiscated. As soon as the party in questionbecame a Uproducer",that is had produced the oil, the liability for the taxbecame fixed on that person, and itmade no difference as towhat ha;)penedto 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 oilwas produced in an illegalmsnner should not excuse the producer from liabilityfor the tax. In these instance the lawwill not permit s party to profitby his ownwrong. In 4 Cooley on Taxation, 4th Ed., 3337, it is said:
"An occu;>ation

tax is collectible without regard towhether the ownerhas operated under or in defiance 3f public regulations as to license. It is no defense to an action to collect a privilege tax that thebusiness uponwhich the tax is assessed is illegal." This rule of lawwas 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-CollanderCo. vs. Mecklerburg County, l&N. C. 386, S. E. 317. Our snswer to your second inquiry is that the lease owner (theperson 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. RotschHon. GeorgeH. Sheppard, Feb. 9, 1939, Page 

### #4 o-182

BY Cecil C. Rotsch

Assistant CCR:BT/ldw APPROVED s/ Gerald C. Mann ATTORNEYi

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