. . ., 

V 

December 3, 1973 

The Honorable Robert S. Calvert 

Comptroller of Public Accounts 

State Finance Building 

Austin, Texas 

Dear Mr. Calvert: 

Opinion No. H- 172 

Re: Problems relating to 

Article 1.045, V. T. C. S., 

Taxation-General, providing a limitation period 

for gas production tax 

liability as affected by 

orders of the Federal 

Power Commission 

Your opinion request requires an interpretation of several provisions 

of Article 1.045, V. T. C. S. - Taxation-General. 

The State of Texas imposes a tax on gas production which is based 

on a percentage of gross receipts or income. Articles 3.01, et seq. ,V.T.CS, 

Taxation-General; Humble Oil and Refining Company v. Calvert, 478 S. W. 

2d 926 (Tex. 1972). 

The Federal Power Commission (hereinafter called the F.P. C.) regulates the rates charged for interstate gas pipeline purchases and sales under 

the Federal Natural Gas Act. 15 USC $ 717, et seq. The rates fixed by the 

FPC directly affect the amount of the production tax due to the State of Texas. 

The relevant procedures of the FPC are described in your letter as follows: 

“The problem arises in connection with additional 

gas production tax, or refunds of overpayment of tax 

brought about through orders of the Federal Power 

Commission. 

“As you know, the Federal Power Commission, 

under certain conditions, allows the seller of gas being 

sold in interstate commerce to collect increased rate 

p” 788 
, 

The Honorable Robert S. Calvert. page 2 (H-172) 

provided for in his gas sales contract, subject to 

final review. In most instances, the final order of 

the Federal Power Commission requires that the 

seller of gas refund to the purchaser some part of 

the suspended rate. This office requires that the 

gas production tax be paid on the total amount due 

the producer, including the increased rate. ” 

Since the state tax is currently paid on the basis of the temporary 

rate, the final action of the FPC, if it lowers the rate, also lowers the 

tax and entitles the taxpayer to a credit or refund (See Attorney General 

Opinion No. WW-477,1958) or if the FPC raises the rate, this results in 

a tax deficiency and further liability on the part of the taxpayer. 

Article 1.045 establishes limitations for assessing and collecting 

such deficiencies and for claiming and receiving such a refund. Its 

pertinent provisions appear in § (F). Subsection (1) of (F) provides: 

“Notwithstanding any provision of any other 

Article of this Title, when any administrative proceeding before any local, state or federal regulatory 

agency or judicial proceeding arising therefrom, 

results in a final determination which affects the 

amount of tax liability imposed by any Article of this 

Title, such final determination shall be reported to 

the Comptroller within sixty (60) days after becoming 

final, with a statement of the reasons for the difference 

in tax liability, in such detail as the Comptroller may 

require. ” (emphasis added) 

Subsection (2) provides that if from such report or from investigation 

it appears that the tax liability has not been fully assessed, the Comptroller 

has one year after the receipt of the report or one year from the discovery of 

such final determination, if unreported, whichever shall first occur, to assess 

the deficiency. Subsection (4) provides that no action may be commenced in 

court to coll,ect any deficiencies after one year from the date the Comptroller 

receives the report or discovers such fi,naL determination. Subsection (3) 

provides that if a report or investigation discloses an overpayment, then the 

p. 789 
The Honorable Robert S. Calvert, page 3 (H-172) 

Comptroller shall issue a refund or credit for such overpayment within 

the aforementioned one year period after receiving such report or dis- 

- 

covering such final determination. 

Your first question concerns the meaning of “final determination” 

as used in the statute. You ask, “When is the determination of the Federal 

Power Commission final? Is it at the time that the Federal Power Commission issues its order as to the acceptable price per MCF for the’gas, or is 

it at the time the Federal Power Commission, the taxpayer and the purchaser 

agree to the amounts to be refunded?” 

The term “final determination” is used in the statute with reference 

to administrative proceedings as well as jucidial proceedings, and we 

assume the Legislature is using the phrase as synonymous witch “final order, ” 

which in turn represents the same type of order on an administrative level 

that a final judgment represents in district court. See, Texas State Board 

of Dental Examiners v. Blankfield, 433 S. W. 2d 179 (Tex. Civ.App., Houston, 

[14th Dist. ] 1968, writ ref’d n. r. e.) where the two types of orders are likened. 

The final order or determination must be one which leaves nothing in dispute. 

Sun Oil Co. v. Railroad Commission, 311 S. W. 2d 235 (Tex. 1958); Payne v. 

Texas Water Quality Board, 483 S. W. 2d 63 (Tex. Civ. App., Dallas, 1972, 

no writ); Allen v. Crane, 257 S. W. 2d 357 (Tex. Civ.App., San Antonio, 1953, 

writ ref’d n. r. e. ). 

We believe the final order or final determination of the FPC, as referred 

to in Article 1.045, occurs when the amount of refund has been agreed to by the 

parties and approved by the Commission, or, in the absence of agreement, has 

been ordered by the Commission. Our opinion has a practical as well as a 

Legal basis. 

The practical basis is that it is not until the exact amount of the refund 

or deficiency is known that the taxpayer can make the report contemplated by 

the statute, because such report requires exact information. 

The legal basis is the accepted definition of the final judgment or order 

which is: 

p. 790 
The Honorable Robert S. Calvert, page 4 (H-172) 

“For a judgment to be final it must determine 

the rights and dispose of all the issues involved so 

that no future action by the court will be necessary 

in order to settle and determine the entire controversy. ‘I County of Harris v. Black, 448 S. W. 2d 

859 (Tex. Civ. App., Houston, 1969, no writ). 

Although the FPC order establishing a rate goes a long way toward 

disposing of all the issues, there still remains the accounting problem of 

applying the rates to the amounts paid pending the Commission determination, and it is this accounting which directly bears on the re-assessment 

of your production tax. 

Your second question refers to the provision in 5 (F)(l) of Article 

1.045 that the taxpayer must report “in such detail as the Comptroller 

may require. ” You ask: 

“Does this mean that within sixty (60) days after 

the final determination of the Federal Power Commission, 

the taxpayer must file corrected reports in detail showing 

the amount of tax overpaid or underpaid, or is a letter of 

notoficati.on without amount detail sufficient? ” 

We believe that the statute clearly delegates to your office the authority 

to answer these questions on the basis of your own judgment, limited only by 

reason. You may require that the report contain such detail as you deem 

necessary to assist you in determining the effect of the FPC order on the 

taxpayer’s liability. Therefore, if “a letter of notification without amount 

detail” is not sufficient for your purposes, you should and may require more. 

Your third question arises from the several provisions in the statute 

to the effect that, in the absence of a report by the taxpayer, the one-year 

limitation begins when the Comptroller “discovers” the FPC final determination. 

You ask, then comment as to the problem involved: 

“If no report is filed with the Comptroller within 

sixty (60) days, when does the Comptroller discover 

such final determination? Is it when he reads about it 

p. ‘191 
,I 

The Honorable Robert S. Calvert, page 5 (H-172) 

in the newspaper, through reading the Federal Power 

Commission releases, during the course of an audit 

of the taxpayer’s records, or when the taxpayer may 

have possible filed corrected reports reflecting the 

overpayment or deficiency, even though after sixty 

(60) days from final determination? The answer to 

this question becomes very important, first because 

in some instances it takes a long period of time for the 

taxpayer to compile the figures necessary for filing the 

corrected reports with this office and for this office to 

verify corrected reports. If not reported and no corrected reports are filed within the one (1) year period, 

I have no way of knowing which taxpayers may be due 

to pay additional taxes to the State and which ones are 

entitled to a refund or credit until an audit has been 

made of each of the affected taxpayer’s accounts, which 

would be impossible to accomplish within the one (1) 

year period. ” 

This statutory concept of “discovery by the Comptroller” is not a 

clear one, and we have found no helpful authorities interpreting similar 

provisions. In fact, so far as we know, there are no similar provisions. 

We believe the legislature intended these provisions to apply primarily for 

the benefit of the Comptroller so that your office will not be dependent upon 

taxpayers filing reports to enable you to act on known final determinations 

of the FPC. However, the one year period for paying a refund also begins 

running “after receiving such report or discovering such final determination, ” $ (F)(3). So the concept also applies to refunds. 

The statute cures your concern about the one year limitation running 

before you can audit the taxpayer’s corrected amount. The statutory time 

runs from the date of the taxpayer’s report or the date of the Comptroller’s 

discovery “whichever shall first occur. ” Although this quoted language appears only in Subsection (2), we believe that it is implied in Subsections (3) 

and (4). 

The exact meaning of the “discovery by the Comptroller” as used in 

the statute is difficult to determine, and again this is a proper subject for 

p. 792 
The Honorable Robert S. Calvert, page 6 (H-172) 

rules and regulations. For your guidance in promulgating such rules 

and regulations we can advise you that we do not believe that the Legislature intended to establish constructive notice in any form or to require 

the Comptroller’s office to monitor FPC rulings. Nor do we believe that 

the Legislature intended to charge your office with notice that may come 

to employees without direct responsibility. Likewise, the statute should 

not be read so as to put your office in a position that it has too little or 

no time to audit a claim for refund or deficiency. Your objective is to 

obtain a report and to correctly compute the tax, and basically it is the 

taxpayers’ burden to bring about your “discovery. ” 

SUMMARY 

1 . The reference to “final determination” in 

Article 1.045, V. T. C. S., Taxation-General, refers 

to the time the FPC, the tapayer and the purchaser 

agree to a refund or, in the absence of an agrement, 

a refund has been ordered by the FPC. 

2. The amount of detail of the reports required 

to be filed by a taxpayer showing changes in liability 

resulting from a FPC final determination is a matter 

within the Comptroller’s authority to require. 

3. The time of “discovery by the Comptroller, ” 

used in several provisions of Article 1.045, V. T. C. S., 

Taxation-General, i,s a proper subject for rules and 

regulations by the Comptroller promulgated to accomplish the basic objective of obtaining accurate reports 

and correctly computing the final tax. 

Very truly yours, 

Attorney General of Texas 

p* 793 
. . . . 

Y 

The Honorable Robert S. Calvert, page 7 (H -172) 

APPROVED: 

DAVID M. KENDALL, Chairman 

Opinion Committee 

p. 794