. . .,

V December 3, 1973

The Honorable Robert S. Calvert Comptroller ofPublic 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 alimitation period for gas production tax liability as affected by orders ofthe Federal Power Commission Your opinion request requires an interpretation ofseveral provisions ofArticle 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. 15USC $717, et seq. The rates fixed by the FPC directly affect the amount ofthe production tax due to the State of Texas. The relevant procedures ofthe FPC are described in your letter as follows:

“The problem arises in connection with additional gas production tax, or refunds ofoverpayment of tax brought about through orders ofthe Federal Power Commission.

“As you know, the Federal Power Commission, under certain conditions, allows the seller ofgas being sold in interstate commerce to collect increased rate

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

provided for in his gas sales contract, subject to final review. Inmost instances, the final order of the Federal Power Commission requires that the seller ofgas refund tothe 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 onthe basis ofthe temporary rate, the final action ofthe 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 atax deficiency and further liability onthe part ofthe 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 ofany other Article ofthis Title, when any administrative proceeding before any local, state or federal regulatory agency orjudicial proceeding arising therefrom, results in afinal determination which affects the amount oftax liability imposed byany Article ofthis Title, such final determination shall be reported to the Comptroller within sixty (60) days after becoming final, with astatement ofthe 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 noaction 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,naLdetermination. Subsection (3) provides that if a report or investigation discloses anoverpayment, then the

p. 789The 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 toadministrative 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 onanadministrative level that afinal judgment represents in district court. See, Texas State Board ofDental 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, 311S.W. 2d235 (Tex. 1958); Payne v. Texas Water Quality Board, 483 S.W. 2d63 (Tex. Civ. App., Dallas, 1972, nowrit); 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 inArticle 1.045, occurs when the amount of refund has been agreed to by the parties and approved by the Commission, or, in theabsence ofagreement, has been ordered by the Commission. **Our** opinion has apractical 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 ofthefinal judgment or order which is:

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

“For ajudgment tobe final it must determine the rights and dispose ofall the issues involved so that nofuture action by the **court** will be necessary in order to settle and determine the entire controversy. ‘I County ofHarris v. Black, 448 S.W. 2d 859 (Tex. Civ. App., Houston, 1969, nowrit). Although the FPC order establishing a rate goes a long way toward disposing ofall 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 onthe re-assessment of **your** production tax. Your second question refers tothe provision in 5(F)(l) ofArticle 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 ofthe Federal Power Commission, the taxpayer must file corrected reports in detail showing the amount oftax 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 toanswer these questions on the basis ofyour 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 ofthe FPC order on the taxpayer’s liability. Therefore, if “a letter ofnotification 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** tothe effect that, in the absence ofareport bythe 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

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

in the newspaper, through reading the Federal Power Commission releases, during the course ofan audit ofthe 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 oftime for the taxpayer to compile the figures necessary for filing the corrected reports with this office and for this office to verify corrected reports. Ifnot reported and no corrected reports are filed within the one (1)year period, Ihave noway of knowing which taxpayers may be due to pay additional taxes to the State and which ones are entitled toa refund or credit until an audit has been made of each of the affected taxpayer’s accounts, which would be impossible toaccomplish within the one (1) year period. ” This statutory concept of “discovery by the Comptroller” is not a clear one, and we have found nohelpful authorities interpreting similar provisions. Infact, so far as we know, there are nosimilar provisions. We believe the legislature intended these provisions toapply primarily for the benefit ofthe 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 ofthe taxpayer’s report or the date ofthe 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 ofthe “discovery by the Comptroller” as used in the statute is difficult to determine, and again this is aproper subject for

p. 792The 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 inany form or to require the Comptroller’s office to monitor FPC rulings. Nor dowe 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 putyour office inaposition 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 toa refund or, in the absence ofanagrement, a refund has been ordered by the FPC. 2. The amount ofdetail ofthe reports required to be filed byataxpayer 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 bythe Comptroller, ” used in several provisions ofArticle 1.045, V.T. C.S., Taxation-General, i,saproper subject for rules and regulations by the Comptroller promulgated toaccomplish the basic objective ofobtaining accurate reports and correctly computing the final tax. Very truly yours,

Attorney General of Texas

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

APPROVED:

DAVID M. KENDALL, Chairman Opinion Committee

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