- 

Honorable Robert S. Calvert 

Comptroller, of Public Accounts 

,, Opinion No. WW-1111 

Capitol Station Re: Whether, under the subAustin, Texas mltted facts Houston 

Pipe Line Company has 

been engaged in operating 

a "Gas Works". . ."for 

;;E;$ sale and distrlbuso that lts.Pece$pts 

are t&cable under Art, 

7060, V.C.S., and related 

Dear Mr. Calvsrt: question. 

You have asked three q#!stlons concerning the application 

of the grobe &metptCr tax provided for under Article 7060, 

V,0,8,, (now Artiole 1X.03, Title 122A, Taxation-General) ,to 

~&$a+lz$ opens@ions of the Houston Pipe Line Company, in oonneotion w%%,h an audLt of thid oofftpany ky your office. Specifically, 

ths i#.at?$tlGlld asked and the statement5 of fact furnlahed relate 

$0 cSz%4in opex%tions .of. HGu&ton..Plpe .Llne Company during the 

audited period ln the lncorpora%d ace88 of Texas City and 

: Hou#ml. WiM re'eference to the&i facts, you ask the following: 

~"'Your opinion 15 requested a8 to 

whether or not under the facts'submitted, Houston Pipe Line Company has 

been engaged In operating a 'gas works' 

. 0 .I 'for local sale and distribution 

t at Texas City so that its reieipis are taxable under Article 7060, 

Texas Civil Statutes, now Article 11.03, 

Title 122A, Taxation-Qeneral. 

"Two questions arise concerning Houston 

Pipe Line Company's business In Houston. 

"First: In view of the definition of 

‘gas works' as used Article 7060, R.C.S., 

in the Eddlns-Walcher Butane Company 

v. Calvert, 298 S.W.2d 93, 96 (Texas 

Supreme Court,. 1957), as I. . . a plant 

where gas Is manufactured or processed 

,I or 1. .the system of mains and 

iaierah by m;ans of which the commodity 
Honorable Robert S. Calvert, Page 2 Opinion No. WW-1111 

Is usually delivered by a gas distributor 

to the premises of customers. . .: can 

the sales of gas by Houston Pipe Line 

Company through facilities owned, operated, 

managed and controlled by Houston Natural 

Gas Corporation be considered In determining 

whether Houston~Plpe Line Company Is subject 

tom the tax? 

"Second: In the event the first question 

Is answered in the affirmative, are these 

'few instances' of gas delivered sufficient 

to subject Houston Pipe Line Company to 

the tax for the periods In question?" 

1. It appears that prior to November, 1956, Houston Pipe 

Line Company and Houston Natural Gas Corpqratlcn were unrelated 

corporations having different stockholders, officers and directors. 

Houston Pipe Line Company had been the prlncl.pal supplier for 

Houston Natural Gas Corporation, making city gate deliveries to 

'Houston Natural Gas Corporation at several citl.es In Texas. During 

this time (up until November, 1956) the relationship between Houston 

Pipe Line Company and Houston Natural Gas Corporation was purely 

contractual In nature. 

2. In November, 1956, Houston Natural Gas Corporation.purchased Houston Pipe Line Company from Atlantic Refining Company. 

:Although lOO$ of the stock was purchased, Rouston Natural Qas 

Corporation's acquisition took the essential. form of a purchase 

of assets, by means of the formation of a new .?cm.pany, first 

chartered in 1956, with the former Houston Pipe Line Company 

surrendering Its charter, dissolving and going out of business, 

and the new company, subsequently changing lts name to the 

abandoned name "Houston Pipe Line Company" then remaining with 

the former business and assets of the previous Houston Pipe Line 

Company. 

3. Houston Pipe Line Company, both as present3.y constituted 

and historically, Is a."gas transmlsslon lir~e. q, .s.ervin$ varlous 

gas distribution companies and Industrial cuetcmers. . . . Thus, 

it appears that Houston Pipxlne Company,plcks ';lp natural gas 

at the well head and from gas gathering systen;.s. and carries the 

gas so gathered by long line, large diameter, high pressure pfpelines to city gates for delivery to Houston Natural Gas Corporation and other gas distribution companies. 

4. In addition to Its city gate dellverles to gas distribution companies, a substantial part of the br?slress of Houston 

Pipe Line Company conslats of selling gas in large quantities 

to industrial and chemical plants located alorg its lines in the 
Honorable Robert S. Calvert, Page 3 Opinion No. WW-1111 

Texas Gulf Coast area. In making these sales, Houston Pipe Line 

Company employs laterals from Its high pressure main Ilnes, 

rather than an extensive grid system of low pressure gas mains 

and services. It does not odorize the gas in question nor does 

It assume the duty of serving all customers on its lines desiring 

service. Houston Pipe Line Company competes for this business 

with other gas transmlsslon companies, and with alternative fuels 

such as fuel oil, etc. Houston Pipe Line Company sells Its gas 

by negotiated contract rather than by published rate schedules; 

obtains no franchises from cities and towns touched or crossed by 

Its transmission lines, and submits to no city or local regulation 

of Its rates on these Industrial sales. Reports to the Railroad 

Commission of Texas by Houston Pipe Line Company are made as 

required of gas transmission companies, rather than those required 

of gas distribution companies. 

5. Since 1947, the corporate limits of Houston and Texas 

City have been extended so as to bring certain Industrial plants 

served by Houston Pipe Line Company Into the city limits. By 

contracts entered Into by and between Houston P!.pe Line Company 

and Houston Natural Gas Corporation, (in 1450, prior to their 

affiliation in 1956) a "transportation fee representing the 

'sales profit on a number of such,~ustomers was transferred 

from Houston Plpe~ Line Company &Houston Natural Gas Corporation; together.,&th the duty to read meters, make service caLla, 

change and.tiompute charts, etc. Thereafter, Houston Natural 

'Gas Corporation has paid the tax due under Art. 7060 on ,the 

eiiles to these customers--limited, however> In some instances, 

'to-the 'sales profit" or "transportation fee" received by it. 

The agreements in questionhave been continued in force following 

the events of November, 1956, related above. 

6. The contracts between Houston Pipe Line Company and 

Houston Natural Gas Corporation are questioned. The second 

question of your request asks whether the sales to customers 

transferred from Houston Pipe Line Company to Rouaton Hatural 

Gas Corporation by the contracts in question can be considered 

In determining whether Houston Pipe Line Company la subject to the 

tax. 

Answering this question first, we are of the opinion that 

these contracts,.. being based upon what appears to be sufficient 

consideration and having been entered Into when the two companies 

were unaffiliated and at arms length, are not subject to question. 

-However, in the view we take of the law, even an affirmative 

answer to this question would not make Houston Pipe Line Company 

subject to the tax on Its sales inside the City Limits of Texas 

City and Houston during the periods In question. 
Honorable Robert S. Calvert, Page 4 Opinion No. WW+llll 

Your request for an opinion quite properly recognizes 

that the recent Supreme Court opinion, Eddlns-Walcher .Butane 

Company v. Calvert, ,156 Tex. 587, 298 S.W.2d 93 (1951) IS of 

controlling Importance in this matter. This opinion Clearly 

shows that it la not the number of customers In a city, but the 

type or kind of buslneas conducted, which determines whether 

the tax imposed by Art. 7060, V.C.S., applies. While this 

opinion might well end with this observation, It may be helpful 

to review the legislative history of Article 7060 and a number 

of cases in which the dlstlnctlon Is recognized between the 

operation of a local gas distribution plant, on the one hand, 

and a gas transmission system incidentally making Industrial 

sales of gas along Its line, on the other hand. 

Under the statute the question la whether.Houston Plpe~ Line 

Company has been engaged, In the cities of Houston and Texas 

City, in-the occupation of "owning, operating, managing or 

controlling any gas. . *works. . .located wlthln any Incorporated 

town or city in this State, and used for local sale and dlstrlbutlon In said town or city. . ." (Formerly Artlc1e.7060 Texas 

civil Statutes; now Article 11.03, Title 122A, Taxatlon&neral, 

Texas Civil Statutes). 

In Eddlns-Walcher Butane Company v. Calvert, 156 Tex. 587, 

298 S.W.sd 93 (1957) ,Art. 7060 V.C S was held not to apply 

to nmerous sales of'gas inslde'the ioriorate limits of a town" 

unless such sales were accomplished by means of ". . .A plant 

where gas Is manuEactured or processed. . <' or.,". 

of mains and laterals by means of which the commodity l --la kP usua y 

delivered by a gats distributor to the premises of customers. . ,'I. 

In that case, the Supreme Court held that a butane distributor, 

delivering butane to the premises of Its customers Inside the 

city llmlts by means of trucks, did not owe the tax. Attorney 

General's Opinion No. 0-3776 of August 1, 1941, mentioned as 

authority In Mr. McKlnzle's letter dated September 23, 1960, 

was overruled by the Court. 

fin Utilities Natural Gas Company v. State, 133 Tex. 313, 

128 S.W.2d 1153 (1939) the Texas Supreme Court held that sales 

by a long line, high pressure pipe line transmission company 

to an electric power company inside Victoria, as well as to a 

local distributing company, did not make the transmission company 

a company which was Itself engaged In "local sale and distribution". 

It should be noted, additionally, that In Thompson v. United 

Gas Corporation, 190 S.W.2d 504 (Tex.Clv.App., 1945 , err.ref.1, 

in deterni nIn# the app1lcabillty of Article 6060, V.C.S., commonly 

known as the pipeline tax", the Court recognized olearly the 

division of the gas Industry Into three distinct occupatlons-- 

severance and gathering, transportation or transmlsalon by plpeline, aad local distribution. 
Honorable Robert S. Calvert, Page 5 Opinion No:WW-1111 

In Dallas Gas Co. v. 

1924) err.ref 

State{ 261 S.W. 1063 (Te~.Cfv.App., 

the meaning of 'gas plant" under the statute In 

force prior to'the passage of Art. 7060, V.C.S., was held to 

contemplate the operation of a public utility regulated by the 

municipality. In upholding tt%@onstitutionality of the tax 

Imposed by that statute, the C&rt held (261 S.W. 1063, 1069): 

"But the occupation of operating a 

gas plant is one possessing characteristics 

peculiarly applicable to Itself, and in no 

sense similar In character to that of sellinn 

real estate. Such business is Usually 

recognized as a public utility bver which 

munlclpalitles, as in the instant cashY 

exercise powers of regulations. Its very 

nature. to enable its successful economic 

operation, demands a monopoly In its 

community." 

That.'!J.ocal sale and distribution" has the meaning of public 

utility setirlng all comers, Including Individual consumers 

has been clearly recognized by the Attorney Generali In Opinion 

~~-810, dated March 4, 1960. In discussing the Eddins-Walcher 

case, this opinion states: : 

"The definition of 'dlstrlbutlon', was 

added to by Eddlns-Walcher But 

v.. Robert S. Calvert 156 T 

-2a 1x-i an o,",:; 

Walker, the Texas Suljreme Court held that 

the te* ‘gas works'; as used In Art. 7060, 

V.A.CI;G., meant (1) an establishment in 

which gas is manufactured,-produced or 

processed, or (2) a distribution system 

consisting of pipes through which gas 

flows and is delivered to the premises of 

consumers. In light of these two cases, 

It Is submitted that ldlstrlbution' means 

transfer or possession of gas to various 

consumer individuals or concerns in an 

Incorporated city or town. . ." 

In City of St. Louis v. Mississippi River Fuel Corporation, 

97 F.2d '*r 2b .A. ,orporatlon, 

a high preesur; trans&slon line having some 19 Industrial 

customers in the City of St. L@@a under contract, was, nevertheless, held not to be engaged in "distributing and selling. s s 

gas. . .for public use" within the meaning of a taxing ordinance 

of the City of St. Louis. The 8th Circuit Court of Appeals 

held, In affirming a judgment In favor of the gas company (97 

F.2a 726, 730): 
Honorable Robert S. Calvert, Page 6 Opinion No. WW-1111 

"We conclude that under Missouri 

law.the term 'for public use,' as used 

In the ordinance under consideration, 

means the sale of gas to the public 

generally ana indiscriminately, ma 

not to particular persons upon special 

contract. This construction of the 

phrase Is the one generally understood 

ana applied." 

The Court of Appeals thus adopted the same reasoning as the 

Texas Court In Dallas Gas Co. v. State, supra (261 S.W. 1063)-- 

that the operation of a gas plant requires a public utility 

operation; not simply sales to particular persona upon special 

contract. 

The same holding was made with respect to the Mlssisslppl 

River Fuel Corporation even following an amendment of the taxing 

ordinance so as to tax the "selling or distributing of. . .gaa 

.for heating, lighting ~power and refrigeration" and deleting 

ihe words "for public use.' Mlsslsaippl River Fuel Corporation 

v. City'of St.'Louls, 57 F.Supp. 549 (E D M 1944) In this 

second Misslsslppi River Fuel case, 

549, 563): 

the*&ur~'~eld (5j F.Supp. 

"In the gas Industry the orcfinary,. 

ana usual clasf3lficatlon as to purposes 

for tilch gas is 00ia is domestic, 

commercial ana Lndustrial. 

II 

. . . . 

"When a legislative act Is passed 

with reference to a particular trade 

orbusiness and words are used which 

those conversant with,the trade or 

business know and understand and have 

a particular and definite meaning, then 

the words are to be construed as having 

that particular and definite meaning, 

though such meaning may differ from the 

ordinary meaning of the words." 

Incidental deliveries of gas or electric power by companies 

whose nrimars business Is not dlstrlbutlon. will 'not be held to 

constitute distribution. State v. North Itasca Electric Co-op, 

78 N.W.2d 54 (Mlnn.', 1956). In that case the Court held an 

Electrical Co-op operatiug a high-voltage transmission~llne 

between two main points, but which also made deliveries to 

two sub-stations along the way, was not engaged In "dlstrlbutlon" 

of electrical power, but was a “~nsmisslon company". The Court... 

said: 
Honorable Robert S. Calvert, Page 7 Opinion No, WW-1111 

"The distinction between the terms 

transmission lines and dlstrlbutlon lines 

as used in sections 273.42 d 273 41 

lies In the primary objectlg and purpose 

for which the ll ia used. It i 8 apparent 

that the prlmary?bj tlve and purpose of 

the 22,000-volt lineek question Is the 

transfer of large quantities of electrlcal 

energy in bulk to locations from which 

It may be distributed or allocated to 

consumers by means of other lines. Accordingly, we hold th t th line In question 

la a tranamlsslonallnee . ." 

In this connection, Attorney General's Opinion No. W-909, 

dated August 29, 1960, has recognized that the occupation 

of the taxpayer la the crucial test for appllc the statute. 

Such opinion held that incidental distribution of gas In a "few 

Instances" by the Air Force at a base located inside the city 

limits of a town does not make such facility one engaged in local: 

sale and distribution so as to occasion a tax under Art..7060, 

V.C.S. 

In the light of the foregoing authorities, the question of 

whether a transmission company's sales within the lnco orated 

limits of any city or town oonst'ltutea use of a,"gas,wo IT ks" 

engaging In 'local aale and distribution" cannot be answered 

merely by counting the number of Its customers. .In none of the 

authorities discussed above has the number of customers, by 

Itself, been deemed significant except that under no clrcunstancea 

can a sale and delivery to one customer make the seller liable for 

the tax. Utilities Natural Gas Company v. State, 133 Tex. 313, 

128 s.w.2a 1153 (1939) . 

It appears affirmatively from the facts furnished to us wlth 

your opinion request that the occupation of Houston Pipe Line 

Company In the cities of Houston and Texas City Is that of a 

transmission company and not that of a local di8trlbutlOn company 

as those distinct categories are recognized In the authorities 

cited above. For example, Houston Pipe Line Company (1) maintains 

high pipeline pressures on gas crossing into city limits to point 

of delivery; (2) has no "mains or services" or "system of mains 

and laterals by means of which the commodity Is usually delivered 

by a gas distributor to the premises of customers" or other network for wide-spread dlstrlbutlon of gas; (3) does not odorize 

its gas; (4) obtains 

City of Texas City; 

franchise from,the City of Houston or the 

submits to no local regulation of Its 

rates ana pollclea; makes the sales In question competlvely 

upon negotiated contracts rather than by published rate schedules, 

and (7) In no manner holds Itself out as a public utility to.serve 
Honorable Robert 9, OUvert, Page 8 pi, Opinion Ho. NU-1111 

lnalvl&ual oonemers ee would be absolutely neoessary for a 

distribution oompany and a oondltlon of Its franohiso. 

SUMMARY 

Houston Pipe Idne Company hae,notbeen 

engaged in opeatlng a "gas works. . .?or local 

sale and dlrtrlbutlon. . ." at Texas City ur4 

Houston anil, therefore, Its reoelpts from its 

sales OS gar therein are not taxable under . 

Artiole 7060, V.&S. 

Yours very truly, 

WIIJJWIMON 

Attorney General of Texas 

B 

JIiB:an. 

APPROVRD: _ 

OPINION COMHIT'I'RE: 

Henry Bras%ell, Chairmen 

Grady Chandler 

Elmer McVey 

John C. Stelnberger 

Fred UerkentMn 

FORTRBATl!OBgXQ- 

: Houghton Brownlee, Jr.