THE ,!TiTORNEY GENERAL 

OF TEXAS 

8 

onorable Geo. 

omptroller of 

Austin, Texas 

Dear Sir: 

AUSTINILTEXAR 

H. Sheppard 

Public Accounts 

Opinion No. O-1870 

Re: Construction of Article 7070, 

Vernon's Annotated Civil 

Statutes, regarding the application of the tax levied 

thereby to gross receipts of 

domestic telephone companies 

derived~from interstate calls. 

Fie have for answer your letter of January 22, 1940, submitting for the opinion of this Department,the following inquiry 

and accompanying fact situation,. which we,quote: 

"On May 29, 1935, I made a request of the Attorney 

General for en opinion as to the gross receipts tax in 

Article 7070 R. C. 9. 1925 required of an operator of a 

telephone exchange, and on May 31, 1935 Assistant Attorney General Rubert T. Faulk rendered an cpinion:as per 

enclosed copy; on September 17, 1935, Mr. Faulk reversed 

his former opinion, copy of which is also enclosed. 

"You will note that Article 7070 RCS 1925 provides that 

the gross receipts tax applies on the gross receipts 

from all business done within this State, from the use 

of other line or lines, telephone or telephones, and 

from the lease or use of any wire or equipment within 

this State. 

"There are several companies operating near the borders of this State whose lines are wholly within the 

boundaries of the State. Where a telephone call originates within this State and is transmitted over said 

company's lines to the border, then is picked up by 

another company for some point outside of the State, 
Hon. Geo. H. Sheppard, page 2 O-1878 

the Texas company is paid for that psrt of the use of 

their lines within the State, and the company completing the call to the destination outside ofthe State 

is paid their commission, and you will please review 

this matter and give me your opinion if such calls as 

outlined would be termed interstate calls or if the 

gross receipts earned on these calls by ~the Texas 

company would be taxable. 

The general rule stating the limitations and restrictions 

upon the taxation by a state cf interstate commerce, or the regulation of interstate commerce by a state under the guise of taxation, 

is fully stated in 12 C. J. p. 96: 

"It is well settled that a state cannot lay a tax 

on interstate commerce in any form, whether by way of 

duties laid on the transportation of the subjects of 

that commerce, or on the receipts derived from that 

transnortation, or on the occupation or business of 

carrying it on, for the reason that such taxation is 

a burden on that commerce and amounts to a regulation 

of it, and the power to regulate belongs toicongress. 

Indeed, taxation has been said to be one of the 

principal forms of regulation attempted by the states, 

and to be a form of regulation that hes,been uniformly 

condemned by the courts. It is equally well settled 

that the right of a state to tax property within its 

borders is not inpaired or defeated by the fact that 

it is used in interstate commerce, and that to warrant 

interference by the courts with the exercise of the 

taxing power of a state, on the ground that it obstructs 

or hampers interstate commerce, it must appear th&t .the 

burden is direct and substantial. The difficulty has 

been, and is, to disting$sh between legitimate attempts to exert the taxing power of the state and 

those laws which, although.in the guise of taxaticn, 

impose real burdens on interstate commerce as such. 

In determining whether a state taxation law is valid 

as imposing a tax on property having a situs within 

its boundaries, or invalid as a burden on, and an interference with, interstate commerce, the purpose of 

the taxation, or the intent of the framers of the 

statute, is immaterial, asis also the mode of collection provided. finere a,carrier is engaged in both 

interstate and intra-state business, in the imposition 

of a tax on such-carrier in the interstate business 

must be discriminated from the intra-state business, 

or it must be madecapable of such discrimination, 
Ron. Geo. 3. Sheppard, page 3 o-1878 

so that it may clearly appear that the intra-state 

business alone is taxed. Whenever the subjects of 

taxation can be separated, so that that which arises 

from interstate commerce can be distinguished frcm 

that which arises from commerce wholly within the 

state, the distinction will be acted on by the courts, 

and the state will be permitted to collect the tax 

arising on commerce solely within its own territory." 

Under the recognized principle announced above that property within the borders of the State may be taxed by that State 

despite the fact that it is used in interstate commerce, (Pullmann Palace Car Company vs. Penn., 141 U. S. 18, 35 L. ed. 613, 

11 Sup. Ct. dep. e76) taxes have been sustained that took account, not only of the local tangible values of the property, 

but, in addition, considered the augmentation of value from the 

~~~r~~d~~o~~E~51~.w~~ B~~~~~~~~~~~~b~~~~~~~~f ii; $:‘305: 

Adams Express Co. vs. enu , *a f 9 

17 Sup. Ct. Rep. 527. 

Moreover, it has been held that a tax on the property 

and business of a railroad company operating within a state, 

might be computed, on a gross income or receipts basis, by adding 

to the income derived from business done wholly &thin the State, 

the proportion of income from interstate business equal to the 

proportion between the road over which the business was carried 

within the State to the total length of the raod over which it 

was carried. Wisconsin & M. R. Co. vs. Powers, 191 U. S. 379, 

48 L. ed. 229, 24 SUP. ct. Rep. 107. 

This method of determining a fair and equitable property 

tax upon the property of companies engaged in both intrastate 

and interstate commerce, by computing same on the basis of a 

fixed percentage of the earnings of the property, finds illustration, as to telephone companies, in'the case of State vs. Northwestern Telephone Exchan,Ce Company, 120 S/W. 534. The tax 

statute upon which the case turned did not levy a property tax 

computed upon gross receipts from intrastate business only, but, 

additionally, upon a proportionate part of the gross receipts of 

which company from interstate business or commerce. The court 

reviewed the authorities upholding similar taxes upon the gross 

receipts of railroad, companies, and upheld the tax in the case 

before it because it was based upon a proportionate part of the 

earnings cf the tel~ephone companies derived from interstate 

commerce, rather than a flat per centum of gross earnin-s derived 

from any source whatsoever, whether interstate or intrastate. 

This latter method of taxation was condemned as violative of 

the commerce clause of the Constitution of the United %ates 
Hon. Geo. H. jhepnard, page 4 O-1870 

in the case of Galveston, "arrisburg and San Antonio Ry. Co., 

et al vs. State of Texas, infra. 

Under the facts here, the "gross receipts" sought to be 

taxed, were derived not from tolls on calls originating and 

ending within the confines of the State of iexas, but rat'ner 

from ,tolls on calls originating in Texas and terminating in 

other states, or vice versa, - in other words, in interstate 

commerce. The.fact that the telephone company in question 

receives only such part of, the +?!ls as represents payment for 

the facilities and services furnished by it in transmitting 

the call from or to the borders of the St&e does not prevent 

such receipts from being stamped with the interstate commerce 

feature. 

The statute under considerat;on here, Article 7070, 

Vernon's Annotated Civil Statutes, contains no language ccmputing the tax upon gross receipts of In!terstate business upon the 

propcrtionate mileage basis recognleed by these cases, but 

designates such taxan occupation tax and computes same upcn 

gross receipts received by the telephone company "from all 

business within this State" etc. Are the "gross receipts" 

described above brought within this tax statute, as being derived from "business within this State," by reason of the, ;Ft 

that the company's lines lie wholly within the State? 

then the statute presents the vice denounced in the cases of' 

Galveston, Harrisburg & san Antonio Ry. Co. et al vs. State of 

Texas, 210 U. S. 217, 28 Sup. Ct. Rep. 638; Rattermanvs. Yiestern 

Union Telegraph Co., 127 U. S. 411, 32 L. ed. 229, 8 3up. Ct. 

Rep. 1127; byestern Union 'Telegraph Co. vs. Texas, 105 U. 5. 460, 

26 L. ed. 1067; {iestern Union Telegraph Co. vs. Penn. 128 U. S. 

39, 32 L. ed. 345, 9 Sup. Ct. Rep. 6. 

In the case of Galveston, Harrisburg & San Antonio Ry. 

co., et al, vs. State of Texas, supra, the Supreme Court of the 

United States, per &. Justice Holmes, helti Nat the State of 

Texas could not impose a tax upon railway companies whose lines 

lie wholly within the State, "equal to one per centum of their 

gross receipts," where a part, and, in some cases, much the 

larger part, of these gross receipts, is derived from the 

carriage of passengers and freight coming from, and destined 

to, points without the State. 

Likewise, the instant case involves a company whose 

facilities or lines lie wholly within the State of Texas, and 

a statute which purports to levy a tax of certain per centum 

upon the gross receipts therefrom. %ut the one saving dis- 
Hon. Geo. H. "heppard, page 5 O-1878 

tinction is that we may fairly and properly give a narrow and 

limited construction to the words of the stagute "gross amount 

received from all business within the State, and say that 

same excludes the gross receipts described in your letter, even 

though such receipts were derived from the company's lines 

wholly intrastate, and might, in a general sense, be considered 

as stemming out of "business within the State. The statute 

involved in the above case could not be so construed and therefore was stricken down as an unlawful regulation of interstate 

commerce. 

In recogniticn of.our duty to so construe a statute, where 

possible, as to render same constitutional rather than unconstitutional, we hold that it was not the intenticn of the Legislature to bring gross receipts from the described teleohone 

calls within the scope of Article 7070, Vernon's Annotated 

Civil Statutes, so as to be taxable thereunder. 

Yours very truly 

ATTORNEY GENERAL OF TEXAS 

Pat M. Neff, Jr. 

Assistant 

GERALD C. MANN 

ATTORNEY GENERAL OF TEXAS 

APPROVED OPINION COMMITTEE 

BY BWB, CHAIRMAN