GENERAL THE ,!TiTORNEY

OF TEXAS

8onorable Geo. omptroller of Austin, Texas

Dear Sir: AUSTINILTEXAR

H. Sheppard Public Accounts

Opinion No. O-1870 Re: Construction ofArticle 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 answeryour 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, Imade arequest of theAttorney General for enopinion as to the gross receipts tax in Article 7070 R. C. 9. 1925 required of anoperator of a telephone exchange, and onMay 31, 1935Assistant Attorney General Rubert T. Faulk rendered an cpinion:as per enclosed copy; on September 17, 1935, Mr. Faulk reversed his former opinion, copy ofwhich is also enclosed.

"Youwill note that Article 7070 RCS 1925 provides that the gross receipts tax applies on the gross receipts from allbusiness done within this State, from theuse of other line or lines, telephone or telephones, and from the lease oruse of anywire or equipment within this State.

"There are several companies operating near the borders of this State whose lines arewholly 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 ispicked up by another company for somepoint outside of theState,Hon. Geo. H. Sheppard, page 2 O-1878

the Texas company ispaid for thatpsrt ofthe use of their lines within the State, and the company completing the call to the destination outside ofthe State ispaid their commission, andyou will please review thismatter andgiveme your opinion if such calls as outlined would be termed interstate calls or if the gross receipts earned on these calls by ~theTexas 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 astate under the guise of taxation, is fully stated in 12C. 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 orbusiness of carrying it on, forthe reason that such taxation is
aburden on that commerce and amounts to aregulation of it, and thepower to regulate belongs toicongress. Indeed, taxation has been said tobe one of the principal forms of regulation attempted by the states, and tobe a form of regulation that hes,been uniformly condemned by the courts. It is equally well settled that the right of a state to taxproperty within its borders isnot inpaired or defeated by the fact that it isused ininterstate commerce, and that towarrant interference by the courts with the exercise of the taxing power of astate, on the ground that it obstructs
orhampers interstate commerce, itmust appear th&t .the burden isdirect and substantial. The difficulty has been, and is, todisting$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 isvalid
as imposing a tax onproperty having a situs within itsboundaries, or invalid as aburden on, and an interference with, interstate commerce, thepurpose of the taxation, or the intent of theframers of the statute, is immaterial, asis also the mode of collection provided. finerea,carrier is engaged inboth interstate and intra-state business, in the imposition of atax on such-carrier in the interstate business must be discriminated from the intra-state business,
or itmust bemadecapable of such discrimination,Ron. Geo. 3. Sheppard, page 3o-1878

so that itmay clearly appear that the intra-state business alone is taxed. Whenever the subjects of taxation canbe separated, so that thatwhich arises from interstate commerce canbe distinguished frcm that which arises from commerce wholly within the state, the distinction will be acted onby 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 thatproperty within the borders of the State may be taxed by that State despite the fact that it isused 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 ofvalue 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, ithas been held that a tax on theproperty and business of arailroad company operating within a state, might be computed, on agross income or receipts basis, by adding to the income derived from business done wholly &thin the State, theproportion of income from interstate business equal to the proportion between the road over which thebusiness was carried within the State to the total length of the raod overwhich it
was carried. Wisconsin & M. R. Co. vs. Powers, 191 U. S. 379, 48 L. ed. 229, 

## 24SUP. ct. Rep. 107.

This method of determining a fair and equitable property taxupon theproperty of companies engaged inboth intrastate and interstate commerce, by computing same on thebasis of a fixed percentage of the earnings of theproperty, finds illustration, as to telephone companies, in'the case of State vs. Northwestern Telephone Exchan,CeCompany, 120 S/W. 534. The tax statute upon which the case turned did not levy aproperty tax computed upon gross receipts from intrastate business only,but, additionally, upon aproportionate part of thegross receipts of which company from interstate business or commerce. The court reviewed the authorities upholding similar taxesupon the gross receipts of railroad, companies, and upheld the tax in the case before itbecause it was based upon aproportionate part of the earnings cf the tel~ephonecompanies derived from interstate commerce, rather than a flatper centum of gross earnin-s derived from any source whatsoever, whether interstate or intrastate. This latter method of taxation was condemned asviolative of the commerce clause of the Constitution of theUnited %atesHon. Geo. H. jhepnard, page 4 O-1870

in the case ofGalveston, "arrisburg and San Antonio Ry. Co., et alvs. State ofTexas, 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 ,tollson 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 suchpart of,the +?!ls asrepresents payment for the facilities and services furnished by it intransmitting the call from or to theborders of the St&e doesnot prevent such receipts frombeing 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!terstatebusiness upon the propcrtionate mileage basis recognleed by these cases, but designates such taxan occupation tax and computes sameupcn 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, asbeing derived from "business within this State," by reason of the,;Ft that the company's lines liewholly within the State? then the statute presents thevice denounced in the cases of' Galveston, Harrisburg & sanAntonio Ry. Co. et alvs. 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; byesternUnion 'TelegraphCo.vs. Texas, 105 U. 5.460, 26 L. ed. 1067; {iesternUnion Telegraph Co.vs. Penn. 128 U. S. 39, 32 L. ed. 345, 9 Sup. Ct. Rep. 6.

In the case ofGalveston, Harrisburg & San Antonio Ry. co., et al,vs. State of Texas, supra, the Supreme Court of the United States, per &. Justice Holmes, heltiNat the State of Texas could not impose ataxupon railway companies whose lines lie wholly within the State, "equal to oneper centum of their gross receipts," where apart, and, in some cases, much the larger part, of these gross receipts, isderived from the carriage ofpassengers and freight coming from, anddestined to,points without the State.

Likewise, the instant case involves a company whose facilities or lines liewholly within the State of Texas, and
a statute which purports to levy a tax of certain per centum upon thegross receipts therefrom. %ut the one saving dis-Hon. Geo. H. "heppard, page 5 O-1878

tinction is that wemay fairly andproperly give anarrow and limited construction to the words of the stagute "gross amount received from allbusiness within the State, and say that
same excludes the gross receipts described inyour letter, even though such receipts were derived from the company's lines wholly intrastate, andmight, in ageneral 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 anunlawful regulation of interstate
commerce.

In recogniticn of.our duty to so construe a statute, where possible, as to render same constitutional rather thanunconstitutional, we hold that it was not the intenticn of the Legislature tobring gross receipts from the described teleohone calls within the scope ofArticle 7070,Vernon's Annotated Civil Statutes, so as to be taxable thereunder.

Yours very truly

ATTORNEY GENERAL OF TEXAS

PatM.Neff, Jr.

Assistant

GERALD C.MANN ATTORNEY GENERAL OFTEXAS

APPROVED OPINION COMMITTEE BYBWB, CHAIRMAN