July 14, 1975 

The Honorable Bob Bullock 

Comptroller of Public Accounts 

Lyndon B. Johns.on 

State Office Building 

Austin, Texas 78701 

Dear Mr. Bullock: 

Opinion No. H- 640 

Re: Whether a sale by a gas 

producer to an interstate 

transmission company in 

the State of Texas produces receipts from 

business done in Texas. 

You have requested our opinion regarding the computation of franchise 

taxes on gas producers within Texas. Your request concerns the effect of 

sales from such producers to interstate pipeline companies. You note in 

your letter and we assume for the purposes of this decision that: 

Title to and possession of the products purchased 

by these companies pass to them within the State 

of Texas at either the well head or plant site, and 

all risk of loss is thereafter the responsibility of 

the purchaser. 

You have asked two questions concerning the above stated facts: 

1. Do the Texas producers have receipts from 

business done in Texas on these sales after May 1, 

1970? 

2. Would the Texas producers have receipts from 

business done in Texas prior to the amendment of 

article 12.02(l)(b)(i) of the Texas Franchise Tax Act 

effective May 1. 1970, on these sales? 

Articles 12.01, et seq., Taxation-General, levy a franchise tax on domestic 

and foreign corporations for the privilege of doing business in the state. 

p. 2815 
The Honorable Bob Bullock, page 2 (H-640) 

Calvert v. Capital Southwest Corporation. 441 S. W. 2d 247 (Tex. Civ. 

APP- --Austin 1969, writ ref’d., n. r. e. ) appeal dismissed, 397 U.S. 

321. Article 12.02(l)(a) establishes an allocation formula under which 

that portion of a corporation’s entire taxable capital which is to be 

taxed by the State is determined on the basis of the “percentage relationship which the gross receipts from its business done in Texas bear 

to the total gross receipts . . . from its entire business.” Article 

12.02(l)(b) provides in part: 

For the purpose of this Article, the term ‘gross 

receipts from its business done in Texas’ shall 

include: 

(i) Sales of tangible personal property 

when the property is delivered or 

shipped to a purchaser within this State, 

regardless of the F. 0. B. point or other 

conditions of the sale . . . 

Prior to its 1969 amendment, article 12. 02 provided in place of subsection (i) above: 

Sales of tangible personal property located within 

Texas at the time of the receipt of or appropriation 

to the orders where shipment is made to points 

within this State . . . 

Acts 1959, 56th Leg., 3rd C.S., ch. 1. p. 187. 

The 1969 amendment to article 12.02 extended the definition of “business 

done in Texas” to include interstate sales which involve delivery to the 

purchaser at a point in Texas, Attorney General Opinions M-829 (1971), 

M-642 (1970). as well as any sale “when the property is delivered or 

shipped to a purchaser within this State. ” Thus under article 12.02 prior 

to its 1969 amendment a sale did not constitute “business done in Texas” 

where it involved an out-of-state shipment, whereas the present article 12.02 

includes within the term “business done in Texas” those sales in which the 

purchaser takes delivery in Texas regardless of whether the sale involves 

an out-of-state shipment. Attorney General Opinion M-829 (1971) was 

i 

p. 2816 
. , 

The Honorable Bob Bullock, page 3 (H-640) 

decided after that amendment but we believe the facts given in that 

opinion were insufficient to support a determination whether the sale 

involved a delivery in Texas. However, under article 12.02 both prior to 

and after its 1969 amendment, as well as under its predecessor, 

article 7084, V. T. C. S., a sale constituted business done in Texas 

when the shipment involved in the particular sale was from one point 

in Texas to another, that is, an intrastate sale. Humble Oil & 

Refining Co. V. Calvert, 414 S. W. 2d 172 (Tex.Sup. 1967); Ramsey v0 

Investors Diversified Services, 248 S. W. 2d 263 (Tex. Civ. App. --Austin 

1952, writ ref’d., n. r. e. ); Flowers v. Pan American Refining Corporation. 154 S. W. 2d 982 (Tex. Civ. App. --Austin 1941, writ ref’d. ); Clark 

v. Atlantic Pipe Line Co., 134 S. W. 2d 322 (Tex. Civ.App. --Austin 1939, 

writ ref’d. ); Attorney General Opinions M-829 (1971), M-642 (1970). 

WW-1503 (1962). Since we believe your request involves such intrastate 

sales, in our opinion they constituted “business done in Texas” both 

before and after the 1969 amendment to article 12.02. 

Your office has informed us that in a 1971 ruling the Comptroller 

held these sales not to constitute “business done in Texas. ” That ruling 

cites no authority for its conclusion. See, Letter of August 4, 1971, 

from Robert S. Cal~vert to Lee Hill, Chairman. Tax Advisory Committee, 

Texas Mid-Continent Oil & Gas Association. We have given careful 

consideration to the arguments presented in the briefs submitted to the 

Comptroller at that time and to this office regarding this opinion. These 

arguments may be summarized as follows: (1) In the 1.969 amendment 

to article 12.02 the Legislature did not intend to change the law with 

respect to “interstate origin sales, ” that is, sales of property originating 

in Texas and delivered or shipped out-of-state. (2) The cases of Clark 

v. Atlantic Pipe Line Co., supra, and Flowers v. Pan American Refining Corporation, z. as well as prior Attorney General Opinions, 

would classify these sales as not constituting “business done in Texas. ” 

(3) An ultimate destination test should be followed to avoid duplicative 

taxation. (4) As the adm’ mistrative construction of article 12.02. the 

Comptroller’s 1971 ruling should not be disturbed absent clear statutory 

authorization. 

The 1969 amendment to article 12.02 altered its language from “where 

shipment is made to points within this State ” to “when the property is 

delivered or shipped to a purchaser within this State. ” It is well settled 

p. 2817 
. I 

The Honorable Bob Bullock, page 4 (H-640) 

that the best expression of legislative intent is the words of a statute. 

Calvert v. British-American Oil Producing Co., 397 S. W. 2d 839 

(Tex. Sup. 1965); Empire Gas & Fuel Co. v. State, 47 S. W. 2d 265 

(Tex. Sup. 1932); City of Irving v. Dallas County Flood Control District, 

377 S. W. 2d 215 (Tex.Civ. App. --Tyler 1964); rev’d. on other grounds, 

383 S. W. 2d 571 (Tex.Sup. 1964); State v. City of Gladewater, 242 

S. W. 2d 650 (Tex. Civ. App. --Texarkana 1951, writ ref’d. ). While the 

1969 amendment to article 12.02 extended the definition of “business 

done in Texas” to include interstate sales with a Texas destination, the 

amendment also made clear that sales with a Texas delivery to the 

purchaser constitute “business done in Texas. ” However, we do not 

believe the 1969 amendment had any effect upon the question before us, 

for the instant sales do not in our view, involve either a shipment or a 

delivery to a point outside the State. 

In Clark v. Atlantic Pipe Line Company, supra, the court held that, 

for the purposes of a pipeline company’s franchise taxes, its business 

of transporting oil did not constitute “business done in Texas, ” for while 

the company’s activities were entirely intrastate, they were a part of the 

interstate transportation of the oil. In reaching its decision, the court 

acknowledged that the statute, article 7084. was susceptible to a different 

construction and exclusively based its holding on what was viewed as the 

requirements of the commerce clause of the Federal Constitution. The 

court’s commerce clause rationale arguably may remain viable as applied 

to the case before it, that of a common carrier involved in the interstate 

transportation of oil. However, it may not be generally applied to other 

situations, for a state may include receipts from interstate sales in a 

fairly apportioned tax. Matson Navigation Co. v. State Board of Equalization of California, 297 U.S. 441 (1936); Chassaniol v. City of Greenwood, 

291 U.S. 584 (1934); International Shoe Company v. Shartel, 279 U.S. 429 

(1929); Underwood Typewriter Company v. Chamberlain, 254 U.S. 113 

(1920); American Manufacturing Company v. City of St. Louis, 250 U.S. 

459 (1919); United States Glue Company v. Town of Oak Creek, 247 U. S. 

321 (1918): Baldwin Co. v. Glander, 70 N.E. 2d 885 (Ohio 1947); Corn v. 

Fort. 95 S. W. 2d 620 (Term. 1936). 

While the Clark case did not involve a sale, it was followed in Flowers 

v. Pan American Refining Corporation, supra, where sales of oil to an 

out-of-state purchaser which apparently involved out-of-state deliveries 

p. 2818 
The Honorable Bob Bullock, page 5 (H-640) 

were held not to be “business done in Texas.” These cases were 

followed in Attorney General Opinion WW-1503 (1962) concerning sales to 

an out-of-state purchaser involving shipments to points outside the State. 

While the 1959 codification and the 1969 amendment of article 12.02 may 

affect the holdings of these cases, even applying their tests to your 

question, we believe the instant sales constitute “business done in Texas.” 

The court in Flowers stated: 

‘business done in Texas’ . . . mean[s] business 

begun and completed in Texas. and not business 

begun in Texas and completed in some other 

state or foreign nation, or vice versa. 

154 S. W. 2d at 984 

At the time of the Flowers case there was no statutory definition, but the 

definition enacted in 1959 seems to have codified the ruling, providing, 

“sales . . . where shipment is made to points within this State. ” Similarly, 

the court in Clark stated “business done in Texas’ . . . means intrastate 

business. ” Thus, “business done in Texas” has always included intrastate 

business, or in the case of sales, intrastate sales. 

In our opinion the sales of gas involved in your request are intrastate 

sales for purposes of franchise taxation. 

Cases holding sales followed by shipment out-of-state to constitute 

intrastate sales are: State Tax Commission of Utah v. Pacific States Cast 

Iron Pipe Co., 372 U.S. 605 (1963); international Harvester Company v. 

Department of Treasury, 322 U.S. 340 (1944); Department of Treasury of 

Indiana v. Wood Preserving Corporation, 313 U.S. 62 (1941): Superior Oil 

Co. v. Mississippi, 280 U.S. 390 (1930); Compania General de Tabacos de 

Filipinas v. Collector of Internal Revenue, 279 U.S. 306 (1929); Excel, Inc. 

v. Clayton, 152 S. E. 2d 171 (N. C. 1967); Superior Coal Company v. Department of Revenue, 123 N.E. 2d 713 (Ill. 1954); Ashton Power Wrecker Equipment Co. v. Department of Revenue, 52 N. W. 2d 174 (Mich. 1952); Moffat 

Coal Co. v. Daley, 89 N. E. 2d 892 (Ill. 1950); Department of Treasury v. 

Globe-Bosse-World Furniture Corporation, 46 N. E. 2d 830 (Ind. 1943); 

Trotwood Trailers Inc. v. Evatt. 51 N. E. 2d 645 (Ohio 1943); State Board 

of Equalization v. Blind Bull Coal Company. 101 P. 2d 70 (Wyo. 1940); 

p. 2819 
, I 

The Honorable Bob Bullock, page 6 (H-640) 

City of Jacksonville v. Florida Fresh Water Corporation, 247 So.Zd 

739 (Dist. Ct.App. --Fla. 1971). See International Harvester Co. v. 

Evatt, 329 U.S. 416 (1946); McGoldrick v. Berwind- White Coal Mining 

co.9 309 U.S. 33 (1940); Dallas Gas Co. v. State, 261 S. W. 1063 (Tex. 

Civ. App. --Austin 1924, writ ref’d. ); c_f. Phillips Petroleum Co. v. 

Oklahoma, 340 U.S. 190 (1950); Parker v. Brown, 317 U.S. 341 (1943); 

El Paso Electric Co. v. Calvert, 385 S. W. 2d 542 (Tex. Civ. App. --Austin 

1964, writ ref’d., n. r. e. ), appeal dismissed, 382 U.S. 18 (1965). 

We are dealing here with franchise taxes on the vendor gas producer. 

The deliveries involved in these sales are invariably to a point within 

the State, and, as stated in your request, title to and possession of the 

products pass at either the well head or plant site. That the gas is 

further transported outside the State as an incident of a subsequent sale 

by the pipeline company does not, in our view, affect the classification 

of the local transaction involved in the sale of gas by the producer as 

“business done in Texas’? under article 12.02. While the amount of gas 

sold by the pipeline company in interstate commerce has relevance to 

the computation of its franchise taxes, it is immaterial to the issue of 

the producer’s franchise taxes. The producer makes no out-of-state 

delivery or shipment; his sale to the pipeline company is intrastate in 

all facets and falls within the statutory definition of article 12.02(l)(b)(i). 

Thus it is our opinion that such sales are clearly intrastate sales and 

therefore constituted “business done in Texas” both before and after the 

1969 amendment to article 12.02. 

It may also be noted that the franchise tax liability on sales by an oil 

and gas producer to a purchaser within the state of production was not even 

a matter of contention in Webb Resources, Inc. v. McCoy, 401 P. 2d 879 

(Km. 1965); Honolulu Oil Corporation v. Franchise Tax Board, 386 P. 2d 

40 (Calif. 1963); and Superior Oil Company v. Franchise Tax Board, 386 

P.2d 33 (Calif. 1963). The issue in those cases was, assuming franchise 

tax liability on the intrastate sales, which allocation formula would be 

utilized. 

We cannot perceive how the classification of these sales as “business 

done in Texas” can result in duplicative taxation of the producer vendor. 

Since all facets of these sales take place in Texas, we do not see how 

another state could classify them as business done therein and thereby or 

p. 2820 

! 
. ::: 

The Honorable Bob Bullock, page 7 (H-640) 

otherwise tax the producer vendor on the basis of these sales. American 

Oil Co. v. Neill, 380 U.S. 451 (1965); Skelly Oil Co. V. Commissioner of 

Taxation, 131 N. W. 2d 632 (Minn. 1964); Standard Oil Co. v. Thoresen, 

29 F. 2d 708 (8th Cir. 1928). 

We are aware that where the meaning of a statute is doubtful. the 

construction placed upon it by an officer or agency charged with administering the statute is entitled to great weight. Calvert v. Kadane. 427 

S. W. 2d 605 (Tex.Sup. 1968). However, in our view, the determination of 

the Comptroller in his letter of August 4, 197 1, was clearly erroneous 

and contrary to the clear wording of the statute here in question. 

Depart& practice is important when an 

administrative agency is confronted with an 

ambiguous statute, but it affords no basis for 

practices which are contrary to the plain 

meaning of statutes. Brown Express, Inc. v. 

Railroad Commission, 415 S. W. 2d 394, 397 

(Tex. Sup. 1967). 

Sabine Pilots Association v. Lykes Brothers Steamship, Inc., 346 S. W. 2d 

166 (Tex. Civ. App. --Austin 1961, no writ): Humble Oil & Refining Co. v. 

State, 158 S. W. 2d 336 (Tex. Civ. App. --Austin 1942. writ ref’d. ). The 

“plain meaning” of our franchise tax statutes has been consistently held 

to classify intrastate sales as “business done in Texas.” Since we believe 

that the sales involved in this question are properly classified as intrastate, an administrative ruling which would not so classify such sales 

should not be followed. 

SUMMARY 

Sales of gas by a Texas producer to an interstate 

pipeline company with delivery and passage of title and 

possession in Texas, constitute intrastate sales and 

“business done in Texas” for the purposes of computation of the producer vendor’s franchise taxes under 

article 12.02, Taxation-General, V. T. C. S. 

// Attorney General of Texas 

wp. 2821 
: * . . . . 

The Honorable Bob Bullock, page 8 (~-640) 

APPROVED: 

DAVID M. KENDALL, First Assistant 

ll?$?zUd 

C. ROBERT HEATH. Chairman 

Opinion Committee 

p. 2822