## THEA~TORNEY GENERAL OF TEXAS

Aue- 11. ‘X’EXAS

Hnnornbl~,e

Robe~,tS. Cs~lvert Opinl~on No. w-477 Comptroller of PublicAccounts Cap1to1 Station Re: Austin, Texzs Proper lnterpretati on to be placed on Sub-section 2 ,ofSection 2s of .Lrtlcle 7047b relating to the amount of taxes to be pa1.don gas where’the seller ha3 an escalator cl~a~1~3e

In, their,contrnct- -when the final declolon of the Federal Power ComDwrirMr. Cnlvert: mission Is pending.

You request the opinion of thi3 offi.ce upon the questions pI?esentedin your letter of June 12, 1958. For o bt-,tt.cr

l~?rje.,t;,~rridi,ng

of the questI.ons

a.ndthe factual.

basin upsr! ,:ri.li.rt-:

they RW(?predicated,we quote the pertinentpart (of pw letter :rzfoll.ows: "Artlcl,e 7047b,V.A .C.S,levies a tax on the business and occupnt;1

on of producinggo3 tl%,thin this State t.ia:;ed on ‘the market vnlue of the gas as and when gr*oduccB

. “Sec.ti.on

2 of Article 701+7b, V.A.C.S. reads as follow3: ‘Themrkct veluw of gas prodmod In this St*oLeshellbc t.he value thereof at the muth of the well: however, in case gas in sold I’or

cash only.,the tax shallbe computed on t,he

producer’s gross cash rect,i~I’tr!

. Paymentsmade by purchasers to producer:Jfor the purpone of reimbursing such producer3 for taxesdue hereunder shall not he consl,dered

R part;of the prod,ucwr’s gross c;33h rec+i,pt,:s.

In a’11case3where the whole or n pal:bt

of’the considcretion for the sale (:f frt113 i:; H por,tion

of the products extracted I”rcon: the:i~:!!luc

ebb ’ 3 gn3 or 3 portion of the rczidu,e):;I:;,

or both, the tnx shall be comp~l;txl on t:,he gross value of all things of value rocoiv~~~~

by,the producer, Including any Lion1

1:: cj~’ pr~emi.um

:’"Sub-section2 of Section 28 of Article 7011Tb, V.A.C!.S. reads 8.sfollows: 'Whenit shall appear that a taxpa:yer to whom the provisions of this Article shall apply has erroneouslypaid more taxes than were due during any taxpayingperiod either on account of a mistake of fact or law, i,t shallbe the duty of the State Comptroller to credit the total amount of taxes due by such taxpayer for the currentperiod with the total amount of taxes so erroneously paid.’ "TheFederal Power Commissionhas suspendedvarious applIcatlons for scheduled contract rate increases on gas sales subject to Federal Power Commlsalon regulation. The Natural Gas Act provides that if a final decision has not been rendered within five months following the proposed effectivedate of tbe increasedrate on motion of the filing producer, the proposed rate change shall go into effect. In this event,where increasedrates become effective, the Commissionmay require the producing company to furnish a bona or file under 'CorporateUndertaking' $2 Enmission eu of bona) to refund any amounts orderedby

,pending a hearingand final decision. In the event the Commission in Its :final decision disallows the rate lncreixse, the amounts collected under 'CorporateUndertaking' or under bond plus interestat sixpe:rcent per annum must be refunded to the purchaser of the gas. "Gas soles affected by this procedure fall Into two categories; (1) sale from leases and (2) residue sales from gasoline plants.
"A ouestion has arisen as to whether the gas production tax provided for by Article 7047b,V.A.C.S. sir: due on the increasedrates receivedunder bond or under 'CorporateUndertaking' at the time that .thc amounts are collected or whether the tax becomes due at the time the Federal Power Commissionreaches a final decision. It ismy understanding tha,tit may be as long as five years before a final decision ic I, reached in some of the cases now pending.
"Anumber of the taxpayersare currentlyremlttlng the tax on the rate increasesreceived under bondHonorable Robert,S. Culvert,page 3, OpinionNo. WW-477

or under 'CorporateUndertaking' and have Indicated that should the Federal Power Commission In Its final declslon require that part or all of the increased rates be refunded that credit will be taken against future gas production taxes for the amount of tax previouslypaid on that part of the rate increase refunded."
You asked two questions, as follows: QUESTION NUMBER ONE: "Pleaseadvise me whether or not the tax becomes due at the time the Increasedrate is received under bona or 'CorporateUndertaking' on sales from leases and residue sales from gasoline plants or whether Ft Is due at the time the Federal Power Commission reaches a finaldeclslon." QUESTION NUMBER TWO: "Ifyour answer is that the,tax becomes due at the time the increasesare received under bona or 'CorporateUndertaking', please advise me whether or not the taxpayerwill be entitled to take credit against future gas production taxes for the tax paid on any part or all of the rate Increaserequired to be refunded by the Federal Power Commlssion jn Its final decision." The pertinent portion of Article 704'j'b, Vernon's Civil Statutes,which levies this tax, is as follows: "Section l(1). There is hereby levied an occupation tax on the business or occupation of producing gas withln this State, computed as follows: "(a) From the effectivedate of this Act until September 1, 1955, a tax shall be paid by each producer on the amount of gas produced and spvedwithin this State equivalent to nine per cent (9%) of the market value.thereofas andwhen produced; "(b) From Sep'tember1, 1955,until September 1, 1956, the rate of said tax shallbe eight per cent (8%) of the market value of the gas as and when produced.. ,

Honorable Robert S. Calvert, page 4, OpLnLonNo. VW-477

"(c) From and after September 1, 1956, the rate of said tax shallbe seven per cent (746) of the market value of the gas as and when produced."
You will observe that under sub-section (a) the tax is levied upon the market value of the gas "asand when produced," ana (c).

and the same language is used in sub-section (b) Therefore, under the plain terms 'ofthe statute, the tax accrues as and when produced and is payable at the time and in the manner prescribedby sub-section (c) of ,Article 7047b,V.C.S.

You will also observe that the tax is calculatedupon the market value of the gas. that the term "marketvalue" The Supreme Court has said is the prioe forwhich the producer sells his gas. W.R. Davis, Inc., v, State 142 Tex. 637 180 S.W. 2a J+29. It is quite apparent that the producer sells the gas not only at~the permissible rate prior to the rate increasebut in addition to the,increased rate effectiveunder a bond or Corporate'Undertaklng. Stated another way, the producer sells the gas at the permissible rate and in addition thereto the increasedrate or both combined and the tax accrues on the combined rates "asand when produced" and is payable at the time and in the manner prescribed by the statute. Therefore, in answer to your question Number One, you are advised that the tax should be calculatedby taking into account the increased rate which the producer may receive under a bona or CorporateUndertaking, and this, regardless ofwhether the increasedrate is from leases or residue gas from gasoline plants. Payment of the tax may not be postponed until the final determination by the Federal Power Commission of the validity of producer's application for the increased rate.

In answer to question Number Two, you are advised that if the increased rate should finallybe disalloWed by the Federal Power Commission and the producer required to refund to its customers the increased rate, the producer or taxpayer would be entitled to take credit on its subsequent reports for the taxes aid upon the increasedrate as provided in sub-section (2

P of Section 2a of Article 7047b,V.C.S. The length of time taken by ,thePower Commission to finally determine the validity of the producer's application for an increased rate is not material.. -

Honorable Robert S. Calvert,page 5, OpLnion No. W-477

SUMMARY
A producer should pay the gas production tax imposedby Article 7047b,V.C.S., taking into account any Increased,rateput into effect by a bond or CorporateUndertaking in lieu of a bond. If the Increasedrate is denied by the Federal Power Commissionand the producer Is required to refund the Increasedrate to its customers, the tax so paid by reason of the increasedrate should be allowed as a credtt on subsequentrepor,ts as provided by the taxing statute.
Yours very truly,
WILL WILSON Attorney General of Texas

By s/L. P. Loller L. P. Lollar Assistant LPL:db:wc
APPROVED:
OPINION COMMITTEE: J.C. Davis, Jr., Chairman
Tom I. McFarling Jack Goodman Henry G. Braswell
REVIEWED FOR THE ATTORNEY GENERAL By : W. V. Geppert