THEA~TORNEY GENERAL 

OF TEXAS 

Aue- 11. ‘X’EXAS 

Hnnornbl~,e Robe~,t S. Cs~lvert Opinl~on No. w-477 

Comptroller of Public Accounts 

Cap1 to1 Station Re: 

Austin, Texzs 

Proper lnterpretati on to 

be placed on Sub-section 

2 ,of Section 2s of .Lrtlcle 7047b relating to the 

amount of taxes to be 

pa1.d on gas where’ the 

seller ha3 an escalator 

cl~a~1~3e In, their, contrnct- 

-when the final declolon 

of the Federal Power ComDwrir Mr. Cnlvert: 

mission Is pending. 

You request the opinion of thi3 offi.ce upon the questions pI?esented in your letter of June 12, 1958. For o 

bt-,tt.cr l~?rje.,t;,~rridi,ng of the questI.ons a.nd the factual. basin 

upsr! ,:ri.li.rt-: they RW(? predicated, we quote the pertinent part 

(of pw letter :rz foll.ows: 

"Artlcl,e 7047b, V.A .C.S, levies a tax on the business 

and occupnt;1 on of producing go3 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: 

‘The mrkct veluw of gas prodmod In this 

St*oLe shell bc t.he value thereof at the 

muth of the well: however, in case gas 

in sold I’or cash only., the tax shall be 

computed on t,he producer’s gross cash rect,i~I’tr! . Payments made by purchasers to producer:J for the purpone of reimbursing such 

producer3 for taxes due hereunder shall not 

he consl,dered R part; of the prod,ucwr’s gross 

c;33h rec+i,pt,:s. In a’11 case3 where 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:;, orboth, 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-section 2 of Section 28 of Article 7011Tb, V.A.C!.S. 

reads 8.s follows: 

'When it shall appear that a taxpa:yer to 

whom the provisions of this Article shall 

apply has erroneously paid more taxes than 

were due during any taxpaying period either 

on account of a mistake of fact or law, i,t 

shall be the duty of the State Comptroller 

to credit the total amount of taxes due by 

such taxpayer for the current period with 

the total amount of taxes so erroneously 

paid.’ 

"The Federal Power Commission has suspended various 

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 effective date of tbe 

increased rate on motion of the filing producer, 

the proposed rate change shall go into effect. In 

this event, where increased rates become effective, 

the Commission may require the producing company to 

furnish a bona or file under 'Corporate Undertaking' 

$2 Enmission 

eu of bona) to refund any amounts ordered by 

, pending a hearing and final decision. 

In the event the Commission in Its :final decision 

disallows the rate lncreixse, the amounts collected 

under 'Corporate Undertaking' or under bond plus 

interest at six pe:r cent 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 increased rates received under bond or 

under 'Corporate Undertaking' at the time that .thc 

amounts are collected or whether the tax becomes due 

at the time the Federal Power Commission reaches a 

final decision. It is my understanding tha,t it may 

be as long as five years before a final decision ic 

I, reached in some of the cases now pending. 

"A number of the taxpayers are currently remlttlng 

the tax on the rate increases received under bond 
Honorable Robert, S. Culvert, page 3, Opinion No. WW-477 

or under 'Corporate Undertaking' 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 

previously paid on that part of the rate increase 

refunded." 

You asked two questions, as follows: 

QUESTION NUMBER ONE: 

"Please advise me whether or not the tax becomes 

due at the time the Increased rate is received 

under bona or 'Corporate Undertaking' on sales 

from leases and residue sales from gasoline plants 

or whether Ft Is due at the time the Federal Power 

Commission reaches a final declslon." 

QUESTION NUMBER TWO: 

"If your answer is that the,tax becomes due at the 

time the increases are received under bona or 'Corporate Undertaking', please advise me whether or 

not the taxpayer will be entitled to take credit 

against future gas production taxes for the tax 

paid on any part or all of the rate Increase required 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 effective date of this Act 

until September 1, 1955, a tax shall 

be paid by each producer on the amount 

of gas produced and spved within this 

State equivalent to nine per cent (9%) 

of the market value.thereof as and when 

produced; 

"(b) From Sep'tember 1, 1955, until September 1, 

1956, the rate of said tax shall be eight 

per cent (8%) of the market value of the 

gas as and when produced. 
. , 

Honorable Robert S. Calvert, page 4, OpLnLon No. VW-477 

"(c) From and after September 1, 1956, the 

rate of said tax shall be 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 "as and when produced," 

ana (c). 

and the same language is used in sub-section (b) 

Therefore, under the plain terms 'of the statute, 

the tax accrues as and when produced and is payable at the 

time and in the manner prescribed by sub-section (c) of 

,Article 7047b, V.C.S. 

You will also observe that the tax is calculated upon 

the market value of the gas. 

that the term "market value" 

The Supreme Court has said 

is the prioe for which 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 increase but in addition to the,increased 

rate effective under a bond or Corporate'Undertaklng. Stated 

another way, the producer sells the gas at the permissible 

rate and in addition thereto the increased rate or both combined and the tax accrues on the combined rates "as and 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 calculated by taking into 

account the increased rate which the producer may receive 

under a bona or Corporate Undertaking, and this, regardless 

of whether the increased rate 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 finally be 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 increased rate as provided in 

sub-section (2 P of Section 2a of Article 7047b, V.C.S. The 

length of time taken by ,the Power 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 

imposed by Article 7047b, V.C.S., taking into account any Increased ,rate put into effect by a 

bond or Corporate Undertaking in lieu of a bond. 

If the Increased rate is denied by the Federal 

Power Commission and the producer Is required to 

refund the Increased rate to its customers, the 

tax so paid by reason of the increased rate should 

be allowed as a credtt on subsequent repor,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