April 24, 1957
Hon. Robed s. Calvert GpinlonHo. WI+68 Cmnptrollerof Publio, Accounts Callit Station Re: W&her or not the gas reflerred to &h.n, Texas aa "free"pa receivedby'theCity of &Allen is exempt from the oocupationtax providedfor by Dsar Mr. Calvert: Article 7CJ47b, V.C.S.
You requestthe opinion, of this officeupon the applicationof the occupationtax upon the businessor occupationof producinggas within this State imposedby Artiole 7G47b, Vernon'8Civil.Statutes, under the conditionshereinafterstated.
Gn February1, 1952, Taylor RefiningCompanyand RayfairsMinerals, Inc.,both Texas corporatione,and the city of &Allen, a municipaloorpora- tion,enteredinto a Gas Sales Contract. In this contractthey designated themselves%nnpaniea" and "City"and we shall 80 refer to them in this opinion..
Ry the terma of the contractCompaniesacquiredfrom City all the mineralsunder certainland owned by City for the purposeof oil, gas and mineraldevelopment. For the same purposeCompaniesacquiredall the mineralsin land owned by privateprtiee, the total of which the oontraot- ing partiesdesignatedvI+AllenGeneralArea". The net result is that Companiesacquiredall the gas in place in the McAllenGeneralArea. City agreedto cooperateand assist Companiesin acquiringfor mineral develop- ment the land wned by privatepartieswithin the corpbratelimits of City.
ParagraphII of the Gas Sales Contract,which ve deem most impor- tant, is,aa follows:
"In considerationof the City'8 right hereunderto purohasegas for a nominalprice,which is practically tantamountto receivingpa free of any cost to it, and 'in considerationof the City'8 unconditionalright here- under to assign this agreementor to resell to any party the gas purchasedby it hereunderat a eubetantialmone- tary profit to City, City covenantsand agrees to forth- with, a8 Iesaor,executeand deliverto Companfes,as Leaeee,without the paymentof any bonus to City, valid oil, gas and mineral leaaes on terms identicalwith thoae.contained in lease form submittedby Companiesto Hon. Robert S. Calvert,page 2 (WW-68)
city, - citv u&rJ&g ylthin the 's Area' as defined For the same consideration, City covenantsand agrees tint it vi11 in good faith continuouslycooperatewith Companiesin assistingCompaniesto promptlyobtain from the respectivemineralouner8, owning 3.ands within the corporatelimits of City, without the pay- ment of any bonus, valid oil, gas and mineral lease8, on term8 identicalviththose containedin aforesaid lease form 8Ubmittedt0 City stnuedbv suchther iti- athin the m I 01 Companies agree that they vi11 accept all such leasestendered end that they will vithin a reasonabletime unitiae and pool all such leases so obtainedby them insofar as they cover lands within the said %kAllen General Area' so that the 8ew will be a part of the particu- lar gas operatingand productionunit coveringsaid area vhich is identifiedas Canpaniea V+lcAllen Field- wide lJn1t.tCompaniesrecogniaethat any drilling and produotionoperatione~ oonductedby.themon leases ' coveringlandswithin the corporatelimits of the City of b&Allenvill be governedby valid term8 of the oil and gas ordinanceof the City, eitheras nw existingor as may hereafterbe amended." (FJnphasis suppliedthroughout.)I
Specificallythe questionwe must decide may besimply stateda8 follows: Is City a producer,as defined by the statute,of the gas pur- chased from Companiesunder the contract? If City is a producerof gas, it must be admittedthe tax is not due, this for the reason that anoccu- pation tax may not be constitutionallyimposedupon City. FArticleVIII, Section 1, Constitutionof Texas. If, hoverer,Cwpsnies are the pro- duoer8,the tax is