Court Opinion

ID: 4132117
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:23:10.650514+00
Date Added: 2024-06-11T14:34:14.750741
License: Public Domain

The Attorney                General of Texas
                                        November        30.   1978
JOHN   L. HILL
Attorney General

                   Mr. Homer A. Foerster                             Opinion No. H- 12 6 5
                   Executive Director
                   State Board of Control                            Re: Whether      state    agencies
                   L.B.J. Building                                   may pay the “special municipal
                   Austin, Texas 787lt                               tax or charge” on telephone bills.

                   Dear Mr. Foerster:

                          You ask whether state agencies may pay a “municipal franchise charge”
                    which appears on telephone bills. Utilities frequently enter into franchise
                   agreements with cities authorizing them to use the city’s streets in exchange
                   for the payment of a percentage of the gross receipts received for rendering
                   services locally.   The percentage of gross receipts paid to the city varies
                    according to the individual agreement.     The Public Utility Commission has
                   required Southwestern Bell Telephone Company to file a tariff which provides
                    that the municipal franchise charge will be passed on to the utility customers
                   within the particular municipality. Telephone bills sent to state agencies now
                   include a “special municipal tax or charge. v You question whether this charge
                   can be exacted from a state agency and ask whether it is actually a tax.

                           Article 1175, section 12, V.T.C.S., prevents telephone companies from
                   using the streets or grounds of a home rule city without first obtaining the
                   consent of the governing authorities and paying a prescribed compensation.
                    Article ll81, V.T.C.S., details other conditions relating to the grant by a home
                   rule city of a “franchise to use or occupy the public streets, avenues, alleys or
                   grounds” of the city. Pursuant to these provisions, home rule cities may grant
                   utility companies franchises to use the public streets in exchange for
                   compensation measured by a percentage of gross receipts.          City of Tyler v.
                                                     , 493 S.W.2d 322 (Tex. Civ. App. - Tyler 1973,
                                                      slaco v. General Telephone Company of the
                   Southwest, 359 S.WmTex.                 Civ. App. - San Antonio 1961, writ ref’d
                   n.r.e.)me       rule city may authorize local telephone service by franchise).
                   General law cities have authority under article 1016, V.T.C.S., to grant
                   franchises to telephone companies conducting a local business. Fleming v.
                   Houston Lighting & Power Co., 138 S.W.2d 520 (Tex. 1940), cert. denied, 313
U.S. 560 (1941);Southwestern Telegraph & Telephone Co. v. City of Dallas, 174
S.W. 636 (Tex. Civ. App. - Dallas 1915, writ ref’d) (construing special charter
                   provision granting substantially same authority as art. 1016). See also V.T.C.S.

                                                   P.    5010
,

    Mr. Homer A. Foerster     -   Page 2        (H-1265)

    art. 1446c, S 21 (preserves   right of municipality    to grant   franchise   and charge
    therefore).

            The Supreme Court has described these franchise charges collected from
    utilities as charges in the nature of rentals for the use of city streets. Fleming v.
    Houston Lighting & Power Co., m.             It expressly distinguished between such
    rental charges imposed by the city and a tax on the privilege of doin business.
    Fleming v. Houston Lighting & Power Co., 143 S.W.2d 923 (Tex. 1940) 7overruling
    motion for rehearing). The court relied on the leading case of St. Louis v. Western
    Union Telegraph Co., 148 U.S. 92 (1893), which earlier held that such charges were
    rentals, and not taxes.

           Decisions from other states generally hold that the percentage of gross
    receiots which a citv collects from a utilitv oursuant to a franchise ameement does
    not cbnstitute a tax. City and County of San Francisco v. Market St’. Ry. Co., 73
P.2d 234 (Cal. 1937); Hanford Gas & Power Co. v. City of Hanford, 124 P. 727 (Cal.
    1912); City of Hartford v. Connecticut Co., 140 A. 734 (Conn. 1928); City of
    Portland v. Portland Ry., Light & Power Co., 156 P. 1058 (Ore. 1916); City of
    Mitchell v. Dakota Cent. Telephone Co., 156 N.W. 63 (S.D. 1916); Nashville Gas &
    Heating Co. v. City of Nashville, 152 S.W.2d 229 (Tenn. 1941). Cf. Heerwagen v.
    Crosstown St. Ry. Co. of Buffalo, 71 N.E. 729 (N.Y. 1904) (paymentof percentage of
    gross receipts is tax within particular statute).   These courts emphasized that the
    payments were contractual obligations created by voluntary agreement rather than
    enforced contributions exacted by the government.       See Nashville Gas & Heating
    Co. v. City of Nashville, m;        City of Hartford v. Connecticut Co., E.       See
    also Conlen Grain and Mercantile, Inc. v. Texas Grain Sorghum Producers, 519
S.W.2d 620 (Tex. 1975) (enforced contribution to provide revenue for state is a tax).

           You state in your request letter that the payments are authorized by article
    11.06, Taxation-General,  which imposes a state gross receipts tax on telephone
    companies. Section 2 of article 11.06 provides:

                  No city or other political subdivision of this State, by
               virtue of its taxing power, police power, or otherwise, shall
               impose an occupation tax or charge of any sort, for the
               privilege of doing business, upon any person, corporation, or
               association required to pay an occupation tax under this
               Article; provided, that nothing in this Article shall be
               construed to prohibit the collection of ad valorem taxes as
               provided or not prohibited by law, or any tax now imposed by
               franchise, and provided further that this Article shall not
               affect any contract now in existence or hereafter         made
               between a city and the holder of a franchise.

    The Supreme Court discussed the predecessor to article 11.06 in overruling a motion
    for rehearing in Fleming v. Houston Lighting & Power Co., 143 S.W.2d 923 (Tex.

                                           P.    5011
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    .       .

                Mr. Homer A. Foerster     -   Page 3      (~-1265)

                1940), and concluded that the city had not imposed a prohibited charge for the
                privilege of doing business.   The statute preserves the city’s right to collect
                payments pursuant to franchise agreements.    Even though article ll.06, section 2
                refers to “any tax now imposed by franchise,” we do not believe the Legislature
                meant to treat the franchise payments as taxes. Article 8, section 3 of the Texas
                Constitution requires that taxes be levied by general laws. County of Harris v.
                Shepperd, 291 S.W.2d 721 (Tex. 1956). A tax cannot be imposed by franchise
                agreement.    Nashville Gas & Heating Co. v. City of Nashville, m       (dissenting
                opinion) (statute   exempting utilities  from tax “required by municipal . . .
                franchise”).

                       These authorities hold, and we conclude, that the franchise charge is not a
                tax.    However, in some cases, part of the franchise charge may constitute a
                payment in lieu of taxes. Home rule cities have authority to assess the franchise of
                a public corporation using the city streets separately from its tangible property.
                V.T.C.S. art. 1175, S 8; City of Fort Worth v. Southwestern Bell Telephone Co., 80
F.2d 972 (5th Cir. 1936) (telephone company’s franchise in streets is property
                subject to ad valorem tax). See Texas & Pacific Ry. Co. v. City of El Paso, 85
S.W.2d 245 (Tex. 1935). The staard       agreement which Bell Telephone has entered
                into with many municipalities provides that the franchise charge shall be paid in
                lieu of any franchise tax levied as an ad valorem tax or any imposition other than
                the usual ad valorem taxes. Thus it is possible that the franchise charge includes a
                payment in lieu of ad valorem tax on the franchise assessed pursuant to article ll75,
                section 8. However, since article ll75, section 8 does not require the home rule
                city to assess the franchise separately, e Texas & Pacific Ry. Co. v. City of El
                Paso, a        at 249, the franchise charge does not necessarily include any payment
                inu      of ad valorem taxes. Such oavments are not singled out to be DaSSed on to
                the consumer, but are merged in ihe’ total franchise &arge which appears on the
                phone bill. Although the economic burden of any payment in lieu of ad valorem tax
                rests on the consumer, we believe its legal incidence remains on the telephone
                company. See United States v. Tax Commission of Mississippi, 421 U.S. 599 (1975);
                Attornev General Ooinion H-957 (1977): Annot. 44 L.Ed 2d 719 (1976). Thus, the
                possibili-ty that the franchise charge maywrt        constitute a payment in lieu of
                taxes does not raise the issue of a city tax being imposed upon the state.
                 Therefore, we need not answer your second question regarding legal prohibitions
                against the payment of a tax by state agencies.

                       You finally ask whether the Constitution or statutes prohibit state agencies
                from paying the franchise charge, which we have determined not to be a tax. The
                charge is part of the telephone rate set by the Public Utilities Commission pursuant
                to article 1446~. See § 3(d). We find no constitutional        or statutory prohibition
                against the payment of properly established telephone rates by state agencies.
                Article 606a, V.T.C.S., authorizes the Board of Control to pay for telecommuni-
                cations services used by state agencies, and an appropriation is available for that
                purpose. Acts 1977, 65th Leg., ch. 872, at 2856.

                                                     P.    5012
.   -

        Mr. Homer A. Foerster    -   Page 4   (H-1265)

                                         SUMMARY

                   The “municipal franchise charge” which appears on tele-
                   phone bills represents a rental payment for the use of city
                   streets and not a tax. Even if in some instances the charge
                   includes a payment in lieu of ad valorem tax on the
                   telephone company’s franchise, the legal incidence of that
                   tax is not on the consumer.     We find no constitutional or
                   statutory prohibition against a state agency’s payment of a
                   “municipal franchise charge” which is not a tax as part of
                   the telephone rate established      by the Public Utilities
                   Commission.

                                                   JOHN L. HILL
                                                   Attorney General of Texas

        APPROVED:                       w

        C. ROBERT HEATH, Chairman
        Opinion Committee

                                              P.   5013