Bullock v. Enserch Exploration, Inc., 13217

• Decision Date: 01 April 1981
• Docket Number: No. 13217,13217
• Citation: 614 S.W.2d 215
• Parties: Bob BULLOCK, Comptroller of Public Accounts, et al., Appellants, v. ENSERCH EXPLORATION, INC., et al., Appellees.
• Court: Texas Court of Appeals

Page 215

614 S.W.2d 215

Bob BULLOCK, Comptroller of Public Accounts, et al., Appellants, v. ENSERCH EXPLORATION, INC., et al., Appellees.

No. 13217.

Court of Civil Appeals of Texas, Austin.

April 1, 1981.

Rehearing Denied April 22, 1981.

Mark White, Atty. Gen., Gilbert F. Bernal, Jr., Austin, for appellants.

Mary Joe Carroll, Clark, Thomas, Winters & Shapiro, Austin, for appellees.

PHILLIPS, Chief Justice.

This is a franchise tax case involving the construction of Tex.Tax. Gen.Ann. art. 12.02(1)(b)(i) enacted in 1969.

This case presents a consolidation of two actions brought by three corporations, Enserch Exploration, Inc., Continental Oil Company, and South Texas Natural Gas Gathering Company, appellees, for the refund of franchise taxes paid under protest to appellant, Bob Bullock, Comptroller of Public Accounts of Texas. ¹

The critical issue is whether appellees' sales of natural gas with deliveries in Texas to interstate pipeline companies for resale outside of Texas constitute "business done in Texas" and are therefore included as appellees' gross receipts for their business done in Texas.

The trial court held that appellees were not liable for the tax. We reverse and render judgment for the State and hold that the tax, as levied, is valid.

I.

The Texas franchise tax, Tex.Tax. Gen.Ann. art. 12.01-12.22 (1969), is imposed on every domestic and foreign corporation chartered or authorized to do business within the state or doing business within the state and not specifically exempted from the payment of such tax. For the franchise tax years in question, appellees' taxes were based on the portion of their stated capital, surplus and undivided profits allocated to Texas under Article 12.02. Under Article 12.02, the portion of a corporation's taxable capital allocated to Texas is determined by multiplying such corporation's total taxable capital by a fraction, the numerator of which is the corporation's gross receipts from business done in Texas and the denominator of which is the corporation's total gross receipts.

Article 12.02 is as follows:

"(1)(a) Each corporation liable for payment of a franchise tax shall determine the portion of its entire taxable capital taxable by the State of Texas by multiplying same by an allocation percentage which shall be the percentage relationship which the gross receipts from its business done in Texas bear to the total gross receipts of the corporation from its entire business.

(b) For the purpose of this Article, the term 'gross receipts from its business 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.O.B. point or other conditions of the sale ..." (Emphasis added).

Appellees, Enserch and Continental, sell the gas they produce to interstate transmission companies which transport the gas to ultimate destinations located outside of Texas. Appellee, South Texas, purchases natural gas from producers and gathers, transports and sells this gas to interstate transmission companies in Texas which transport the gas to destinations in states other than Texas. There is a continuous and uninterrupted movement of the gas sold through the connecting pipeline of appellee South Texas and its purchasers from the time the gas is acquired by South Texas until it reaches its ultimate destination in another state.

The sales in dispute were made pursuant to Certificates of Public Convenience and Necessity issued by the Federal Energy Regulatory Commission and are subject to the regulatory powers of the Federal Energy Regulatory Commission.

Appellants are before us on numerous points of error which, in essence, contend that appellees' gross receipts from sales of natural gas with deliveries in Texas to interstate pipeline companies in Texas, constitute gross receipts from "business done in Texas" under Article 12.02. It is appellants' position that, in spite of the fact that this natural gas is eventually delivered by third parties to destinations outside of Texas, the sale of the natural gas is completed within the state and is therefore taxable. We agree with this conclusion.

It is self-evident from the facts (which were stipulated) that appellees are not sellers of natural gas to out-of-state buyers. These transactions begin and end in Texas. Article 12.02(1)(b)(i) clearly provides that "when the property is delivered or shipped to a purchaser within this State" a sale of such property constitutes gross receipts from business done in Texas, "regardless of the F.O.B. point or other conditions of sale...." It makes no difference that the gas eventually moves in interstate commerce. For the purposes of this tax, its status is simply determined by whether such property, when sold, is delivered or shipped to a purchaser within Texas.

The statute in question is clear and unambiguous and means exactly what it says when it is applied to the facts in this case. See Citizens Nat'l Bank v. Calvert, 527 S.W.2d 175 (Tex.1975).

II.

Appellees strongly urge that two former opinions of this Court uphold their theory that the sales in question were not "business done in Texas." They are Clark v. Atlantic Pipe Line Co., 134 S.W.2d 322 (Tex.Civ.App.1939, writ ref'd), and Flowers v. Pan American Refining Corp., 154 S.W.2d 982 (Tex.Civ.App.1941, writ ref'd). In our judgment these cases are not on point.

In Atlantic, a franchise tax case, the oil moved through Texas by Atlantic's pipelines and, for the most part, was delivered to the coast to where it was loaded aboard oil tankers which then delivered the oil to the purchasers in other states. The Court said: "We hold that the language, 'business done in Texas,' as employed in this statute was intended to mean business begun and completed in Texas, and not business begun in Texas and completed in some other state or foreign nation, or vice-versa." 134 S.W.2d at 328. It should be noted that the Court felt restrained by Puget Sound Stevedoring Co. v. State Tax Commission, 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68 (1937). That case held that a state could not tax a local activity (stevedoring) that could not be separated from interstate commerce. Washington Revenue Dept. v. Stevedoring Ass'n, 435 U.S. 734, 98 S.Ct. 1388, 55 L.Ed.2d 682 (1978), overruled that concept. Services that were performed within a state could be taxed by a state even though the services were an integral part of interstate commerce.

Nor would Pan American change our view. It is also a franchise tax case holding that the tax cannot be levied on gross receipts from sales of products which were refined or manufactured in Texas but sold outside of Texas. Again, the Court held that "business done in Texas" meant business begun and completed in Texas. Since Atlantic and Pan American, the Legislature, in 1969, amended the statute to include Art. 12.02(1)(b)(i) which includes in the definition of business done in Texas the "(s)ales of tangible personal property when the property is delivered or shipped to a purchaser within this state regardless of the F.O.B. point or other conditions of the sale ..." (emphasis added).

III.

Next, appellees contend that their view as to liability under the tax in question has been sustained by long-standing departmental construction of the statute. In this respect, they cite Humble Oil & Refining Co. v. Calvert, 414 S.W.2d 172 (Tex.1967), for the proposition that the term "doing business in Texas" contained in Article 12.02 is ambiguous and that prior departmental construction determined that case in spite of a rather nebulous argument of the Comptroller to the contrary. That case involved dividend income from foreign corporations. The statute on those facts was ambiguous. Humble v. Calvert, however, was also decided before the 1969 amendment that added Art. 12.02(1)(b) (i). In our judgment, the Legislature has provided the Comptroller with a clear, unambiguous mandate to collect this tax, and this Court is bound to enforce it.

Appellees also contend in their claim of departmental construction that the Comptroller and the Attorney General of Texas have construed Article 12.02, as amended in 1969, as not imposing any tax when petroleum products are delivered to out-of-state purchasers. The Comptroller issued a letter on August 4, 1971, to the Texas Mid-Continent Oil and Gas Association which (although argued to the contrary by the State) apparently ruled that sales of crude oil and gas for ultimate shipment outside of Texas do not constitute receipts from "business done in Texas" for the purpose of calculating and reporting franchise tax. However, after the 1969 amendment set out above was enacted, whatever discretion that was vested in the Comptroller to interpret the law vanished. He was then without any authority to bind the state in any manner contra to the explicit dictates of the statute. Central Power & Light Co. v. State, 165 S.W.2d 920 (Tex.Civ.App.1942, writ ref'd), app. dism'd, 319 U.S. 727, 63 S.Ct. 1033, 87 L.Ed. 1691; Brown Express, Inc. v. Railroad Commission, 415 S.W.2d 394 (Tex.1967); Eddins-Walcher Butane Co. v. Calvert, 298 S.W.2d 93 (Tex.1957); Citizens Nat'l Bank v. Calvert, supra.

Attorney General's Opinion No. M-829 (1971) discussed only the "receipts from sales of petroleum products refined in Texas and sold and shipped to out-of-state purchasers" where the F.O.B. loading points were in Texas. It did not discuss receipts from sales of petroleum products that were delivered to the purchaser in the state of Texas. The opinion, however, did state that "Article 12.02(1)(b)(i) ... clearly contemplates that the F.O.B. point shall not control and that the point where the purchaser actually takes possession of the property shall be the place of delivery for purposes of this statute."

Before the 1969 amendment, the courts have consistently held that "business done in Texas" means business that began and ended in Texas....