Bullock v. Marathon Oil Co.

• Decision Date: 19 September 1990
• Docket Number: Nos. 3-89-216-C,3-89-217-CV,s. 3-89-216-C
• Citation: 798 S.W.2d 353
• Parties: Bob BULLOCK, Comptroller of Public Accounts of the State of Texas, et al., Appellants, v. MARATHON OIL COMPANY, Appellee. Bob BULLOCK, Comptroller of Public Accounts of the State of Texas, et al., Appellants, v. MARATHON PETROLEUM COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 353

798 S.W.2d 353

Bob BULLOCK, Comptroller of Public Accounts of the State of

Texas, et al., Appellants, v. MARATHON OIL COMPANY, Appellee.

Bob BULLOCK, Comptroller of Public Accounts of the State of

Texas, et al., Appellants, v. MARATHON PETROLEUM COMPANY, Appellee.

Nos. 3-89-216-CV, 3-89-217-CV.

Court of Appeals of Texas,

Austin.

Sept. 19, 1990.

Rehearing Overruled Nov. 28, 1990.

Jim Mattox, Atty. Gen., Harriet D. Burke, Asst. Atty. Gen., Austin, for appellants.

Scott Moore, McGinnis, Lochridge & Kilgore, Austin, for appellee.

Before POWERS, JONES and EARL W. SMITH, ^* JJ.

EARL W. SMITH, Justice.

Marathon Oil Company and Marathon Petroleum Company, appellees, sued under Tex. Tax Code Ann. §§ 112.051-112.060 (1982 & Supp.1990), the tax protest statute, to recover franchise taxes paid under protest. Appellees also sued for declaratory judgment that the Comptroller's rule 3.403, 34 Tex.Admin.Code § 3.403(c)(14) (1987) [superseded 1988], is invalid as of the time that appellees paid the franchise taxes which are the subject of these appeals. Hereafter, appellees will be addressed as Marathon. Marathon also sought judgment under the Administrative Procedure and Texas Register Act (APTRA), Tex.Rev.Civ.Stat.Ann. art. 6252-13a, § 12 (Supp.1990), declaring that Rule 3.403 was an invalid exercise of the Comptroller's authority and that it violated Tex. Tax Code Ann. § 111.002 (1982).

Marathon filed motions for summary judgment in each cause below. Appellants ¹ responded with cross-motions for summary judgment and pleas to the jurisdiction as to Marathon's requests for declaratory relief. Marathon's motions were granted, and judgments rendered for Marathon Petroleum in the sum of $55,566, and for Marathon Oil in the sum of $402,033.00. Appellants' motions for summary judgment and pleas to the jurisdiction were denied.

Appellants, in three points of error, contend that the trial court erred: (1) in granting Marathon's motions for summary judgment; (2) in failing to grant appellants' motions for summary judgment; and (3) in denying appellants' pleas to the jurisdiction regarding the declaratory judgments sought by Marathon. We will affirm the judgments of the trial court. ²

THE ISSUE

The period in question is the 1987 franchise tax report (covering the privilege period from May 1, 1987, through April 30, 1988). Marathon's receipts and taxable capital reported on its 1987 franchise tax report were based on information from its accounting period ending December 31, 1986. The 1987 report was to be filed by March 15, 1987. In the 1987 report, Marathon reported certain receipts from "barter exchange agreements." In such exchange agreements, oil, gas, and other petroleum products held as inventory are exchanged between companies for like products. This procedure permits the companies to avoid costly transportation charges between distant refineries. To illustrate, Marathon produces sour crude oil in West Texas, but its nearest refinery processes only sweet crude oil. To avoid having to transport the sour crude to a distant refinery, Marathon exchanges its sour crude for another company's sweet crude and processes the sweet crude in its nearby refinery. The companies exchanging oil may equalize differences in grade, quality, or location of the exchanged products with cash payments. See H. Williams and C. Meyers, Manual of Oil and Gas Terms 323 (4th ed.1987). The "barter exchange agreements" reported by Marathon were listed as gross receipts and were taxed by the Comptroller.

Marathon contended that the exchanges of oil for oil should have been excluded from gross receipts because the Comptroller's long-standing interpretation of an ambiguous statute, excluding such exchanges from gross receipts, could not be changed without legislative authority.

Appellants argue that Tex. Tax Code Ann. §§ 171.103 and 171.105 (1982 and Supp.1989) are not ambiguous, that the Comptroller had been incorrect in his long-standing interpretation of these articles, and that he properly included the exchange in gross receipts in 1987.

Section 171.103 provides:

The gross receipts of a corporation from its business done in this state is the sum of the corporation's receipts from:

(1) each sale of tangible personal property delivered or shipped to a buyer in this state regardless of the FOB point or another condition of the sale;

(2) each service performed in this state;

. . . . .

(5) other business done in this state.

(Emphasis added.)

Section 171.105(a) provides:

(a) The gross receipts of a corporation from its entire business is the sum of the corporation's receipts from:

(1) each sale of the corporation's tangible personal property;

(2) each service, rental or royalty; and

(3) other business.

(Emphasis added.)

The words "exchange" or "barter" do not appear in either section. Thus, the issue: are exchanges, as described above, "sales" or "other business" within the statutory language? Are these statute sections ambiguous? Appellants argue that the phrases "each sale of tangible personal property" and "each sale of the corporation's tangible personal property" unambiguously include exchanges of property. Since "sale" is not defined, it must be given its ordinary meaning. Tex. Gov't Code Ann. § 311.011(a) (1988); Direlco v. Bullock, 711 S.W.2d 360, 362 (Tex.App.1986, writ ref'd n.r.e.).

A sale is defined as:

A contract between two parties, called, respectively, the "seller" (or vendor) and the "buyer" (or purchaser), by which the former, in consideration of the payment or promise of payment of a certain price in money, transfers, the title and the possession of property.

or,

An agreement by which one gives a thing for a price in current money, and the other gives the price in order to have the thing itself.

or,

A revenue transaction where goods or services are delivered to a customer in return for cash or a contractual obligation to pay.

or,

The contract of "sale" is distinguished from "barter" (which applies only to goods) and "exchange" (which is used of both land and goods), in that both the latter terms denote a commutation of property for property; i.e., the price or consideration is always paid in money if the transaction is a sale, but, if it is a barter or exchange, it is paid in specific property susceptible of valuation.

Black's Law Dictionary 1200 (5th ed.1979). Webster's New International Dictionary 792 (3d Ed.1981) defines "exchange" as "the art of giving or taking one thing in return for another as if equivalent...."

As Marathon notes, the franchise tax statutes have been amended many times since the inception of the tax in 1907, without however, changing the definition of "sale" until August 31, 1987. "Sale" was never defined to include "exchanges." See Tex. Tax Code Ann. §§ 171.103 and 171.105 (1982 and Supp.1989) (amendment history therein); Note, Receipts from Intangible Assets, 5 Hous.L.Rev. 132 (1967). It is of particular note that the Comptroller excluded exchange agreements from gross receipts until March 13, 1987 (after the Attorney General in 1986, in reply to the Comptroller's inquiry, issued an opinion advising the Comptroller that exchange agreements should be included in gross receipts for franchise tax purposes. Op.Tex.Att'y Gen. No. JM-478 (1986)).

Attached to appellants' brief are the following:

1. Comptroller's Rule 026.02.12.013 (dated 12/31/75) (based on Op.Tex.Att'y Gen. No. M-1190 (1972)).

2.o. Deliveries of oil and gas pursuant to exchange agreements between oil and gas companies do not constitute receipts for franchise tax calculations, except amounts paid by one of the parties as the result of excess deliveries under the exchange agreement.

2. Comptroller's Rule 026.02.12.013 (effective April 15, 1976) 2.o. Deliveries of oil and gas pursuant to written exchange agreements between oil and gas companies do not result in receipts for franchise tax calculations.

3. Comptroller's Rule 026.02.12.013 (effective May 9, 1979):

(b) (15) [worded exactly as set out in 2 above]

4. Comptroller's Rule 3.403 (effective August 15, 1980):

(b)(15) Deliveries of oil and gas pursuant to written exchange agreements between oil and gas companies do not result in receipts for franchise tax calculations.

5. Comptroller's Rule 3.403 (effective February 4, 1985):

(c)(14) [worded exactly as in 4 above]

6. Comptroller's Rule 3.403 (effective August 4, 1985):

(c)(14) [worded exactly as in 4 and 5 above]

The Comptroller substantively amended Rule 3.403 in 1987. Effective March 13, 1987, section (c)(14) provides:

Deliveries of real or personal property pursuant to exchange agreements (e.g., oil exchange agreements) or buy-sell contracts result in receipts for franchise tax calculations at the time of delivery by the corporation, based on the fair market value of the property delivered.

This new rule reversed the Comptroller's long-standing interpretation of the franchise tax statutes. The Comptroller readily concedes that "from 1972 through March 12, 1987, the Comptroller did not require corporations to consider barter exchange agreements as gross receipts in reporting their franchise taxes" and does not dispute Marathon's claim that the Comptroller did not treat, for some 79 years, barter exchanges as a part of gross receipts for tax purposes.

After the adoption of the new rule 3.403 by the Comptroller, the legislature added section 171.112 to the Tax Code (Supp.1989). It provides:

(b) Except as otherwise provided in this section, a corporation must calculate gross receipts in accordance with generally accepted accounting principles. ...

Tex. Tax.Code Ann. § 171.112 (Supp.1989).

The parties agreed in argument before this court that generally accepted accounting principles (GAAP) ³ would exclude exchanges from gross receipts and that Marathon treated the exchanges as non-monetary transactions under GAAP.

DECISION

We hold that §§ 171.103 and 171.105, defining gross receipts, are ambiguous in that ...