Group No. 1 Oil Corporation v. Sheppard

• Decision Date: 27 November 1935
• Docket Number: No. 8159.,8159.
• Citation: 89 S.W.2d 1021
• Parties: GROUP NO. 1 OIL CORPORATION v. SHEPPARD, Comptroller, et al.
• Court: Texas Court of Appeals

Page 1021

89 S.W.2d 1021

GROUP NO. 1 OIL CORPORATION v. SHEPPARD, Comptroller, et al.

No. 8159.

Court of Civil Appeals of Texas. Austin.

November 27, 1935.

Rehearing Denied December 18, 1935.

Appeal from District Court, Travis County; W. F. Robertson, Judge.

Suit by Group No. 1 Oil Corporation against George H. Sheppard, State Comptroller, and others. From an adverse judgment, plaintiff appeals.

Judgment affirmed in part, and reversed in part and cause remanded, with directions.

James J. Cosgrove, of New York City, and Burney Braly, G. R. Pate, and John A. Braly, all of Fort Worth, for appellant.

Wm. McCraw, Atty. Gen., and Hubert T. Faulk, Asst. Atty. Gen., for appellees.

Black & Graves, of Austin, amici curiæ.

BLAIR, Justice.

Appellant, Group No. 1 Oil Corporation, sued appellees, Geo. H. Sheppard, State Comptroller, and Charley Lockhart, State Treasurer, for the refund of certain gross production taxes on oil, which appellant paid under written protest to appellees. The taxes were alleged to have been wrongfully demanded and collected as being due under the provisions of House Bill No. 154, c. 162, Acts 43d Legislature (1933), as amended and reenacted by House Bill No. 55, c. 12, of the 1st Called Session of the same Legislature (1933), which acts will be herein referred to as H. B. 154, or the act, the material portions of which read as follows:

"Section 1. (1) For the purpose of this Act `producer' shall mean any person or persons, corporation, partnership, individual, trustee, receiver, trust estate or administrator owning, controlling, managing or leasing any oil well or any person who produces in any manner any oil by taking it from the earth or waters in this State. * * *

"Sec. 2. (1) There is hereby levied an occupation tax on oil produced within this State of two (2) cents per barrel of forty-two (42) standard gallons. * * *

"(2) The tax hereby levied shall be a liability of the producer of oil and it shall be the duty of such producer to keep accurate records of all oil produced, making monthly reports under oath as hereinafter provided.

"(3) The purchaser of oil shall pay the tax on all oil purchased and deduct tax so paid from payment due producer or other interest holder, making such payments so deducted to the Comptroller of Public Accounts by legal tender or cashier's check payable to the State Treasury.

"Provided, that if oil produced is not sold during the month in which produced, then said producer shall pay the tax at the same rate and in the manner as if said oil were sold * * *

"(6) The tax herein levied shall be borne ratably by all interested parties, including royalty interests; and producers and/or purchasers of oil are hereby authorized and required to withhold from any payments due interested parties, the proportionate tax due." Acts 1933, c. 162, § 1.

The refund of three items of taxes was sought by appellant's petition. The sum of $1,326.25 alleged to have been wrongfully demanded and collected by appellees as the gross production tax on the one-eighth royalty interest of the State University in the oil produced from its Reagan county lands by appellant as lessee thereof and as producer of the oil. The taxes were paid either by appellant or by the purchaser of the oil in the manner prescribed by the taxing act. Another item was for the sum of $209, which was also demanded and collected by appellees as the gross production tax on the one-eighth royalty interest of the university in the oil produced from its lands in Reagan county. The third item was for the sum of $242.27, as to which item appellant alleged that in addition to being a producer of oil, it was the owner of and entitled to receive royalties on oil produced in divers and sundry places from privately owned lands; that the producing operations were conducted by other corporations as lessees; and that these lessees, or purchasers from them, had deducted from settlements with appellant for its royalty interests the sum of $242.27, and in turn had remitted that amount to appellees. The legal consequence was that appellant had thereby been forced to pay and had paid the sum of $242.27 to appellees as the gross production or occupation tax on its royalty interests in the privately owned lands. All of the claims covered payments of taxes for the months of September and December, 1933; and the payments were made under the written protest of appellant as required by H. B. No. 11, c. 214, Acts of 1933, 43d Legislature (Vernon's Ann.Civ.St. art. 7057b), which provides that such protested taxes be kept in the "Cash Suspense Book" or account, subject to the suit of the taxpayer for its refund, if unlawfully collected.

The trial court sustained the general demurrer and several special exceptions of appellees to the petition of appellant, and upon its declining to amend dismissed the suit. It was admitted by all parties that because of various constitutional inhibitions the university could not be charged with the gross production tax on its one-eighth royalty interest in the oil produced from its lands; but the trial court construed the act as imposing the gross production tax due on the one-eighth royalty interest of the university upon appellant, the "producer" of the oil, as that term is defined in section 1 of the act; and accordingly sustained the general demurrer.

By an excellent brief the Attorney General seeks to sustain the trial court's construction of the act, and to defend it against the attack that if so construed the act is unconstitutional. On the other hand, by the excellent briefs of counsel for appellant and of Messrs. Black and Graves, appearing amici curiæ, representing the Big Lake Oil Company, a lessee of oil-producing lands belonging to the university, the contention is made that under a proper construction of the act, the gross production tax on oil is levied against the various interest holders, including the producer and royalty owners, in proportion to their respective interests, and as thus construed no greater burden is imposed by the act on the lessees of university lands than on other lessees of oil-producing lands privately owned. That if the act be construed as imposing the tax upon the lessee producer of oil from university lands on all of the oil produced, and as imposing the tax upon producers of oil from privately owned lands at the same rate per barrel, but on only a fraction or portion of the oil produced, the act is void as being violative of the equal taxation clauses of sections 1 and 2 of article 8, and the equal right clause of section 3 of article 1, of the Texas Constitution; and of the equal protection and the due process clauses of both the State and the Federal Constitutions (Const.Tex. art. 1, § 19; Const.U.S. Amend. 14, § 1), because there is no difference between the situations or occupations of producers of oil from lands owned by the State University and the producers of oil from lands privately owned, which bear any just or reasonable relation to the object or purpose of the act. And appellant contends that the Legislature cannot, under the guise of an occupation tax on the gross production of oil, validly levy the tax against the owners of royalty interests in the oil produced within this state, for the reason that, with respect to such royalty ownership, they are neither engaged in an occupation nor doing business as contemplated by article 8 of the State Constitution.

We construe the act to levy the tax against the various interest holders in the oil produced, including the producer and royalty owners other than the university, in proportion to their respective interests; that under this construction of the act no greater burden is imposed on lessees of the university lands than on other lessees of privately owned lands under similar leases for the production of oil; and that as thus construed the act is valid and constitutional. We also hold that for the purpose of levying a gross production or occupation tax on oil, the Legislature may validly declare the owners of royalty interests in the oil produced to be engaged in the occupation or business of producing oil.

When construed together, subsections 2 and 6 of section 2, as amended by Acts 1933, 1st Called Sess., c. 12, § 1 (Vernon's Ann.Civ.St. art. 7057a, § 2, subd. 2, 6), clearly impose the tax "ratably" against "all interested parties, including royalty interests," and make the producer primarily liable for the payment of the tax. The language that "the tax herein levied shall be borne ratably by all interested parties, including royalty interests," is clear and means that the tax is levied ratably or in proportion to the interest each party has in the oil produced. The language of subsection 6 of section 2, as amended (Vernon's Ann.Civ.St. art. 7057a, § 2, subd. 3), that the "producers and/or purchasers of oil are hereby authorized and required to withhold from any payment due interested parties, the proportionate tax due," is also clear and means that a portion of the tax is due from each interested party. If the tax had been levied against the purchaser only, different language would have been employed by the Legislature. There was no reason for providing that the tax be paid ratably or proportionately by all interested parties, if the Legislature had intended to levy the tax against the producer only. The act clearly designates the parties against whom the tax is levied, the amount each is to pay, and other incidences of the tax.

The provision that "the tax hereby levied shall be a liability of the producer" does not mean that the tax is levied only against the producer. This provision must be construed together with the other provisions of the act which declare that the tax is levied against all interested parties ratably or in proportion to their respective interests in the oil produced.

Nor is the provision that the tax be paid ratably by all interested parties in any manner affected...