Untitled Texas Attorney General Opinion ( 1949 )


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  •                     EATTORNEY            GENERAL,
                               OF   TEXAS
                              ‘%UHTXNII.-
    PRICE   DANIEL
    ATTORNEY GENERAL          lIar~h25, 1949
    
    
    
    Eon. S.C. UcIntosh, Director
    Gas Utilities Dlvlslon
    Railroad Commissionof Texes
    Austin, Texas                      Opinion No0 V-795
                                      Re: The agpllcablllt~of Arte.
                                          6056 and 6060, v.c.s.,
                                          relative to operator'sre-
                                          port8 and gross receipts
                                          taxes of gab utllltles, to
                                          nambd corpor4tlons,under
                                            the submitted faots.
    
    Dear Sir:
               Your request ior the opinion of this Department Is 4a
    followa:
             "This is a request for 4n opinion concerning
         the status of three corporatl~onsznamely, JIcCarthy
         Oil & Gas Corporation,Jefferson Pipe Line Company
         and Neehes Natural Gas Company.
             "The
               - three_^corporationsabove referred to are
         engagea la producing, transportingor selling
         natural gas in the vicinity of Port Ar%hurp Texas,
         Enclosed you will find copies of letters from
         Neches Natural Gas Company aradMcCarthy Oil h Gss
         Corporationwhich are In reply to demands from
         thfs offfce for the filing of A~uel Reports pro-
         vided for pursuent to Article 6056, Revised
         Statutes) 1925*
             "JeffersonPipe Ltne Company a% this time is
         the Only one of the three mentioned corporatfons
         %het.ffleswith us the reports required by Articles
         6056'4nd 6060 and pays to us the tax provided for
         in ArtFcLe 6060, 1% only pays to us a tax of l/4
         of 1s on the basis of its receipts which are re-
         ported to us as being one cent (14) pep one thousand
         cubic feet of gas.
             "McCarthyOfl deGas Corporation owns 99*7$ of
         the voting stock of Jefferson Pipe Line Company which
         fs 4 Texas Corporatfon,
    Ron. 3. C. McIntosh, Page 2             v-795
    
    
             "McCCerthy
                      Oil & Gss CorporationLs 4 Delaware
        Corporationand lts President Is Glen Ii.McCarthy.
             "Neches Natural Gas Company is 4 Texas Corpor-
        ation and of its 500 shares of voting stock, 470
        are owned by Glen II.McCarthy, Its officers and
        directors are interlockingwith the officers and
        directors of McCarthy 011 & Gas Corporation.
             "While we have collected the tax upon the basis
        of only one cent per thousand cubic feet of gas, the
        receipts for such g4s amount to approximatelyten
        cents per thousand cubic feet, Requests for reports
        and taxes h4ve been made of Neches Natural Gas Com-
        pany and McCarthy Oil & Gas Corporation have been
        msde by us but the same have been refused us.
             "Please advise whether or not 411 three of the
        above named corporationsmay be compelled to make
        reports to the Railroad Commission and also whether
        or not the three corporationsare liable for the
        payment of the gross receipts tsx upon the basis of
        the actual amount of money received from the busi-
        ness done."
             The firat question Is "whether or not all three of the
    above named corporationsmay be compelled to make reports to the
    Railroad Commission". It appears from your request that the
    J8ffePsOn Pipe Line Company is presently making the PepOPts re-
    quired by Articles 6056 and 6060, Revised Civil Statutes, there-
    fore, only MtiCarthyOil and G4s Corporationand Neehes Natural
    Gas Company need be consideredunder this question.
             McCarthy Oil snd Gas Corporation 1s a Delaware Corpore-
    tlon, having 4 permit to do busfnesa fn Texas Issued by the Sec-
    retary of Stete on December 26, 1945, for the following purpose:
            "To establish and maintain an oil business, with
       authority tocontract for the lease and purchase of
       the right to prospect for, develop and use co41 and
       other minerals, petroleum end gas; also the right to
       erect, build and own all necessary oil tanks, cars and
       pipe necessary for the operation of the business of
       the same."
    which is euthorixedby Sub. 37,   Art.   1302, R.C.S.
            Article 6050, Revised Civil Statutes, 1925, is, in pert,
    as follows:
    Hon. 5. C. McIntosh, Psge 3        v-795
    
    
             "The term 'gas utility' and 'publicutility' or
        'Utilltyj' es used,in this subdivision,means and ln-
        eludes persons, companies and private corporations,
        their lessees, trustees, end receivers, owning, man-
        aging, operating, leeslng or controllingwithin thij
        State any wells, pipe lines, plant, property, equip-
        ment, facility, franchise, license, or permit for
        either one or more of the following kinds of business:
    
    
             "2e Owning or operetlng or man4glng 4 pipe line
        for the transportationor carriage of nature1 ges,
        whether for public hire OP not, if any pert of the
        right of way for said line hes;been acquired, or may
        hereafter be acquired by the exercise of the right
        of emlnant domain; or Is said line or any part thereof
        is 1aLd upon, over or under any public road or hlgh-
        way of this State, or street or alley of any rmnlcl-
        pallty, or the right of way of any railroad OP other
        public utility; includingelao any natural gss utility
        authorleed by law to exercise the right of eminent
        domain.
    
    
            "Every $uch gas utility is hereby declared to
       be effected with 4 plbllc interest end subject to the
       jurisdiction,control end reguletfon of the Commls-
       slon as provided herein."
             Article 6956, Revised Civil Statutes, 1925, is as Sol-
    lows:
            "The Commissionmay require of all persons'or
       corporationsoperating,owning or controlllnq such
       w@De     lines sworn r4pOrts of the total quanmS
       of gas distributedby such pipe lines and of thet
       held by them fn storege, and slso of their source of
       supply, the number of wells from which they draw
       thefr supply, the amount of pressure melntalned, and
       the emount and character snd description of the
       equipment employed,,and such other matters pertain-
       ing to the business es the Commissionmay deem
       pertinent." (Emphasisadded)
             It sppeers from your request that McCarthy 011 and Gas
    Corporation owns 9g07$ of the voting stock of the Jefferson Pipe
    Line Company and hence, under the well,recognlzedrYle of 14~ of
    corporete control by stock ownership, it exercises leg41 control
    Ron. S,C. McIntosh, Page 4        v-795
    
    
    over the gas pipe lines owned and operated by Jefferson Pipe
    Line Compeny end is required to make such reports as the Rall-
    road Commission may require under the provisions of Article
    6056, supra.
            Neches Netural Gas Company if a Texas corporation,
    chartered on December 28, 1945, for the following purposes:
             "Storing,transporting,buying end selling oil,
        gas, salt brine end other mineral solutionsand
        llqulfiedminerals; also sand end clay for the manu-
        facture end sale of clay products; and the produc-
        tion of oil end gas.
             "This corporetion shall have all of the powers
        permitted to corporationsunder Chapter 15, Title
        32 of the Revised Civil Statutes of the State of
        Texasj 1925, as emended and now In force, Including
        the additionalpowers permitted under Article 1506
        of such Chapter, and for the purpose of securing such
        additional powers, thls corporationaccepts the p;o-
        visions of Chapter 15, Title 32 of said Statutes.
             This purpose clause Is identicalwith that of the Jeff?
    erson Pipe Line Company which was granted e charter by the Set-
    retary of State of Texas on the same date, and therefore the
    Neches Natural Gas Compeng Is required to make such reports as
    the Railroad Commissionmay require under the provisions of
    Article 6056, supra.
             Your second question is "whether or not the three cor-
    porations are liable for the pavment of the RPOSS receipts tax
    upon the actual smount of monky"recelvedfrom the business done."
            Article 6060, Revised Civil Statutes, 1925, Is as fol-
    lows:
             "Rvery gas utility subject to the provisions of
        this subdivisionon or before the first day of January
        eno quarterly thereafter, shall file with the Com-
        mission a statement,duly verified as trueend correct
        by the president, treasurer or general manager if a
        company or corporation,or by the owner of one of them
        is an lndlviaual or co-partnership,showing the gross
        receipts of such utility for the quarter next preced-
        ing OP for such portlon of said quarterly period as
        such utility may have been conducting any business,
        and at such time shall peg Into the State Treasury at
        Austin a sum equel to one-fourth of one per cent of
        the gross Income received from all business done by
    Hon. 5. C. McIntosh, Page 5        v-795
    
    
        it within this State during said quai%er."
             By Sec. 10, Ch. 73, Acts 42nd LegLalature, 1931, p0 111,
    the foregolng article was repealed except Insofar as It Imposed
    the tax upon gas utilities described In Section 2, Article 6050,
    aupra.
             In the case of Thompson v. United Gas Corporation,190
    S.W.,(26) 504, 509, (error refused), Judge Blafr clearly defined
    gas utilltfea subject to payment of the tax under Article 6060
    as follows:
            'Before the repeal of a portion of Art. 6060 the
       Legislature had imposed the tax upon ‘every gas utfl-
       itg' described in all three claaalflcations. By the
       repealing Act It continued to impose the tax only
       upon the gas utllltg described in Section 2 of Art,
       6050. Thus it deffnitrilg and clearly Imposed the tax
       upon the gas utility described as being persons en-
       gaged fn 'owning or operating or managing a pipe
       line for the transportationor carriage of natural
       gas, whether for public hire or not, if any part of
       the right of way for said line has been acquired* l l
       by the exerclae of the right of eminent domain* * *.I
       The distinguishingfeature of thls section, how-
       ever, is that the buslneaa la a pipe line fop trans-
       portation or carriage of natural gas by pipe line,
       and the repealing Act contFnued to fmpose the tax
       upon Ft only,"
             Under the foregoing ruling both the Jefferson Pipe Line
    Company and the Neches Natural Gas Company are subject to the
    payment of the tax imposed by Article 6060 upon the gross Income
    received by each from all bualness done within the State of Texas.
             McCarthy Of1 and Gas Corporation fs engaged fn the busl-
    neaa of producing and selling natural gas and therefore contends
    that undoerthe decision by the Supreme Court of Texas in the case
    of Rumble gS.1and Reflnlng Company v. Railroad Commlsalon,128
    S.W. (2d) 9, It 1s not subject to the pPovFaion8 of either Article
    6056 or Article 6060, aupra, This contention is evi.dently based
    upon the following language In the court's opinion:
             "In this Instance, it is conclusive that M. & M.
        Pipe Line Company Is a public gas utllltg subject to
        the rate makfng jurisdictionof the Commfssfon, It
        is also conclusive that Humble la not a public gas
        utlllty subject to the rate making jurfsdictionof the
        Commission,unless this contract makes it such. As
        already stated, before it can be saFd that this aon-
    Ron. S. C. McIntosh, Page 6        v-795
    
    
        tract makes Humble a public gas utilftg, the con-
        tract under discussion must legally operate to
        associate Humble and M. & M. Pipe Lfne Company fn
        a common business enterprise,and that enterprise a
        public utility gas business. In other words, the
        contract must operate to make Humble an associate
        of M. & M. Plpe Ljne Company as regards the gas
        utlllty business of the last-namedcompany."
             In the present situation McCarthy Oil and Gas Corpora-
    tion owns 99.7% of the voting stock of Jefferson Pipe Line Com-
    pang Glen H. McCarthy, Presfdent of the McCarthy Oil and Gas
    Corporation owns 470 of the 500 shares of voting stock In the
    Neches Natural Gas Company and the officers and dlrectora of the
    Nechea Natural Gas Company and the McCarthy 011 and Gas Corpor-
    ation are interlocking.
             In the same oplnion the Supreme Court of Texas quoted,
    approved, and adopted the o inion in the case of State v. Lone
    Star Gas Company (Civ. AppOP 86 S.W. (2d) 484, 491, (wrtt refused),
    as follows:
             ' 'The rule is well settled that courts wFl1
        look through the forms to the realltles of the re-
        lationahlpbetween two or more corporationsIn
        order to determine whether each Is a separate entity
        or corporation;or whether their commingled affairs
    /   are such as to constitute them one integrated and alngle
        business enterprise;or whether, through intercor-
        porate set-up, affiliation, or stock ownership, the
        purpose is to control the subsidiarycorporation or
        corporationsso that they are used as the mere fnstru-
        mentalities or agents of the owning corporationor
        corporations. In dlacussfng the rule, it has been
        held that while "ownershfp,alone, of eapltal stock
        in one corporationby another, does not create an
        Identify of corporate interest * + + OP create the
        relation of prlnclpal and agent or representative
        between the two"; still it has been repeatedly held
        that such rule la not applicable "where stock
        ownership has been resorted to, not for the purpose
        of partioi.patingfn the affafrs of a corporation in
        the normal and usual manner, but for the purpose
        + * + of controllinga subsidiarycompany so that It
        may be used as a mere agency or fnstrumentality.of
        the owning company or companies," Chfcago, M. & St.
        P. Ry. v. MinneapoltsCIVIC & Commerce Ass'n, 
    247 U.S. 490
    , 38 3, Ct. 553, 557, 62 L, Rd. 1229; United
        States v; Lehigh Vallg R- Co., 220 U-3. 257,31 3.
        Ct, 387, 
    55 L. Ed. 458
    ; United States v. Reading Co.,
     .
    
    
    
    
    Eon. 5. C. HcIntosh, Page 7 :        v-795
    
    
         253 U,B. 26, 40 3. Ct. 425, 64 L. Rd. 760; United
         States v. Delaware, L. &V. R. Co., 
    238 U.S. 516
    ,
         35 5. Ct. 873, 59 L0 Rd. 1438. Also, in discussing
         the rule, the fact that the same persons are
         directors and managers of two corporationshas
         been given conslUeratlon(McCasklllCo0 v, Unlted
         States, 
    216 U.S. 504
    , 30 3. Ct. 386, 391, 54 L. Rd.
         590)9 and "a growing tendency la therefore exhlblted
         In the courts to look beyond the corporate form to
         the purpose of lt, and to the officers who are
         Identifiedwlth that purpose." See, also, Gallatln
         Natural Gas Co. v, Public Service Co., 
    79 Mont. 269
    ,
         
    256 P. 373
    . Where one corporation owns or dominates
         another, It has been often held that "the Independent
         entity of the two companies 1s so far disregarded
         that each 1s considered as but a part of the indlvlsl-
         ble whole." Kimberly Coal Co. v. Douglas E~ClrJ,
         f&;.;O)C 45 F. (26) 25> 27; In re Kentucky Wagon Mfg.
                    
    3 F. Supp. 958
    ; Law v. McLaughlin,D.C.,
         2 F. sip;: 601Q’”
             Under the factual situation here present and the fore-
    going rule of law, if, in the ascertainmentof the true facts, It
    la revealed that McCarthy 011 and Gas Corporatfonreceives an
    actual considerationfor 'thetransportationof the gas In excess
    of one cent per thousand &ubic feet as reported by Its wholly
    owned subaidfary, Jefferson Pipe Line Company, McCarthy Oil and
    Gas Corporation is subject to the payment of the gross recelpta
    tax imposed by Article 6060, R.c.s., upon the actual consideration
    received by lt In excess of the amount received by the Jefferson
    Pipe Line Company for such transportation.
                               SUMMARY
              Under the stated facts a corporation owning prac-
         tlcallg all of the stock of a "publicutll;lty"~corpor-
         ation must make the reports and pay the gross receipts
         taxes on the amount actually received from transporta-
         tlon of gas as required by Article 6056 and 6060,
         R.C.S., the corporate entities being disregarded.Hum-
         ble Oil & Refining Co, v. Railroad Commission, 128
         3.X0 (2d) 90
                                   Yours very truly,
                              ATTORNEY GRNRRAL OF TEXAS
    CKR/mwb/wc                      By s/C.& Richards
                                         C.,K.Richards
    APPROVED                             Assistant
    a/Price Daniel
    ATTORNEY GlNW3AL