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Gas Levy Validity May Be Doubtful AUSTIN One needed a chemistry manual to keep up with the latter-day gas taxers this week. Tuesday afternoon the Capitol started with laughter and surprise as the report circulated that the Senate committee’s tax bill exempted natural gas from the natural gas tax. In new language defining “liquid hydrocarbons” which were to be exempt from the tax, not only were the ordinary liquid hydrocarbons specified, but so also were “methane” and “ethane.” According to a book on the natural gas industry supplied to legislators by Bailey Jones, Lone Star Gas Co. lobbyist in Austin, methane and ethane constitute most of commercial natural gas. Officials at the Railroad Commission averred that methane and ethane are about 95 percent of natural gas. A chemistry expert told Sen. Charles Herring, said the Austin senator, that methane and ethane are about 94 percent of natural gas. In the natural gas text Economics of Natural Gas in Texas by Stockton, Henshaw, and Graves, it is stated on pages 10-12: “The primary hydrocarbons of natural gas are methane, ethane, propane, and butane. … Methane, the lightest hydrocarbon, is the predominating constituent of natural gas. Ethane, next in order in the series, is present in the next largest amount. … The natural gas that is utilized commercially domestically as fuel consists almost entirely of methane and ethane.” The Senate team behind the tax bill rushed for its immediate consideration Tuesday, but Sen. Grady Hazlewood, Amarillo, protested, “I’m gettin’ darn tired of having this thing run out across here like a jet plane.” “I’m certainly not trying to rush anybody,” responded Sen. Wardlow Lane, Center, the sponsor. “There are some changes in this bill that aren’t listed in this little fact sheet,” Herring said. “We’re taxing the people of Texas $183 million. Don’t you think we ought to look at it?” Sen. Louis Crump, San Saba, ‘brought the methaneethane exemption into the open: “There is a rumor going around that the term defining the liquid hydrocarbons is different from that as in the original House Bill 11.” The Senate voted 18-13 to take the bill up at once; since two-thirds was required, the debate went over to the next day. ‘The Gimmick’ Upon the Senate’s adjournment, Rep. George Hinson, Mineola, sponsor of the Daniel gas tax, laid a copy of the Senate pipeline tax on the railing around the rotunda balcony and said: “Methane and ethanethat is your dry gas right there. There it isthat’s the gimmick!” “You mean this is a gas tax that doesn’t tax any gas?” a reporter asked Hinson. “Evidently so,” HinSon replied. At his desk, Rep. Bob Eckhardt, Houston, also entertained reporters on the subject. “Methane and ethanethat is natural gas. That’s practically all it is,” he said. “That’s like taxing water and exempting H20.” All that would be left of the gas tax, he said, would be “a little moisture and a little sulphur.” “That’s the cheapest gimmick I’ve ever seen,” Eckhardt said. The matter was discovered, the Observer understands, by Sen. THE TEXAS OBSERVER Page 2 August 1, 1969 David Ratliff, Stamford, who noticed the detail and asked Sen. Dorsey Hardeman about it. About the same time Eckhardt approached the Senate about it from the House side. Hardeman had been looking up methane and ethane in the dictionary: Eckhardt assured him they are natural gas. Eckhardt said he “had to bootout what was going on. This Hurout of Room 7,” a Senate committee room. Where had the amendment come from? Began a detective story. Hardeman had explained that Rep. Will Ehrle, Childress, had brought the amendment to him. Ehrle opposed a pipeline tax until last week, when he came forward with the 1.5 percent pipeline tax which Speaker Waggoner Carr’s . team, and this week the Senate, passed. Senators understood Hardeman to have been told by Ehrle that John Ben Shepperd, former attorney general now associated with Odessa Natural Gasoline Co. and indirectly with El Paso Natural Gas Products Co., had had something to do with it. Ehrle said: “I wrote this section. I was just trying to exempt liquid hydrocarbons.” He said he talked to Shepperd twice about “the severancebeneficiary tax as a whole” but not the methane-ethane amendment. He said Shepperd called him first, and then, on Shepperd’s request, he called him back a second time. He said Shepperd did not suggest the amendment to him, and “no oil and gas men talked to me about it.” Every ‘Ane’ Where, then, had he obtained the idea of exempting methane and ethane as “liquid hydrocarbons”? “My understanding was that natural gas is made of all of thesein gaseous form. I was trying to pinpoint those turned into liquid,” he said. Where did he get his list of elements to be exempted? “I checked the LPG code to be sure I got all of them,” he replied. \(This is tryin’ to get. There’s no argument about that at all.” Sen. Wardlow Lane, Center, sponsor of the Senate tax bill: “The drive is on to tax the long lines.” Sen. Jimmy Phillips, Angleton: “It’s aimed at the long-line pipelines.” Sen. Crawford Martin, Hillsboro: “I voted for a production tax, but the House wants it that have to run for re-election, and I’d hate for them to say, well, he just put that in there to knock that out,” \(that is, added a provision Martin said might make the Sen. Fly: “The whole thesis of this severance-beneficiary that the Governor and the AFL and the CIO have put in here” is to tax the pipelines. “You know good and well that what we ought to do is to come out with a general sales tax and let everybody pay it.” Martin offered amendments which . pro-gas-taxers believed were designed to improve the constitutionality of the bill. In general these brought the bill back into line with the House version, but in one case Martin advocated an amendment which changed the House wording. He said this ohange, too, would im Had methane and ethane been on the list? No, Ehrle said, but, he explained, “I put in every ‘ane’ I could think of.” Shepperd said from Odessa, on the methane-ethane amendment and Ehrle: “Yes, I talked to him about it. … He called and read it to me. … He called me. … Ehrle called me a couple of times.” Had Shepperd approved the amendment? “I think that it covered it,” he responded. The Observer apprised Ehrle that Shepperd said he had discussed the amendment with Ehrle. “I said I didn’t talk to him about that specific amendment,” Ehrle said. “I perhaps mentioned it to him in connection with what I personally might offer. I didn’t discuss it specifically with him in terms of what it said.” Shepperd had said Ehrle had read him the amendment, however. Was that correct? After a pause, Ehrle said, “It’s possible.” As to who called first, Ehrle said “He called me initially. I called him the second time.” Wednesday morning the matter lifted the Senate debate off the ground. Sen. Lane said liquid ethane and methane in the natural gas are “negligible.” Ehrle, on this point, had *contended that, although his definition specified only “methane” and “ethane,” he intended to designate these elements in their liquid form, since the definition pertained to “liquid hydrocarbons.” Lane said that “some of our saboteurs said this took 90 percent of their gas. … I want to stop the little saboteur that’s been going on, and that’s why I’ve put it back the way it was.” That is, Lane moved to strike out the methane-ethane exemption in the committee’s bill. Hardeman observed that a chemist had attested that methane and ethane occur in. “mere traces in the liquid hydrocarbons” but are “about 95 to 98 percent of the gas” itself. The amendment was adopted without objection. Everyone then agreed that the natural gas tax applied to natural gas. R.D. prove the constitutionality. Tongue-in-cheek, Sen. Dorsey Hardeman, San Angelo, said: “I’m gonna stay right with Daniel and Hinson. I’m not independent any more, I’m going right along with the Governor.” Fly chimed in: “I’m voting with the Governor and the CIO.” Hardeman and Fly were outvoted on this amendment, as they were on Martin’s other tightening amendments except for his last one. SEN. JEP FULLER, Port Arthur, sought to substitute the House tax bill for the Senate bill. The House bill included the reduction in the tax on sulphur companies, which Fuller had offered unsuccessfully in the Senate. In the course of his remarks, Fuller argued: “The demand is put on us almost unanimously by the people of Texas that we put on some severance-beneficiary tax on the gas pipelines. … The time has come when we can properly listen to the House.” Fly asked if the Housebill had “the same pipeline tax.” Fuller replied: “The pipelines aren’t running, senator, but you are, and I am and you know it.” All the senators quoted except Martin voted against the pipeline tax on the key 19-to-11 defeat of the tax in the Senate in June. said again the provisions were “nonseverable,” and which added that if they were invalid as to the severance-beneficiaries \(buyers of the producers. This is the clause that caused fear of unconstitutionality among the tax’s ‘supporters. The fear was any procedural invalidity might invalidate the whole tax because burden interstate commerce might show through to the courts like because of the “no fallback on producers” provision. Sen. Henry Gonzalez, San Antonio, tried to get the clause about nonseverability struck, but Lane defended his wording as “the, crux of the thing” and beat Gonzalez’s motion by voice vote. Gonzalez tried again, saying he wanted the clause written so that “if the court held a slight technicality unconstitutional, t h e whole bill won’t be declared unconstitutional.” Again the Senate voice-voted him down. The House bill exempted natural gas injected back into the earth in Texas, unless it is bought for that purpose. The Senate bill left off the “unless” clause. Sen. Martin warned this could result in unconstitutionality, because gas injected into Texas earth would be exempt, but not gas injected into Oklahoma earth, and this would be discriminatory against other states. Martin won restoration of the House wording on the various exemptions, 22-9. This started Martin’s winning streak on the issues of constitutionality. A remote kin of the Governor’s who has staunchly supported his tax position in the Senate this year, Martin objected to language he called “flapdoodle” and “dangerous” and managed, by the way, to write a separate severability clause into an important section of the tax. His final move was an attempt to reconsider Lane’s severability clause. “If you’ve got a slip of the lip anywhere in this whole bill, senator,” he said, “then the whole thing is unconstitutional.” His motion to reconsider prevailed; then he proposed that only “the tax herein” would be nonseverable. But he seemed to sense that he was losing strength on the issue. He failed to win a motion to shut off debate, 20-11. He noticed that three of the five senators who would be on the conference committee were opposed to him on the point. “Actually, we’re talking about something that you five gentlemen are probably going to knock out anyway,” he said, talking to the conferees. Quite suddenly he withdrew his substitute to the key clause. This disconcerted some of the gas taxers in the Senate; they went to him. objecting. But he stood ‘by his decision, and the Lane clause remained in the bill, which the next day passed the House unchanged. Raises Lose Several efforts were made to increase the revenues from the pipeline levy. Senator Ray Roberts of McKinney proposed a one and a half mill flat rate tax on all gas selling for less than 10 cents per 1000 cubic feet, retaining the one and a half per cent of value levy for higher price gas. “This is just an attempt to make the impact of this bill more equitable. It might surprise you to learn that a lot of gas is now going out of state for less than ten cents, some as low as four cents,” Roberts said. Lane countered that the tax would hurt “marginal fields.” In those places where the profit is very thin, it wouldn’t pay a pipeline to go to the expense of running’ a line in there if you put this tax on them,” he said. Sen. Grady Hazlewood of Amarillo also opposed the flat rate tax on the grounds that a “per cent of value tax is the only fair tax because it’s on ability to pay.” Lane’s motion to table the Roberts amendment prevailed, 19 to 12. Sen. Gonzalez then offered a tax on pipelines, graduated from $15 to $125 a mile based on the size of the pipelines. He said the pipeline companies are now “cheerfully paying this tax in Mississippi” and added, “it hits a segment of the industry not being taxed.” Gonzalez proposed that the money derived from the levy be deposited with college governing boards to be used in lieu of increasing student fees under the legislative authorization passed in the second called session. In the course of his argument, Gonzalez fired off a blast at Lane for accusing other senators of being “saboteurs” when he, Lane, had “shown contempt for the Senate.” Lane said he didn’t have Gonzalez in mind, “but if you fit the description, well all right.” Hardeman called the Gonzalez amendment unconstitutional. He read a lengthy court decision which he said held the specific language of the Gonzalez proposal invalid. Gonzalez replied, “I got the wording for this bill from the Attorney General of Mississippi within the last three weeks. I suggest the ‘senator advise the Attorney General of the unconstitutionality of this bill, just as he has been advising Chief Justice Earl Warren of late.” The Gonzalez amendment was tabled by a voice vote. Sen. Doyle Willis then tried to double the pipeline tax rate, offering an amendment levying a three per cent of value tax. He said it would yield $31.2 million over the biennium. Lane said the levy was “all out of proportion to what should be put on severance beneficiary plants in Texas.” The amendment failed, 22 to 8. Voting with Willis were Sens. Colson, Dies, Herring, Moffett, Moore, Owen, and Rob