Untitled Texas Attorney General Opinion ( 1956 )

Aus- 1s. -lrExAs
cap BEN SHEPPERD
A-- o-
A&Ist 13, 1956
Honorable Tom Re;avley Opinton No. S-212,,
Secretary of St&e
State of Texas Rar InclusiaiopIn grdss FB-
Austin, Texas Mph oi pro’eeeds fram
t&e sale of corporate
caplkl assets ~fer. .frM-
EBIes tax purpwes mder
w Mr.- W.avley: Artlele 7084,. V&S.
_L
YOU req*st the opinion of tlrts offbe on the follov&g,.
qae$tkW
engross receipts from business Et&e. is generally
thanght af as the receipts from busine8s done m the.
c~nducf ti, Ita business gs aathoriaed~ by then charter.
One Potable example is ‘the Salemof goods,. wares ‘and
merchandise’. A cqrporation will, of, course, accamu-
late what 18 known as ‘capital assets*+; such as farmtars,
.fixtur&, automobiles, machinery and even a building
from whfch to conduct tts busmess,. Such assets are
purchased with the accumulated cash on hand or by
notes payable. The manner of purchasing, however, is
immater Lal.
)m time, the corporation might find It expedient
to dtspose of certain capital assets, elther~ by ‘an out-
right sale or exchange for other capital assets of equal
or higher value. It frequently happens that the sale
price exactly equals the cash value as carried on the
books. The .entry to ,record ‘the transaction woald simply
be to credit-the capital assets account to write Lt off
the boolcs and to debit the cash account tith a lihe
am~uiL If the assbts were sold for more than the book
valae, the excess would, presumably be credited to ‘Other
Income ‘. A loss would be charged against surplus.
“‘f&z qaestion we should lihe answered Is:
Should the gross amount received in the sale of
capital assets be Included as ‘gross receipts from bus-
iness done’ for franchise tax purposes?* <
There are no Texas cases on this point, b.ut it has been,
held in several cases in States other than Texas, that “gross
receipts- means all receipts arislng from. or growing out of,
_ Hon. Tom Reavley, page 2 (S-212)
employment of the corporation’s capital in Its designated busin-
ess or otherwise. In State v. Central Trust Company, 106 Md.
268, 67 A. 267,, 271 p907), the court said:
‘?%a courts of last resort in New York and
Pennsylvania. in construing statutes quite similar
to our own taxing the gross receipts of corporations
of designated charters, have both held that by
‘gross receipts * the statute meant all receipts
arising from, or growing out of,, employment of the
corporatian’s capital in its designated businass or
otherwlse.’ (Emphasis added)
In 14 Fletcher Cyclopedia Corporations (Perm.Ed.
1945) Sac. 6953,~ p. 646, it is stated:
*A so-called franchise tax may be either (1) a
property tax or (2) an excise tax. ~Generally, however,
the term is’ used as meaning an excise, as distinguished
from a property tax, imposed on franchises, and consist-
ing of a moreor less arbitrary sum having little or no
connection with the actual-value, although such a tax,
even when an excise, is often measured, at least to some~
extent, by the amount of property’ or earnings of the
corporation.. .., (Emphasis added,)
The franchise tax ls not a tax upon the property of
a corporation nor one ,upon its income. United North -& south
Development Co. v. Heath, Secretary of State, et al., 78 S.W.Zd
b50 ITeX.CiVd%DD. 1934. error ref.1 AS the franchise ‘& on
_-~ ~I
corporations in Texas is not Ia property tax, its would be an excise
tax.
The proceeds from a sale of capital assets ~by a corpora-
tion in Texas would not constitute gross receipts from business
done in Texas as long as it did not reallae a profit .frem the saLe
thereof. Of course, the profits, lf anyI wou,ld constitute “gross
receipts*.
In the abs,ence of Texas cases, we quote from Corbett
Investment Company v. State Tax ‘Commission, 181 P.2d 130;2,
133 181 0 ~244 (1947) in which the Supreme Court of Oregon,
in &n&r& the term *gross’ receipts? said:
ic
. . * It does not include the proceeds of the
conversion of capital assets, without gain, as in the
instant case.-
Hgm. Porn Reaviey, pfige 3 (S-212)
kSUMMARY
The proceeds ‘&ifa sale of capital assets, or
the conversion of capital assets to’ cask by a corpor-
atrOn,, wLtho& gain, does not constitute *gross receipts
fF@rn its basineas done in Texas* under Article 7084,
V.C.S.l profits from.t&e sale of capital assets would
constitite *gross receipts.‘.
Y,ours very truly,~
APPROVED1 JOHN ~BEN SHEPPERD
,Attorney .General
Wi V. Geppert
Taxation Divis ion
*m,:..~E&+F~
Elhert M. Morrow “X-I&@ Gates Steen
RevLewer Assistant
J; cl& Lkvis., Jr.
Reviewer i-!
Will D. Davis
Special RevLewer
Davis Grant
First ‘Assistant
John Ben Shbpperd
Attorney General
HGs:cs