Untitled Texas Attorney General Opinion ( 1986 )

The Attorney General of Texas
April 17, 1986
JIM MATTOX
Attorney General
Supreme Court Building Honorable Bob Bullock Opinion No. m-478
P. 0. Box 12546 Comptroller of Public Accounts
Austin, TX. 78?11- 2546 L.B.J. Building RI?: Application of the franchise
512/475.2501
Austin, Texas 78711 tax to "oil exchange" contracts and
Telex 9101574-1367
Telecopier 5121475-0268
"oil matching buy-sell" contracts
Dear Mr. Bullock:
714 Jackson, Suite 700
Dallas. TX. 75202.4506
You ask about the meaning of "gross receipts" for purposes of
2141742-6944
calculating the franchise tax.
4624 Alberta Ave., Suite 160 Texas imposer, a franchise tax on every corporation that does
El Paso, TX. 79905.2793 business in Texas OL- that is chartered or authorized to do business in
915/533-3464 Texas. Tax Code 5171.001. In most cases, the amount of franchise tax
P
a corporation must pay is based on the portion of the corporation's
1 Texas, Suite 700 taxable capital that is allocable to Texas. Tax Code 8171.002. To
“ouston. TX. 77002~3111 determine the'portion of a corporation's taxable capital allocable to
7131223-5886 Texas, “the corporsttion'stotal taxable capital [is] multiplied by a
fraction, the numczator of which is the corporation's gross receipts
from business done! in this state and the denominator of which is the
806 Broadway, Suite 312
Lubbock, TX. 79401-3479
corporation's grorm receipts from its entire business." Tax Code
6061747-5236 §171.106. Gross receipts from business done in Texas is determined as
follows:
4309 N. Tenth. Suite B
McAllen. TX. 76501-1065
The fi;rossreceipts of 8 corporation from its
5121662-4547 business done in this state is the sum of the
corporatLon's receipts from:
200 Main Plaza, Bulb 400
San Antonio, TX. 76205-2797
(1) each sale of tangible personal property
512/2254191
if the property is delivered or shipped to a
buyer :inthis state regardless of the FCE point
or anvther condition of the sale, and each sale
An Equal OppOrtUnityI of taa:piblepersonal property shipped from this
Affirmative Action Employer state to a purchaser in another state in which
the seller is not subject to taxation;
(2) each service performed in this state;
(3) each rental of property situated in
this state;
p. 2187
Honorable Bob Bullock - Paga 2 W-478)
(4) each royalty for the use of a patent or
copyright in tbts state; and
(5) other business done in this state.
Tax Code $171.103. Gross receipts from an entire business is
determined by a similar formula:
(a) The gross receipts of a corporation from
its entire business is the sum of the corpora-
tion's receipts fmm:
(1) each sale of the corporation's tangible
personal property;
(2) each service, rental, or royalty; and
(3) other business.
Tax Code 5171.105(a).
Your question is whet'ner proceeds from "oil exchange" contracts
and proceeds from "oil matching buy-sell" contrscts are "gross
receipts" for purposes of sections 171.103 and 171.105 of the Tax
Code.
You describe "oil exchange" contracts as follows:
Oil exchanges typically occur when an oil
company needs a certain grade cr type of oil in a
location where t!leyhave a refinery or customer.
The company will find another oil company that hss
the product it ncsds and [will agree] to exchange
the product barrel-for-barrel. A dollar value is
assigned to the oil exchanged, and the difference
is periodically paid in cash.
You describe "oil matching buy-sell" contracts as follows:
Under an 'oil matching buy-sell' contract, one
oil company will agree to sell a certain amount of
oil to a seconi. company. The second company,
correspondingly, .will agree to sell the first
company a like amount of oil. These agreements
are entered into for the same reasons as 'oil
exchange' agreements.
You tell us that since 1972 you have not included oil received in
an exchange as a part of ",3:cossreceipts" for franchise tax purposes,
p. 2188
i
Honorable Bob Bullock - Pa::e3 (JM-478)
but that you have always included amounts received under 'oil matching
buy-sell" contracts as part of 'Igross receipts.' Recently several
companies have complained about your treating exchanges differently
from sales made pursuant ':o"oil matching buy-sell" contracts. Con-
sequently, you ask how you should treat proceeds from each of these
types of transactions.
We think that you hsve been treating cash proceeds received by a
corporation pursuant to au "oil matching buy-sell" agreement properly
for purposes of sections 171.103 and 171.105 of the Tax Code. For
purposes of both section l'rl..103
and section 171.105, 'gross receipts'
are "the sum of the co~loretion's receipts" from various business
activities, including the sale of tangible personal property. Oil
that has been recovered is tangible personal property. Sabine
Production Co. v. Frost Nzc_ionalBank of San Antonio, 596 S.W.2d 271
(Tex. Civ. App. - Corpus Christ1 1980, no writ). There can be no
question but that cash proceeds from the sale of oil are receipts from
the sale of tangible pe%onal property and includable in 'gross
receipts" under sections 171.103 and 171.105. You suggest and we
perceive no basis for ex::Luding cash proceeds from receipts under
section 171.103 or sect,ion 171.105 simply because the seller
corporation is selling pursuant to a contract whereby each party is
selling property to the ot.her. If the legislature wanted to exclude
proceeds from this type of bilateral sale from gross receipts, it
could have done so expresr,ly. Therefore, you have .acted properly by
including cash received under "oil matching buy-sell' contracts ir.
gross receipts.
An "oil exchange' agrc:t:ment
and an 'oil matching buy-sell' agree-
u.ent contemplate essentis.lly the same transaction. The exchange
simply eliminates the step %n which each party pays cssh to the other.
Apparently, your office has concluded in the past, hcwever, that
non-cash property a corporstion receives in exchange for its tangible
personal property does nN)t constitute "receipts' for purposes of
sections 171.103 and 171.105. In other words, your office has
apparently been interpreting the word "receipts' to mean cash receipts
only. Webster's Ninth New Collegiate Dictionary defines 'receipts' as
"something received." (Sac
.-- definition of "receipt.") Although
"receipts' might mean cash receipts in certain contexts, we do not
think it can be read so narrowly in this context.
The Texas Legislatur':has expressly limited the definition of
"receipts" in at least two instances in which it intended to limit the
kind of proceeds that were 'cobe included in a particular calculation
of receipts. First, in former article 3926, V.T.C.S., the legislature
used the term 'actual cash receipts' in setting out the commission
that executors, administrat,ors,or guardians could charge on amounts
they received. Acts 1876, at 284, repealed by Acts 1971, 62nd Leg.,
ch. 714. §I, at 2351. Srcond, for purposes of the Limired Sales,
p. 2189
?
Honorable Bob Bullock - Page 4 (``-478)
Excise, and Use Tax Act, the basic definition of "receipts" is "the
total amount for which a taxzblc item is sold, leased, or rented."
Tax Code 5151.007(a). However,, the legislature expressly excluded a
number of items from the deii,nition of "receipts," including "the
value of tangible personal pro?arty taken by a seller in trade as all
or part of the consideration for a sale of a taxable item." Tax Code
1151.007(c)(6). In sections 171.003 and 171.005, in contrast, the
legislature did not limit the hcope of the word "receipts" in any way.
Also, in Eppstein v. Stat':,,
143 S.W. 144 (Tex. 1912). the Supreme
Court considered whether "groE,sreceipts" from sales for purposes of
sn occupation tax statute included only cash received during a certain
period or whether it also inc.ludedaccounts payable accruing during
that period. The court concluded the gross receipts included all
sales, whether for cash or on credit. In so holding the court wrcte,
"[nlo significance arises from the use of the word 'receipts' as
indicating cash in the connection in which it is used." 143 S.W. at
146. The policy reasons for including accounts receivable in receipts
for purposes of the tax in question in Eppstein are probably not
applicable in this case. It is significant, though, that the court
found that the word "receipts" was not synonymous with "cash
receipts."
Finally, because the receipts in question here are receipts from
sales, we think it is instrcctive to examine how the courts hcve
interpreted the word "sale." In Ullmann v. Land. 84 S.W. 294, 295-96
(Tex. Civ. App. 1904, writ dil,m'd),the court adopted the definition
of "sale" set out in Tiedeman ou Sales:
Although it has been sometimes held that the sale
must be a transfer for money, and that every other
transfer is an exc'iange or barter, the better
opinion is that the transaction is still a sale,
although the transfer is made for something else
than money, provide'1 each article is transferred
at an agreed or the market value, 50 that the one
thing is received in payment of the price of the
other.
In McKinney v. City of Abilene, 250 S.W.2d 924, 925 (Tex. Civ. App. -
Eastland 1952, writ ref'd n.r.e.), the court applied an even broader
definition of sales:
Although there is a technical distinction between
a sale and an exchange of property, a sale in its
broadest sense comprehends any transfer of
property from one person to another for a valuable
consideration.
p. 2190
Honorable Bob Bullock - Pal+ 5 (JM-478)
If a sale includes an exchange of property, then the property
received is necessarily "rweipts" from a sale.
Therefore, absent any legislative expression of contrary intelit.
ve must conclude that ycu should Include the property received in
exchange for a corporatiox's property as 'lreceipts'l for purposes of
sections 171.103 and 171.1(15of the Tax Code.
SUMMARY
The Comptrollm of Public Accounts must include
as "receipts" for purposes of sections 171.103 ar.d
171.105 of the Pax Code property received by a
corporation in exchange for -tangible personal
property of the corporation.
/ veq.zh
JIM MATTOX
Attorney General of Texas
JACK HIGRTOWBR
First Assistant Attorney Gmeral
MARY KELLER
Executive Assistant Attormy General
RCBERT GRAY
Special Assistant Attorney CIeneral
RICK GILPIN
Chairman, Opinion Comaittec!
Prepared by Sarah Woelk
Assistant Attorney General
p. 2191