Untitled Texas Attorney General Opinion ( 1947 )

August 14, 1947
Hon. C. If. Cavness
State Audit or
Capitol Station
Aust ia, Texas
Attent i.ona Ron. Willl@m A. Harrison
First Asalstant
Opinion No. Y-341
Re: The basis upon which to
determine, for franchise
tax purposes, the amount
of capital stock of a
corporation vhose capita
stock has no nominal or
Dear sir: .i par value.
‘~ Youi req~uest for an opinion of this Depart-
ment’is: aa follows:
“In computing the amount. 6f ~frCiMh.ise
tax due the State by corporations. whose cap-
*’ltal stock has a nominal -or par value per
share, the total authorized capital stock,
regardless me amount actually paid in
for 881118,is used by the Xecretary of State
in detemnLning the franchise tax liability
of ~such corporation.
“In computing the franchise tax due by
corporations whose capital stock has no nom-
lnal or par velne only the amount that has
aCtI.Ialls be& paia in, which does not always
represents total number of shares author-
,ieed by the charter, is used as the amount of
capital stock for such tax purposes ana no
tax Is assessed on that portion of the author-
‘iced capital .stock~that pas not been paid as
;;,gne in cases of par value stock corpora-
.
‘>
Hon. C. H. Cavness, Page 2, V-341
2229
“An opinion is resp,ectfully requested as
to whether the amount actually m & for
shares of capital stock of non-par corpora-
tions Is the amount of capital stock on which
the franchise tax should be basea or whether
the tax should be based on the entire amount
authorized after ascertaining the value of
the unissued stock by means set forth in the
following court decisions:
Southland Ice Co. V. McChlum,
119 T. 47, 24 3. W. (2a).344
American RefinUg Co. V. Staples,
CIV. app., 260 5. ,w., 614
“Alqo please estate in your opinion wheth-
er the above referred to decisions are appll-
cable or Inapplicable to the current fran-
chise tax law. n.
The Austin. Court of Civil Appeals recently held
llu’the case of Sterling Oil & Refining Corporation v. Is-
bell, et al, 202 3. W. (2rll 300, (no writ of error applied
for] as follows:
“Its was also shown that when sala amencl-
m&t was filed with the ‘Secretary-of Sta,te
each of the 80 shares of the par value stock
80~surrendered .ana cancellea haa ,an appralsea-
cash values ~of .~$12,914;765. ~Further; %n res-
ponse to a demand .of the Secretary of State,
sala corporation filed Sts, franchise tax re-
turn for 8934 ‘showing ~Jts: capital ,stock as
being $1~,033,181.25 and :pala its .fra.nchlse
taxes for 1935 oti:th+t valuation+ For all
subsequent years, however,- its ~f.ran.chlse tax
returns showed its capital stock as $100 for
the .40.000 .&ares issued to .the 22 stockhold-
erti in’lieu ~of the ‘80~&&s orlainalls held
by them, plus the value actual3,g ;recelied for
such of the, 40.OOO~or~ized. shares as .wer
,thereETt~issued aiiGZBTC theTTc?Eie
value -vof su~h~z~n~subeequently ma
shares was not fixed la tfiZha~,ter. amendmGiiE
.Presumsm auch7Xiie~a~i5i5itthe alrec-
tops of the corporation pursuant to the pro-
visions of Art . .15,38c,- Vernon:‘s. Ann., CLv. St.
Eon. C. Ii. Cavaess, Page~3, ,V-341 ,.,,'
: In atiy evetlt, the report.inadd.bg.the cdrpora-
tlbn.t:o the ~Secretary ,of:S$ate;in~May, ~1945,
showeathat~ duri@the years 1934 to~.l942,
there.haa beecsold ati aggregate of 30,610
of.the authoidzed 40,000 shares;Ior wh,Sch
the .corporatlon h&l actually.w*ceWed ,~$25
per share."
'?he do par’ value ‘coqorat icia’wzis’~not
author&d in Texas prior to the Act of 1925.
R..‘C. Qh Arts 1538a to 153&m. That Act pro-
vides that where ~a charter, oran amendment to
a charter, 1s sought, which authqrlze the ls-
suance of'no~par value stock, the majoritg of
the dlrectors,must file with the Secretary of
are based.uljonythe 'actual consider~tlon E-
corpbratlon .for:an h
Art.~l53r d % $%?
: “’ theanchlse tax statute, provides that IFir
the purpose of computlti&the tax oft Co or=
Ens lssulti~no pr stoc~siiX -7sEiil
stoc
been ana considered as,br of the value
'2iXiZiT
.+ received -h at t e--3
time -,-
0 Bie~siZiiZ
t ereof;lnwsis adder.
The clear and unambiguous _..
aoralag.of
- - - sta-
the
tutes as set forth la the opinion of the Conrt ,or,r;lVil
Appeals, supra, requires that-,~the.franchlse ~tax to be
paid by.non-par corporatlons,be based upon the value ac-
tually .recelved by the corporations of the shares of
stock subscribed for~ana Issued.
fin the .origin@l,coalficatlon of the Revised
Civil S&tut&'~of 1925 there,was containd Article 15381,
as~f&lJo,ws:.
.~ "The amount ,~of franchise tax to be paid
by any corpotiatloa havlng shares, of stock wlth-
out noniltd 6r par value shall.be aetermlnea
in the'mantieti'as now OF hereafter prescribed
.'~ by the ~lawS.of ,thiti State, except that'such
shares without nominal or par ,value shall, for
the purpose of computing such tax only, be
” .
Hon. C. H. Cavness, Page 4, V-341
2630
treated and considered as having and being of
the value actually received by the corporation
for the .lssuance of shares as disclosed by the
charter or any amenclmsnt thereof, as provided
in Article 153&1 hereof, or by a certlf lcate
.as provlaecl ln Article 1538e hereof ;”
On February 12, 1930, the Supreme Court del-
ivered its opinion ln~ the case of aouthland Ice Company
v. McCallum, Secretary of State, 117 Tex. 27, 24 S. W.
(2&a) 344, the opinion being by Judge Crltz as Commlsslon-
er, and a&opted by the Supreme Court. This was an orig-
inal mandamus suit brought by the Southland Ice Company
against the Secretary of State to compel her to accept a
certain sum in payment of franchise taxes according to
the report submitted by relator as a non-par stock cor-
porat ion. The facts shon that only part of the author-
ized capital stock had been sold land Issued and that
the relator had pald.the.tax upon the stock so sold at
the value received by it from the sale thereof, but
that the Secretary of State haa construed the law to
be that the franchise tax~‘should be paid on both the ls-
sued ana unsold stock. Article 15381 was construed in
connection tlith Article 7084, and the Court held that
the value’ of the stock both Issued and unissued, was
subject .to be used as a basis for the payment of a fran-
chlse tax.
‘\ Thereafter, the Fifth ‘Caliea Session of the
41& Ieglslature, 1930, Chapter 68, p. 220, repealed
Article 15381 and substituted ana amenaea Article 7084,
which, after setting forth the ‘yardstick’ fo$“the com-
putation of the franohise tax as Tao otuer corporations,
contained the following methoa provided by the Lsglsla-
ture for computing the franchise tax upon no-par cor-
porat ions.
“Par the purpose of computing the tax
of Oorporationa issuing no-par value s,tock,
such stock shall be taken and conSidered as
being of the value actually received at the
time of the lssuaace thereof; and foreign
corporation8 issuing such .stock shall fur-
nish the Secretary of State mlth the same
lnformatlon now required of domestic cor-
porations issuing, such stock.”
Although Article 7084 has been amended by Acts
1931, 42n8 Leg., p. 441, ‘chapter 265, para. 1, and Acts
231
Hon. C. H. &vness,;: Page 5,~V-341 "' ,'
1941;.,47th.&eg.,:chaptel"~269, 9. 184, Art. VIII, para.
1, nevertheless thia~.provlsioa of the Act'of:the Fifth
Called Session, 4lst Lsgislature in 1930; has rendned
unchanged.
-.
Since &e'repeal dfArtiicle~l5381 as above set
forth, the aeclslons j.n the case of Southland Ice Compaq
v. McCalZum; supra, and American Refldlng Company vs.
8taplesi~260 3. W. 614,'(1924) arti~lnappli&b&e to the
present'franchise tax laws."
'.
The proper.,basls for the domputatlon of
the franchise tax paid by non-par stock cor-
.~ porations is the value actually receivea by
the corporation for shares of ~stock'subscrlbed
for ana.lssued; Articles 1538a; 1538g, V.C.S.,
Sterling Oil & Refining Corporation TV. .Isbell,
202 3. w. (2a) 300.
Yours Avery truly,
~ATTO``GRRRRALOF TRXAS
C. K. Richards
Assistant
APPROVED
clmmrj ATTORNRY
GRNRRAL