Untitled Texas Attorney General Opinion

Honorable Ii.J. Blanchard OpiniOn NO. C- 46
Chairman, Sub-committeeon
Senate Bill 212 Re: Constitutionalityof
The Senate of The State of Texas Senate Bill No. 212
Austin, Texas
Dear Sir:
This is In answer to your request for an opinion as
to whether or not Senate Bill No. 212 of the 58th Legislature
is contrary to the constitutionalprovisions of Article VIII,
Section 2, of the Texas Constitution.
The pertinent part of S.B. 212 reads as follows:
"Article 12.03. Corporationsexempt.
The franchise tax Imposed by this Chapter
shall not apply to any insurance company,
surety, guaranty or fidelity company,
transportationcompany or sleeping,
palace car and dining car company now
required to pay an annual tax measured
by their gross receipts, or to any corpora-
tion organized as a railway terminal corpo-
ration and having no annual net income from
the business done by It, or to corporations
having no capital stock and organized for
the exclusive purpose of promoting the
public interest of any county, city, or
town, or other area wlthln the State or
to corporationsorganized for the purpose
of religious worship or for providing
places of burial not for private profit,
or to corporationsorganized for the pur-
pose of holding agriculturalfairs and
encouragingagriculturalpursuits, or
for strictly educationalpurposes, or
for purely public charity, or to State-
chartered building and loan associations;
or to any mutual Investment company
registeredunder the Federal Investment
Company Act of 1940, as from time to
time amended, which holds stocks, bonds
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Honorable H. J. Blanchard, Page 2 (No. C-46)
or other securitiesof other companies
solely for mutual Investmentpurposes
for nonprofit corporationshaving no
capital stock organized for the purpose
of the education of the public in the
protection and conservationof fish,
game and other wildlife, grass lands
and forests, or for nonprofit corpora-
tions having no capital stock organized
for the purpose of providing or operating
recreationalfacilities."
This bill with a few amendments reads the same as Acts
1907, 30th leg., 1st C.S., p. 503. The bill Is Identical with
Article 12.03, Title 122A, Taxation-@eneral,Vernon's Civil
Statutes,with the exception that the last clause of Article
12.03 as amended by Acts 1961, 57th Leg., p. 41, ch. 27, Sec. 1,
which reads as follows:
11
. . . or to nonprofit water supply
or sewer service corporationsorganized
on behalf of cities or towns pursuant to
Acts of 1933, 43rd Legislature,1st Called
Session, Chapter 76, as amended.",
was deleted and the following clause was added:
11
. . . or for nonprofit corporations
having no capital stock organized for
the purpose of providing or operating
recreationalfacilities."
Section 1 of Article VIII of the Texas Constitution
authorizes the Legislatureto impose occupation taxes, both
upon natural persons and upon corporationsother than municipal.
Section 2 of Article VIII of the Constitutionprovides:
"All occupation taxes shall be equal
and uniform upon the same class of sub-
jects within the limits of the authority
levying the tax; . . .'
36 Tex.Jur.2d 627, Licenses, Sec. 34 makes this state-
ment:
I,
. . . Moreover, any tax levied on a
corporationfor exercising the privilege
of carrying on Its business must be classed
as an occupation tax. . . .'
40 Tex.Jur. 82, Taxation, Sec. 53 provides:
I,
. . . The occupationtax laws Include
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Honorable H. J. Blanchard, Page 3 (No. C-46)
a tax of one per cent. of the products of
. . . a corporate franchise tax, . ~ el'
Both of these Texas Jurisprudeneequotations cite as
authority the case of State v. Galveston, H, &,S. A. Ry. Co.,
100 Tex. 153, 97 S.W. 71 (1906) The Supreme Court in this
case had before It the constructionof an act of the 29th
Legislature,&an. maws 1905, pe 336, c. 141, the caption of
which reads as follows:
"An act imposing a tax upon railroad
corporations,the receivers thereof,
and other persons, firms, and associa-
tions of persons, owning, operatfng,
managing or controllingany line of
railroad fn this state, for the trans-
portation of passengers, freight, and
baggage or either, equal to one per
cent. of their gross receipts, and
providing for the collectionand pay-
ment thereof, and repealing the existing
tax on the gross passenger earnings of
railroads."
The Court in its opinion had the following to say:
t,
. * D Since a corporationcan carry
on no business except that for which it
holds a franchise from the state> it
follows that any tax levied upon a
corporationin this state for exer-
cising the privilege of carrying on
its business must be classed as an
occupation tax under OUP Constftutfon,
0 . DII
The United States Supreme Court, 210 U.S. 217, reversed
the decision of the Texas Supreme Court, but only on the grounds
that it was a burden on interstate commerce and did not change
the ruling as to the constructionof franchise tax being an
occupation tax. Texas Jurisprudence,Taxation, Section 40,
supra, also cites the case of State v. Texas 8eP. Py Co.,
100 Tex. 279, 98 S.W. 834 (3.907). In this case the Supreme
Court cited the Galveston case, supra, as authority in con-
struing the same tax statute.
The Court in the case of Millers" Mut. Fire Ins. Co.
v. City of Austin, 210 S.W. 825 (Tex.@iv.App.1919, no writ
history), cltefihe Galveston case, supra, as authority for
their holding, In which they had the following to say:
"The tax provided for in the law of
1903 is undoubtedly a tax allowing mutual
insurance companfes to pursue their business
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Honorable Ii.J. Blanchard, Page 4 (No. C-46)
in Texas, an occupationtax, and it is
not an ad valorem tax on property."
The statute under constructionin the Millers' Mutual
case, supra, reads as follows:
"Each and every mutual Insurance com-
pany operating under this act shall pay
to the Insurance commissionerannually
on the 31st day of December, one-half
of one per cent. of all the gross pre-
miums received during the year, and no
other tax shall be required of such
mutual insurance companies, their
officers and agents, except such fees
shall be paid to the commissionerof
insurance as Is required by law."
All of the tax statutes referred to in these three
cases cited above are gross receipts taxes or a tax based on
the amount of business done by the different corporationsand
are not franchise taxes within the meaning of the franchise
tax as used in Senate Bill 212, supra, here under considera-
tion. A corporate franchise tax Is a tax on the privilege of
doing business and Is due whether or not the corporationdoes
any business and is not a tax based on the amount of business
done by the corporation.
Although the Courts made the statement In the decisions
above cited that the franchise tax is an occupationtax, In
reality, there was no franchise tax Involved In such cases and
the statementsof the Courts amounted to dictum and should not
be regarded as controllingthe question before us at this time.
The franchise tax Is not an occupationtax within the
meaning of Article VIII, Sections 1 and 2 of the Texas Consti-
tution, as construed by Attorney Qeneral's Opinion No. V-1027
dated April 3, 1950, a copy of which Is enclosed herewith, and
as interpretedfor many years by the LegislatureIn allocating
the funds derived from franchise taxes. The Legislaturehas
consistentlyallocated the franchise tax to the General Revenue
Fund. If It is an occupationtax, one-fourth of such revenue
under the Constitutionwould have to be placed In the Available
School Fund. Section 3, Article VII, Constitutionof Texas.
Moreover, the Secretary of State, the Comptrollerof Public
Accounts, the State Treasurer and the Attorney General for a
long period of years have uniformly and consistentlycon-
strued the franchise tax as not being an occupationtax.
The Supreme Court of Texas in speaking of departmental
constructionhas stated:
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Honorable H. J.,Blanchard,Page 5 (No. C-46)
"This long-continuedadministrative
constructionis entitled to great weight,
especially In view of the fact that the
statute was amended as late as 1943 and
the Legislature,whfch is presumed to
have been aware of the interpretation,
made no changes fn the language that
would indicate a contrary intent."
Burroughs v. Lyles, 181 s.w.2a 570
‘(1944).
The franchise tax is not a property tax within the
terms of Section 2 of Article VIII of the Texas Constitution,
but is an excise tax levfed on the privilege for the corpora-
tlon to do business in Texas.
. of the opinion that since franchise
We are . . taxes
. .are
not occupation taxes nor property taxes, tnen the provlslons
of Section 2 of Article VIII do not apply to this law.
Since this bill classifiesdifferent types of corpora-
tions, the question arises as to whether or not it 1s contrary
to other provisions of the Constitutionsuch as due process or
equal protection of the laws.
There are many Texas cases fn which the courts have
held that the Legislaturehas authority to classify different
types of business for purpose of taxation so long as the legls-
lation is not discrfminatorynor arbitrary as between the same
or like classes of business.
In the case of Hurt v. Cooper, 130 Tex. 433, 110 S.W.2d
896, 901 (1937), the Court In speaking of a greater tax per
store on chain stores than on individual stores pointed out:
quantity buying, ability to pay cash and receive discounts,
skill In buying, warehousing,and distributionfrom single
warehouses, capital, unified advertfsing9 superior management,
standard form of display, concentrationof management in spe-
cial lines, and standardization. These distinctive features
were held to beginterrelatedand interdependentin the chain
store business.
In the opinion in Hurt v, Cooper, supra, the Court
said at page 900:
"That is a definite holding that mer-
chants may be divfded into classes and
the classes taxed in different amounts
and according to different standards;
that the aonsfderatfonsupon which such
Honorable H. 3. Blanchard, Page 6 (NO. C-46)
classlflcationsare based are primarily
within the discretion of the Legislature;
and that courts can interfere only when
it Is made clearly to appear that there
is no reasonable basis for the attempted
classlflcatlon. If there is a reasonable
basis or, to express It differently,If
it cannot be said that the Legislature
acted arbitrarily,the courts will not
Interfere. Mere differences In methods
of conducting businesses have long been
recognized in this state as sufficient
to support the classificationof mer-
chants for the purpose of levying occu-
pation taxes. For instance, our sta-
tutes (see article 7047, as amended
Vernon's Ann. Clv. St. art. 70471)
fevy occupationtaxes on Itinerant mer-
chants and peddlers. The difference
between their occupationsand that of
an ordinary merchant Is not great, but
It would hardly be contended at this
time that It is not sufficientto sup-
port a separate classification."
Mfference in profits derived, In extent of consump-
tion of articles, and other conditions that might be.supposed,
can properly be taken into considerationby the Legislaturein
making classificationsand In determiningamount of occupation
taxes to be laid on each.
The mere fact that discriminationIs made in classi-
fications for occupation taxes proves nothing against classl-
fication which is not on Its face an arbitrary, unreasonable
or unreal one.
The Court in rendering Its opinion in Texas Co. v.
loo wx. 628, 103 s.w. 481, 484 (lgO7), In which
an o jection was made that a statute discriminatesbetween
=%-
persons pursuing occupationswhich belong to the same claea,
said:
. . The very language of the Consti-
t&ion of the state Implies power In
the Legislatureto classify the sub-
jects of occupation taxes and only
requires that the tax shall be equal
and uniform upon the same class. Per-
sons who, in the most general senae,
may be regarded as pursuing the same
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Honorable H. J.~‘Blanchard,
Page 7 (No. c-46)
occupation,8.9,'for Instance, merchants,
may thus be divided Into classes, and
the classes may be taxed in different
amounts and according to different
standards. Merchants may be divided
Into .wholesalersand retailers, and,
If there be reasonable grounds, these
may be further divided according to
the particular classes of business in
which they may engage. The considera-
tions upon which such classifications
shall be based are primarily within the
discretion of the Legislature. The
courts, under the provisions relied on,
can only interfere when it Is made clearly
to appear that an attempted classification
has no reasonable basis in the nature of
the businesses classified,and that the
law operates unequally upon subjects
between whlch'there is no real difference
to justify the separate treatment of them
undertaken by the Legislature. . 0 .'
In Rx Parte IZay,76 S.W.2d 1.060,Tex.Crlm. (1934),
ADDellant was convicted on comolalnt of not having license
for coin-operatedhandkerchle'f-vending machines. -He claimed
that Article 7047A-1 was violative of Article VIII, Section 2,
In that it was not equal and uniform because pay toilets and
drinking cup vending machines were exempted. He also com-
plained because the tax on marble machines was greater than,
and measured bx different standard than "other similar amuse-
ment machines. Relief was denied.
We quote from page 1064:
. . . businesses of the same general
class may be properly subdividedor
reclassifiedwhere reason exists
therefor. Particularattention Is
called to this because there are
commoditiesand commodities,amuse-
ments and amusements, services and
services;and, if reason exists there-
for, the Legislaturemay subdivide or
reclassify commodity vending machines,
service vending machines, and amusement
vending machines. In Quong Wing v.
Klrkendall,223 U.S. 59, It Is laid
down that a state enactment may make
dlscrlminatlons,if founded on dlstlnc-
tions not unreasonableor purely arbl-
trary."
-210..
Honorable H. J. Blanchard, Page 8 (No. C-46)
That the Courts have nothing to do with the policy,
wisdom, expediency or propriety of legislativeenactments Is
almost a maxim. Ollre v. State, 123 S.W. 1116 (Tex.Crlm.
19091.
We are of the opinion that In compliancewith the rule
laid down In the above cases, the Legislaturehas authority to
classify the various types of corporationsfor franchise tax
exemptions as provided In S.B. 212 and that It Is not In con-
flict with Section 2 of Article VIII of the Texas Constitution.
We are further of the opinion that since the classificationis
a reasonable one and cannot be said to be discriminatorynor
arbitrary, It is not In conflict with any other provisions of
the State Constitution.
SUMMARY
Senate Bill No. 212, 9th Legislature,
does not violate the provisions of Article VIII,
Section 2, or other provisions of the Texas Con-
stitutlon.
Yours very truly,
WAGGONER CARR
Attorney General of Texas
H. Broadhurst
JHB:pw
Enclosure
APPROVED:
OPINION COMMITTEE
W. V. Qeppert, Chairman
W. 0. Shultz
Bill Allen
Arthur Sandlln
APPROVED FORTHEATTORNEY QENERAL
By: Stanton Stone
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