Untitled Texas Attorney General Opinion

Mr. Robert S. Calvert Opinion No. C- 86
Comptroller of Public Accounts
Austin, Texas Re: Whether 100% of the ren-
tal receipts received by
a corporation, for the
leasing of equipment, is
Ybusiness done In Texas”
regardless of where they
are used, for purposes
of the allocation for-
mula In Artlole 12.02,
Dear Mr. Calvert: V.C.S.
You ask whether all of the rentals received from the
leasing of trucks, automobiles, tow boats and barges regardless.
of where they are in fact used and receipts from the operation
by the owners of tow~;boats and barges is “business done within
Texas” for purposes of computing the franchise tax pursuant to
the formula In Article 12.02, Vernon’s Civil Statutes, Taxatlon-
General. I
To quote from your statement of facts:
1) “. . . the principal business activity
of the corporation . . . is leasing auto-
mobiles and trucks. The corporation leases
its equipment on a monthly rental basis
plus a fixed charge per mile. The auto-
mobiles and trucks are used In this state
as we13 as In other etates under the same
lease contract. The leasing corporation
does not appear to require that the equip-
ment be used In any particular state. The
corporation has its principal place of
business in Houston and apparently the
lease contracts are executed In Hou*ton.”
2) ‘I. . . principal business activity is
toperation and leasing of tow boats and
barges.’ . . . the corporation deter-
mines Its gross receipts from business
‘done in Texas’ by determining the number
of ‘log days in Texas for barges rented

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Mr. Robert S. Calve&, Page 2 (No. C- 86)

to others under bareboat charteys.’ The
corporation includes its receipts for the
days logged outside the State of Texas as
business done outside Texas. The charters
were executed In Texas .and the barges were
delivered to the lessees In Texas.
The assessment of ad valorem tax on thi ’
tow boats and barges Is made In Harris
County, Texas. ”
The applicable statutory provcilon is:
Article 12.02 -
“Each corporation liable for payment
of a franchlie tax shall determine-the
portion of Its entire taxable capital .
taxable by the State of Texas by multi-
plying same by an allocation percentage
which shall be the percentage relation-,
ship which the gross receipts from Its
business done in Texas bear to the total
gross receipts of the corporation from.
its entire business.
“For the purpose of thle Article, the
term ‘gross receipts from its business
done in Texas I shall include:
“(a) Sales of tangible personal pro-
perty located within Texas at the time
of the receipt of or appropriation to
the orders where ahlpment is made to
points within this State;
“(b) Services performed within Texas;
“(c ) Rentals from property situated,
and royalties from the use of patents or
copyrlgt@s, within Texas; and
“(di All other business receipts within
Texas.
The original allocation formula In Texas (Texas Session
Laws, 1917, 35th Leg.9 p. 168, Ch. 84) was passed to remedy the
unoonstltutlonallty of an unapportioned franchise tax on all of
the capital stock of corporations which did most of their busl-
ness outside of this state. See Looney v. Crane Co., 245 U.S.
178 (1917). The validity of the predecessor to the present
*,.
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Mr. Robert S. CalVert, Page 3 (No. C- 86)

statute was announced In Ford Motor Co. v. Beauchamp, 308 U.S.
331 (1939). See generally, Texas Legislative Council, Staff
Research Report, A Survey of Taxation in Texas, Part IIB,
pp. 209-68 (1952).
No case Involving a rental situation has been found
under the Texas franchise tax statute. The United States
Supreme Court has distinguished between using property in
interstate commerce and furnishing labor or capital to another
who may operate outside of the taxpayer-lessor's state, the
former being "Interstate" and the latter "intrastate".
Sound Stevedoring Co. v. State Tax Comm'r., 302 U.S. 90 ?%!I
(sup lying 1ongshoremen with t di tlng or controlling the
work7 ; Williams v. Fears, 17$"U.S.rE;0 (1900) (hiring laborers
In Georgia for employment outside that taxing state). Accord,
Superior Oil Co. v. Miss., 280 U.S. 390 (1930) (sale with
mlndlfferent knowledge" of extra-state use).
It has been held that the numerator of a similar allo-
cation formula was "intrastate" business. E.g. Pacific Express
Co. v. Seibert, 142 U.S. 339 (1892). In a case Involving a
sale th Texas court said that "business done in Texas" meant
"businezs begun and completed in Texas , and not business begun
in Texas and completed in some other state or foreign nation,
or vice versa. In other words, that it means Intrastate busl-
ness." Clark v. Atlantic Pipe Line Co., 134 S.W.2d 322, 328
(Tex.Civ.App. 1939, error ref.). A8 stated'in an Attorney
General's Opinion, it is "business originating in and con-
summated in the State of Texas and that business originating
in the State but ,consummated outside the State would not be
construed as businesa done in Texas." Attorney General Letter
Opinion, Book 368, P. 804 (1935). See Flowers v. Pan American
Refining Corp 19 S.W.2d 982 (Tex.Clv.App. 1941 , error ref.);
Attorney Gene& Opinion No. R-936 (1947); Attorney General
Opinion No. WW-1503 (1962). But see Ramsey v. Investors
Diversified Services, Inc., 248 S.W.2a 263 (Tex.Clv.App.
952, error ref. n.r.e.) (facts of each case control). *
The facts reveal no action by the lessors outside of
Texas. It appears that the lease 'contract was "begun and con-
summated" wholly within Texas. There Is no evidence of an
agency relation by which the lessee's operations outside of
Texas could be attrLbuted to these lessors.
The 1959 revision of the franchise tax statute lntro-
duced the first legislative definition of "business done within
TeXaS ' which, It has been said, was not intended to change the
scope'of the prior formula. Texas Research League, The Alloca-
tion Formula of the Texas Franchise Tax, p. 6 (1960). However,
none of the prior authorities dealt with a "rental" situation

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Mr. Robert S. Calvert, Page 4 (No. C- 86)

which Is now treated distinctly in section (c) of the statute.
A separate section (a) applies to "sales".
To answer this request it is necessary, therefore, to
analyzi the "ordinary signification" of the words wiizh regard
to the context In which they are used. Art. 10, section 1,
V.C.S.
Vernonls Civil Statutes, Article 23 defines terms used
throughout the statutes: "The following meaning shall be given
to each of the following words , unless a different meaning Is
apparent from the context: 1. 'Property' Includes reaa and
personal property, and life Insurance policies, and the effects
thereof." Because no contrary meaning appears, the equipment.
here is "property" as used lti the Franchise Tax Act.
The word "situated" has been construed to refer to
rules governing taxable "situs". E.g. Great Southern Life
Insurance Co. v. City of Austin, 112 Tex. 1 243 S W 778
1922); City of Fort Worth v. Southland GreGhound &ies, Inc.,
?d'$61
The general rule for establishing the situs of tangible
personal property Is stated in the maxim 'mobllla sequuntur per-
sonam"; personal property Is domiciled where the owner is. 51
Am.Jur. Taxation #448-62.(1944). Chemical Express v. City of
Roscoe. 310,S.W.2d 694 (T~x.C~V.ADD. 19%. error ref.). The
coroor, &ions here appear to have their-charter and princlpil
business offices in Texas, which factors fix one's taxable
situs. Northwest Airlines, Inc. v. Mlnn., 322 U.S. 292 (1944);
Chemical Express v. City of Roscoe, supra.
Property "permanently" located In another state con-
stitutes the primary exception to the general rule. "Perma-
nence" may be evidenced by continuous location, business
sltus or by sufficient average presence in another state to
establish kitus In such other state. Northwest Airlines,
Inc. v. Mlnn., supra; State v. Crown Central Petroleum C0.9
42 S W 2d 457 (Tex.Civ.App. 1951 f ) See City of
DalIa; ;. berton, 363 S.W.2d 821'(~~?&?A~p: 1962 error _
ref. n.r.e.); Attorney Qeneral Oplnlon'No.'V-373 (1947).
Neither ground for the exception appears from the facts pre-
sented. The lessor has the burden of proof "to show that the
property was not taxable In this state," North American Dredging
Co. of Nevada v. State, 201 S.W. 1065, 1.067 (Tex.Clv.App. 19181.
One additional factor pointing to this result Is the ;
word "use" to designate which patents and copyrights generate

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 . I

Mr. Robert S. Calvert, Page 5 (No. C- 86)

royalties constituting "business done within Texas". The
careful statutory distinction between the terms "use" and
"situated" in section (c) suggests the Interpretation
developed above.
Such a "situs test" for Intrastate business Is con-
sistent with the goal of exclusivity sought by the federal
constitutional cases which require allocation formulae In
state taxation. Standard Oil Co. v. Peck, 342 U.S. 382 (1952).
Other jurisdictions have reached similar results In
analogous cases. Union Tank Line Co. v. Day, 143 La. 771,
79 So. 334 (1918);Woods v. Oklahoma Tax Corn m1n.j 196 6kli.
94, 162 P.2d 875 (1945 distinguished In Inlse, 201
Okla. 395, 206 P.2d 21 '(1949); People v. m Rer,7 N.Y.
443, 112 N.E. 181 (1916). Compare Commonwe;mv. American
Bell Telephone Co., 129 Pa. 217, 18 Atl. 12 2 (ltrtlg) with
Commonwealth V. National Cash Register Co., 271 Pa; 406,
117 At1 439 (1921) S 1 State v. American Refrigerator
Translt'Co., 151 Ark. 5EJa2iY S w 76 (1922) But
of Cincinnati v. Commonwealth, 242'Kan. 597, i67 S.W%
Tl9431.
The facts do not show that these lessors performed any
services with respect to the rental equipment outside of Texas.
Therefore, all rental revenue (monthly rental and
fixed charges per mile) derived from the automobiles, trucks,
tow boats and barges is "gross receipts from business done
within Texas", regardless of where the lessee~may use the
property.
The operation of tow boats and barges by the owners
outside of Texas does not produce "gross receipts from busi-
ness done in Texas". Clark v. Atlantic Pipe Line Co., 134
S.W.2d 322 (Tex.Civ.App. 1939, error ref.).

SUMMARY
All rental revenue (monthly rental and
fixed charges per mile) from property situated
In Texas, Is gross receipts from business done
In Texas .regardless of where the lessee uses
the leased property.
 Mr. Robert S. Calvert, Page 6 (No. C- 86)

The operation of tow boats and barges
by the owners outside the state does not yield
gross receipts from business done in Texas.
Yciurs truly,
WAGGONER CARR
Attorney General of Texas

Assistant Attorney General

RGA:pw
.
APPROVED:
OPINIONCOMMITTEE
W. V. Geppert, Chairman
Marietta Payne
Dudley McCalla
J. S. Bracewell
Joseph Trimble
APPROVEDFOR THE ATTORNEY GENERAL
By: Stanton Stone

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