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 -204- 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 -205- 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 -206- 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: -207- 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 -209- 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 -211-