E ORNEY GENERAL
June 27, 1961
Honrqble P.~ Frank Lake Opinion No. ~~-1080
Seqretary of State
Austin, Texas Rer Whether bonuser reoeloed
by a oorporatlon aa
aoneideration for the
execution of mineral
lease8 oonatitute surplus
for purposele of calcu-
lating the franahise
tax levied by Chapter
12 of Title 122A,
Dear HP. Lake: Vernon’s Civil Btatuteu.
Your office hae requested an opinion 88 to
whether boausea received by a corporation a8 conridera-
tion for the execution of mineral leases constitute
surplus for purposes of aalculat$ng the franchise tax
levied by Chapter 12 of Title 122A, Vernon18 Civil
Statutes. You have informed ue that theee bonuses
constitute more than 90 per oent of the receipt6 of the
corporation in question, and that the corporation oon-
tenda that they should be treated as a deferred credit
pending a final determlnatlon of the nature of these
receipts.
More particularly, the corporation contende
as follows: The mlneral interests ouned by the corpora-
tion and constituting the subject of the leasee in
question are thue far nonproducing and thus unproven*
If these Interests prove produative, the bonuses already
received will be treated a6 an advance royalty, con-
stituting income. If not, upon reversion of the leases :
to the corporation the bonuses (after Federal income ’
taxes) should be treated aa reimbursement to the corpora-
tion for damage to its non condemned mineral ititerest8,
to be credited against the cost of those interests, thus
reducing the amount of such cost required to be written
off by the corporation. Consequently, the corporation
aques, the bonuses should properly be oarried as a
deferred credit until the contingencies just set forth
have been resolvedJ so carried they would not constitute
income and thus could not constitute surplus.
Honorable PINFrank Lake, page 2 (~~-1080
There are undoubtedly good reasons why the
accounting treatment of these bonuses by the corpora-
tion should be as the corporation contends, an objective
of accounting being to provide an accurate matching of
aost and income. The objective of applying the franchise
tax statutes, however, is to effeotuate the intent of
the Legislature, which was to levy a tax for the’prlvi-
leae of dolna business In Texas “commensurate with’the
value of the ,privilege granted . . . ” United-North
-I- ~~~-
& S6uth Development Co,v. Heath, 78 S:W.Zd 650 (C3.v;
App. Austin, 19341,err. ref. This application therefore
Is- bound neither by, the technical usages of the terms
of the statute (including the term “surplUsn:) ~mdlaarlly
employed In accounting, nor by the treatmentafforded
an item by the taxpayer oorporatlon eon Its books.
United North & South~ DeveloDment Co, Y. Heath, su Pa;
lieOOlorado:inlwz.28!t--,- -- ._ -~
was-intended, .foP examplea that the jtate
“look to the property owned .by
the corporation and available
to it,. ?or use during the ‘.:,‘,~.
enrming year 2’; carrying on its
businees .,.,’
regardless of how the items in question should have
been or were In fact recorded by the company for its own
purpoaem, etioe auah property is an important determin-
ant of the value to the company of .itsprivllege of
doing business in Texas.
In the present case the amount of the bonuses
in question has been Peaeived by the. eerporatlon, and
from, the time of ~!cticeJpt has been avallable to Che
corporation for, Its exoLua.iae use and w3ntrol. Accord-
ingly It is our opinion that such bonuses sonstitute
surplus, as that term Is used in Chapter 12 of Title
122A, Vernon’s Civil Statutes. The fact just noted
we feel is sufficient to distinguish this case from
that of unrealized profit6 from installment sales, which
we have held not includable within surplus or undivided
profita for franchise tax purposes. Attorney General’s
Opinion of April 30, 1934, Book 3 p. 952; Attorney
General’s Opinion No. V-774 (1949
Ronorable P. Frank Lake, page 3 (WW-1080)
Bonuses received by a COP-
poration as consideration
for the execution of mineral
leases constitute surplus
for the purposes of caloula-
tin@; the franchise tax levied
by Chapter 12 of Title 122A,
Vernon's Civil Statutes.
Very truly yours,
..~
WILL WILSON
Attorney General of Texas
8&Y
Assistant
LH:lgh
APPROVED:
OPINION COMMITTEE:
W. V* Geppert, Chairman
Marvin Brown, Jr.
B. H. Titnmins, Jr.
Houghton Brownlee
REVIEWED FORATTORNRYGENERAL
BYr Morgan Nesbltt
.