\. ”
OFFICE OF THE ATTORNEY GENERAL OF TEXAS
Hon. :':ldfmySathan
~~0~0tm-y or state
AUl&lll( Tax88
Dwr 31s I Attantloo:
t3430uftt
r0r the
80 tax roporta riled r0r
f000ftb 0r m6,935.94 88
y rtoolc,but wea not rhown a8 tarablo
.irios auostionlag the w~ilroe or tli0
out the ra0t that th 00rp0di09
f its mm oapltal rtook at lers than
rglq, the oapltal #took aoaount 1~1ththe
par ralu0 roprosontod by' the numbor or 8bror ~urchaard
end oradltl3g 'Resarve r0r Proat on Trtamry SOOk'
with the dliirrrnoe betwreo the mr Value and t3a atzount
paid thercro?. TLls rwwltsd In reduolng the aapltml
8tOOk lo o o untto ?l,O2l,800.00 rOr belanoe rhret pu~pO801',
3ldIlsy Lathaa, pago 2
lndlaatlrrg a parohaao Of $228,200.00par lal~r, atook,
but at a dtaoount 0r :106,935.9~, 08 the Qtserv~ r0r
Profit on Treasury 3took’ rweala. Siuao the oapltal
#took oannot bo deoraaaedexorpt by oharter amndaent
h o wo loth r rlorporatloncomputedarid paid the franohiae
taaen ke full UaoUnt Ofluthorlrod and paid in oapltal
.
“Thla depart&withas mlr amresmantr or rddltlonal
tax08 for oath of the lboia a~ntlonulyoara baaed upon
the 4106,935.91 reaorve upon thm theory that thl6 ooa-
rtltutro a danatoe rurplua aad hnblr fee irMOhlar tax
pUtpOSM# Th oorporatlon ha8 protestedthe aaaa8ar-onta,
ooatanding that thr rs-•oqulnd rtoek rhould bo rooog-
nlo o 8 l brlq only or ths value ykld thorerorand set
u&a Oh6 bOOiC* lOOOtiiB&. Thla roul4 allminato the
rwmve loeount, but the amount sot up on the ass&
rida as trt3a8urf atook uoula aot repneont the ralur or
tb rtoak rroa a par Wuo lteadpolnt.
*mx~ fbn aooouatloe etandpplnt, in order to rOri80t
the lotual otidltlong or olroumteaosa lnrolrsd la the
pwohalo, the par TalUe Of the 8toOk re-aoquired lhoUld
bo 8bt up or,the saaet sldn, oash orsdltebwith the
puroharoprior w4 the dlaoouafahown as a otadlt on
the llablllty aldo.
*In the 11&t 0r the raota &On, ~0~16 p4
rdvira ua on the r0imii~ qusatloal
*Is the 418oount at uhloh a oorporatlontrown
oapltal rtook la re-aoqulnd throuigh a oaah pruoheao
rurplurfor sranrhiao%x pUrpoaer7
"Your anewer to the above as 80011 as the raOllltlO8
or your orrloe r&l1 pmmlt will bo lppreolatad.’
Artlols 7084, Vernon18 AnnotatedCivil Statutes,
as anended,imposes a rranohlaetax baaed upon a stated pro-
ding oapltrlatosk, rurplua end undlll4ad
ty bondr, notes and dobon-
A Oolutlw of YOOr probl a la aaoortalnlne tha
0oeA idhod or ooapotx -the outdandlng eapltal atook
rurplua and undltld84 proi3 to* of the oorpomtlon ln questfan.
,
._
2s 1.
.\rtlo:o
1332, Veroon’a AnnotatedCivil r;tatuteb,
orto forth tha statutory romalltlrr for a droraaao or
~pltol otook b l lorporutlon, la ld rO~fitalltlO8 inoltidlng
lfrlrmtite got ion b #l twa-third0 lot8 of outatradiag
otOOk a04 the rilingwith the a* rotorf or istate or oartala
~mmtlon rumorted by lfrlea+ f $
And It is yell lttlad that the term ~~outotaad~x
oa p& l
a+ook;‘
i * aa woe in r~~ohi00 tar rtatutoa, lnorudoo
atook, usually tortsod%rwoury atook,” laauod aad tb.ossarter
rtaoqulrod by oorporatlono,where the rtatutory rormalltloa
to ‘drorcaaa eapltal atook hare not bean oomplledw1t.h.
~nlokcrbookor~ ImportatloaCo. 1. Etato Board of Aooeaaora,
65 A. 913, i.,!-.A. (r:.3.) 885 (!:ebJeraoy Court 0r Errors
aad rppoed.83 8 I;ocg 1. re~ia&ger, 174 5. E. 820 PIa.) state 1.
~tWA?t BI'OO. COttOA CO., 190 SO. 317 (La.)& GOidstein-
firsberg Co. Board of Aaaraooro, 83 A. 773 (Kow
'I. Sets
Jrrroy %QWSO VlllOaAcOU?t)l
:;hoola,1110. 1. %WtiA, State
Tax Comlaaloaor 179 A. 620 (Now Joraoy 3u-roma Cou.rt)$
&rg v* fntmmtloaal Sliver Co., il F. (2df.147(Sooond
CirOUit cOU?t Of App~&o).
This rule hno boon hold to be lpplloablo oven
;fft&3 SOrpOSAtiOA hAS~A0 ht6AtiOA Of OVSr l’Si8SUi~ th0
. State 1. Stewart Bras. Cottoa Co., aupra.
It rollosra tscn that, ror oomputatlonof tho
franohlartar, ths corporation*8balanor sheet should show
loutataadlng oapltal otook~ la the auia0r $1,2S0,000.00,
that b&n& tho ariount loaumd and outstanding rior to tha
pureharm oi the treaaur~ stock all4 Ml8 rem i?
na trUa until
thr oor;>oratlon porronnothe aLtutory foraalltlrafor l
dooreaao oi its oapltal atook, a8 grorldodin Artlol@ 1332,
wra.
thlifIg d.teTdWd that tb. OOrpOl%tiOa'r
p ur o h a lwt pm0 of ita awn atoak dwa not dooreaao the
*outatandbg oapltal rtook* for franohlaa tax purposoa,
ii ~a. nott to a ooruldoratlo. of tho oifoot of the
purohaao on the balaaoo ahma 1torJ of “aurplua.” The
o r p lta l
ltruoture o f a o0rpor8tlOa, lno a a 4 lng o uta ta nQlng
oepitala to a l r~lum,
k , undlvldod proilto, lto. on whloh
tho fnnohlw tax lr bmod, appear. la tho llobfllty
portloo or tb Wanaro ahoet. Thm pr4ptm aoooimting
uthod ior trqnahira tu ~oaoa of hand&g this purohamo
of tho traaaury atorr tr the oorpontlon bcooaor relatively
mimglowhen wo oonaidor that tho authorltlostnat auoh
ro-aoqulrodor.tredary rtoak am an “araot”of the oorpora-
~~~:~~~:t,“~~~~~~~~.~~.~~~~:~l~k~- ’
(2d) Gs @alla. CQUZt of Civil Appeal., no l
t
;po.lod’ti*
Supromedourt)t Rlldobraacl“Tax..Corporetlona,”Vol. 2
ll0 Sorg t. IntornatLal Sliver Co., 11 I. (26) li3
e.g.0
PDlat. C1 New York) afflrued ll F. (2d) 147118 C. J. 3,:
l
page 645 &oo. 2111 Thoin~aon on Corporatlona, 3rd .xd.,
SW* 4dr r. ~.
Thoreforo,the purcham or the treasuryatook
rholfldbe raflootodon the balacoe shot ilks the purahass
of any other aaaat. Rut the queatlonlmmdietely arlara:
Yhat raluatlonla to bo plaoed on thla asset? 18 It to bo
rat at par ~aluo of the stook, or at the prlos paid theraior
by the eorporatlon, or at vme other i&are? The amount oi
ti11 bo dfeotod by the valuation plaoed on thla
8u.rplu.a
WOO&.
Bery oorporatlgnla reqtirad to dko a morn
mpozt k tha Sroratary or 3tata iuinuallp oontaln* a
balanooahoot, and maid report la rrqalrad to list tho
lo.ah value” oi all groaa aaa.ta of (rho Oorporation. Art.
7089,R* 8. An4 the E;eerata~ of SW&o nqdre the
oorporatien’a 0m00rs to adnit adlltlo 3 lnr9raatlon
under oath, an,4 ant11 he 1s fully latlsiied therofma a8 to
tho wnount or rurplua and undlrldod protltr, ha naod not
looopt tha ixwioblae tax. Artlola 7087, 11. 5+
It moat be borne la mind, bouw~z, that it 1s
not the Boorotary or S-to mso flxaa the “cm&h vtiuo* of
the aaaota of the oorporatlaa, whioh go into the balahoo
shoot to old in dotarmining Cho awant ol naurpluaand
Undivided prolit..’ *Tha rot nahora luthoria*atha
.
253
BW. sldnoy latham, Pw* 3
y laaoo* Ibo tu.
fb o r j~a rto It reqUlre8 the taxpayer to
18 on a ooroaan krla an4 to dlaoloaothr taota~~oaatl-
utbg tho baalo in a rrport to the Sooratary. St 18 true
ey
. . . thr taluo of la w#r *bore a lurploa otiata lniolro
diapufablofaotr, but authority la glran to no offloor to
lo r r a o tth o
fl6uror ragorted. Tho lddltlonal lnformetlon
rrqulred in tha Ngulu raport or obtriard br aflldatlt
under Art10107067 or ochorwlaoply bo aaoiul to indaoo a
true nport or to r0u0d a proro6utlon ror falao awoarlng
in nltlng aa uatruo one , . . . If booauaaof a dlaputo otar
rurp1.u~ ho rrJoot8 tho .%a~, the Attorary Oeooral mot rllo
rult Sor Its oollaotloaunaor Art1810 7095. Proaumbly In
that rult a full boarlne rhould bo had am to the rnattwa
la dlaputo. * Southom Realty Co. v* h%Callam,65 F. (2d)
934, oertlorarl donled, 4 S. Ct. Rap. 127. 90s aleo Unltsd
Sorthand South Devalopcwnt CO. t, Keath, 76 S. >‘.(2d) 650,
errorrof use&
Aooordlng~y,tha 4orporatlonbalanoo ohoot sboula
rsfloot tho purohaao OS tho treasuryatook as an rrohangr
of aaaotar To lllurtratw Ii tho lorpontlon 4atormlno4
that tbo *oaah veJue* or the *took purohaaedwas tho prloa -
fur wkloh it us8 ra-eoqillred trar?tl!n ltookholdrr,the ltelc
%roaaury atook” should be listed as an aaart ln auoh amount;
and tba Item“oaah,’aasualng It was a oaah purahaao,should
lm lyedlted for the sea amount. This would loate the ltos
“aurplua~ umhawvd. On the other hand, ii the oorporatlon
should dotemine that the “oath vdluon of sold StOOk was par
or aqy other sum largerthan the amount aotuallypaid tkiorefor,
the treasuryltook lhoul4 be listed as an asset or suoh value
as ao doterinodt oath u8uld be orrdltod for the prloo pold;
oad thr dlffenaao, roprraeatlngthe profit mar&a on the
doal, would ba rbdod to rurplua or an4ltldod proittr. Con-
veraolr,ii tho oorporrtloa rboald value aald rt06k at loam
ttnn the p~ohaa~ prloo, ntl~oUng a loam uI *em*, troaury
rtook would bu llatod as an wart at auoh tPluo( oarh would
be orrdltrdfar the prloo paid1 and the dlfSrroeoo or 1088
would bg applied es 4 rodwtlon oi lurplw.
Our anuuor’,theroioro, to your quo8tion la that
the ltieot of the treasury ato& pumhaao br the oomoratlon
on thinltm of “aurplua*Oopondr lntlroly on tho %aab voluo”
or auoh St&ok urllod at as huelnabo+mret rorth. ::o
:-ruggoat t&at YOUlell on tho offloera of ma14 oorporatloo
l# ruthorltodby Art. 7 087, lupra, iox whatever addit&&
l,nforratlon you MY need la ardor that the tax msr bo oom-
puted in aocordanoowith thla opinion.
Tours rory truly
ATl'ORRI;Y
G J&E!:.;;.
Cr;T:.?.&