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OFFICE OF THE ATTORNEY GENERAL OF TEXAS
I
AUSTIN
Honorable Wm. J. Esvaon
Secretary OS State
Au8tin, Texar
Dear SIra
Ue aoknovledge reoei
ion OS to vhether or not The
from payment OS franohiae t
of Artl.ole 7084 of the Rev1
eQ by the 47th Leglrlature,
The Union T
Pettlbone, and other
poaea :
r the~purpore
ce ati operation of
t the City of Dalgae, :I’
country eurtiou@ing
a, ath all of the
on terniinal railveya
tutee of the stats
0 relating to railroads; fmQ ee-
ight to lesue bonds In exceaa of lte
authoriteU capital stock and of conatruating, meln-
taining and operating paseenger and freight eta-.
tiono, railroad yards md other facilities necee-
sary or proper to afford mrminal faciLltiea to
all railroade nov or here e&ering the City of
Honorable Wm. J. Lavaon, page 2
Dallae, Texan, and the right.to exercise a.&1 oth-
er pavers nov or hereafter waiferred by the Zave
of the State of Texa& on terminal rsllvay compen-
Lee and aubjeot to the provlsione of an aot taae-
ed by the 32nd Isgialmture af the State of 8 +xea
and approved by the Qovernor of Texas on tfLe POth
day of March, 1911, relating to wharf and terminal
compmnien. *
The artlulea of lmorporatlckq provided for the iesu-
tmoe of 480 eharee of stoak vlth a par value of $100 each.
On April 1, 1912, the terminal company, 8 railroads
and Continents1 and Commerolcrl Trust and Savlqa Bank, entered
Into whet ~88 known ar mn “Operating, Agreement vherein it ir
etated that mid rallvay companlee vere lntereeted in reouring
an eaommloal, efficient and eatl8faotory eyatem of handl%ng
railvay traffic vlthln and through the City of Dells6 .&nd that
the rallvmy mmpanler derired, to unite Lo the eatabliebment of.
joint tbrmlnal pmrrcrengerfaeilltles and In the cont?true$l& uld
Oper8tiOn of a union atatlon Sor the uae of .rald reilvay aom-
paniee and other railvay oompanler vhioh might be admltted.
That’ in order to effectuate such purporea and deetie the rail-
vay companS.ea had oaueed to be organized The Union Terminal Com-
pany, the et@c of vhioh vae owned 60 nhmree by each of the 8
railvmy companlea.
Tb further effectuate eaid dealrea and pwosea The
Unlon Termhal Company negotlsted a loan of $5,000,000 from
the Continental end Commeroial Trurt and Saving8 BE& and exe-
outed bonds. and a mortgage on all property then wmed or there-
after applied to secure aald indebtedneae. Eaoh rallvay oom-
p8ny alao agreed to and did tranel’er and aealgn to the Continent-
al and Commercial Trust and Savings Bank, ae trustee, 5% of ite
60 aharea cif stock in The Union Terminal Gompeny to aeoure the
due and punctual peri’ormanoe of the agreement betveen the par-
tie@ thereto. The railway companlea further agreed to pay the
intereet and principle on said bonde and on other fixed charges
and taxes in the maintenance and operation of’ The Union Termi-
Ml company.
Article 7084, R,evleed Civil Statutee, 1925, Subaeo-
tlon (a) provldee for a fianehiae tax on all domeatlo and for-
eign corporation8 chartered or authorized to do buairiesein
Texas.
Honorable Urn. J. Lawron, p8ge 3.
Subaeotlon (c) of said Article areatee 8n exemption
88 follolirI
"Provided, h&ever, thet thin article ah811
not apply to oorporationa organized 8a termln81
oompanies not organired for profit, mnd h8vlng
no lnaome from the burlness done by them. . . ."
It her been held m8ny tlmen that the fr8nehlee t8x 1s
not 8 tmx on property or lnoome, but that it lr 8 ohrrge rude
by the State agalnrt 8 oorpor8tlon for the privilege granted
to do business in the State. United llorth 8nd South l?evelo$ment
Co. ,v. Heath, 78 5. Y. (2d) 650.
But the Leglelature h8a leen fit by Artlole 7084 rub-
re@ilon (o), wpr8, to exempt thore aorpowtionfi whlahr (15 8re L
orgenlted ar termln81 oomp8nler; (2) h8ve no lneome from burlnerr
'done by them, 8nd (3) not organlred for profit.
It 18 element8ry that t8x8tlon la the gener+l ru&e 8nd
exeniptlon from tustlon the exoeptlon. All perrom or aorporm-
tlona olalmlng 8n exemption from tmxatio@ muat bring.themrelver
Olearly vlthln the exoeptlon beasuoe the rtetute grmntlng ruoh
exemption murt be rtrlctly oonetrued.
The feat that The Union Termln81 Oemp8ny 18 a oorporr-
flon orgmnlaed aa a termln81 oomp8n3 need8 no dlma~rlon~
The eeoond faot to be detemlmd18 vhether & not
Ifb;" Union Tersainrl Company has inoome from the bualnear d&e by
.
e.
The Legialatwe h88 not eeen fit to define Wh8t 10
memnt by the term "lnoome." Thet being true ve are required br
the ruler of statutory oonstruotlon to give the term it8 aomiaon
8nd ordinary aaceptatlon.
In Volume 4, Worda mnd Phr88011, FlrUt Series, pegs 3504,
it la stated:
"The term ~Inaome* ordln8rlly mew ithat
whloh comes Into or la received. -by..- buainese
or Investment of aapltal, rithout referenfae to
outgoing expenditures. ( ".
Honorable MU. J. UWMn, Ppge 4
In the oeae of Eouaton Belt and Termin Comp8ny v.
Clark, 122 S. W. (26) 358, the Court of Civil Appeala, ln dia-
aurrring the exemption here in quaation on 8n OrgMit8tiOn very
similar to The Union Terminal Cornpang, held that:
"The etstutea used the vord 'lnoome@ or the
phreae *income from bualneaa done by them,@ in the
aenae of 8Il.yinCOme, 6s dlMd.ngulrh6d from net
Income. *
Aa.heretofope ahovn The Union Termin Compmy vm; or-
ganized to aonduct 6 term&81 aad it h8a ereoted buildinga, treaka,
aheda, eta., to carry on itr tex%&81 bualneaa.
It appe8ra from the f8ota~ aubmltted that The Union Ter-
minal Compeny h8a received lnaome frqm bualneaa dono by It. Among
other iteme OS inoome ir the sum of 4272,671.07 total rent in-
oome from January l., 1940, to m,ember 31, 1940. There 8ri 8bJ
ltema for rental of 8p8ee, rush 88 43500 from the Union Reur.Com-
pony, 900 from bonded Tranalt Comp8ny, @50 from Interstate Com-
pay, 1900 from Pullman Oompuny sad $l200 from Da11813 Interahmge
mnd Inspeation Bureau. It m8y be srgued that the money reoolred
from rental of office ap8oe la aot lnoome from bualnera done. If
the money reoeived for rental of offloe apace la not oonaldereb
8 p8rt of the revenue from then operation of the termlnel f6olll-
tier auah f8ot does not preol&@e the lnol~alon of auoh inoome be-
08~8 the 8t8tUte doee not requ$re *8t only the money it reo8lvea
'from the opamtlon of the termln81 hollltlea,but fsom 8Zl~bual-
near done by the aOrpOr8tiOn. In the ueae of Potom80,glsctrlc
'.Pover Co. v. Rudolph, 29 Fed. (ad) 6226 (aertlor8rl denied, -278
U. 8. 656) the aourt arida
"There la no rule vhiah petit.0 8 aou& to 68y
that the meemre of 8 tPX for the privil6ge Of do-
bualneaa, vhere income from property la the baala,
muat be limited to that derived fmui property vhi&.
nay be atrlotly smld to be actually used in the
bualnees.'
..'
Certainly the a8m~ rule vould apply to the oonatruatlon
of 6 tax exempt atatute unleaa 8 olear l&tint to the oontrsry 18
shown. Suoh intent Is not ahovn In the &state here under oon-
alderatlon.
lionorable Wm. J Zaveon, page 5
It la therefore apparent th8t The Union Termin Oom-
pany hma Income from buelneea done by It.
Uhether or not the Union Terminal Company vae 'organ-
ised for profit" present8 a more difficult problem.
The Union Termin Company~lr entitled to all of the
.prlvilegee granted It qnder the etrtute vhereby It v8a lnoorpormt-
ed 8nd 18 burdened by the dutlea required of It by l8v. For ln-
etanoe 8lI auoh termiM1 OOI&p8Iii808re 88 8 m8tter of lav aoIpplon
omrrlara 8nd at much me aubjeat to regulmtlon by the Rell.vomd
Uormieelon. It m8y be requlr&d to not only furnlrh Its faafll-
tie8 to Rallromds vho 8re not-ovnera of its etoek, but the revenues
it, reoelvee ah811 be fixed by l&e C~eeion. Certmlnlg 8ny rate8
for the use of the fmcU.ltlee vhlah ml$ht be fixed by*the.B811-
romd Commlaalon would bg 8~ 8 m8tter of lav; required to be rush
ti 8aount~ as to lnaure to The Terminal Oompeny 8 re4aonable+e-
turn an Its lnveatment. The rellny aomp8nler and The Unlcin Ter-
,&181 Company agreed that the termln81 00apMy vould 8qqtIh8,’
oanetruot and operate neaesaary treeka, lmndu 8nd ather~termh8l
~trcrllltlea and oonetruat a pmrrrenger atetlon in order to furnleh
th6 8811~8~ ccq8nlea ln eaonomloel, efffaient and ctmtlafurtory
ay8tem of h8ndlN their peeaenger trefflo.
By the Operating
Agreement of Ap~ll 1, 19X!, r Unlon
Tsrminml.Camp8ny, ln oonelder8tlon of the rua-66 be & by the
Nllvey aompM.iea, 8greed to MQu3xe neaeae8ry reti estate 8nd
ooamtruat the neae888ry union at8tiona aa& 8180 iw8nted:the use
of ita termlxwl Seollitlea, eubjeat to aertejn c&lltlonaj to
iald railvmy oompsniea for 99 years. By asid.agreement the.~8
roilv8y aomp8nlea e8Oh agreed to p8y, seveP411$ 118th of the
tiount of Interest and px%nalple of the &5,000,000 Firit 9lortg8ge
Bandaj to pay, aeverelly, l/&h of the 8mount, prlnalple 8nd ln-
tereat, of 811 other bonds; to p8y 1/8tb of 8U ewe SoPtfre
'Le88lng or aaqulrltlon.of f8ollltlea for the uee of the rsilvey
a6mpsnlee; to pay l/&h of 811 t8xe8, rates, levieo, benefit,.,
isreesmenta 8nd other government81 oh8rges of every kindi It VI8
further agreed thrt all income or oherges vould be used to defrmy
the operation expenaea aa far 8a possible and th8t the remainder
tiould be p8ld by the rallvay oomp6nlea on a monthly UeeF b8sl8.
Bat only hmr The Union Termln81 Compang provided for
all of ita initial ooate or oapital, lntereet ah It8 indebtednear
6‘
h
225 .,,,.,,ii
Eonorable Wm. J. I,ayaon, page 6
and all operating expenses but it hze mzde provirion for the
retirement of Its bonded lndebtednesr vhlch vould at maturity
thereof leeve all of ite aasetr free of debt.
The term “profit’ az applied to a burlners organlzs-
tion i& held to lnolude and cover benefit6 of every kind in
exaeaa of coete or expenses, and profit in burinesc has been
held to include all gain, advanoe In the value of,auaeta, good
vi13 and dividende, in exceze of and beyond e z$ltures. Vol-
ume 6, Uorda and Phrarer, First 8erlez, page
The Union Temlnal Company haa taken care in a rather
Lngeniour manner to eee that it dooe make a profit. St ham con-
traated to the effect thet et some time in the future it will
.ovn p;11 of ite very valuable property vlthout a debt of zny kind.
In faot on April 1, 1942, it would have acoomplizhed thlr rezult,
iiut “out of the goodneer of It8 heart’ it granted to the railway
oompaniea on February 1, 1937, an extenzion of the time for the
payment of the 45,000,OOO bonded lndebtedneze by refundlng the
Wtidt vlth another $5,000,000bond izaue to mature on February
a;. 1967.
lie do not think it van the Intention OS the Leglela-
ture to require a termlnEi1 oompzny to not make a profit on a
dally, monthly or yearly bazie. But on the oontrmy that if
it mar vithln the oontemplation of the partlee prior to and at the
time OS the organization that a profit zhould be ma& or that the
orgzulzat$on van oapzble of meking a profit then it should not
be exempt:.
Rot only will The Union Terminal Company-zmke a very
rubztantlal prof,lt but the oontemplzttion of the parties vho in-
corporated The Union Terminzl Company I.8 very forcefully rhovn
vhen they oontracted to deliver all of the aherea of etoak, ex-
oept 2 for each railway oompzny, to the trustee noml.nated in
the trust agreement of April 1, 1912, and agreed In mid agree-
ment. that ruch trurtee would receive and oolleot all dividend*.
Mhzt are dividends if not profit.
In the eaee of Houeton Belt and TermIns Railway Co.
v. Unlted States, 250 Fed. 4, the court ssidr
“It may be that the tenant oompaulee (reil-
vay compznlea), orgaulzed the terminal compzxqto
provide a convenient joint a enoy for the perforar-
ante of certain of their dut f 8s as oarrlerk!, and
Bonorable Wm. J. Idwon, pzge 7
with no view to profit to be derived fran! ltz
organlzetlon. It VW, however, legally organized
ae a oorporat.ion oapable of earning and paying
dlvldenda to lta stookholdere, and the fact that
It hae not done eo doee not make It the leez a
oorporatlon engaged In the burlnezm and organized
Sor profit, vlthln the meaning of the corporation
tax law. .Proflt from an organleation and opera-
tion could result with etookholdera in other vzya
than ln dlvldendr.’
We are therefore of the opinion that The Union Terminal
C0mp8ny vae OrgEd.Zed iOr profit.
In view of the foregoing you fuw rezpeotfully sdvlaed
tlacst The Union Terminal Oompany lr got oxem t from the payment
of frenchlee tax ae provided by Article 70 SE, Revlred Givll Stat-
utea, 1925, 88 amended.
Youra very truly
ATTCBllgy OBBBtAL OF TFZAB
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