-.
OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
OtUl.0 0. HAllW
*1101*mvOUfuL
Hon. George H. Sheppard
Comptroller OS Public Aooounts
Austin, Texas
Dear Sir:
hlch you ask whether,
frsporting goods~
6 Gocds Com,r,anyis a
ts” stores owned an6
ogeratea by !Yilscn s separate ,from said ohain
OS “mceii gTdLlC%S’~
vhat Wloon L CO., Inc., Is
833 of preparing, pociring
that it ov!no m&a operates
said products ar8 sold and
hin the meaning OS the “Chain
Co. is enother
athletic equipment
and it ovme and operates in Texas
one “store em is dofimd in tho “Chain Store Tax
e sold. Fifty-five
tlng Goods Co. is
olqned by 5llson 8: Co., Inc.’ There Is no other oonneotion or
relationship betweea the two oorgorations.
Your question is~ whether all of tho stores of said
two corporations constitute one single chain or the stores OS
one corporation are a separate ohain Srom those of the other
corporation.
Hon. George 8. Sheppard,, page 2
The Texas “Chain Store Tax Statute” was paessb as
Eouse Bill No. 18, 44th Legislature, 1st Called Session,
Aots 1935; and it is codified as Article 11116 of Vernon’s
Annotated Penal Code. ‘It provides that every person, oorpora-
tlon, etc., shall pay a license fee on every store they operate,
and a schedule of lloense tees is prasorlbed whereby the greater
the number of stores operated,tha larger is the amount per store
that must be paid. For example, ii only one store is operated
the license tee is one dollar ($l.OO), but if six stores are
operated by the same parson the license fees total one hundred
and thirty-two dollars ($132.00), and if twelve stores are
operated by the same person the lloense rees total six hundred
and thirty-two dollars ($632.00). Seotion 6 of the Aot pro-
vbies :
“The provisions OS this Act shall be construed to
apply to every person, ogont, receiver, trustee, rim,
oorporatlon, copartnership or assooiation, either domestlo
or foreign, which is controlled or held with others by
majority stoolc ownership or ultimately oontrolled or
aireated by one management or assooiatlon of ultimate
management .‘I
Section I OS the Aot provides:
“The term ‘store’ as used in this Act shall be oon-
strued to mean and lnoludc any store or stores 0r any mer-
cantile establishment or establishments not speoifloally
exempted within this Act which are owned, operated, maln-
tained, or oontrolled by the s3me perscn, agent, receiver,
trustee, rim, oorporation, copartnership or association,
either dome&lo or foreign, in which goods, wares or
merohandise OS any kfnd are sold, at retail .or.wholesale.*
Ke believe your question is controlled by the oase of
H. E. Butt Grooery Co. v. Sheppard, 137 S. ;!i. (Zd) 823 (writ of
error refused), in whioh the Court of Civil Appeals at Austin
held that In a case in which two corporations eaoh owned and
operated grooery stores and the same person owned a majority
of the stock in eaoh of said oorporations all of the stores
owned and operated by both oorporatlons oonstituted one single
chain by,virtue of said stoek ownership. The court saib:
-.
Hon. George H. Sheppard, page 3
*Sod. 0 was manifestly intended to prevent large
chalnc~ of storea, which receive the benefits flowing
from such system (considered and enumerated in part by
the U. 3. Supreme Court in State Board of Tax Com’rs.
v. Jaokson, 283 U. S. 527, 51 S. Ct. .540, 73 I.. Xd. 1248,
73 A. L. R. 1464, 75 A. L. R. 1536, and in Eurt v. Cooper,
130 Tet. 433, 110 S. W. (26) 896, sustaining the validity
of the Act as oonstitutlng a reasonable olasslfloation),
from ciroumventlng the tax burdens imposed under the Aot,
by organizing separate corporations to operate them, the
oapital stook or whioh, or a msjority of it, being owned
by a parent oorporation or holding company, or by an
individual or assooiation of individuals. Thus through
a oommon management or control over a number ot individual
units or oorporations th’3 clear puqose of the law vrould
be defeated. . . .
“* . . The ownership by Butt or S3$ or the stock in
one corporation, and of 755 of the stock In the other,
gaVe him such unified control of both corporations, through
suoh stook ownership, as to bring the stores owned and con-
trolled by such separate corporations under the provisions ,,_.._
of tha Aot; and required that they be treated as one ohain
for tax purposes.”
There ara no words in the statute which lndlcnta that .-
the Legislature intended that Soations 6 and 7, as oonstrued by
the H. 3. Butt, Grocery Co. aaso, should not apply just as
strongly to stores selling differen’: types of merchandise as
they do in a 08s~ where all of the stores sell the same kind of
merchandise. In the H. E. Butt Grocery Co. oaae the stores of
both or the corporat:ons (of ivhioh the majority stock of eaoh
was owned by the same person) sold grooeries, but we think the
rule’would be the sanm it the stores of one corporation sold
groceries and the stores ot the other corporation sold an
entirely airferent type 0r g00a0.
In the case of State Board of Tax Commissioners v.
Jackson, 283 U. S. 527, 51 6. Ct. 540, 75 L. Ed. 1248, the
Sugreme Court of the United States upheld the oonstitutionallty
of the Indiana chain store tax law, which is almost identioal
with the Texas “Chain Store Tax Statute.” xhe Court upheld the
statute wherein it levied a larger tax per store on large ohalns
than it did per store on smaller ohslns or on persons owning
only one store, beoause there Is a difierenoe in suoh stores.
The Court said:
Hon. George H. Sheppard, gage 4
n there are msny points of alfrerenoe between
ohaln it&i* and inaepsndently owned unlt6. These oonsiat
in quantity buying, whioh involves the applioation of the
mass prooess to distribution, oomparable to the mass method
used in production; buying for oash end obtalniw the
advanta&?e-of a oash discount; skill in buying, so as not
to overbuy, end at the 880.0 time keep the stores stooked
with produots suitable in size, style and Quality ior the
neiahborhood customers who patronize them: warehousinu of
goods and alstributlng from-a single warehouse to k&rous
stores; abundant supply. of capital whereby advantage may
be taken of opportunities f or asta lishment of new units;
a prloing and-sales poiioy difforsnt from that of the -
individual store, involving slightly lower prioe>s; a greater
turn-over, and constant analysis of the turn-over to asoer-
tain relative profits on varying iterrs; unified, and there-
fore cheaper and better advertising for the entire ohaln in
a given locality; standard form of display for the promo-
tion of sales; superior mrhna.$,sxentand nethod; concentration
of manafiement in the suecial lines of goods hsndlad bv the
ohain; special aooounting methods; staZdardizatlon or-store
macazement, sales policies and goods sold.” (undersooring
ours) ‘i.,
:,,
Xe recognize that such *ldifferencesW In respect to
stores in large ohains do oat exist to as great an extent where
the stores in tho chain do not all sell the sama kind of mer-
chandise as exists in a Case where all of the stores sell identf-
tally the same kind of oorunaaities, but dome or said edifferencese
exist. ?:a believe enough of staid “d-es” exist to sustain
the constitutionality of tha Act whan it Is construed so as to
place “sporting good&stores nnd “meat proauotfP stores in the
sore chain by virtue of ,said stores being controlled by the same
%a jority stook ownerahign. Even though the stores’ sell alrrerent
kinds 0f merchandise, the follows “aifrerenoes” exist: “buying
for cash snd obtaining, the ,advantage of a aash disoount”; eabun-
dant sqqly OS oapital”; snd *superior management and method”,
In the Oase of Uhamplogment Compensation Commission v,
City Ice & Coa1.06.,2U 1:. C. 6, 3 3. X. (2d) 290, the Supreme
Court of North Carolina upheld a provision in the North Caroline
Unemployment Co5pensatj.on A.ct similar to Sections 6 end 7 in the
Texas Vhaln Store Tax %a$\;te”, and ‘held three corporations .
Eon. George B. Sheppard, page 5
(of which the majority stock of eaoh waB owned by the e~eme
group Of persons) to conetitute the aame uait within the
meaning and purposes of the Aat; and in that oase two or the
three corporations engaged exclusively In the buying and
sell& of lee end ooal, end the.other oOrporntlOn haqdled
only dairy produota.
Our answer to your questions le that all of the Stores
of said two corporations, towlt, eaid “sporting goods” store
and said *meat produots” stores, constitute one single ohaln
under the TeTae “Chain Store Tax Statute.”
. Yours very truly *
kTSID~%Y.G~RAL OF TEXAS
Ceoil C. Roteoh
Assistant
CCR:AbU
1
APOVEDEOV 13, 1940