OFFICE OF THE AITORNEY GENERAL OF TEXAS
AUSTIN
Rosorsble Ceo. U. Sheppard
Conptroller of Public Accounts
Austin, Texas
Dear Sir:
This is in answer to s to whether or not
astsfie Tire and Rubber Con under the law for a
in store tax on places of tidg under what is called
restone's Budget Plan
e us Firestone Tire
nufactures and sells at
is purchasing and selling to the
merchandi3ing, developed and as improved and recomended
fron time to tize by Firestone known a3 Firestone's Bud-
get Plan.
"NOW, therefore, ‘in considerstion of dealer purchas-
ing End Daintaining a Stack Of Fire3tone prO6UCtS for re-
sale by dealer an2 in csnsiderstion of the lrutual covenants
hereinafter contsired, it is hereby aSreed between the
partie hereto a3 folio?;::;:
.
n. G;o. 9. Sheppard, Pase 2
“8irestone ~111 forthvyith ::&e known to an.3 rec.:iL-&end
to dealer it’s current plan and method of &erc:andising
by tine paynent, kno*;ln as its Budget Plan and will from
tili;e -to tize kee? dealer advisad of im2rovezent.s therein
developed by Firestone;
“Firestone will likevise select, and recoasnd for hire
by dealer a rerson trained in solesnanship unier such .
Budget Plan &d corpetent in Firestone*; opiniz to con-
duct and Esnage for dealer. sales of Firestone Products
by dealers under such EMget Plan.
“Dealer qrees to adopt and en>loy the :tisrchnndising
ffiethods of such Budget plan in dealers sala of Fire-
atone product.s frsrr. such c’ealers stocks and agrees to
hire and’ take into dealers eqloy the person so recoc;-
*mended by Firestone and place bin in charge of the
installat,ion and ~p.,~
*“ation of such Budget Plan and depart-
ment for dealer in dealer’s place of busines , . .n
“This agreer,ent shall becon, = effective on the date hereof
and shell continue in force until canceled or terminated
by either party on 30 days written notice, by rgisiered
nail, registery receipt requested to the other of its
intention to cancel e
*In the event of any violation of the terzs of this agree-
ment of either party hereto, the party hot in default may
-notify the other in writing and if such default or violation is
not corrested in 5 days after the receipt of said notice,
the party not in default Eay at its option terminate this
: agreement within 10 days after the receipt of said written
notification to the party in default.”
The Chain Store Tax law of Texas is House Bill No. 18,
Chapter 400, First Called Session, 44th Legislature, Acts 1935, [now
Codified as Article lllld of Vernon’s Annotated Pens1 Code). It
provides for certain prescribed license fees to be paid on stores,
end reads in part as follows:
“Sec. 2. Any person, apent, receiver, trustee,
firm, eorporation, association or copartnership desiring
to operate, maintain, open or establish a store or nier-
cantile establishment. in this State shall apply to the
Comptroller of Public Accounts for a license so to do.
. . .
“Sec. 5. Every person, agent, receiver, trustee,
firm, corooration, associatisn or copartnership opening,
establishing, operating or mnintaining one or Icore stores
or mercantile establishments within this State, under
the sarre general zanagezent, or ownership, shall pay the
X;;;“,e fee. hereinafter pr escribed for tha nrivilage of
c establishing operatin. or maintaining such stores
‘0;. s!ergintile estebli&mants.n. . .
.
“Sec. 6. The crovisi.Xm sf this Act shall be
construed to apply t,o every person, agent, receiver,
trustee, fir=, corporation, copartnzrship or associs-
tion, either do:aestic or foregin, w:lich is controlled
or held wit.h others by 2ajorit.y stock ovmershi~ or
ultimately csrtrolled or directed b; one zsnaaazent
or association of ultizste nanage~ent,
“Sec. 7. The tern cstore’ as used’in this Act shall
be .construed to mean and include any store or stores or
any slercanti:e estsblishent or est.ablis&ents zot spaci-
fically exempted wit.hin this Act which ar;t owned, operated,
Eaintained, or controlled by the sa%e person, agent, re-
ceiver, trustee, fir=, corpora;ion, copsrtnershlp or associa-
tion, either domestic or forelin, in which :7oods, wares
or merchandise of any kind are sold, at retsil or whole-
sale .”
It is apparent. that the answer to the question involved
t-rein depends on whether or not Firestcne Tire and Rubber Co.-;?any
WcontrolsW the stores in questi&. We b.:lieve everyone concemed
~111 ad&it that the places of business operated by the dealers, in
which t.ires tubes and other merchandise are sold at retail, are
stores within the definition and nzaning of the statute.
In the case of State Board of Tax Co@dssioners v. Jack-
scn, 283 U.S. 527, 75 L. Rd. 1248, in which the constitutionality of
tte Indiana chain store tax law was upheld, the Suprecle Court of the
United Stat.es pointed out the ear-marks of chain stores, as Pollov~s:
“These consist in quantity buying, which involves
the applicatioc of the siass process t.o distribution,
comparable to the mass method used in production; buyirg
for cash and obtairling th e advaatare of a cash discount;
skill in buying,~ so as not to overbuy, and at the sane
time keep the stores stocked with products suit~able in
size, style and quality for the oeighborhcod customers.
who pat.rsnize then; r,arehousing of goods and distributing
frors a single wareh:use to nuzerous stores; abundant sup-
ply of capital, whereby advantage cay ba taken of oppor-
tunities for establishment of new units; a pricing and
sales policy different from that of the individual store,
invalviag slightly lovter price;; a ‘greater turn-over, ahd
constsnt analysis of the turs-over to ascertain relative
pfofits on varying items; unified, and t.h:.refore cheaper and
- .
2~s. (30.. H. Sheppard; page 4,
better advsrtisinC for the’e’ntire chain In a river, local-
ity; stondord forzs of display for tie pm;ztion of sales;
i superior zamisrent a~:? rYathod~; concentration of crsnige-
; uent ih th- special lines of g,oc?s handle.3 by t.hs chain;
special accounting cethods; stacdardization of store cans-e-
1 Ir;ent, sales policies’and goods sold.
“The appellants’ evidecce indicsted t.hat all of these
f advs ntages are Interrelated and interdependent In the chain
store business. . .*I
1
ir 13 the case of Fox v. Standard oil Co:G:any, 294 E.3. 87, 73 I.. Ed.
: 7d0, the Suprene Court of the United States, speakii?g through
: Justice Car9020, upheld the csnstituti?nality or the ‘Zest Virginia
; chain store tax law and said:
‘“The opinion in Jackson’ 5 case enurier:2’:3s s33e of
s the advantages of chai2 store operation, and finds a
sufficient basis for tsxing chains differently fro3 Stores
separately omed. . .
Ye have here abundant capital; standsrdizatioa in
~equiwent and displsy; superior mnazeme3t; zore rapid
turnover; uniformity in store rian3:zc:xt; special account-
ing fiethods; and a unified sales policy coordinating the
; diverse units ,”
t. Ih,ose features coffie into existence as a natursl result of a central
i control of a group of storm. They are the outgcwth of unified
ccntrolo v;here those ear-siarlks are found you may expect tb find a
i central control. Ze have a situation in the case under cocalders-
1, tion in which those features can very easily be brought Into exist-
,: sate, if they are not alr*eady in existence.
A reading of the contract shot-s that Fir,sstone Tira and
. Rubber COmpaay controls the dealers in question. It says: “Firestone
; ‘till . . . select and recomend for hire by dealer a person t mined
in sales;ianship . . . and competent in Firestone’s opinion to conduct
snd rasnage for dealer sales of Firezone products. . . Dealer agrees
i to adoptnd e-ploy the &erchsndislsg zet!lods of such Budget Flan
. ,and agrees to hire . . . the person so recsmended by Fire-
itine and prace bin in char2.e of the operation of such Xdget Flan
%d departgent for dealer in destercs place of business . . .n
;&is clearly a11oj13 Firestone Tire‘ aiid Ru‘:ber Coi!:.:any to pick a
:?n and require the dealer to put him in charse and control of the
d-,le of merchandise. That is just the same as if Firestone Tire
:nd Rubber CoKpanv had put him in charge directly. As we view
it., it makes no difference th-it this c;3n in chezge is theoretically
:zployed by and v;srklng for the desler, because tie h3s been selected
-7 Firestone Tire and Rubber Cos&pany and. his ezl~lsymnt depend.5
b ::c. Ges. I-?.~Sheppard, ?aCe 5
1
5~ ,.
-;;n t::z col.;pany;; Will. Eis actions are as mush under the csntrol
-? tne company as t.hs act,ion s sf a toy zechanicsl jumyinc-jack are
i:,:er the control of’ a child vrh,o ov:ns 3ach en intoresting toy, -rith
..T.? exception that tke child sson tirss of his jumping-jack but the
:;;pany will constantly be on the alert in watching the man in charge
:f the dealer’s bausiness. And when this man ir. ch:zrge of the dealer’s
:l;in?ss direct; the activities affectin: the sale of this merchan-
;:
.-se, it constitute:: Fir--&one Tire and Rubtr Comp.>ny being in
ii:‘ect control.
As we under stsnd the rcts the -dealer’s business consists
;rimsrily of selling tires, tubes and "uta supplies at retail;
i.:d the contract recites that the “.desler is nurchssinz and sell-
:r.g, tz the trade Rrsst:one tir3s, tubes, batt-riss and auto
i::rplies and sther Firestone prducts .* The Fix.ttsne Tire and
l&bor Csmp.eny has such a qqcontrolW thr?t it could, snd~ 2robsbly
ides, sell tires, tubs3 and other products in the dealer’s plnce of
t~sinzss as effectively ss if it diractly owned the place.
The& are no Texas appellate court cases on this question
.*
s_ control in chain store oreinizaiis:s, but there ar-3 a few c:~ses
in other jurisdictions that sh+d scme light on the subject. In the
:ase of Gulf Pefining Comp.?ny v..Fox, 11 Fed. Supp. 425, the court
:Jnstru?d the provisions concerning “control” ir. the ;‘:est Virginia
:&in store tax law, which are the s%e as the Texas chain store tax
!Z*X, and, after considering the m,lnaC;szent and lease contract; in-
Mved in that case, said:
“It may be conceded that it does not exercise full
control ovar all of the actions of the dealers in a
strict legal sense, but its actual control is so effective
that little room is left for independent action on their
part, v;hile full enjoyment of the advantages inherent in
a chain store system on its part is ensured. Adequate con-
trol over the operating methods of the dealers and of the
retail prices of the goods is secured by the right retained
by the csmpany to cancel the license ageement and to put
an end to the business relations between the Parties: . .
It 13 of little moment to the ccpany whether the legal
title to the good; resides in it or passes upon delivery
to the dealer; . . .”
-f think that that lsn,cuace fits the case under c.onsiderition. Cther
:3S33 that shed some l