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OFFICE OF THE ATTORNEY GENERAL OF TEXAS I AUSTIN

Honorable Wm.J. Esvaon Secretary OSState Au8 tin, Texar Dear SIra

Ueaoknovledge reoei ion OSto vhether or not The from payment OSfranohiae t of Artl.ole 7084 of the Rev1 eQby the 47th Leglrlature,

TheUnion 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

0relating to railroads; fmQeeight to lesue bonds In exceaa of lte authoriteU capital stock and of conatruating, melntaining and operating paseenger and freight eta-. tiono, railroad yards md other facilities neceesary or proper to afford mrminal faciLltiea to all railroade nov or here e&ering the City ofHonorable Wm.J. Lavaon, page 2

Dallae, Texan, and the right.to exercise a.&1other pavers nov 

### or hereafter waiferredby the Zave of the State of Texa&on terminal rsllvay compenLee and aubjeot to the provlsione of an aot8 taaeed **by** the 32nd Isgialmture af the State of +xea and approved by the Qovernor of Texas on tfLePOth day of March, 1911, relating to wharf andterminal compmnien.* The artlulea of lmorporatlckq provided for the iesutmoe of 480 eharee of stoak vlth a par value of $100 each.

OnApril 1, 1912, the terminal company, 8 railroads and Continents1 and CommerolcrlTrust and Savlqa Bank, entered Into whet ~88knownar 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 .&ndthat the rallvmy mmpanler derired, to unite Lothe eatabliebment of. joint tbrmlnal 

### pmrrcrenger faeilltles and In the cont?true$l& uld 

### Oper8tiOn of a 

### union atatlon Sor the uae of .rald reilvay aompaniee and other railvay oompanler vhioh might be admltted. That’in order to effectuate such purporea and deetie the railvay companS.eahad oaueed to be organized TheUnion Terminal Company, the et@c of vhioh vae owned60 nhmreeby each of the 8 

### railvmy companlea.

Tbfurther effectuate eaid dealrea andpwosea The Unlon Termhal Companynegotlsted a loan of $5,000,000 from the Continental end Commeroial Trurt and Saving8 BE& and exeouted bonds. and a mortgage on all property then wmed or thereafter applied to secure aald indebtedneae. Eaohrallvay oomp8ny alao agreed to and did tranel’er and aealgn to the Continental andCommercial Trust and Savings Bank, ae trustee, 5%of ite 60 aharea cif stock in TheUnion Terminal Gompenyto aeoure the due and punctual peri’ormanoe of the agreement betveen the partie@ thereto. Therailway 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

### UnionTermiMl company.

Article 7084, R,evleed Civil Statutee, 1925, Subaeotlon (a) provldee for a fianehiae tax on all domeatlo and foreigncorporation8charteredor authorizedto dobuairiese in 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, mndh8vlng no lnaome from the burlness done by them.

. . ." It her been held m8nytlmen 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 rubre@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 

### fromtustlon the exoeptlon. All perrom 

### or aorpormtlona olalmlng 8n exemption from tmxatio@ muatbring.themrelver Olearly vlthln the exoeptlon beasuoe the rtetute grmntlng ruoh exemption murt be rtrlctly oonetrued.

The feat that TheUnion Termln81 Oemp8ny18a oorporrflon orgmnlaed aa a termln81 oomp8n3need8 no dlma~rlon~

The eeoond faot to be detemlmd 18vhether & not Ifb;"Union Tersainrl Companyhas 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 

### arerequired br the 

### rulerof statutory oonstruotlon to give the term it8 aomiaon 8nd 

### ordinaryaaceptatlon.

In Volume 4, WordamndPhr88011,FlrUt Series, pegs 3504, it la stated:

"The term ~Inaome*ordln8rlly mew ithat whloh comes Into or la received. -by..- buainese 

### orInvestment of aapltal, rithout referenfae to outgoing expenditures. (".Honorable MU.J. UWMn, Ppge 4

In the oeae of Eouaton Belt andTermin Comp8nyv. Clark, 122 S. W. (26) 358, the Court of Civil Appeala, ln diaaurrring the exemption here in quaation on 8n OrgMit8tiOn 

### very similar to TheUnion Terminal Cornpang,held that:

"The etstutea used the vord 'lnoome@ or the phreae *income from bualneaa done **by** them,@ in the aenae of 8Il.y

inCOme, 6s dlMd.ngulrh6d from net Income. * Aa.heretofope ahovn The Union Termin Compmyvm; organized to aonduct 6 term&81 

### aadit h8a ereoted buildinga, treaka, aheda, eta., to 

### carryon itr tex%&81 bualneaa.



### Itappe8ra from the f8ota~ aubmltted that TheUnion Terminal Compenyh8a received lnaome frqm bualneaa dono by It. Among other 

### itemeOS 

### inoomeirthe 

### sumof 4272,671.07 total rent inoomefrom January l., 1940, to m,ember 31, 1940. There 8ri 8bJ ltema for rental of 8p8ee, rush 88 43500 from the Union Reur.Compony, 900

### frombonded Tranalt Comp8ny, @50 from Interstate Compay, 900 from Pullman Oompunysad $l200 from Da11813

### Interahmge 1 mndInspeation Bureau. It m8ybe srgued that the moneyreoolred from rental of office ap8oe la aot lnoome from bualnera done. If the moneyreoeived for rental of offloe apace la not oonaldereb 8p8rt of the revenue from thenoperation of the termlnel f6ollltier auahf8ot does not preol&@e the lnol~alon of auoh inoome be08~8 the 8t8tUte doee not 

### requ$re *8t only the moneyit reo8lvea 'from the opamtlon of the termln81 hollltlea,but fsom 8Zl~bualnear 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 tPXfor the privil6ge Ofdobualneaa, vhere income from property la the baala, muatbe 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. Suohintent Is not ahovn In the &state here under oonalderatlon.lionorable Wm.**J** Zaveon, page 5



# 6‘ It la therefore apparent th8t The Union Termin Oompanyhma Incomefrom buelneea done by It.

Uhether or not the Union Terminal Companyvae 

### 'organised for profit" present8 a more difficult problem.

The Union Termin Company~lr entitled to all of the .prlvilegee granted It 

### qnderthe etrtute vhereby It v8a lnoorpormted 8nd 18 burdened by the dutlea required of It by l8v. For lnetanoe 8lI auohtermiM1 OOI&p8Iii80 8re 88 8 m8tter of lav aoIpplon omrrlara 8nd at muchme aubjeat to regulmtlon by the Rell.vomd Uormieelon. It m8ybe requlr&d to not only furnlrh Its faaflltie8 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- 

### romdCommlaalonwould bg 8~ 8m8tter of lav; required to be rush ti 8aount~as to lnaure to The Terminal Oompeny 8 re4aonable+eturn anIts lnveatment. The rellny aomp8nler andTheUnlcinTer- ,&181 Companyagreed that the termln81 00apMy vould 8qqtIh8,’ oanetruot and operate neaesaary treeka, lmndu8nd 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 

### ofita termlxwl Seollitlea, eubjeat to aertejn c&lltlonaj to **iald** railvmy oompsniea 

### for**99 years.**  By asid.agreement the.~ 8 roilv8y aomp8nlea e8Ohagreed to p8y, seveP411$ 118th of the tiount of Interest andpx%nalple of the &5,000,000 Firit 9lortg8ge Bandaj to pay, aeverelly, l/&h of the 8mount, prlnalple 8nd lntereat, 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 operationexpenaea aa far 8a possible and th8t the remainder tiould be p8ld **by** the rallvay oomp6nleaon a monthly UeeF b8sl8.

Bat only hmrTheUnion Termln81 Compangprovided for all of ita initialooate or oapital, lntereet ah It8 indebtednearh 

### 225 .,,,.,,ii

Eonorable Wm.J. I,ayaon, page 6

and all operating expenses but it hze mzdeprovirion 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 organlzstion i& held to lnolude and cover benefit6 of every kind in exaeaa of coete or expenses, andprofit 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 ume6, Uorda **and** Phrarer, **First** 8erlez, page z$ltures. VolThe Union Temlnal Companyhaa taken care in a rather Lngeniour 

### mannerto eee that it dooe make a profit. St hamcontraated to the effect thet et sometime in the future it will .ovnp;11of ite 

### veryvaluable 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 

### $5,000,000 bond izaue to mature on

### February a;.1967. lie donot think it van the Intention OSthe Leglelature to require a termlnEi1oompzny to not makea profit on a dally, monthly or yearly bazie. But on the oontrmy that if it marvithln the oontemplation of the partlee prior to and at the time OSthe organization that a profit zhould be ma& or that the orgzulzat$on van oapzble 

### ofmeking a profit then it should not be exempt:.Rot only will TheUnion Terminal Company- zmke a very rubztantlal prof,lt but the oontemplzttion of the parties vho incorporated The Union Terminzl CompanyI.8

### very forcefully rhovn vhen they oontracted to deliver all of the aherea of etoak, exoept 2 for each railway oompzny, to the trustee noml.nated in the trust agreement of April 1, 1912, and agreed In mid agreement. 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 maybe that the tenant oompaulee (reilvay compznlea), orgaulzed the terminal compzxqto provide a convenient joint a enoy for the perforarante of certain of their dutf8s as oarrlerk!, andBonorable 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, andthe fact that It haenot done eo doee not makeIt 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 operation could result with etookholdera in other vzya than ln dlvldendr.’ Weare therefore of the opinion that TheUnion Terminal C0mp8nyvae OrgEd.Zed iOr profit.

In view of the foregoing you fuw rezpeotfully sdvlaed tlacstTheUnion Terminal Oompanylr got oxemt from the payment of frenchlee tax ae provided by Article 70SE
, Revlred Givll Statutea, 1925, 88amended.

**Youra very**  **truly ATTCBllgy** **OBBBtAL**OF

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