OFFICE OFTHEAITORNEY GENERAL OFTEXAS **AUSTIN**

Rosorsble Ceo. U. Sheppard Conptroller of Public Accounts Austin, Texas
Dear Sir:

This is in answer to astsfie Tire and Rubber Con in store tax on places of restone's Budget Plan s to whether or not under the law for a tidg under what is called

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 byFirestone knowna3Firestone's Budget Plan. "NOW,therefore, ‘in considerstion of dealer purchasing End Daintaining a Stack Of Fire3tone prO6UCtSfor resale by dealer an2 in csnsiderstion of the lrutual covenants hereinafter contsired, it is hereby aSreed between the partie hereto a3folio?;::;:.

n. G;o. 9. Sheppard, Pase 2

“8irestone ~111 forthvyith ::&e knownto an.3rec.:iL-&end to dealer it’s current plan and method of &erc:andising by tine paynent, kno*;lnas its Budget Plan andwill 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 conduct 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 Fireatone product.s frsrr. such c’ealers stocks and agrees to hire and’take into dealers eqloy the person so recoc;- *mendedbyFirestone and place bin in charge of the installat,ion and ~p.,~ *“ation of such Budget Plan and department 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 30days written notice, by rgisiered nail, registery receipt requested to the other of its intention to cancel e *In the event of anyviolation of the terzs of this agreement 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 5days after the receipt of said notice, the party not in default Eay at its option terminate this : agreement within 10days 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, endreads in part as follows:

“Sec. 2. Anyperson, apent, receiver, trustee, firm, eorporation, association or copartnership desiring to operate, maintain, open or establish a store or niercantile establishment. in this State shall apply to the Comptroller of Public Accounts for alicense so to do.

. . . “Sec. 5. Every person, agent, receiver, trustee, firm, corooration, establishing, associatisn or copartnership opening,

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 prescribed 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,oevery person, agent, receiver, trustee, fir=, corporation, copartnzrship or associstion, either do:aestic or foregin, w:lich is controlled or held wit.h others by2ajorit.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 meanand include any store or stores or any slercanti:e estsblishent or est.ablis&ents zot spacifically exempted wit.hin this Act which ar;t owned, operated, Eaintained, or controlled by the sa%eperson, agent, receiver, trustee, fir=, corpora;ion, copsrtnershlp or association, either domestic or forelin, in which :7oods, wares or merchandise of any kind are sold, at retsil or wholesale

.”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&. Web.:lieve everyone concemed ~111ad&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 TaxCo@dssioners v. Jackscn, 283U.S. 527, 75L. 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.odistribution, comparable to the mass method used in production; buyirg for cash andobtairling theadvaatare 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 supply of capital, whereby advantage cay bataken of opportunities for establishment of newunits; 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 onvarying 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, locali ity; stondord forzs of display for tie pm;ztion of sales;
; superior zamisrent a~:?rYathod~;concentration of crsnigeuent ih th- special lines of g,oc?s handle.3 byt.hs chain;
1 special accounting cethods; stacdardization of store cans-eIr;ent, sales policies’and goods sold. f “The appellants’ evidecce indicsted t.hat all of these

advsntages are Interrelated and interdependent In the chain 1 store business.

. .*I i r 13the case of Fox v. Standard oil Co:G:any, 294 E.3. 87, 73I.. 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’ 5case enurier:2’:3s s33e of s the advantages of chai2 store operation, andfinds 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 accounting fiethods; anda unified sales diverse units ,” policy coordinating the ; t . Ih,ose features coffie into existence as anatursl 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 mayexpect tb find a i central control. Ze have a situation in the case under cocalders1, : tion in which those features can very easily be brought Into exist-

, sate, if they are not alr*eady in existence.

Areading 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 tmined insales;ianship

. . . and competent in Firestone’s opinion to conduct i sndrasnage for dealer sales of Firezone products.

. . Dealer agrees toadoptnd e-ploy the &erchsndislsg zet!lods of such Budget Flan

. ,andagrees to hire

. . . the person so recsmended by Fireitine 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!:.:anyto pick a :?n and require the dealer to d-,le of merchandise. put himin charse and control of the That is just the same as if Firestone Tire :ndRubber CoKpanv had put him in charge directly. Asweview it., it makes no difference th-it this c;3nin chezge is theoretically :zployed byand v;srklng for the desler, because tieh3s been selected -7Firestone Tire and Rubber Cos&panyand.his ezl~lsymnt depend.5

### b

1 ::c. Ges. I-?.~

Sheppard, ?aCe 5 5~ ,. -;;nt::zcol.;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,oov: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 manin charge :f the dealer’s bausiness. Andwhenthis manir. 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.>nybeing in ;: ii:‘ect control.

Asweunderstsnd the rcts the -dealer’s business consists ;rimsrily of selling tires, tubes and "uta supplies at retail; i.:dthe 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 .* l&bor Csmp.enyhas such a The Fix.ttsne Tire and 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 .* control in chain store s_ oreinizaiis:s, but there ar-3a few c:~ses inother jurisdictions that sh+d scme light on the subject. In the :ase of Gulf Pefining Comp.?nyv..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 andlease contract; inMved in that case, said:

“It maybe 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 control 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 anend to the business relations between the Parties:

. . It 13of little moment to the ccpany whether the legal title to the good; resides in it or passes upon delivery to the dealer;

. . .” -fthink that that lsn,cuace fits the case under c.onsiderition. Cther :3S33 that shed some l<gh< on this ouest~isn are kshlsnd Refining :Lpany v. Pox, 11 Fed. Supp. 431; E,lid;:estern Petrsleun Corpsra-:!Jn v. State Bar? of Tax Co.tinissioners, 206 Ir,d. 625, 187 N.X.

5:;; Eelk‘Rros. C.o:;panyv. ~:amell, 215 X.2. 10, 200 S."J. 915.

'$Veare nst umindful of th.2 fact that there aze certain ;rJVisians’ in the nature of exceptions in the Cbjn Store Tax La::1 :I Texas,'one of theC: ;aclude "any place of providing that, th: ter;r "store" shall not business eng;Sed esclusiveiy i.;:t.he st.crinc, ;r?llin~, or distributirg of petrolem products and se:vicinS of ;:tcr veh.icles"; but weare asswisS tha: the parties concerned ::': not limitinS their trade in such 3.-,anner sa as to colliewith12 ;?.st exce$t isn. I

our answer to your question is that Firestax Tire ,and :ubbey Csuqany i3 liable under the la-v for a chaio store tax on geces of business operiting under the V??irestone BudSet Plan ;,peemntq* csntract described abore.

. ._.' Yours v2ry truly

hssistsnt
:iPPROVZD

JUL 14, 1939 S. i'f.F. Xoore

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