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 

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 by Firestone known a3 Firestone's Budget Plan. 

"NOW, therefore, ‘in considerstion of dealer purchasing End Daintaining a Stack Of Fire3tone prO6UCtS for resale 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 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;- 

*mended by Firestone 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 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 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 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 niercantile 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, 

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 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 associstion, 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 spacifically exempted wit.hin this Act which ar;t owned, operated, 

Eaintained, or controlled by the sa%e person, 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&. 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. Jackscn, 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 supply of capital, whereby advantage cay ba taken of opportunities 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, 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 by t.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 

advs ntages are Interrelated and interdependent In the chain 

1 store business. . .*I 

i r 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 accounting fiethods; and a unified sales 

diverse units ,” 

policy coordinating the 

; 

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 cocalders1, 

: 

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 

i 

snd rasnage for dealer sales of Firezone products. . . Dealer agrees 

to adoptnd e-ploy the &erchsndislsg zet!lods of such Budget Flan 

. ,and agrees 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!:.:any to pick a 

:?n and require the dealer to 

d-,le of merchandise. 

put him in charse and control of the 

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 

1 

::c. Ges. I-?.~ Sheppard, ?aCe 5 

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 .* 

l&bor Csmp.eny has 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 

.* 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; inMved 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 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 

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<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:;pany v. ~:amell, 215 X.2. 10, 200 S."J. 915. 

'$Ve are 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 we are asswisS tha: the parties concerned 

::': not limitinS their trade in such 3 .-,anner sa as to collie with12 

;?.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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