Aus- 1s. -lrExAs 

cap BEN SHEPPERD 

A-- oA&Ist 13, 1956 

Honorable Tom Re;avley Opinton No. S-212,, 

Secretary of St&e 

State of Texas Rar Inclusiaiop In grdss FBAustin, Texas Mph oi pro’eeeds fram 

t&e sale of corporate 

caplkl assets ~fer. .frMEBIes tax purpwes mder 

w Mr.- W.avley: Artlele 7084,. V&S. 

_L 

YOU req*st the opinion of tlrts offbe on the follov&g,. 

qae$tkW 

engross receipts from business Et&e. is generally 

thanght af as the receipts from busine8s done m the. 

c~nducf ti, Ita business gs aathoriaed~ by then charter. 

One Potable example is ‘the Salem of goods,. wares ‘and 

merchandise’. A cqrporation will, of, course, accamulate what 18 known as ‘capital assets*+; such as farmtars, 

.fixtur&, automobiles, machinery and even a building 

from whfch to conduct tts busmess,. Such assets are 

purchased with the accumulated cash on hand or by 

notes payable. The manner of purchasing, however, is 

immater Lal. 

)m time, the corporation might find It expedient 

to dtspose of certain capital assets, elther~ by ‘an outright sale or exchange for other capital assets of equal 

or higher value. It frequently happens that the sale 

price exactly equals the cash value as carried on the 

books. The .entry to ,record ‘the transaction woald simply 

be to credit-the capital assets account to write Lt off 

the boolcs and to debit the cash account tith a lihe 

am~uiL If the assbts were sold for more than the book 

valae, the excess would, presumably be credited to ‘Other 

Income ‘. A loss would be charged against surplus. 

“‘f&z qaestion we should lihe answered Is: 

Should the gross amount received in the sale of 

capital assets be Included as ‘gross receipts from business done’ for franchise tax purposes?* < 

There are no Texas cases on this point, b.ut it has been, 

held in several cases in States other than Texas, that “gross 

receipts- means all receipts arislng from. or growing out of, 
_ Hon. Tom Reavley, page 2 (S-212) 

employment of the corporation’s capital in Its designated business or otherwise. In State v. Central Trust Company, 106 Md. 

268, 67 Atl. 267,, 271 p907), the court said: 

‘?%a courts of last resort in New York and 

Pennsylvania. in construing statutes quite similar 

to our own taxing the gross receipts of corporations 

of designated charters, have both held that by 

‘gross receipts * the statute meant all receipts 

arising from, or growing out of,, employment of the 

corporatian’s capital in its designated businass or 

otherwlse.’ (Emphasis added) 

In 14 Fletcher Cyclopedia Corporations (Perm.Ed. 

1945) Sac. 6953,~ p. 646, it is stated: 

*A so-called franchise tax may be either (1) a 

property tax or (2) an excise tax. ~Generally, however, 

the term is’ used as meaning an excise, as distinguished 

from a property tax, imposed on franchises, and consisting of a moreor less arbitrary sum having little or no 

connection with the actual-value, although such a tax, 

even when an excise, is often measured, at least to some~ 

extent, by the amount of property’ or earnings of the 

corporation.. .., (Emphasis added,) 

The franchise tax ls not a tax upon the property of 

a corporation nor one ,upon its income. United North -& south 

Development Co. v. Heath, Secretary of State, et al., 78 S.W.Zd 

b50 ITeX.CiVd%DD. 1934. error ref.1 AS the franchise ‘& on _-~ ~I 

corporations in Texas is not I a property tax, its would be an excise 

tax. 

The proceeds from a sale of capital assets ~by a corporation in Texas would not constitute gross receipts from business 

done in Texas as long as it did not reallae a profit .frem the saLe 

thereof. 

receipts*. 

Of course, the profits, lf anyI wou,ld constitute “gross 

In the abs,ence of Texas cases, we quote from Corbett 

Investment Company v. State Tax ‘Commission, 181 P.2d 130;2, 

133 181 0 ~244 (1947) in which the Supreme Court of Oregon, 

in &n&r& the term *gross’ receipts? said: 

ic 

. . * It does not include the proceeds of the 

conversion of capital assets, without gain, as in the 

instant case.- 
Hgm. Porn Reaviey, pfige 3 (S-212) 

kSUMMARY 

The proceeds ‘&if a sale of capital assets, or 

the conversion of capital assets to’ cask by a corporatrOn,, wLtho& gain, does not constitute *gross receipts 

fF@rn its basineas done in Texas* under Article 7084, 

V.C.S.l profits from.t&e sale of capital assets would 

constitite *gross receipts.‘. 

Y,ours very truly,~ 

APPROVED1 

Wi V. Geppert 

Taxation Divis ion 

Elhert M. Morrow 

RevLewer 

J; cl& Lkvis., Jr. 

Reviewer 

Will D. Davis 

Special RevLewer 

JOHN ~BEN SHEPPERD 

,Attorney .General 

*m,:..~E&+F~ 

“X-I&@ Gates Steen 

Assistant 

i-! 

Davis Grant 

First ‘Assistant 

John Ben Shbpperd 

Attorney General 

HGs:cs