**Aus- 1s.** **-lrExAs**

**cap BEN**  **SHEPPERD A--**  **o** A&Ist 13, 1956
Honorable **Tom Re;avley**  Opinton No. S-212,, Secretary of St&e State of Texas **Rar Inclusiaiop**  **In grdss**  **FB** Austin, Texas Mph oi pro’eeeds **fram** t&esale of corporate caplkl assets ~fer.

### .frMEBIes tax purpwes mder w Mr.- **W.avley:** Artlele 7084,.V&S. _L YOUreq*st the opinion of tlrtsoffbe 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 thencharter. One Potable example is ‘the Salem of goods,. wares ‘and **merchandise ’** 

**.** A cqrporation will, of,course, accamulate what 18knownas ‘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 Ltoff 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.utit has been, held in several cases in States other thanTexas, 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 ,uponits 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 notI a property tax, itswould be an excise tax. The proceeds from a sale of capital assets ~bya 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) inwhich 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@rnits basineas done in Texas* 

### underArticle 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 Division Elhert M. Morrow RevLewer J; cl&Lkvis., Jr. Reviewer Will D. Davis Special RevLewer JOHN~BENSHEPPERD ,Attorney .General

*m,:..~E&+F~ “X-I&@ Gates Steen Assistant

i-!

Davis Grant First ‘Assistant John Ben Shbpperd Attorney General HGs:cs