Mr. Robert S. Calvert Opinion No. C- 86

Comptroller of Public Accounts Austin, Texas Re: Whether 100%of the rental receipts received by a corporation, for the leasing of equipment, is Ybusiness done In Texas” regardless of where they are used, for purposes of the allocation formula In Artlole 12.02, Dear Mr. Calvert: V.C.S.

Youask whether all of the rentals received from the leasing of trucks, automobiles, tow boats and barges regardless. of where they are in fact used and receipts from the operation by the owners of tow~;boats and barges is “business done within Texas” for purposes of computing the franchise tax pursuant to the formula In Article 12.02, Vernon’s Civil Statutes, TaxatlonGeneral. I

Toquote from your statement of facts: 1) “

. . . the principal business activity of the corporation

. . . is leasing automobiles andtrucks. The corporation leases its equipment on a monthly rental basis plus a fixed charge per mile. Theautomobiles andtrucks are used In this state as we13as In other etates under the same lease contract. Theleasing corporation does not appear to require that the equipmentbe used In any particular state. The corporation has its principal place of business in Houston andapparently the lease contracts are executed In Hou*ton.” 2) ‘I.

. . principal business activity is toperation and leasing of tow boats and barges.’

. . . the corporation determines Its gross receipts from business

‘done in Texas’ by determining the number of ‘log days in Texas for barges rented

-417-Mr. Robert S. Calve&, Page 2 (No. C- 86)

to others under bareboat charteys.’ The corporation includes its receipts for the days logged outside the State of Texas as business done outside Texas. The charters were executed In Texas .andthe barges were delivered to the lessees In Texas. Theassessment of advalorem tax on thi ’ tow boats andbarges Is madeIn Harris County, Texas. ” Theapplicable statutory provcilon is: Article 12.02 -

“Each corporation liable for payment of a franchlie portion of Its taxable by the plying sameby which shall be ship which the tax shall determine-the

entire taxable capital State of Texas by multian allocation percentage the percentage relation-, gross receipts from Its business done in Texas bear to the total gross receipts of the corporation from. its entire business.

“For the purpose of thle 

### Article,the term ‘gross receipts from its business done in TexasI shall include:

“(a) Sales of tangible personal property located within Texas at the time of the receipt of or appropriation to the orders where ahlpment is madeto points within this State;

“(b) Services performed within Texas;

“(c) Rentals from property situated, androyalties from the use of patents or copyrlgt@s, within Texas; and

“(di All other business receipts within Texas. The original allocation formula In Texas (Texas Session Laws, 

### 1917,35thLeg.9 p. 

### 168,Ch. 

### 84)was passed to remedy the unoonstltutlonallty of anunapportioned franchise tax on all of the capital stock of corporations which did most of their buslness outside of this state. See Looney v. Crane Co., 245U.S. 

### 178 (1917). Thevalidity of the predecessor to the present *,. -418- .Mr. Robert S. CalVert, Page 3 (No. C- 86)

statute was announced In Ford Motor Co. v. Beauchamp, 

### 308U.S. 

### 331 (1939). See generally, Texas Legislative Council, Staff Research Report, ASurvey of Taxation in Texas, Part IIB, pp. 209-68 (1952).

Nocase Involving a rental situation has been found under the Texas franchise tax statute. TheUnited States SupremeCourt has distinguished between using property in interstate commerce and furnishing labor or capital to another whomayoperate outside of the taxpayer-lessor's state, the former being "Interstate" andthe latter "intrastate". SoundStevedoring Co. v. State Tax Comm'r., 302 U.S. 90?%!I (sup7lying 1ongshoremen with t di tlng or controlling the work ; Williams v. Fears, 17$"U.S.rE;0 (1900) (hiring laborers In Georgia for employment outside that taxing state). Accord, Superior Oil Co. v. Miss., 

### 280U.S. 390 (1930) (sale with mlndlfferent knowledge" of extra-state use).

It has been held that the numerator of a similar allocation formula was "intrastate" business. E.g. Pacific Express Co. v. Seibert, 142U.S. 339 (1892). In a case Involving a sale th Texas court said that "business done in Texas" meant "businezs begun and completed in Texas, and

### notbusiness begun in Texas and completed in someother state or foreign nation, or vice versa. In other words, that it meansIntrastate buslness." Clark v. Atlantic Pipe Line Co., 

### 134S.W.2d 322, 

### 328 (Tex.Civ.App. 1939, error ref.). A8stated'in anAttorney General's Opinion, it is "business originating in and consummatedin the State of Texas andthat business originating in the State but ,consummatedoutside the State would not be construed as businesa done in Texas." Attorney General Letter Opinion, Book 

### 368,P. 

### 804 (1935). See Flowers v. PanAmerican Refining Corp

Gene& 19 S.W.2d 982 (Tex.Clv.App. 1941, error ref.); Attorney Opinion No. Opinion No. 

### WW-1503(1962). R-936 (1947); Attorney General But see 

### Ramseyv. Investors Diversified Services, Inc., 

### 248S.W.2a 263 (Tex.Clv.App. 952, error ref. n.r.e.) (facts of each case control). *

Thefacts reveal noaction by the lessors outside of Texas. It appears that the lease 'contract was "begun and consummated"wholly within Texas. There Is no evidence of an agency relation bywhich the lessee's operations outside of Texas could be attrLbuted to these lessors.

The 1959revision of the franchise tax statute lntroduced the first legislative definition of "business done within TeXaS ' which, It has been said, was not intended to change the scope'of the prior formula. Texas Research League, The

### Allocation Formula of the Texas Franchise Tax, p. 

### 6 (1960). However, none of the prior authorities dealt with a "rental" situation
-419-Mr. Robert S. Calvert, Page 4 (No. C- 86) ..._

which Is nowtreated distinctly in section (c) of the statute. Aseparate section (a) applies to "sales".

Toanswer this request it is necessary, therefore, to analyzi the "ordinary signification" of the words wiizhregard to the context In which they are used. Art. 10, section 1, V.C.S. Vernonls Civil Statutes, Article 23 defines terms used throughout the statutes: "The following meaning shall be given to each of the following words apparent from the context: 1., unless a different meaning Is 'Property' Includes reaa and personal property, thereof." and life Insurance policies, andthe effects

Because no contrary meaningappears, the equipment. here is "property" as used lti the Franchise TaxAct.

Theword "situated" has been construed to refer to rules governing taxable "situs". E.g. Great Southern Life Insurance Co. v. City of Austin, 112Tex. 1 243 SW 778 1922); City of Fort Worthv. Southland GreGhound&ies, Inc., 

### ?d'$61 Thegeneral rule for establishing the situs of tangible personal property Is stated in the maxim'mobllla sequuntur personam"; personal property Is domiciled where the owner is. 51 Am.Jur. Taxation 

### #448-62.(1944).Chemical Express v. City of Roscoe. 310,S.W.2d 694 (T~x.C~V.ADD. 19%. error ref.). The coroor,&ions here appear to have their-charter andprinclpil business offices in Texas, which factors fix one's taxable situs. Northwest Airlines, Inc. v. Mlnn., 

### 322U.S. 292 (1944); Chemical Express v. City of Roscoe, supra.

Property "permanently" located In another state constitutes the primary exception to the general rule. "Permanence" maybe evidenced by continuous location, business sltus or by sufficient average presence in another state to establish kitus In such other state. Northwest Airlines, Inc. v. 

### Mlnn.,supra; State v. CrownCentral Petroleum C 42 SW2d 457 (Tex.Civ.App. 1951 0.9 f ) DalIa; ;. berton, 363 S.W.2d 821'(~~?&?A~p: See City of ref. n.r.e.); Attorney Qeneral Oplnlon'No.'V-373 1962 error

_ (1947). Neither ground for the exception appears from the facts presented. The lessor has the burden of proof "to showthat the property was not taxable In this state," North American Dredging Co. of Nevadav. State, 201 S.W. 1065, 1.067(Tex.Clv.App. 19181.

Oneadditional factor pointing to this result Is the ; word "use" to designate which patents and copyrights generate



### -420-. I

Mr. Robert S. Calvert, Page 5 (No. C- 86)

royalties constituting "business done within Texas". The careful statutory distinction between the terms "use" and "situated" in section (c) suggests the Interpretation developed above.

Sucha "situs test" for Intrastate business Is consistent with the goal of exclusivity sought by the federal constitutional cases which require allocation formulae In state taxation. Standard Oil Co. v. Peck, 342U.S. 

### 382(1952).

Other jurisdictions have reached 

### similarresults In analogous cases. Union TankLine Co. v. Day, 

### 143La.771, 79 So. 

### 334 (1918); Woodsv. OklahomaTax Corn 

### 94,162P.2d 

### 875(1945 

### m1n.j1966kli. distinguished In

### Inlse, 201 Okla. 395, 

### 206P.2d 21 '(1949); People v. m 443, 112 N.E. 181 (1916). CompareCommonwe;Rer,7 N.Y. mv. American Bell Telephone Co., 129 Pa. 217, 18Atl. 12

### 2 (ltrtlg) with CommonwealthV. National CashRegister Co., 271 Pa; 406, 117At1 439 (1921) Translt'Co., S 1 State v. American Refrigerator

151 Ark. 5EJa2iY Sw 76 (1922) of Cincinnati v. Commonwealth, 242'Kan. 597, But 

### Tl943 1 i67S.W%



### .The facts do not showthat these lessors performed any services with respect to the rental equipment outside of Texas.

Therefore, all rental revenue (monthly rental and fixed charges per 

### mile)derived from the automobiles, trucks, tow boats and barges is "gross receipts from business done within Texas", regardless of where the lessee~may use the property.The operation of tow boats andbarges by the owners outside of Texas does not produce "gross receipts from business done in Texas". Clark v. Atlantic Pipe Line Co., 134 S.W.2d 322 (Tex.Civ.App. 1939, error ref.).

SUMMARY All rental revenue (monthly rental and fixed charges per mile) from property situated In Texas, Is gross receipts from business done In Texas .regardless of where the lessee uses the leased property.. Mr. Robert S. Calvert, Page 

### 6 (No. C- 86)

The operation of tow boats andbarges by the owners outside the state does not yield gross receipts from business done in Texas. Yciurstruly, WAGGONER

CARR Attorney General of Texas

Assistant Attorney General RGA:pw APPROVED: OPINIONCOMMITTEE W.V. Geppert, Chairman Marietta Payne Dudley McCalla J. S. Bracewell Joseph Trimble APPROVED

FORTHEATTORNEYGENERAL By: Stanton Stone

-422-