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. 

You ask 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 

To quote from your statement of facts: 

1) “. . . the principal business activity 

of the corporation . . . is leasing automobiles and trucks. The corporation leases 

its equipment on a monthly rental basis 

plus a fixed charge per mile. The automobiles and trucks are used In this state 

as we13 as In other etates under the same 

lease contract. The leasing corporation 

does not appear to require that the equipment be used In any particular state. The 

corporation has its principal place of 

business in Houston and apparently 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 

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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 .and the barges were 

delivered to the lessees In Texas. 

The assessment of ad valorem tax on thi ’ 

tow boats and barges Is made In Harris 

County, Texas. ” 

The applicable statutory provcilon is: 

Article 12.02 - 

“Each corporation liable for payment 

of a franchlie 

portion of Its 

taxable by the 

plying same by 

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 Texas I 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 made to 

points within this State; 

“(b) Services performed within Texas; 

“(c ) Rentals from property situated, 

and royalties 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, 35th Leg.9 p. 168, Ch. 84) was passed to remedy the 

unoonstltutlonallty of an unapportioned 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., 245 U.S. 

178 (1917). The validity 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, 308 U.S. 

331 (1939). See generally, Texas Legislative Council, Staff 

Research Report, A Survey of Taxation in Texas, Part IIB, 

pp. 209-68 (1952). 

No case Involving a rental situation has been found 

under the Texas franchise tax statute. The United States 

Supreme Court has distinguished between using property in 

interstate commerce and furnishing labor or capital to another 

who may operate outside of the taxpayer-lessor's state, the 

former being "Interstate" and the latter "intrastate". 

Sound Stevedoring Co. v. State Tax Comm'r., 302 U.S. 90 ?%!I 

(sup 

7 

lying 1 ongshoremen 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., 280 U.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, 142 U.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 not business begun 

in Texas and completed in some other state or foreign nation, 

or vice versa. In other words, that it means Intrastate buslness." Clark v. Atlantic Pipe Line Co., 134 S.W.2d 322, 328 

(Tex.Civ.App. 1939, error ref.). A8 stated'in an Attorney 

General's Opinion, it is "business originating in and consummated in the State of Texas and that business originating 

in the State but ,consummated outside the State would not be 

construed as businesa done in Texas." Attorney General Letter 

Opinion, Book 368, P. 804 (1935). See Flowers v. Pan American 

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 Ramsey v. Investors 

Diversified Services, Inc., 248 S.W.2a 263 (Tex.Clv.App. 

952, error ref. n.r.e.) (facts of each case control). * 

The facts reveal no action 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 by which the lessee's operations outside of 

Texas could be attrLbuted to these lessors. 

The 1959 revision 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 now treated distinctly in section (c) of the statute. 

A separate section (a) applies to "sales". 

To answer this request it is necessary, therefore, to 

analyzi the "ordinary signification" of the words wiizh regard 

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, and the effects 

Because no contrary meaning appears, the equipment. 

here is "property" as used lti the Franchise Tax Act. 

The word "situated" has been construed to refer to 

rules governing taxable "situs". E.g. Great Southern Life 

Insurance Co. v. City of Austin, 112 Tex. 1 243 S W 778 

1922); City of Fort Worth v. Southland GreGhound &ies, Inc., 

?d'$61 

The general 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 and princlpil 

business offices in Texas, which factors fix one's taxable 

situs. Northwest Airlines, Inc. v. Mlnn., 322 U.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" may be 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. Crown Central Petroleum C 

42 S W 2d 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 show that the 

property was not taxable In this state," North American Dredging 

Co. of Nevada v. State, 201 S.W. 1065, 1.067 (Tex.Clv.App. 19181. 

One additional 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. 

Such a "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, 342 U.S. 382 (1952). 

Other jurisdictions have reached similar results In 

analogous cases. Union Tank Line Co. v. Day, 143 La. 771, 

79 So. 334 (1918); Woods v. Oklahoma Tax Corn 

94, 162 P.2d 875 (1945 

m1n.j 196 6kli. 

distinguished In Inlse, 201 

Okla. 395, 206 P.2d 21 '(1949); People v. m 

443, 112 N.E. 181 (1916). Compare Commonwe; 

Rer,7 N.Y. 

mv. American 

Bell Telephone Co., 129 Pa. 217, 18 Atl. 12 2 (ltrtlg) with 

Commonwealth V. National Cash Register Co., 271 Pa; 406, 

117 At1 439 (1921) 

Translt'Co., 

S 1 State v. American Refrigerator 

151 Ark. 5EJa2iY S w 76 (1922) 

of Cincinnati v. Commonwealth, 242'Kan. 597, 

But 

Tl943 1 

i67 S.W% 

. 

The facts do not show that 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 and barges 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 and barges 

by the owners outside the state does not yield 

gross receipts from business done in Texas. 

Yciurs truly, 

WAGGONER CARR 

Attorney General of Texas 

Assistant Attorney General 

RGA:pw 

APPROVED: 

OPINION COMMITTEE 

W. V. Geppert, Chairman 

Marietta Payne 

Dudley McCalla 

J. S. Bracewell 

Joseph Trimble 

APPROVED FOR THE ATTORNEY GENERAL 

By: Stanton Stone 

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