-.

OFFICE OFTHEATTORNEY GENERAL OFTEXAS

AUSTIN OtUl.0 0.HAllW *1101*mv

OUfuL

Hon. George H. Sheppard Comptroller OSPublic Aooounts Austin, Texas Dear Sir:

ogeratea by !Yilscn OS“mceii gTdLlC%S’~ hlch you ask whether, frsporting goods~ 6 Gocds Com,r,any

is a ts” stores ownedan6 s separate ,from said ohain

one “store vhat Wloon L CO., Inc., Is 833 of preparing, pociring that it ov!nom&a operates said products ar8 sold and hin the meaning OSthe “Chain

Co. is enother athletic equipment and it ovmeand operates in Texas em is dofimd in tho “Chain Store Tax e sold. Fifty-five tlng Goods Co. is olqnedby 5llson 8:Co., Inc.’ There Is no other oonneotion or relationship betweea the twooorgorations.

Your question is~whether all of tho stores of said two corporations constitute one single chain or the stores OS one corporation are a separate ohain Sromthose of the other corporation.Hon. George 8. Sheppard,, page 2

The Texas “Chain Store Tax Statute” was paessb as Eouse Bill No. 18, 44th Legislature, 1st Called Session, Aots 1935; and it is codified as Article 11116 of Vernon’s Annotated Penal Code. ‘It provides that every person, oorporatlon, etc., shall pay a license fee on every store they operate, and a schedule of lloense tees is prasorlbed whereby the greater the number of stores operated,tha larger is the amount per store that must be paid. For example, ii only one store is operated the license tee is one dollar ($l.OO), but if six stores are operated by the sameparson the license fees total one hundred and thirty-two dollars ($132.00), and if twelve stores are operated by the sameperson the lloense rees total six hundred and thirty-two dollars ($632.00). Seotion 6of the Aot provbies :

“The provisions OSthis Act shall be construed to apply to every person, ogont, receiver, trustee, rim, oorporatlon, copartnership or assooiation, either domestlo or foreign, which is controlled or held with others by majority stoolc ownership or ultimately oontrolled or aireated by one managementor assooiatlon of ultimate management

.‘I Section I OSthe Aot provides:

“The term ‘store’ as used in this Act shall be oonstrued to meanand lnoludc any store or stores 0r any mercantile establishment or establishments not speoifloally exempted within this Act which are owned, operated, malntained, or oontrolled by the s3meperscn, agent, receiver, trustee, 

## rim, oorporation, copartnership or association, either dome&lo or foreign, in which goods, wares or merohandise OSany kfnd are sold, at retail .or.wholesale.* Kebelieve your question is controlled by the oase of H. E. Butt Grooery Co. v. Sheppard, 137S. ;!i. (Zd) 823 (writ of error refused), in whioh the Court of Civil Appeals at Austin held that In a case in which two corporations eaoh ownedand operated grooery stores andthe sameperson owneda majority of the stock in eaoh of said oorporations all of the stores ownedand operated by both oorporatlons oonstituted one single chain by,virtue of said stoek ownership. The court saib:Hon. George H. Sheppard, page 3 -.

*Sod. 0was manifestly intended to prevent large chalnc~of storea, which receive the benefits flowing from such system (considered and enumerated in part by the U. 3. Supreme Court in State Board of Tax Com’rs. v. Jaokson, 283U. S. 527, 51 S. Ct. .540, 73 I.. Xd. 1248, 73 A. L. R. 1464, 75A. L. R. 1536, and in Eurt v. Cooper, 130 Tet. 433, 110 S. W. (26) 896, sustaining the validity of the Act as oonstitutlng a reasonable olasslfloation), from ciroumventlng the tax burdens imposed under the Aot, by organizing separate corporations to operate them, the oapital stook or whioh, or a msjority of it, being owned by a parent oorporation or holding company, or by an individual or assooiation of individuals. Thus through a oommonmanagementor control 

### over a number ot individual units or oorporations th’3 clear puqose of the law vrould be defeated.

. . .

“*

. . Theownership by Butt or S3$ or the stock in one corporation, andof 755 of the stock In the other, gaVe him such unified control of both corporations, through suoh stook ownership, as to bring the stores ownedand controlled by such separate corporations under the provisions ,,_.._ of tha Aot; and required that they be treated as one ohain for tax purposes.” There ara nowords in the statute which lndlcnta that .- the Legislature intended that Soations 6and 7, as oonstrued by the H. 3. Butt, Grocery Co. aaso, should not apply just as strongly to stores selling differen’: types of merchandise as they do in a 08s~where all of the stores sell the samekind of merchandise. In the H. E. Butt Grocery Co. oaae the stores of both or the corporat:ons (of ivhioh the majority stock of eaoh was ownedby the sameperson) sold grooeries, but wethink the rule’would be the sanmit the stores of one corporation sold groceries and the stores ot the other corporation sold an entirely airferent type 0r g00a0.

In the case of State Board of Tax Commissioners v. Jackson, 283U. S. 527, 51 6. Ct. 540, 75L. Ed. 1248, the Sugreme Court of the United States upheld the oonstitutionallty of the Indiana chain store tax law, which is almost identioal with the Texas “Chain Store Tax Statute.” xhe Court upheld the statute wherein it levied a larger tax per store on large ohalns than it did per store on smaller ohslns or on persons owning only one store, beoause there Is a difierenoe in suoh stores. The Court said:Hon. George H. Sheppard, gage 4

n there are msnypoints of alfrerenoe between ohaln it&i* and inaepsndently owned unlt6. These oonsiat in quantity buying, whioh involves the applioation of the mass prooess to distribution, oomparable to the mass method used in production; buying for oash end obtalniw the advanta&?e-of a oash discount; skill in buying, so as not to overbuy, end at the 880.0time keep the stores stooked with produots suitable in size, style and Quality ior the neiahborhood customers who patronize them: warehousinu of goods and alstributlng from-a single warehouse to k&rous stores; abundant supply. of capital whereby advantage may be taken of opportunities for asta lishment of newunits; a prloing and-sales 

### poiioy difforsnt from that of the - individual store, involving slightly lower 

### prioe>s; a greater turn-over, and constant analysis of the turn-over to asoertain relative profits onvarying iterrs; unified, and therefore cheaper and better advertising for the entire ohaln in a given locality; standard form of display for the promotion of sales; superior mrhna.$,sxent andnethod; concentration of manafiementin the suecial lines of goods hsndlad bv the ohain; special aooounting methods; staZdardizatlon or-store macazement, sales policies andgoods sold.” ours) (undersooring



### ‘i., :,, Xerecognize that such *ldifferencesW In respect to stores in large ohains do oat exist to as great an extent where the stores in tho chain do not all sell the samakind of merchandise as exists in a Casewhere all of the stores sell identftally the samekind of oorunaaities, but domeor said edifferencese exist. ?:abelieve enough of staid “d-es” exist to sustain the constitutionality of tha Act whan it Is construed so as to place “sporting good&stores nnd “meat proauotfP stores in the sore chain by virtue of ,said stores being controlled by the same %ajority stook ownerahign. Even though the stores’ sell alrrerent kinds 0f merchandise, the follows “aifrerenoes” exist: “buying for cash snd obtaining, the,advantage of a aash disoount”; eabundant sqqly OSoapital”; snd *superior managementandmethod”,

In the Oase of UhamplogmentCompensation Commission v, City Ice &Coa1.06.,2U 1:. C. 6, 33. X. (2d) 290, the Supreme Court of North Carolina upheld a provision in the North Caroline Unemployment Co5pensatj.on A.ct similar to Sections 6 end 7in the Texas Vhaln Store Tax %a$\;te”, and‘held three corporations

.Eon. George B. Sheppard, page 5

(of which the majority stock of eaoh waBownedby the e~eme group Ofpersons) to conetitute the aameuait within the meaning and purposes of the Aat; and in that oase two or the three corporations engaged exclusively In the buying and sell& of lee end ooal, end the.other oOrporntlOn haqdled only dairy produota.

Our answer to your questions le that all of the Stores of said two corporations, towlt, eaid “sporting goods” store and said *meat produots” stores, constitute one single ohaln under the TeTae “Chain Store Tax Statute.”

. Yours very truly * kTSID~%Y.G~RAL OFTEXAS

Ceoil C. Roteoh Assistant CCR:AbU

APOVEDEOV 13, 1940 1