-. 

OFFICE OF THE ATTORNEY GENERAL OF TEXAS 

AUSTIN 

OtUl.0 0. HAllW 

*1101*mv OUfuL 

Hon. George H. Sheppard 

Comptroller OS Public 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 owned an6 

s separate ,from said ohain 

one “store 

vhat Wloon L CO., Inc., Is 

833 of preparing, pociring 

that it ov!no m&a operates 

said products ar8 sold and 

hin the meaning OS the “Chain 

Co. is enother 

athletic equipment 

and it ovme and operates in Texas 

em is dofimd in tho “Chain Store Tax 

e sold. Fifty-five 

tlng Goods Co. is 

olqned by 5llson 8: Co., Inc.’ There Is no other oonneotion or 

relationship betweea the two oorgorations. 

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 Srom those 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 same parson the license fees total one hundred 

and thirty-two dollars ($132.00), and if twelve stores are 

operated by the same person the lloense rees total six hundred 

and thirty-two dollars ($632.00). Seotion 6 of the Aot provbies : 

“The provisions OS this 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 management or assooiatlon of ultimate 

management .‘I 

Section I OS the Aot provides: 

“The term ‘store’ as used in this Act shall be oonstrued to mean and 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 s3me perscn, agent, receiver, 

trustee, rim, oorporation, copartnership or association, 

either dome&lo or foreign, in which goods, wares or 

merohandise OS any kfnd are sold, at retail .or.wholesale.* 

Ke believe your question is controlled by the oase of 

H. E. Butt Grooery Co. v. Sheppard, 137 S. ;!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 owned and 

operated grooery stores and the same person owned a majority 

of the stock in eaoh of said oorporations all of the stores 

owned and operated by both oorporatlons oonstituted one single 

chain by,virtue of said stoek ownership. The court saib: 
Hon. George H. Sheppard, page 3 

-. 

*Sod. 0 was 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, 283 U. S. 527, 51 S. Ct. .540, 73 I.. Xd. 1248, 

73 A. L. R. 1464, 75 A. 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 oommon management or control over a number ot individual 

units or oorporations th’3 clear puqose of the law vrould 

be defeated. . . . 

“* . . The ownership by Butt or S3$ or the stock in 

one corporation, and of 755 of the stock In the other, 

gaVe him such unified control of both corporations, through 

suoh stook ownership, as to bring the stores owned and 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 no words in the statute which lndlcnta that .- 

the Legislature intended that Soations 6 and 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 same kind 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 owned by the same person) sold grooeries, but we think the 

rule’would be the sanm it 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, 283 U. S. 527, 51 6. Ct. 540, 75 L. 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 msny points 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 880.0 time 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 f or asta lishment of new units; 

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 on varying 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 and nethod; concentration 

of manafiement in the suecial lines of goods hsndlad bv the 

ohain; special aooounting methods; staZdardizatlon or-store 

macazement, sales policies and goods sold.” 

ours) 

(undersooring 

‘i., 

:,, 

Xe recognize 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 sama kind of merchandise as exists in a Case where all of the stores sell identftally the same kind of oorunaaities, but dome or said edifferencese 

exist. ?:a believe 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 

%a jority 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 OS oapital”; snd *superior management and method”, 

In the Oase of Uhamplogment Compensation Commission v, 

City Ice & Coa1.06.,2U 1:. C. 6, 3 3. 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 7 in the 

Texas Vhaln Store Tax %a$\;te”, and ‘held three corporations . 
Eon. George B. Sheppard, page 5 

(of which the majority stock of eaoh waB owned by the e~eme 

group Of persons) to conetitute the aame uait 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 OF TEXAS 

Ceoil C. Roteoh 

Assistant 

CCR:AbU 

APOVEDEOV 13, 1940 1