## Tmc ATI-ORNEY GENERAL OF TEXAS
**Aua-rw.** T-6 78711

December 10, 1974
The Honorable Robert S+ Calvert Comptroller of Public Accounts State Finance Building Austin, Texas 78701

Dear Mr. Calvert: Opinion No. H- 468 Re: Guestions concerning bondwhich must be filed as security for payment of sales and use tax. You ask whether in the following situations abondmust be furnished the Comptroller as security for the payment of the Limited Sales. Excise and Use Tax, TAX. -GEN. art. 20.01 et seq.:

a) A corporation with a permit and no record ofdelinquency merges into another corporation, which has nopermit. The surviving corporation is the corporation which originally did nothave a sales tax permit. b) A corporation consolidates with another corporation. One of the consolidating corporations had a permit and norecord ofdelinquency. A newcorporation is created bythe plan of consolidation. c) Husband has a permit with nodelinquency record: thehusband dies and his wife continues to operate thebusiness. d) A single proprietor incorporates. There is no delinquency under the sole ownership. e) A partnership changes to a single proprietorship, one partner becoming the sole owner. The partnership has nodelinquency record.

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.J.

The Honorable Robert S. Calvert, page 2 (H-468)

f) A partnership incorporates. The partnership has nodelinquency. g) A sole owner enters into a partnership. The sole owner has no delinquency. Article 20.02, TAX. -GEN., imposes a sales tax of4% onthe receipts from all retail sales of taxable items occurring withinthe State. Retailers are made responsible for collecting the tax, andtheyare required to obtain a separate sales tax permit for each place ofbusiness they maintainwithin the state. Art. 20.021(D) expressly provides that:

A permit shall not be assignable andshall be valid only for the person inwhose name it is issued andfor the transaction ofbusiness atthe place designated therein. In 1973 the Legislature added a provision totheSales Tax Act which is designed toprotect the state from a retailer’s failure, for whatever reason, topay over the taxes he collects. Essentially Article 20.021 (N) requires unreliable or unproven businesses tofurnish the Comptroller with abond or other security in an amount sufficient to secure payment of the taxes thatbecome dueunder the Act. Ineach case the amount andkind ofbond or security required is left uptothe Comptroller, taking. into consideration the amount of money thathas or is expected to become due from thebusiness in question. Particularly relevant to the questions you have posed is Article 20.021(N)(2) which provides:

No sales tax permit shall be issued bythe Comptroller on or after January 1, 1974, until the applicant provides the Comptroller witha bondor security as described in Subsection 1 of this Paragraph, together witb a completed sales taxpermit application form. The effect ofthis provision, when read in conjunction with Article 20.021(D), is to require each new retail business entity formed in Texas to furnish the Comptroller with a bond or some other kind of security. This is so because under Article 20.021(D) a sales tax permit is notassignable and is valid only for tbeperson or entity inwhose name it is issued. As a result, each

p. 2141The Honorable Robert S. Calvert page 3 (H-468)

newly formed business entity must obtain anew sales tax permit issued in its name. The statute does not permit adifferent result even though the new entity is merely a restructured version ofa pre-existing business the ownership ofwhich remains essentially unchanged or only slightly: modified. Under Article 20.021 (N)(2) no sales tax permits can be issued by the Comptroller onor after January 1, 1974, until the applicant provides a bond or some other kind of security,

The Comptroller should consider thetaxpaying records ofthe predecessor business andtheother factors youhave mentioned in exercising hia discretion as to the size andtype ofbond tobe required. The obvious intent ofthe Legislature was toprotect the interest of the State against businesses with bad or unproven taxpaying histories. Although a permittee with an exemplary taxpaying record is required to execute a bondif he begins to operate as a newentity, he generally does not represent the same risk to the State as a business with no record and should not be required to port the same type bond. Indeed, it may be unreasonable for the Comptroller to decline to consider past taxpaying history whena retailer changes his form ofbusiness entity without substantially changing such factors as ownership, management and capitalization. Inmost of these cases onlya nominal bond need be required.

Ineach of the situations about whichyouhave inquired, the ownership ofan existing business has been changed or modified, andin the process the legal structure of thebusiness has been reconstituted. In each case a new business entity has been created, and the old one has been dissolved. Since each of these new businesses must obtain a sales tax permit in its name, each must also provide the Comptroller withwhatever bond or other security he reasonably deems appropriate. Our answer to each of the questions you have asked is intheaffirmative. SUMMARY Before any new business entity can obtain the sales tax permit required under Article 20.021(D), it must furnish the Comptroller withwhatever bond or other

p. 2142The Honorable Robert S. Calvert page 4 (H-468)

security the Comptroller deems sufficient to protect the State from a failure topay over’ the taxes thatwill become due under the Sales Tax. Act. The Comptroller should consider the taxpaying record of the predecessor business in exercising his discretion as to the size and type ofbondtobe required 6~0 that a retailer with a proven record of compliance with the law will not be required to post the same type bond as an unproven business. Very truly yours,



# u Attorney General’of Texas APPROVED: 

# QcT2-L

DAVID M. KENDALL, First Assistant

C. ROBERT HEATH, Chairman Opinion Committee 

## lg

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