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 

bond which must be 

filed as security for 

payment of sales and 

use tax. 

You ask whether in the following situations a bond must 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 

of delinquency merges into another corporation, 

which has no permit. The surviving corporation 

is the corporation which originally did not have a 

sales tax permit. 

b) A corporation consolidates with another corporation. One of the consolidating corporations had 

a permit and no record of delinquency. A new corporation is created by the plan of consolidation. 

c) Husband has a permit with no delinquency record: 

the husband dies and his wife continues to operate 

the business. 

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 no delinquency record. 

p. 2140 

. 
J. 

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

f) A partnership incorporates. The partnership 

has no delinquency. 

g) A sole owner enters into a partnership. The 

sole owner has no delinquency. 

Article 20.02, TAX. -GEN., imposes a sales tax of 4% on the receipts 

from all retail sales of taxable items occurring within the State. Retailers 

are made responsible for collecting the tax, and they are required to 

obtain a separate sales tax permit for each place of business they maintain within the state. Art. 20.021(D) expressly provides that: 

A permit shall not be assignable and shall be 

valid only for the person in whose name it is 

issued and for the transaction of business at the 

place designated therein. 

In 1973 the Legislature added a provision to the Sales Tax Act which 

is designed to protect the state from a retailer’s failure, for whatever 

reason, to pay over the taxes he collects. Essentially Article 20.021 (N) 

requires unreliable or unproven businesses to furnish the Comptroller 

with a bond or other security in an amount sufficient to secure payment 

of the taxes that become due under the Act. In each case the amount 

and kind of bond or security required is left up to the Comptroller, taking. 

into consideration the amount of money that has or is expected to become 

due from the business 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 by the 

Comptroller on or after January 1, 1974, until 

the applicant provides the Comptroller with a 

bond or security as described in Subsection 1 of 

this Paragraph, together witb a completed sales 

tax permit application form. 

The effect of this 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 not assignable and is valid 

only for tbe person or entity in whose name it is issued. As a result, each 

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

newly formed business entity must obtain a new sales tax permit issued 

in its name. The statute does not permit a different result even though 

the new entity is merely a restructured version of a pre-existing 

business the ownership of which remains essentially unchanged or only 

slightly: modified. Under Article 20.021 (N)(2) no sales tax permits can 

be issued by the Comptroller on or after January 1, 1974, until the applicant 

provides a bond or some other kind of security, 

The Comptroller should consider the taxpaying records of the 

predecessor business and the other factors you have mentioned in 

exercising hia discretion as to the size and type of bond to be required. 

The obvious intent of the Legislature was to protect 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 bond if he begins to operate as a new entity, 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 when a retailer changes his form of business entity without 

substantially changing such factors as ownership, management and 

capitalization. In most of these cases only a nominal bond need be 

required. 

In each of the situations about which you have inquired, the ownership of an existing business has been changed or modified, and in the 

process the legal structure of the business 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 with whatever 

bond or other security he reasonably deems appropriate. Our answer 

to each of the questions you have asked is in the affirmative. 

SUMMARY 

Before any new business entity can obtain the sales 

tax permit required under Article 20.021(D), it must 

furnish the Comptroller with whatever bond or other 

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

security the Comptroller deems sufficient to 

protect the State from a failure to pay over’ the 

taxes that will 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 

of bond to be 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 

p. 2143