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# The Attorney General ofTexas

octaber 10, 1980
MARK WHITE Attorney General
Honorable BobBullock Comptroller ofPublic Accounts LBJState Office Building Austin, Texas ‘I8774 Opinion No. W-256
Re: Assessment ratio applicable in calculating the alternative state franchise tax base in article 12.01(l)(b),Taxation General
Dear Me.Bullock: You inquire about the proper method of determine the value of property owned by corpaations in this state in order to determine their franchise tax liability under article 12.01(l)(b), TaxationGeneraL This statute provides that corporations shall pay franchise tax according to whichever ofthree alternative methods yields the greatest tax:

(1) Except as otherwise provided in this chapter, every domestic and foreign corporation heretofore or hereafter chartered or authorized to do business in Texas or doing business in Texas shall file such reports as are required by Articles 12.08and 12.19and pay to the Comptroller a franchise tax for the period from May 1of each year to and includiq April 30of the following year, based an whichever of the following Subsections (a), (b), or (c) shall yield the greatest tax: (a) Basic Tax. Four Dollars and Twenty-five Cents ($4.25) per $1,000or fractional part thereof applied to that portion of the sum of the stated capital, surplus, and undivided profits the sum of which for the purpcses ofthis chapter ishereafter referred to as ‘taxable capital,’ allocable to Texas in accordance with Article 12.02. As used inthis chapter, the phrase ‘stated capital’ shall have the same meaning as defined in Article LO2of the Texas Business Corporation Act; (b) Four Dollars and Twenty-five Cents ($4.25) per $1,000or fractional part thereof applied to the

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assessed value for county ad valcrem tax purposes of the real and personal property owned by the corporation of this state; or (c) Fifty-five Dollars ($55). At present, 4.7 percent of all corporations pay the amount of tax determined under article 12.01(l)(b).See “S.B.621;Implications for the State Franchise Tax,” w _Notes,(May, 1980)(publication ofComptroller’s Office ofPlanning and Research). You wish to know how the tax should be computed urder article 12.01(l)(b) after the effective dates ofthe following provisions ofthe Property Tax Code:

Section 26.02. ASSESSMENTRATIOSPROHIBITED. Except as provided by Section 26.03 of this code, the assessment of property tax for taxation on the basis of a percentage of its appraised value isprohibited. All property shall be assessed on the basis of100percent ofits appraised value. Section 26.03. STATE ASSESSMENTRATIO. The assessment ratio for calculating taxes for state purpcses is .OOOl percent. Section 26.03 took effect cn January 1, 1980and section 26.02 will take effect on January 1, 1981. Acts 1979, 66th Leg., ch. 841, S3(g), (i), at 2315. You specifically inquire whether the assessment ratio for calculating the alternative state franchise tax base provided inarticle 12.01(l)(b)TaxationGeneral willbe 100%or .OOOl%. Prior to passage of the Property Tax Code, each county assessed real property at some percentage of appraised market value and this assessed value became the basis for the alternative computation under the franchise tax. Inenacting the Property Tax Code, the Legislature placed all units of government on a market value basis and declared assessment ratios unlawful except for computation ofstate taxes. Because of the invalidation of assessment ratios, a county’s assessed value within the meaning of art. 12.01(l)(b) becomes fair market value since counties will cease to bve any assessment ratio yieldhg an assessed value different from market value. However, it is clear that the county assessed value Isused to calculate a state tax and therefore applying the Property Tax Code as written, the county market value isto be used but the state assessment ratio provided in section 26.03 thereof is then applied to determine the assessed value for state tax purposes within the meaning of article 12.01(l)(b). Not only &es this construction give effect to the language ofboth statutes, but it also complies with the clear legislative intent ofthe 66th Legislature. Inconstruing the provisions of the Property Tax Code together with article 12.01(l)(b),it isnecessary not only togive effect to the language ofboth statutes but also to consider Legislative history, the reasons for enactment ofthe statute, and the consequences ofaparticular construction. See art. 5429b-2, S3.03(1),(3),(5XV.T.C.S. Ananalysis ofthe legislative

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history of the Property Tax Code fails to reveal any intent to affect the franchise tax computation based on real estate at all. Nowhere in the fiscal note, debate or public discussion was any mention made ofincreasing the franchise tax or changing the basis of computing the tax from some percentage of market value. See Fiscal Note ofMay 16,1979,bill fle for Senate Bill 621,Legislative Reference Librai While it might be argued that 12.01(l)(b)requires that the franchise tax be computed on the county assessed value, and inview of the repeal ofassessment ratios that that value is now 100%of market value, it is clear that was not a consequence intended by the Legislature from both the language ofsection 26.03 and the legislative history behind the statute. Even if the statute were sbject to that construction, we would feel compelled to follow the rule that where interpretation of a statute leads to consequences which the Legislature did not contemplate, the courts (and this office) will adopt aconstruction consistent with the intention ofthe Legislature inpassing the legislation. As the Supreme Court of Texas held long ago in Edwards v. Morton, 46 S.W.792, 793(Tex. 1898):

The intention of the legislature ln enacting a law is the law itself, and must be enforced when ascertained, although it may not be consistent with the strict letter of the statute. Courts will not follow the letter of a statute when it leads away from the true intent and purpose of the legislature, and to conclusions inconsistent with the general purpose ofthe act.

... This principle has been reaffirmed innumerous cases since that time and Isthe guiding principle inmaking statutory interpretations.
It is the duty of this office and the courts of this state to follow the paramount rule of statutory construction, and that is to determine and follow the legislative intention in enacting a particular statute. See Calvert v. BritisbAmerican Oil Producing CO., 397 S.W.2d 839, 842(Tex. 1965);city Co.. 237 S.W. 2d 273. 278 (Tex. 1951);State v. : of Masonv.West Texas Utilities mm&e v. Waples, 188 200S.W. 815(Tex. 1947); S.W. 1037, 1038 (

Tex. 1916 Dye:, Tex. - Louisiana

24 813, Power Co. v. Farmersville, 67S.W. 2d235, 237(Tex. Comm’n App. 19332 Inenacting sections 26.02 and 26.03, webelieve that the Legislature intended to declare all assessment ratios, other than assessment ratios for state tax purposes, invalid and had no intent to affect franchise tax collections or the alternative basis of the computation of that tax under 12.01(l)(b). We hold that these statutes should be construed consistently and in amanner to minimize any unintended effect onfranchise tax collections. Section 26.03 applies the .OOOlpercent assessment ratio to the calculation of

“taxes for state purposes.” We construe the quoted language to include the state franchise tax. It is our opinion that you should use the .OOOlassessment ratio in calculating the state franchise tax under article 12.01(l)(b),TaxationGeneraL

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SUMMARY Franchise tax liability rnder article 12.01(l)(b), TaxationGeneral, is to be computed on the basis of .OOOl percent ofthe appraised Value of the corporation’s property.

MARK WHITE Attorney General ofTexas JOHN W.FAINTER, JR. First Assistant Attorney General RICHARD E.GRAYIII Executive Assistant Attorney General Prepared bySusan Garrison Assistant Attorney General APPROVED: OPINION COMMITTEE Susan Garrison, Acting Chairman Jon Bible Rick Gllpin .

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