I.

May

### 14, 1956

Hon. TomReavley Secretary of State Capitol Station Austin, Texas Opinion No. S-196 Re: Use of assessed property value in computation of the franchise tax. Dear Mr. Reavley:

Youhave requested anopinion of this Office as follows:

“Aquestion has arisen as to the proper basis of computing the franchise tax for certain periods where the assessed value is the factor rather than the taxable capital.

“There is aforeign corporation that was granted apermit to transact business in Texas March 19, 1952. The first franchise tax return wasfiled within 90days after March 19, 1953 in accordance with the provisions of Article :;C$ V.C.S. of Texas, as amendedby the .5LstLegislature,

. The return shows no gross receipts, either in Texas or elsewhere, and the minimumtax of $25was paid for the first permit year ended MarchJ9, 19.53, the proportionate part of $25 for the period toMay1, 19.53and $25 for the year beginning May1, 1953. Thecorporation also reported that there was noassessed value of property for County ad valorem tax purposes. Under the schedule for furnishing such information as of January 1, 1953, the date werequested, the corporation madethe following statement:

rAt the date of this return property has not been assessed for 195301 Although the return was presented with abalance sheet as of March 31, 195’3, it was signed before anotary public June 9, 1953, at which time it can be assumed the advalorem assessment had been made.Hon. TomReavley, page 2. (Opinion No. S-196)

“Uponcomparing this return against the March 15, 1954 return, which shows aclose of December 31, 1953, it was discovered that there was anassessed value as of January 1, 1953amounting to $2,000,040.00. Incidentally, the report form called for the assessed value as of January 1, 1953. It appearing that such assessed value should have been reported in the first year tax return andthe tax computed thereon, additional tax has been proposed for the three periods mentioned in the second paragraph hereof.

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. . .

“It is agreed that the corporation ownednoproperty in Texas January 1, 1952. Thecorporation did, however, own property subject to advalorem tax assessment onJanuary 1, 1953.

. . .

“With the foregoing facts before you, please give us your opinion on the following:

“(1) Should the assessed value for County advalorem tax purposes as of January 1, 1953, be used in computing the tax under the first year return?

“(2) If your answer is in the affirmative, should the assessed value be used for all three periods, namely March 19, ,1952toMarch 19, 1953, for the short period from that date toMay 1, 1953and for the year beginning May1, 19.53?

“(3) If not for all three periods, then what specific period or periods?” Weanswer your first and second questions in the affirmative. Theassessed value, for county advalorem tax purposes, of the property ownedby the corporation in this State as of January 1, 1953, should beused in computing the franchise taxes for all three periods, namely March 19, 1952, to March 19, 1953, for the period from March 19, 19.53, to May 1, 1953, andfor the year beginning May1, 1953.

The47th Legislature, in its Regular Session in 1941, added reenacted Article 7084, Vertonrs Civil Statutes and thereto the provision that

. . . andprovided further that the tax shall in nocase be computed on asumless than the assessed value, for State advalorem tax purposes, of the property ownedby the corporation in this State.

. . .‘IHon. TomReavley, page 3 (Opinion No. S-196)

The departmental construction of the Secretary of State placed upon this amendment toArticle 7084 is that the corporation should show in its first year franchise tax report the total assessed value, for county advalorem tax purposes of all property ownedby the corporation on the first day of January occurring within said first year after the date of the filing of its charter or the granting of its permit, as the case maybe.

Since this departmental construction of the Secretary of State has been consistently followed for aperiod of more than fifteen years, and, the Legislature has met many times since the establishment of this departmental construction, the following rule enunciated bythe Supreme Court of Texas in the case of Isbell v. Gulf Union Oil Company, 147 Tex. 6, 209 S.W.2d 762 (194b), would govern:

“While the Legislature has metmanytimes since Article 7092was construed as above indicated, it has not undertaken to change the statute so as to alter the construction which had been given it. If the Legislature did not approve the construction which had been given the statute, it could have easily amended the law. This wasnot done. This Court does not feel Justified to hold nowthat the Secretary of State was in error in the construction of this statute.” Youare advised, therefore, that acorporation should include in its first year franchise tax return the assessed value of its property held or owned in this State, for county advalorem tax purposes, on the first day of January occurring within the first year after the filing of its charter or the granting of its permit, as the case maybe.

In the case of the corporat.ion in question, the first year of the granting of its permit ended onMarch 19, 19.53. This corporation did not file its first year franchise tax return or pay its initial tax unti1~June 9, 1953. This corporation reported, as of June 9, 1953, that noproperty had been assessed as of January 1, 1953. However, in its franchise tax return, filed March 15, 19.54, it showed anassessed value as of January 1, 1953, of $2,OOO,OhO. Therefore, the first year franchise tax return of said corporation was improper and incorrect wherein it showed that noproperty was assessed as of January 1, 1953.Hon. TomReavley, page 4 (Opinion No. S-196)

The corporation having been derelict in its duty to properly an,dcorrectly report all items onwhich its franchise taxes in question were to be computed, owes the State additional franch,ise taxes for all three periods, namely, the first initial tax year from March 19, 1952toMarch 19, 1953, for the short period fromMarch 19, 19.53, toMay 1, 1953, and for the tax year beginning May 1, 19.53. These additional taxes are to becomputed on the basis of the assessed value, for county advalorem tax purposes, of the property held or ownedby it in this State as of January 1, 1953. The reason for this is that the said tax return, as filed by this corporation, sho,wed no business done in Texas; therefore, there wasno taxable capital allocable to this State uponwhich to compute said taxes. These franchise taxes would, therefore, have to be computed on the advalorem assessments as provided byArticle 7084, wherein it is provided that the franchise tax shall in nocase be computed on asumless than the assessed value, for county advalorem tax purposes, of the property ownedby the corporation in this State.

As the date for timely payment of these franchise taxes has passed, the statutory penalty df twenty-five (25%) per cent of the taxes duehas accrued by operation of law. This statutory penalty is provided for in Article 7091, v. c. 5.

Where acorporation hadno gross receipts from business done in this State during the first year following the granting of the charter or permit, the franchise taxes of the corporation for the initial tax year, for the additional period (if any) between January 1, andMay 1followtng the end of the f,frst year, and for t~heyear beginning May 1following the end of the first, year should be. .

Hon. TomReavley, page 5, (Opinion No. S-196)

computed on the basis of the assessed value, fcr county advalorem tax purposes, of the property held or owned by it in this State as of the date of January 1which falls within the first tax year. APPROVED: W.V. GEPPERT Taxation Division MARYK. WALL Reviewer Yours very truly, JOHNBENSHEPPERD Attorney General of Texas

BY J. ARTHURSANDLIN Reviewer L. W.GRAY Special Reviewer DAVISGRANT First Assistant JOHNBENSHEPPERD Atto,rney General