August 14, 1947

Hon. C. If. Cavness State Auditor Capitol Station Austia, Texas Attent i.ona Ron. Willl@m A. Harrison

First Asalstant

Opinion No. Y-341 Re: Thebasis uponwhich to determine, for franchise tax purposes, the amount of capital stock of a corporation vhose capita stock has nonominal or Dear sir: .i par value.

‘~Youi req~uestfor an opinion of this Department’is: aa follows:

“In computing the amount.6f~frCiMh.ise tax due the State by corporations. whose cap- *’ltal stock has a nominal-or par value per share, the total authorized capital stock, regardless me amountactually paid in for 881118,

is used by the Xecretary of State in detemnLning the franchise tax liability of ~suchcorporation.

“In computing the franchise tax dueby corporations whose capital stock has nonomlnal or par velne only the amountthat has aCtI.Ialls be& paia in, which does not always represents total numberof shares author- ,ieed by the charter, is used as the amountof capital stock for such tax purposes ana no tax Is assessed on that portion of the author-

‘iced capital .stock~that pas not been paid as ;;,gne in cases of par value stock corpora-

.

‘>

# 2229 Hon. C. H. Cavness, Page 2, V-341

“Anopinion is resp,ectfully requested as to whether the amount actually m & for shares of capital stock of non-par corporations Is the amount of capital stock on which the franchise tax should be basea or whether the tax should be based on the entire amount authorized after ascertaining the value of the unissued stock by meansset forth in the following court decisions:

Southland Ice Co. V. McChlum, 119 T. 47, 24 3. W. (2a).344 American RefinUg Co. V. CIV. app., 260 5. ,w., 614Staples,

“Alqo please estate in your opinion whether the above referred to decisions are appllcable or Inapplicable to the current franchise tax law. n. TheAustin. Court of Civil Appeals recently held llu’the case of Sterling Oil &Refining Corporation v. Isbell, et al, 202 3. W. (2rll 300, (no writ of error applied for] as follows:

“Itswas also shownthat when sala amenclm&t was filed with the ‘Secretary-of Sta,te each of the 80 shares of the par value stock 80~ surrendered .ana cancellea haa ,anappralseacash values~of.~$12,914;765. ~Further; %nresponse to a demand.of the Secretary of State, sala corporation filed Sts, franchise tax return for 8934‘showing ~Jts:capital ,stock as being $1~,033,181.25 and:pala its .fra.nchlse taxes for 1935 oti:th+t valuation+ For all subsequent years, however,- its ~f.ran.chlse tax returns showed its capital stock as $100 for the .40.000 .&ares issued to .the 22 stockholderti in’lieu ~ofthe ‘80~&&s orlainalls held by them, plus the value actual3,g ; recelied for such of the, 40.OOO~or~ized. shares as .wer ,thereETt~issued aiiGZBTC theTTc?Eie value of su~h~z~n~subeequently ma shares-v

was not fixed la tfiZha~,ter. amendmGiiE .Presumsm auch7Xiie~a~i5i5itthe alrectops of the corporation pursuant to the provisions of Art

. .15,38c,-Vernon:‘s. Ann., CLv. St.Eon.

: “’ :C. Ii. Cavaess, Page~3, ,V-341 ,.,,'

In atiy evetlt, the report.inadd.bg.the cdrporatlbn.t:o the ~Secretary ,of:S$ate;in~May, ~1945, showeathat~ duri@the years 1934 to~.l942, there.haa beecsold atiaggregate of 30,610 of.the authoidzed 40,000 shares;Ior wh,Sch the .corporatlon h&l actually.w*ceWed ,~$25 per share." '?he do par

’ value ‘coqorat icia’wzis’~not author&d in Texas prior to the Act of 1925. R..‘C. QhArts 1538a to 153&m. That Act provides that where ~acharter, oran amendmentto a charter, 1s sought, which authqrlze the lssuance of'no~par value stock, the majoritg of the dlrectors,must file with the Secretary of

are based.uljonythe 'actual consider~tlon Ecorpbratlon .for:an h Art.~l53r d % $%? theanchlse tax statute, provides that IFir the purpose of computlti&the tax oft Co or= Ens lssulti~no pr stoc~siiX stoc -7sEiil been ana considered as,br '2iXiZiT received at t --3 of the value .+ -h -,- e time 0 Bie~siZiiZ t ereof;lnwsis adder. The clear and unambiguous aoralag.of the

_.. - - -statutes as set forth la the opinion of the Conrt **,or,r;lVil** Appeals, supra, requires that-,~the.franchlse ~taxto be paid by.non-par corporatlons,be based upon the value actually .recelved by the corporations of the shares of stock subscribed for~ana Issued.

fin the .origin@l,coalficatlon of the Revised Civil S&tut&'~of 1925 there,was containd Article 15381, as~f&lJo,ws:.

.~ "The amount,~offranchise tax to be paid by any corpotiatloa havlng shares, of stock wlthout noniltd 6r par value shall.be aetermlnea in the'mantieti'as nowOFhereafter prescribed .'~by the ~lawS.of ,thiti State, except that'such shares without nominal or par ,value shall, for the purpose of computing such tax only, be”

.

2630 Hon. C. H. Cavness, Page 4, V-341

treated and considered as having andbeing of the value actually received by the corporation for the .lssuance of shares as disclosed by the charter or any amenclmsntthereof, as **provided** in Article 153&1hereof, or by a certlf lcate .as provlaecl ln Article 1538e hereof ;” OnFebruary 12, 1930, the SupremeCourt delivered its opinion ln~the case of aouthland Ice Company v. McCallum, Secretary of State, 117 Tex. 27, 24 S. W. (2&a)344, the opinion being by **Judge** Crltz as Commlssloner, and a&opted by the Supreme Court. This was an original mandamussuit brought by the Southland Ice Company against the Secretary of State to compel her to accept a certain sumin payment of franchise taxes according to the report submitted by relator as a non-par stock corporat ion. The facts **shon that**  only part of the **author** ized capital stock had been sold land **Issued** andthat the relator had pald.the.tax upon the stock so sold at the value received by it from the sale thereof, but that the Secretary of State haa construed the law to be that the franchise tax~‘should be paid on both the lssued ana unsold stock. Article 15381 was construed in connection tlith Article 7084, and the Court held that the value’ of the stock both Issued and unissued, was subject .to be used as a basis for the payment of a franchlse tax.

‘\ Thereafter, the Fifth ‘Caliea Session of the 41& Ieglslature, 1930, Chapter 68, p. 220, repealed Article 15381 and substituted ana amenaeaArticle 7084, which, after setting forth the ‘yardstick’ fo$“the computation of the franohise tax as Taootuer corporations, contained the following methoa provided by the Lsglslature for computing the franchise tax upon no-par corporations.

“Par the purpose of computing the tax of Oorporationa issuing no-par value s,tock, such stock shall be taken and **conSidered** as being of the value actually received at the time of the lssuaace thereof; and foreign corporation8 issuing such.stock shall furnish the Secretary of State mlth the same lnformatlon nowrequired of **domestic cor**  porations issuing, such stock.” Although Article 7084 has been amendedby Acts 1931, 42n8Leg., p. 441, ‘chapter 265, para. 1, andActsHon. C. H. &vness,;: Page 5,~V-341 "' ,' 

### 231

1941;.,47th.&eg.,:chaptel"~269, 9. 184, Art. VIII, para. 1, nevertheless thia~.provlsioa of the Act'of:the Fifth Called Session, 4lst Lsgislature in 1930; has rendned unchanged.

-.

Since &e'repeal dfArtiicle~l5381 as above set forth, the aeclslons j.n the case of Southland Ice Compaq v. McCalZum; supra, andAmerican Refldlng Companyvs. 8taplesi~260 3. W. 614,'(1924) arti~lnappli&b&e to the present'franchise tax laws."

'.
The proper.,basls for the domputatlon of the franchise tax paid by non-par stock cor- .~ porations is the value actually receivea by

the corporation for shares of ~stock'subscrlbed for ana.lssued; Articles 1538a; 1538g, V.C.S., Sterling Oil &Refining Corporation TV..Isbell, 202 3. w. (2a) 

### 300. Yours Avery truly, ~ATTO~~GRRRRALOFTRXAS

**clmmrj** C. K. Richards Assistant

APPROVED

ATTORNRY

GRNRRAL