August 14, 1947 

Hon. C. If. Cavness 

State Audit or 

Capitol Station 

Aust ia, Texas 

Attent i.ona Ron. Willl@m A. Harrison 

First Asalstant 

Opinion No. Y-341 

Re: The basis upon which to 

determine, for franchise 

tax purposes, the amount 

of capital stock of a 

corporation vhose capita 

stock has no nominal or 

Dear sir: .i par value. 

‘~ Youi req~uest for 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 amount actually paid in 

for 881118, is used by the Xecretary of State 

in detemnLning the franchise tax liability 

of ~such corporation. 

“In computing the franchise tax due by 

corporations whose capital stock has no nomlnal or par velne only the amount that has 

aCtI.Ialls be& paia in, which does not always 

represents total number of shares author- 

,ieed by the charter, is used as the amount of 

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 

“An opinion 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 means set 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., 614 

Staples, 

“Alqo please estate in your opinion whether the above referred to decisions are appllcable or Inapplicable to the current franchise tax law. n. 

The Austin. 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: 

“Its was also shown that 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 ,an appralseacash values ~of .~$12,914;765. ~Further; %n response 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 ~of the ‘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 ati aggregate 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. Qh Arts 1538a to 153&m. That Act provides that where ~a charter, oran amendment to 

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 -7sEiil stoc 

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 ~tax to 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 ,~of franchise tax to be paid 

by any corpotiatloa havlng shares, of stock wlthout noniltd 6r par value shall.be aetermlnea 

in the'mantieti'as now OF hereafter 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 and being of 

the value actually received by the corporation 

for the .lssuance of shares as disclosed by the 

charter or any amenclmsnt thereof, as provided 

in Article 153&1 hereof, or by a certlf lcate 

.as provlaecl ln Article 1538e hereof ;” 

On February 12, 1930, the Supreme Court 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 mandamus suit brought by the Southland Ice Company 

against the Secretary of State to compel her to accept a 

certain sum in 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 authorized capital stock had been sold land Issued and that 

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 amenaea Article 7084, 

which, after setting forth the ‘yardstick’ fo$“the computation of the franohise tax as Tao otuer corporations, 

contained the following methoa provided by the Lsglslature for computing the franchise tax upon no-par corporat ions. 

“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 now required of domestic corporations issuing, such stock.” 

Although Article 7084 has been amended by Acts 

1931, 42n8 Leg., p. 441, ‘chapter 265, para. 1, and Acts 
Hon. 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, and American Refldlng Company vs. 

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~~GRRRRALOF TRXAS 

clmmrj 

C. K. Richards 

Assistant 

APPROVED 

ATTORNRY GRNRRAL