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 Depart-
ment’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 nom-
          lnal 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-
                  .
   ‘>
       Hon. C. H. Cavness,   Page 2, V-341
2229
                   “An opinion is resp,ectfully     requested as
            to whether the amount actually       m     & for
            shares of capital stock of non-par corpora-
            tions 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. Staples,
                      CIV. app., 260 5. ,w., 614
                  “Alqo please estate in your opinion wheth-
            er the above referred to decisions    are appll-
            cable or Inapplicable   to the current fran-
            chise tax law. n.
                   The Austin. Court of Civil Appeals recently held
       llu’the case of Sterling Oil & Refining Corporation v. Is-
        bell,  et al, 202 3. W. (2rll 300, (no writ of error applied
        for] as follows:
                   “Its was also shown that when sala amencl-
            m&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 appralsea-
            cash values ~of .~$12,914;765. ~Further; %n res-
            ponse to a demand .of the Secretary        of State,
            sala corporation     filed Sts, franchise      tax re-
            turn 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 stockhold-
             erti 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 -vof su~h~z~n~subeequently                     ma
            shares was not fixed la tfiZha~,ter.         amendmGiiE
            .Presumsm auch7Xiie~a~i5i5itthe                   alrec-
             tops of the corporation      pursuant to the pro-
             visions 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   cdrpora-
                    tlbn.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 pro-
                    vides that where ~a charter,     oran amendment to
                    a charter,   1s sought, which authqrlze the ls-
                    suance of'no~par value stock, the majoritg of
                    the dlrectors,must     file with the Secretary of




                     are based.uljonythe      'actual consider~tlon      E-
                                        corpbratlon .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          of the value
                    '2iXiZiT
                     .+          received -h at t e--3
                                                     time -,-
                                                            0 Bie~siZiiZ
                     t ereof;lnwsis              adder.
                     The clear and unambiguous _..
                                                 aoralag.of
                                                        -        - - sta-
                                                                the
         tutes 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 ac-
         tually  .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 wlth-
                    out 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
                                                                       ”   .




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

            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 del-
       ivered 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 Commlsslon-
       er, and a&opted by the Supreme Court.      This was an orig-
       inal 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 cor-
       porat ion.  The facts shon that    only part of the author-
       ized 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 ls-
       sued 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 fran-
       chlse 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 com-
       putation of the franohise tax as Tao otuer corporations,
       contained the following    methoa provided by the Lsglsla-
       ture for computing the franchise     tax upon no-par    cor-
       porat 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 fur-
            nish the Secretary of State mlth the same
            lnformatlon now required of domestic      cor-
            porations issuing, such stock.”
                 Although Article  7084 has been amended by Acts
       1931, 42n8 Leg., p. 441, ‘chapter 265, para. 1, and Acts
                                                                 231
     Hon. C. H. &vness,;: Page 5,~V-341         "' ,'


     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



                                                C. K. Richards
                                                     Assistant


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