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              OFFICE   OF THE ATTORNEY          GENERAL   OF TEXAS
I
                                   AUSTIN




     Honorable Wm. J. Esvaon
     Secretary OS State
     Au8tin, Texar
     Dear SIra



                Ue aoknovledge reoei
     ion OS to vhether or not The
     from payment OS franohiae t
     of Artl.ole 7084 of the Rev1
     eQ by the 47th Leglrlature,
                  The Union T
     Pettlbone,    and other
     poaea :
                                                        r the~purpore
                                                 ce ati operation of
                                                 t the City of Dalgae,   :I’
                                                 country eurtiou@ing
                                                a, ath all of the
                                                 on terniinal railveya
                                                 tutee of the stats




                               0 relating to railroads;   fmQ ee-
                           ight to lesue bonds In exceaa of lte
           authoriteU capital    stock and of conatruating,    meln-
           taining and operating paseenger and freight       eta-.
           tiono, railroad   yards md other facilities      necee-
           sary or proper to afford mrminal faciLltiea        to
           all railroade   nov or here e&ering the City of
Honorable Wm. J. Lavaon, page 2


     Dallae, Texan, and the right.to    exercise a.&1 oth-
     er pavers nov or hereafter   waiferred by the Zave
     of the State of Texa& on terminal rsllvay    compen-
     Lee and aubjeot to the provlsione    of an aot taae-
     ed by the 32nd Isgialmture   af the State of 8 +xea
     and approved by the Qovernor of Texas on tfLe POth
     day of March, 1911, relating    to wharf and terminal
     compmnien. *
            The artlulea of lmorporatlckq provided for the iesu-
tmoe of   480 eharee of stoak vlth a par value of $100 each.
           On April 1, 1912, the terminal company, 8 railroads
and Continents1 and Commerolcrl Trust and Savlqa Bank, entered
Into whet ~88 known ar mn “Operating, Agreement vherein it ir
etated that mid rallvay companlee vere lntereeted         in reouring
an eaommloal,   efficient    and eatl8faotory   eyatem of handl%ng
railvay traffic  vlthln and through the City of Dells6 .&nd that
the rallvmy mmpanler derired, to unite Lo the eatabliebment of.
joint tbrmlnal pmrrcrengerfaeilltles      and In the cont?true$l&   uld
Oper8tiOn of a union atatlon Sor the uae of .rald reilvay aom-
paniee and other railvay oompanler vhioh might be admltted.
That’ in order to effectuate    such purporea and deetie the rail-
vay companS.ea had oaueed to be organized The Union Terminal Com-
pany, the et@c of vhioh vae owned 60 nhmree by each of the 8
railvmy companlea.
           Tb further effectuate   eaid dealrea and pwosea     The
Unlon Termhal   Company negotlsted   a loan of $5,000,000 from
the Continental end Commeroial Trurt and Saving8 BE& and exe-
outed bonds. and a mortgage on all property then wmed or there-
after applied to secure aald indebtedneae.      Eaoh rallvay oom-
p8ny alao agreed to and did tranel’er and aealgn to the Continent-
al and Commercial Trust and Savings Bank, ae trustee,      5% of ite
60 aharea cif stock in The Union Terminal Gompeny to aeoure the
due and punctual peri’ormanoe of the agreement betveen the par-
tie@ thereto.    The railway companlea further agreed to pay the
intereet  and principle   on said bonde and on other fixed charges
and taxes in the maintenance and operation of’ The Union Termi-
Ml   company.
          Article 7084, R,evleed Civil Statutee, 1925, Subaeo-
tlon (a) provldee for a fianehiae  tax on all domeatlo and for-
eign corporation8 chartered or authorized to do buairiesein
Texas.
Honorable      Urn. J. Lawron, p8ge 3.


               Subaeotlon   (c)   of said Article   areatee   8n exemption
88 follolirI
               "Provided, h&ever,  thet thin article  ah811
         not apply to oorporationa  organized 8a termln81
         oompanies not organired for profit,   mnd h8vlng
         no lnaome from the burlness done by them. . . ."
           It her been held m8ny tlmen that the fr8nehlee t8x 1s
not 8 tmx on property or lnoome, but that it lr 8 ohrrge rude
by the State agalnrt 8 oorpor8tlon   for the privilege granted
to do business in the State.   United llorth 8nd South l?evelo$ment
Co. ,v. Heath, 78 5. Y. (2d) 650.
             But the Leglelature h8a leen fit by Artlole 7084 rub-
re@ilon   (o), wpr8, to exempt thore aorpowtionfi   whlahr (15 8re                L
orgenlted    ar termln81 oomp8nler; (2) h8ve no lneome from burlnerr
'done by them, 8nd (3) not organlred for profit.
           It 18 element8ry that t8x8tlon la the gener+l ru&e 8nd
exeniptlon from tustlon    the exoeptlon. All perrom or aorporm-
tlona olalmlng 8n exemption from tmxatio@   muat bring.themrelver
Olearly vlthln the exoeptlon beasuoe the rtetute grmntlng ruoh
exemption murt be rtrlctly    oonetrued.

              The feat that The Union Termln81 Oemp8ny 18 a oorporr-
flon     orgmnlaed aa a termln81 oomp8n3 need8 no dlma~rlon~
               The eeoond faot    to be detemlmd18 vhether & not
Ifb;" Union Tersainrl   Company has inoome from the bualnear d&e by
    .
e.
            The Legialatwe  h88 not eeen fit to define Wh8t 10
memnt by the term "lnoome."    Thet being true ve are required br
 the ruler of statutory oonstruotlon  to give the term it8 aomiaon
8nd ordinary aaceptatlon.
               In Volume 4, Worda mnd Phr88011, FlrUt Series,        pegs 3504,
it     la stated:
              "The term ~Inaome* ordln8rlly   mew    ithat
        whloh comes Into or la received. -by..-   buainese
        or Investment of aapltal,   rithout referenfae to
        outgoing expenditures. ( ".
Honorable MU. J.     UWMn,   Ppge 4


            In the oeae of Eouaton Belt and Termin   Comp8ny v.
Clark,   122 S. W. (26) 358, the Court of Civil Appeala, ln dia-
aurrring  the exemption here in quaation on 8n OrgMit8tiOn very
similar to The Union Terminal Cornpang, held that:
               "The etstutea used the vord 'lnoome@ or the
         phreae *income from bualneaa done by them,@ in the
         aenae of 8Il.yinCOme, 6s dlMd.ngulrh6d from net
         Income. *
           Aa.heretofope ahovn The Union Termin           Compmy vm; or-
ganized to aonduct 6 term&81 aad it h8a ereoted           buildinga, treaka,
aheda, eta., to carry on itr  tex%&81 bualneaa.
              It appe8ra from the f8ota~ aubmltted that The Union Ter-
  minal Compeny h8a received lnaome frqm bualneaa dono by It.             Among
  other iteme OS inoome ir the sum of 4272,671.07        total rent in-
  oome from January l., 1940, to m,ember    31,   1940.     There 8ri 8bJ
  ltema for rental of 8p8ee, rush 88 43500 from the Union Reur.Com-
  pony,   900 from bonded Tranalt Comp8ny, @50 from Interstate            Com-
  pay,   1900 from Pullman Oompuny sad $l200 from Da11813 Interahmge
  mnd Inspeation Bureau.   It m8y be srgued that the money reoolred
  from rental of office  ap8oe la aot lnoome from bualnera done.            If
  the money reoeived for rental of offloe apace la not oonaldereb
  8 p8rt of the revenue from then operation of the termlnel f6olll-
  tier auah f8ot does not preol&@e the lnol~alon       of auoh inoome be-
  08~8 the 8t8tUte   doee not requ$re *8t only the money it reo8lvea
 'from the opamtlon of the termln81 hollltlea,but           fsom 8Zl~bual-
  near done by the aOrpOr8tiOn.    In the ueae of Potom80,glsctrlc
'.Pover Co. v. Rudolph, 29 Fed.   (ad) 6226 (aertlor8rl       denied, -278
  U. 8. 656)  the aourt arida
            "There la no rule vhiah petit.0  8 aou& to 68y
      that the meemre of 8 tPX for the privil6ge    Of do-
      bualneaa, vhere income from property la the baala,
      muat be limited to that derived fmui property vhi&.
      nay be atrlotly  smld to be actually  used in the
      bualnees.'
            ..'
            Certainly the a8m~ rule vould apply to the oonatruatlon
of 6 tax exempt atatute unleaa 8 olear l&tint to the oontrsry 18
shown. Suoh intent Is not ahovn In the &state here under oon-
alderatlon.
 lionorable      Wm. J   Zaveon, page 5


           It la therefore  apparent th8t The Union Termin            Oom-
 pany hma Income from buelneea done by It.
             Uhether or not the Union Terminal Company vae 'organ-
 ised   for profit" present8 a more difficult problem.
              The Union Termin     Company~lr entitled   to all of the
 .prlvilegee   granted It qnder the etrtute vhereby It v8a lnoorpormt-
  ed 8nd 18 burdened by the dutlea required of It by l8v.         For ln-
  etanoe 8lI auoh termiM1 OOI&p8Iii808re 88 8 m8tter of lav aoIpplon
  omrrlara 8nd at much me aubjeat to regulmtlon by the Rell.vomd
  Uormieelon.    It m8y be requlr&d to not only furnlrh Its faafll-
  tie8 to Rallromds vho 8re not-ovnera     of its etoek, but the revenues
  it, reoelvee ah811 be fixed by l&e C~eeion.          Certmlnlg 8ny rate8
  for the use of the fmcU.ltlee     vhlah ml$ht be fixed by*the.B811-
  romd Commlaalon would bg 8~ 8 m8tter of lav; required to be rush
  ti 8aount~ as to lnaure to The Terminal Oompeny 8 re4aonable+e-
  turn an Its lnveatment.      The rellny  aomp8nler and The Unlcin Ter-
 ,&181 Company agreed that the termln81 00apMy vould 8qqtIh8,’
  oanetruot and operate neaesaary treeka,      lmndu 8nd ather~termh8l
 ~trcrllltlea  and oonetruat a pmrrrenger atetlon    in order to furnleh
  th6 8811~8~ ccq8nlea      ln eaonomloel, efffaient   and ctmtlafurtory
  ay8tem of h8ndlN      their peeaenger trefflo.
                 By the Operating
                                Agreement of Ap~ll 1, 19X!, r          Unlon
 Tsrminml.Camp8ny, ln oonelder8tlon       of the rua-66 be &       by the
  Nllvey   aompM.iea,  8greed to MQu3xe neaeae8ry reti estate 8nd
  ooamtruat the neae888ry union at8tiona aa& 8180 iw8nted:the use
  of ita termlxwl Seollitlea,    eubjeat to aertejn c&lltlonaj         to
  iald railvmy oompsniea for 99 years.       By asid.agreement    the.~8
  roilv8y aomp8nlea e8Oh agreed to p8y, seveP411$ 118th of the
  tiount of Interest and px%nalple of the &5,000,000 Firit 9lortg8ge
  Bandaj to pay, aeverelly,   l/&h     of the 8mount, prlnalple    8nd ln-
  tereat, of 811 other bonds; to p8y 1/8tb      of 8U ewe SoPtfre
 'Le88lng or aaqulrltlon.of   f8ollltlea    for the uee of the rsilvey
  a6mpsnlee; to pay l/&h of 811 t8xe8, rates,        levieo,   benefit,.,
  isreesmenta 8nd other government81 oh8rges of every kindi            It VI8
  further agreed thrt all income or oherges vould be used to defrmy
  the operation expenaea aa far 8a possible      and th8t the remainder
  tiould be p8ld by the rallvay oomp6nlea on a monthly UeeF b8sl8.
                 Bat only hmr The Union Termln81 Compang provided for
  all   of ita    initial ooate or oapital, lntereet ah It8 indebtednear




6‘
h
                                                                          225   .,,,.,,ii



    Eonorable   Wm. J. I,ayaon, page 6


    and all operating   expenses but it hze mzde provirion for the
    retirement of Its   bonded lndebtednesr vhlch vould at maturity
    thereof leeve all   of ite aasetr free of debt.
              The term “profit’   az applied to a burlners organlzs-
    tion i& held to lnolude and cover benefit6   of every kind in
    exaeaa of coete or expenses, and profit   in burinesc has been
    held to include all gain, advanoe In the value of,auaeta,    good
    vi13 and dividende,  in exceze of and beyond e z$ltures.      Vol-
    ume 6, Uorda and Phrarer, First 8erlez,   page
                The Union Temlnal  Company haa taken care in a rather
    Lngeniour   manner to eee that it dooe make a profit.   St ham con-
     traated to the effect  thet et some time in the future it will
    .ovn p;11 of ite very valuable property vlthout a debt of zny kind.
     In faot on April 1, 1942, it would have acoomplizhed thlr rezult,
    iiut “out of the goodneer of It8 heart’ it granted to the railway
    oompaniea on February 1, 1937, an extenzion of the time for the
    payment of the 45,000,OOO bonded lndebtedneze by refundlng    the
    Wtidt vlth another $5,000,000bond izaue to mature on February
    a;. 1967.
                lie do not think it van the Intention OS the Leglela-
    ture to require a termlnEi1 oompzny to not make a profit     on a
    dally, monthly or yearly bazie.     But on the oontrmy that if
    it mar vithln the oontemplation of the partlee prior to and at the
    time OS the organization    that a profit zhould be ma& or that the
    orgzulzat$on    van oapzble of meking a profit   then it should not
    be exempt:.
                Rot only will The Union Terminal Company-zmke a very
    rubztantlal   prof,lt but the oontemplzttion of the parties vho in-
    corporated The Union Terminzl Company I.8 very forcefully     rhovn
    vhen they oontracted to deliver all of the aherea of etoak, ex-
    oept 2 for each railway oompzny, to the trustee noml.nated in
    the trust agreement of April 1, 1912, and agreed In mid agree-
    ment. that ruch trurtee   would receive and oolleot  all dividend*.
    Mhzt are dividends if not profit.
              In the eaee of Houeton Belt and TermIns     Railway Co.
    v. Unlted States, 250 Fed. 4, the court ssidr
                “It may be that the tenant oompaulee (reil-
          vay compznlea),  orgaulzed the terminal compzxqto
          provide a convenient joint a enoy for the perforar-
          ante of certain of their dut f 8s as oarrlerk!, and
Bonorable   Wm. J. Idwon,   pzge 7


     with no view to profit   to be derived fran! ltz
     organlzetlon.     It VW, however, legally   organized
     ae a oorporat.ion oapable of earning and paying
     dlvldenda to lta stookholdere,    and the fact that
     It hae not done eo doee not make It the leez a
     oorporatlon   engaged In the burlnezm and organized
     Sor profit,   vlthln the meaning of the corporation
     tax law. .Proflt from an organleation     and opera-
     tion could result with etookholdera in other vzya
     than ln dlvldendr.’
          We are therefore of the opinion     that The Union Terminal
C0mp8ny vae OrgEd.Zed iOr profit.
            In view of the foregoing you fuw rezpeotfully  sdvlaed
tlacst The Union Terminal Oompany lr got oxem t from the payment
of frenchlee tax ae provided by Article   70 SE, Revlred Givll Stat-
utea, 1925, 88 amended.
                                          Youra   very   truly

                                     ATTCBllgy OBBBtAL OF        TFZAB




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