                   E           ORNEY        GENERAL




                              June 27, 1961

Honrqble  P.~ Frank Lake         Opinion No. ~~-1080
Seqretary of State
Austin, Texas                    Rer   Whether bonuser reoeloed
                                       by a oorporatlon   aa
                                       aoneideration   for the
                                       execution of mineral
                                       lease8 oonatitute   surplus
                                       for purposele of calcu-
                                       lating the franahise
                                       tax levied by Chapter
                                       12 of Title 122A,
Dear HP. Lake:                         Vernon’s Civil Btatuteu.
            Your office    hae requested an opinion 88 to
whether boausea received      by a corporation   a8 conridera-
tion for the execution of mineral leases constitute
surplus for purposes of aalculat$ng       the franchise   tax
levied by Chapter 12 of Title 122A, Vernon18 Civil
Statutes.    You have informed ue that theee bonuses
constitute   more than 90 per oent of the receipt6       of the
corporation   in question,    and that the corporation    oon-
tenda that they should be treated as a deferred credit
pending a final determlnatlon       of the nature of these
receipts.
            More particularly,     the corporation    contende
as follows:     The mlneral interests     ouned by the corpora-
tion and constituting      the subject of the leasee in
question are thue far nonproducing and thus unproven*
If these Interests     prove produative,     the bonuses already
received will be treated a6 an advance royalty,           con-
stituting   income.    If not, upon reversion      of the leases :
to the corporation     the bonuses (after Federal income            ’
taxes) should be treated aa reimbursement to the corpora-
tion for damage to its non condemned mineral ititerest8,
to be credited    against the cost of those interests,         thus
reducing the amount of such cost required to be written
off by the corporation.        Consequently,   the corporation
aques,    the bonuses should properly be oarried as a
deferred credit until the contingencies         just set forth
have been resolvedJ      so carried they would not constitute
income and thus could not constitute         surplus.
Honorable   PINFrank Lake, page 2 (~~-1080


           There are undoubtedly good reasons why the
accounting treatment of these bonuses by the corpora-
tion should be as the corporation        contends, an objective
of accounting being to provide an accurate matching of
aost and income.     The objective    of applying the franchise
tax statutes,    however, is to effeotuate      the intent of
the Legislature,    which was to levy a tax for the’prlvi-
leae of dolna business In Texas “commensurate with’the
value of the ,privilege   granted . . .        ” United-North
 -I-         ~~~-




& S6uth Development Co,v.       Heath, 78 S:W.Zd 650 (C3.v;
App. Austin, 19341,err. ref.        This   application    therefore
Is- bound neither by, the technical      usages of the terms
of the statute (including     the term “surplUsn:) ~mdlaarlly
employed In accounting,    nor by the treatmentafforded
an item by the taxpayer oorporatlon        eon Its books.
United North & South~ DeveloDment Co, Y. Heath, su Pa;
lieOOlorado:inlwz.28!t--,-         -- ._ -~
was-intended,    .foP examplea that the jtate
            “look to the property owned .by
            the corporation  and available
            to it,. ?or use during the                                ‘.:,‘,~.
            enrming year 2’; carrying on its
            businees .,.,’
regardless  of how the items in question should have
been or were In fact recorded by the company for its own
purpoaem, etioe auah property is an important determin-
ant of the value to the company of .itsprivllege  of
doing business in Texas.
              In the present case the amount of the bonuses
in question has been Peaeived by the. eerporatlon,           and
from, the time of ~!cticeJpt has been avallable       to Che
corporation     for, Its exoLua.iae use and w3ntrol.       Accord-
ingly It is our opinion that such bonuses sonstitute
surplus, as that term Is used in Chapter 12 of Title
122A, Vernon’s Civil Statutes.          The fact just noted
we feel is sufficient       to distinguish    this case from
that of unrealized      profit6   from installment    sales, which
we have held not includable        within surplus or undivided
profita   for   franchise   tax purposes.     Attorney General’s
Opinion of April 30, 1934, Book 3             p. 952; Attorney
General’s Opinion No. V-774 (1949
Ronorable   P. Frank Lake, page 3 (WW-1080)


            Bonuses received by a COP-
            poration as consideration
            for the execution of mineral
            leases constitute   surplus
            for the purposes of caloula-
            tin@; the franchise  tax levied
            by Chapter 12 of Title 122A,
            Vernon's Civil Statutes.

                             Very truly    yours,
                               ..~
                             WILL WILSON
                             Attorney General       of Texas



                             8&Y
                               Assistant
LH:lgh

APPROVED:
OPINION COMMITTEE:
W. V* Geppert, Chairman
Marvin Brown, Jr.
B. H. Titnmins, Jr.
Houghton Brownlee
REVIEWED FORATTORNRYGENERAL
BYr   Morgan Nesbltt




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