Hon. Coke R. Stevenson, Jr.   Opinion No. C-427
Administrator
Texas Liquor Control Hoard    Re:   Whether the provisions of
Austin, Texas                       the Texas Liquor Control
                                    Act, which require that a
                                    corporation be Incorporated
                                    under the laws of the State
                                    of Texas in order to be
                                    eligible for a permit or
                                    license are constltutlonal
Dear Mr. Stevenson:                 and related questions.
          In your request for an opinion of this office, you
ask the following questions concerning the following statutes:
              "Section 18 of Article I of the Texas
         Liquor Control Act (Artlolt 666-18 of V.
         A.P.C.) provides in part as follows: I. . .
         No permit shall be issued to a corporation
         unless the same be incorporated under the
         laws of the State and unless at least flfty-
         one (51s) percent of the stock of the corpo-
         ration Is owned at all times by citizens who
         have resided wlth,inthe State for a period
         of three years and who possess the qualifi-
         cations required of other applicants for
         permits; . . .I
              "Subdivision (h) of subsection 2 of Sec-
         tion 5 of Article II of the Texas Liquor Con-
         trol Act (Article 667-5, 2, (h) of V.A.P.C.)
         provides In part as follows: @. . . The coun-
         ty judge shall refuse to approve the appll-
         cation for such license If he has reasonable
         grounds to believe and finds any of the follow-
         ing to be true: . . . 2. If a Distributor or
         Retailer: . . . (h). If a corporation, that
         the applicant l,snot incorporated under the
         laws of this state; or that at least flfty-
         one (51%) percent of the stock of such corpo-
         ration 1s not owned at all times by citizens


                              -2005-
Ron. Coke R. Stevenson, Jr., page 2 (C-427)


         who have resided within this state for a
         period of three (3) years and who possess
         the qualifications required of other appll-
         cants for licenses; . . .I
               "Question number one. Are these pro-
          visions of law which r&$ilre that & corpo-
          ration be incorporated under the laws of
          the State of Texas In order to be eligible
          for a permit or a license constitutional?
              "Question number two. Are these pro-
         visions of law that i%?iiiIre
                                     that fifty-one
         percent of the.stock of the corporation be
         owned by persons who have been resident citi-
         zens of the State of Texas for a period of
         three years Immediately preceedlng the filing
         of the application in order for the corpo-
         ration to be eligible for i permit or a
         license constitutional?
              "Subsection (10) of Section 3-a of
         Article I of the Texas Liquor Control Act
         (Article 666-3a, (10) of V.A.P.C.) provides
         that the term '"'applicant"shall mean any
         person who submits or files an original or
         renewal appllcatlon with the county judge,
         or board or administrator for a license or
         permit.'
              "Subsection (6) of Section 3-a of
         Article I of the Texas Liquor Control Act
         (Article 666-3a, (6) of V.A.P.C.) provides
         that the term "'person" shall mean and refer
         to any natural person or association of nat-
         ural persons, trustee, receiver, partnership,
         corporation, organization, or the manager,
         agent, servant, or employee of any of them.'
              "Subsection 16 of Section 11 of Article
         I of the Texas Liquor Control Act (Article
         666-11, (16) of V.A.P.C.) provides In part
         as follows: t . . .When the word "applicant"
         Is used in (1) to (14) of this section, It
         shall also mean and Include each member of
         a partnership or association and all officers
         and the owner or owners of the majority of
         the corporate stock of a corporation, as of
         the date of the application, . . .I

                            -2006-
Hon. Coke R. Stevenson, Jr., page 3 (C-427)


              "Subsection (11) of Section 11 of Arti-
         cle I of the Texas Liquor Control Act (Arti-
         cle 666-11, (11) of V.A.P.C.) provides in
         part as follows: ‘The Board or Administrator
         may refuse to,lssue a permit . . . to any
         applicant . . . if It has reasonable grounds
         to believe and finds any of the following to
         be true: . . . (11). That the applicant Is
         not a citizen of the United States or has
         not been a citizen of Texas for a period of
         three (3) years Immediately preceding the
         filing of his application, . . .I
              "Section 18 of Article I of the Texas
         Liquor Control Act (Article 666-18 of V.A.
         P.C.) provides In part a8 follows: 'No per-
         son who has not been a citizen of Texas for
         a period of three (3) years immediately pre-
         ceding the filing of his application there-
         for shall be eligible to receive a germit
         under this Act. . .I

              "Subdivision (e) of subsection 2 of
         Section 5 of Article II of the Texas Liquor
         Control Act (Article 667-5, 2 (e) of V.P.P.
         C.) provldes~In part as follows: I.'. .The
         County Judge shall refuse to approve the
         application for such license If he has
         reasonable ground8 to.believe and finds any
         of the following to be true: . . . 2. If a
         Distributor or Retailer: . . . (e). That the
         applicant Is not a citizen of the United
         States or has not been a citizen of.Tcxas
         for a period of three (3) years Immediately
         preceding the filing of an application, . .
         .t
              "gstion   number three. Are these pro-
         visions of law that require that the officers
         of a corporation be resident citizens of the
         State of Texas for three years immediately
         preceding the filing of the application In
         order for the corporation to be eligible to
         receive a pennit or a license constitutional?
               'lQuestlonnumber four. Are these pro-
          visions of law that require that a natural


                             -2007-
Hon. Coke R. Stevenson, Jr., Page 4 (C-427)


          person, or a partnership composed of nat-
          ural persons, or an association of natural
          persons, be resident citizens of Texas for
          three years immediately preceding the filing
          of the application in order to be eligible
          to receive a permit or license constitution-
          al?
               "Subsection (28) of Section 12 of Artl-
          cle I of the Texas Liquor Control Act (Arti-
          cle 666-12,  (28) of V.A.P.C.) provides as
          follows: 1. . .Where the word "permittee" is
          used in this section it shall also mean and
          include each member of a partnership or as-
          sociation and each officer and the owner or
          owners of the majority of the corporate stock
          of a corporation, . . .I
               "Subsection (23) of Section 12 of Artl-
          cle I of the Texas Liquor Control Act (Arti-
          cle 666-12, (23) of V.A.P.C.) provides In
          part as follows: 'The Board or Administrator
          may cancel . . . any permit . . . if It is
          found that any of the following is true:
          . . . (23).  That the permittee is not a
          citizen of the United States or has not been
          a citizen of Texas for a period of three (3)
          years Immediately preceding the filing of
          his application; . . .I

               "Question number 5. Is this provision
          of law that gives th Texas Liquor Control
          Board the authority To cancel a permit ls-
          sued to a natural person, or partnership, or
          association, on the ground that the persons
          to whom the permit was issued were not resi-
          dent citizens of the State of Texas for a
          period of three years immediately preceding
          the filing of the application for the permit
          constitutional?
                "Question number 6. Is this provision
          of law that gives the Texas Liquor Control
          Board the authority to cancel a permit is-
          sued to a corporation on the ground that the
          officers of thencorporation were not resident
          citizens of~the State of Texas for a period
          of three years immediately preceding the
          filing of the application for the permit con-
          stitutional?
                               -2008-
Hon. Coke R. Stevenson, Jr., page 5 (C-427)


               "Guestion number 7.  Is this provlcion
          of lawAfiat gives th Texas Liquor Control
          Bard the authority Eo cancel a permit ls-
          sued to a corporation on the ground that the
          owner or owners of the majority of the corpo-
          rate stock of such corporation were not resl-
          dent citizens of the State of Texas for a
          period of three years immediately preceding
          the filing of the application for such ncr-
          mit constitutional?"
          It was stated in your request that these questions
arose as a result of the decision in Miskell v. Termplan In-
corporated of Houston, 381 S.W.2d 129 (Tex.Civ.App. 1go4
error ref.), whemthat     provision of the Texas Rcgulatiry
Loan Act requiring that 51% of the stockholders in domestic
finance corporations be Texas residents was struck down as
being In vlolatlon of the Due Process and Equal Protection
Clauses of the State and Federal Constitutions. It may be
stated at the outset that we do not adopt that-case ascon-
trolling herein due to the language on page 133 of the opln-
ion:
               11 . . The discrimination cases in the
          liquor'f~ieldare of little help as they are
          treated In a class to themselves. This is
          especially so since the adoption of the 21st
          amendment to the Federal Constitution."
             With regard tomQuestion No. 1, It was held In Rail-
way Express Agency v. Virginia, 282 U.S. 441)(1931) that?
state    constitutlonal provj     which require:;a foreign nubllc
service corporation to become incorporated uncicr the laws of
the state as a condition of obtaining authori~tyto carry on
intrastate    business therein does not violate the Fourteenth
Amendment to the Federal Constitution. In an annotation to
that case in 72 A.L.R. 105, it was stated:
                  . .The present annotation is limited
          to the-question of whether or not a state may
          require a foreign corporation, as a condition
          upon its right to do business within the state,
          to become domesticated or incorporated under
          its laws.
               "The real question raised by the subject
          of this annotation is the power of a state to
          exclude foreign corporations; for the require-
          ment of domestication or local incorooration
                               -2009-
Hon. Coke R. Stevenson, Jr., page 6 (C-427)


          is in effect the exclusion of the corporation
          so long as it retains Its foreign status.
          Hence, the recognized power to exclude foreign
          corporations would seem to imply power to re-
          quire domestication or Incorporation in the
          state. . . .'
          It Is stated in 16A C.J.S. 212, Sec. 471:
              "Since a corporation is not a citizen
         within the meaning either of the Constitu-
         tion as originally adopted or of the Four-
         teenth Amendment, as discussed supra f3456
         it follows that a state may prohibit a
         foreign corporation from doing business with-
         in Its boundaries, or may grant such prlvl-
         lege on such conditions as it deems best,
         without violating such constitutional pro-
         visions or similar provisions in a state
         constitution, . . .v
          Finally, In Waters-Pierce Oil Co. v. Texas, 177 U.S.
28. the United States Supreme Court in affirming the Austin
Court of Civil Appeals decision (error ref.), held that the
right of a foreign corporation to engage in business within
a state other than that of its creation depends solely upon
the will of such other state, except with respect to business
of a Federal nature.
          Based on this authority we answer Question No. 1 in
the affirmative.
          It appears that the ultimate issue in all of the
above questions is whether the statutory discrimination in
each case is reasonably related to the overall ob.iectiveof
the act in which It is-found; or,Swhether the legislative
classification is, In fact, arbitrary. San Antonio Retail
Grocers, Inc. v. Lafferty, 156 Tex. 574, 2~7 -957).
'I?le
    overall          f the Ll<luorControl Act-is stated in
Section 2 ofp%?%~eo666,   Vernon's Penal Code:
               "This entire Act shall be deemed an
          exercise of the police power of the State
          for the protection of,the welfare, health,
          peace, temperance, and safety of the people
          of the State, and all its provisions shall
          be liberally construed for the accompllsh-
          ment of that purpose."

                              -2OlO-
Ron. Coke R. Stevenson, Jr., page 7 (C-427)


          In DeGrazler v. Stephens, 191 Tex. 194, 105 S.W. 992
(1907). the court upheld a statutory requirement that an acpli-
cant for a retail liquor license be-a citizen of the State-and
a resident of the county wherein the license Is issued. The
Court said that the requirement did not contravene the Prlvi-
leges and Immunities, Equal Protection, and/or Due Process
Clauses, but was calculated to aid In regulating the liquor
traffic by rendering the licensee subject to process where suit
is brought on his bond and by facilitating the determination of
his other qualifications to exercise his license.

          In Texas Liquor Control Board v. Continental Distlll-
lng Sales Company, 203 S W 2d 268 pci      A    1947
ref.). Article bb6. Sectio: 1%. Ver%nlsvPezi    Code: Ei?lt-
tacked as violative of the Due"Process~and Equal Protection
Clauses. This section provides that it shall be unlawful for
any one holding a non-resident seller's permit to hold or have
any interest in any permit authorizing the importation of liq-
uor Into the State for resale. In upholding the constitution-
ality of the statute, the Court states:
               (1. . .The right of the'state to dis-
          criminate under the 21st Amendment of the
          Federal Constitution carries with it~all
          power necessary to carry out'its will. It
          matters not whether the discrimination is
          reasonable or unreasonable, If there is dis-
          crimination between wholesalers or Importers
          as to cause any to cease doing business in
          the State, such Is only that which is neces-
          sary to effectuate the State's regulation of
          the liquor traffic In the interest of public
          welfare. The discrimination, if present,
          which we think does not exist, such Is only
          Incidental to the main purpose of the Act,
          i.e., maintaining various levels of the liq-
          uor industry within this State.. The policy
          of the State, as reflected in the statute,
          art. 666, Penal Code, is clearly appropriate
          for effectually eliminating the .evlls Incident
          to the combination of affiliated companies in
          such business. . . The State, under the 21st
         .Amendment, has the express power reserved to
          it to regulate as it sees fit with regard to
          commerce In Intoxicating liquors, and such
          right carries with It all power necessarily
          incidental to effectuating the main purpose


                             -2011-
Ron. Coke R. Stevenson, Jr., page 8 (c-427)


          of the Aot. State Board of Equalization of
          California v. Youn 'a Market Co
       _- 3, 57 S.Ct. 77, 7%, 79, 81 L.i' 8'?'&&ey
          v. Joseph Trlner Corp., 304 U.S. 2,
                                            01, 58 S.
          Ct. 952, 82 L.Ed. 1424; IndianapolisBrewing
          Co. v. Liquor Control Commission, 305 U.S.
          391, 59 S.Ct. 254, 83 L.Ed. 243; Zlffrln,
          Inc. v. Reeves, 08 U.S. 132, 60 S.Ct. 163,
          167, 84 L.FA. 128 ; Clark Dlstllllng Co. v.
          Western Maryland R.R. Co., 224 U.S. 311, 37
          S.Ct. 180; Missouri Kansas & Texas R. Co.
          of Texas v. May, 194 U.S. 267, 24 S.Ct. 638,
          48 L.FA. 971."

          The federal decisions have also upheld the State
police power under the 21st Amendment as not being in contra-
vention of the Due Process, Equal Protection or Commerce Clauses.
The United States Supreme Court stated in Ziff'rlnv. Reeves, 308
U.S. 132 (wig):
               "The Twenty-First Amendment sanctions
          the right of a Stat@ to legislate concerning
          intoxicatingliquors brought from without,
          unfettered by the Commerce Clause. Without
          doubt a State may absolutely prohibit the
          manufacture of Intoxicants, their transpor-
          tation, sale, or possession, i,rrespectlveof
          when or where produced or obtained, or the
          use to which they are to be gut.  Further,
          she may adopt measures reasonably.approprlate
          to effectuate these inhibitions and exercise
          full police authority In respect of them.
          Clark Distilling Co. v. Western Maryland Ry.
          co., 242 U.S. 311, 320; Crane v. Campbell,
          245 U.S. 304, 307. Seaboard Air Line Ry. v.
          North Carolina, 245 U.S. 298, 304; Samuels
          v. McCurdy, 267 U.S. 188, 197-198.
              "Having power absolutely to prohibit
         manufacture, sale, transportation,or pos-
         session of Intoxicants,was it permissible
         for Kentucky to permit these things only
         under definitely prescribed conditions?
         Former opinions here make an affirmative
         answer Imperative. The greater power ln-
         eludes the less. Seaboard Air Line Ry. v.
         North Carolina, supra. The State may pro-
         tect her people against evil Incident to

                              -2012-
Hon. Coke R. Stevenson, Jr., page 9 (C-427)


          intoxicants, Mugler v. Kansas, 123 U.S. 623;
          Kidd v. Pearson, 128 U.S. 1; and may exercise
          large discretion as to mean8 employed."
          To provide that an applicant for a liquor permit or
license be a Texas resident for three years preceding his ap-
plication is a reasonable requisite to facilitate the liquor
authorities in determining the qualifications of a permittee
or licensee. Some of these qualifications are that the a?-
plicant has not been convicted of a felony within the two
years preceding his application, that the applicant Is of
good moral character, that his reputation for being a peace-
able, law-abiding citizen in the community wherein he resides
is good, that the applicant Is not in the habit of using al-
coholic beverages to excess, and others. There can be no
doubt that these qualifications are germane to the overall
purpose of the Liquor Control Act for the.protectlon of the
welfare of the people; and likewise It does not appear unrea-
sonable to require that an applicant be a Texas resident for
three years as a necessary means in determining these quall-
fications. Nor, should the overall purpose of the Liquor
Control Act and welfare of the people be impaired where the
licensee or permittee is a corporation. The officers and
majority of the stockholders must necessarily meet the same
standards as an individual, as they are, in effect, the li-
censees and permittees.
          In light of the foregoing authorities and language,
therefore, we answer Questions No'a.2, 3 and iiin the affir-
mative:
          Questions No~'s.5, 6 and 7 deal with the same re-
quisites as 4, 3 and,2, respectively; the only difference
being that the latter are concerned with qualifications for
an original application for a permit or license an5 the for-
mer relate to grounds for tiancellationwhere a'licenne or
permit has already been granted. For the same reasons, then,
we answer Questions NoIs. 5, 6 and 7 in the affirmative.
                          SUMMARY
             The provisions of law which require
          that a corporation be incorporated under
          the laws of the State of Texas In order
          to be eligible for a permit or a license
          are constitutional.



                              -2013-
.




    Hon. Coke R. Stevenson, Jr., page 10 (C-427)


                 The provisions of law that require
              that fifty-one percent of the stock of
              the corporation be owned by persons who
              have been resident citizens of the State
              of Texas for a period of three years im-
              mediately preceding the filing of the
              application in order for the corporation
              to be eligible for a permit or a license
              are constitutional.
                  The provisions of law that require
              that the officers of a corporation be re-
              sident citizens of the State of Texas for
              three  years Immediately preceding the fil-
              ing of the application in order for the
              corporation to be eligible to receive a
              permit or a license are constitutional.
                 The provisions of law that require
              that a natural person, or a partnership
              composed of natural persons, or an asso-
              ciation of natural persons, be re'sident
              cltlzens of Texas for three years Immed-
              iately preceding the filing of the appli-
              cation in order to be eligible to receive
              a permit or license are constltutlonal.
                 The provision of law thatgives the
              Texas Liquor Control Board the authority
              to cancel a permit Issued to a natural
              person, or partnership, or association,
              on the ground that the persons to whom
              the permit was issued were not resident
              citizens of the State of Texa.sfor a
              period of three years Immediately preced-
              ing the filing of the application for the
              permit is constitutional.
                 The provision of law that gives the
              Texas Liquor Control Board the authority
              to cancel a permit Issued to a corporation
              on the ground that the officers of the
              corporation were not resident citizens of
              the State of Texas for a period of three
              years Immediately preceding the filing of
              the application for the permit Is constl-
              tutlonal.


                                   -2014-
Ron. Coke R. Stevenson, Jr., page 11 (C-427)


               The provision of law that gives the
            Texas Liquor Control Board the authority
            to cancel a permit issued to a corporation
            on the ground that the owner or owners of
            the majority of the corporate stock of such
            corporation were not resldent citizens of
            the State of Texas for a period of three
            years immediately preceding the filing of
            the application for such permit is consti-
            tutional.
                              Yours very truly,
                              WAGGONER CARR
                              Attorney General of Texas




BSC/lh/br
APPROVED:
OPINION COMMI'JX'EE
W. V. Geppert, Chainnan.
Robert Norris
Milton Richardson
Grady Chandler
Roy Johnson
APPROVED FOR THE A!lTORNEYGENERAL
BY: Stanton Stone
