                                                            -.




                  OFFICE OF THE ATTORNEY GENERAL OF TEXAS
                                        AUSTIN
OtUl.0 0. HAllW
*1101*mvOUfuL




          Hon. George H. Sheppard
          Comptroller OS Public Aooounts
          Austin, Texas
          Dear Sir:




                                                           hlch you ask whether,
                                                                frsporting goods~
                                                         6 Gocds Com,r,anyis a
                                                          ts” stores owned an6
           ogeratea by !Yilscn                     s separate ,from said ohain
           OS “mceii gTdLlC%S’~
                                                 vhat Wloon L CO., Inc., Is
                                                 833 of preparing,  pociring
                                              that it ov!no m&a operates
                                              said products ar8 sold and
                                              hin the meaning OS the “Chain
                                                          Co. is enother
                                                         athletic  equipment
                                         and it ovme and operates in Texas
           one “store               em is dofimd    in tho “Chain Store Tax
                                                           e sold.  Fifty-five
                                                         tlng Goods Co. is
           olqned by 5llson 8: Co., Inc.’ There Is no other oonneotion or
           relationship   betweea the two oorgorations.
                        Your question is~ whether all of tho stores of said
           two corporations    constitute  one single chain or the stores OS
           one corporation    are a separate ohain Srom those of the other
           corporation.
Hon. George 8. Sheppard,, page 2


          The Texas “Chain Store Tax Statute”          was paessb as
Eouse Bill No. 18, 44th Legislature,          1st Called Session,
Aots 1935; and it is codified      as Article     11116 of Vernon’s
Annotated Penal Code. ‘It provides that every person, oorpora-
tlon, etc.,    shall pay a license     fee on every store they operate,
and a schedule of lloense tees is prasorlbed           whereby the greater
the number of stores operated,tha         larger is the amount per store
that must be paid.      For example, ii only one store is operated
the license    tee is one dollar    ($l.OO), but if six stores are
operated by the same parson the license fees total one hundred
and thirty-two    dollars  ($132.00),     and if twelve stores are
operated by the same person the lloense rees total six hundred
and thirty-two    dollars  ($632.00).      Seotion 6 of the Aot pro-
vbies :
           “The provisions    OS this Act shall be construed to
     apply to every person, ogont, receiver, trustee,           rim,
     oorporatlon,    copartnership   or assooiation,     either domestlo
     or foreign,    which is controlled   or held with others by
     majority stoolc ownership or ultimately        oontrolled    or
     aireated by one management or assooiatlon         of ultimate
     management .‘I
           Section   I OS the Aot provides:
            “The term ‘store’ as used in this Act shall be oon-
     strued to mean and lnoludc any store or stores 0r any mer-
     cantile   establishment  or establishments  not speoifloally
     exempted within this Act which are owned, operated, maln-
     tained, or oontrolled    by the s3me perscn, agent, receiver,
     trustee,   rim, oorporation, copartnership or association,
     either dome&lo or foreign,      in which goods, wares or
     merohandise OS any kfnd are sold, at retail .or.wholesale.*
          Ke believe   your question is controlled    by the oase of
H. E. Butt Grooery Co. v.      Sheppard, 137 S. ;!i. (Zd) 823 (writ of
error refused),   in whioh the Court of Civil Appeals at Austin
held that In a case in which two corporations       eaoh owned and
operated grooery stores and the same person owned a majority
of the stock in eaoh of said oorporations     all of the stores
owned and operated by both oorporatlons     oonstituted   one single
chain by,virtue    of said stoek ownership.   The court saib:
                                                   -.




Hon. George H. Sheppard,    page 3


           *Sod. 0 was manifestly      intended to prevent large
     chalnc~ of storea,   which receive the benefits     flowing
     from such system (considered       and enumerated in part by
     the U. 3. Supreme Court in State Board of Tax Com’rs.
     v. Jaokson, 283 U. S. 527, 51 S. Ct. .540, 73 I.. Xd. 1248,
     73 A. L. R. 1464, 75 A. L. R. 1536, and in Eurt v. Cooper,
     130 Tet. 433, 110 S. W. (26) 896, sustaining        the validity
     of the Act as oonstitutlng      a reasonable olasslfloation),
     from ciroumventlng    the tax burdens imposed under the Aot,
     by organizing   separate corporations     to operate them, the
     oapital stook or whioh, or a msjority of it, being owned
     by a parent oorporation      or holding company, or by an
     individual   or assooiation    of individuals.    Thus through
     a oommon management or control over a number ot individual
     units or oorporations     th’3 clear puqose of the law vrould
     be defeated.    . . .

            “* . . The ownership by Butt or S3$ or the stock in
     one corporation,    and of 755 of the stock In the other,
     gaVe   him such unified control of both corporations,    through
     suoh stook ownership, as to bring the stores owned and con-
     trolled   by such separate corporations   under the provisions   ,,_.._
     of tha Aot; and required that they be treated as one ohain
     for tax purposes.”
            There ara no words in the statute which lndlcnta that         .-
the Legislature      intended that Soations 6 and 7, as oonstrued by
the H. 3. Butt, Grocery Co. aaso, should not apply just as
strongly   to stores selling       differen’: types of merchandise as
they do in a 08s~ where all of the stores sell the same kind of
merchandise.      In the H. E. Butt Grocery Co. oaae the stores of
both or the corporat:ons        (of ivhioh the majority stock of eaoh
was owned by the same person) sold grooeries,          but we think the
rule’would    be the sanm it the stores of one corporation        sold
groceries   and the stores ot the other corporation        sold an
entirely   airferent     type 0r g00a0.

          In the case of State Board of Tax Commissioners v.
Jackson, 283 U. S. 527, 51 6. Ct. 540, 75 L. Ed. 1248, the
Sugreme Court of the United States upheld the oonstitutionallty
of the Indiana chain store tax law, which is almost identioal
with the Texas “Chain Store Tax Statute.”     xhe Court upheld the
statute wherein it levied a larger tax per store on large ohalns
than it did per store on smaller ohslns or on persons owning
only one store, beoause there Is a difierenoe    in suoh stores.
The Court said:
Hon. George H. Sheppard,      gage 4


            n       there are msny points of alfrerenoe           between
     ohaln it&i*     and   inaepsndently       owned unlt6.    These oonsiat
     in quantity buying, whioh involves the applioation               of the
     mass prooess to distribution,           oomparable to the mass method
     used in production;       buying for oash end obtalniw          the
     advanta&?e-of a oash discount;           skill in buying, so as not
     to overbuy, end at the 880.0 time keep the stores stooked
     with produots suitable        in size, style and Quality ior the
     neiahborhood customers who patronize             them: warehousinu of
     goods and alstributlng        from-a single warehouse to k&rous
     stores;    abundant supply. of capital         whereby advantage may
     be taken of opportunities         f or asta lishment of new units;
     a prloing and-sales       poiioy difforsnt       from that of the       -
     individual    store,    involving    slightly    lower prioe>s; a greater
     turn-over,    and constant analysis of the turn-over            to asoer-
     tain relative     profits    on varying iterrs; unified,       and there-
     fore cheaper and better advertising            for the entire ohaln in
     a given locality;       standard form of display for the promo-
     tion of sales;      superior mrhna.$,sxentand nethod;         concentration
     of manafiement in the suecial          lines of goods hsndlad bv the
     ohain; special aooounting methods; staZdardizatlon               or-store
     macazement, sales policies          and goods sold.”      (undersooring
     ours)                                                                         ‘i.,
                                                                                      :,,
             Xe recognize     that such *ldifferencesW In respect to
stores in large ohains do oat exist to as great an extent where
the stores in tho chain do not all sell the sama kind of mer-
chandise as exists in a Case where all of the stores sell identf-
tally the same kind of oorunaaities, but dome or said edifferencese
exist.    ?:a believe   enough of staid “d-es”             exist to sustain
the constitutionality        of tha Act whan it Is construed so as to
place “sporting      good&stores      nnd “meat proauotfP stores in the
sore chain by virtue of ,said stores being controlled            by the same
%a jority    stook ownerahign.       Even though the stores’ sell alrrerent
kinds 0f merchandise, the follows            “aifrerenoes”   exist:    “buying
for cash snd obtaining, the ,advantage of a aash disoount”;            eabun-
dant sqqly      OS oapital”;     snd *superior management and method”,
          In the Oase of Uhamplogment Compensation Commission v,
City Ice & Coa1.06.,2U    1:. C. 6, 3 3. X. (2d) 290, the Supreme
Court of North Carolina upheld a provision     in the North Caroline
Unemployment Co5pensatj.on A.ct similar to Sections 6 end 7 in the
Texas Vhaln Store Tax %a$\;te”,     and ‘held three corporations                    .
    Eon. George B. Sheppard,   page 5


    (of which the majority stock of eaoh waB owned by the e~eme
    group Of persons) to conetitute    the aame uait within the
    meaning and purposes of the Aat; and in that oase two or the
    three corporations   engaged exclusively  In the buying and
    sell&    of lee end ooal, end the.other   oOrporntlOn haqdled
    only dairy produota.
              Our answer to your questions le that all of the Stores
    of said two corporations,  towlt, eaid “sporting   goods” store
    and said *meat produots” stores,  constitute   one single ohaln
    under the TeTae “Chain Store Tax Statute.”
.                                           Yours very truly    *
                                        kTSID~%Y.G~RAL OF TEXAS




                                                 Ceoil   C. Roteoh
                                                         Assistant

    CCR:AbU



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                    APOVEDEOV 13, 1940
