Mr. Robert S. Calvert                   Opinion No. C-   86
Comptroller of Public   Accounts
Austin, Texas                           Re:   Whether 100% of the ren-
                                              tal receipts   received by
                                              a corporation,    for the
                                              leasing of equipment, is
                                              Ybusiness done In Texas”
                                              regardless   of where they
                                              are used, for purposes
                                              of the allocation     for-
                                              mula In Artlole     12.02,
Dear Mr. Calvert:                             V.C.S.
         You ask whether all of the rentals received from the
leasing of trucks, automobiles,  tow boats and barges regardless.
of where they are in fact used and receipts   from the operation
by the owners of tow~;boats and barges is “business done within
Texas” for purposes of computing the franchise   tax pursuant to
the formula In Article  12.02, Vernon’s Civil Statutes,  Taxatlon-
General.                         I
        To quote from your statement      of facts:
            1) “. . . the principal    business activity
               of the corporation    . . . is leasing auto-
               mobiles and trucks.     The corporation   leases
               its equipment on a monthly rental basis
               plus a fixed charge per mile.      The auto-
               mobiles and trucks are used In this state
               as we13 as In other etates under the same
               lease contract.    The leasing corporation
               does not appear to require that the equip-
               ment be used In any particular     state.    The
               corporation  has its principal    place of
               business in Houston and apparently the
               lease contracts   are executed In Hou*ton.”
            2) ‘I. . . principal  business activity     is
                toperation and leasing of tow boats and
               barges.’    . . . the corporation    deter-
               mines Its gross receipts    from business
                ‘done in Texas’ by determining the number
               of ‘log days in Texas for barges rented

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Mr. Robert   S. Calve&,       Page 2 (No. C- 86)


                to others under bareboat charteys.’     The
                corporation   includes its receipts  for the
                days logged outside the State of Texas as
                business done outside Texas.     The charters
                were executed In Texas .and the barges were
                delivered   to the lessees In Texas.
                The assessment of ad valorem tax on thi ’
                tow boats and barges Is made In Harris
                County, Texas. ”
         The applicable       statutory       provcilon    is:
                Article      12.02    -
                 “Each corporation  liable  for payment
             of a franchlie   tax shall determine-the
             portion of Its entire taxable capital                          .
             taxable by the State of Texas by multi-
             plying same by an allocation     percentage
             which shall be the percentage relation-,
             ship which the gross receipts     from Its
             business done in Texas bear to the total
             gross receipts   of the corporation    from.
             its entire business.
                 “For the purpose of thle Article, the
             term ‘gross receipts  from its business
             done in Texas I shall include:
                 “(a) Sales of tangible personal pro-
             perty located within Texas at the time
             of the receipt  of or appropriation to
             the orders where ahlpment is made to
             points within this State;
                “(b)   Services       performed      within      Texas;
                 “(c ) Rentals from property situated,
             and royalties    from the use of patents or
             copyrlgt@s,   within Texas; and
                “(di   All    other       business   receipts      within
             Texas.
         The original   allocation    formula In Texas (Texas Session
Laws, 1917, 35th Leg.9 p. 168, Ch. 84) was passed to remedy the
unoonstltutlonallty    of an unapportioned franchise     tax on all of
the capital    stock of corporations     which did most of their busl-
ness outside of this state.        See Looney v. Crane Co., 245 U.S.
178 (1917). The validity       of the predecessor   to the present
                                            *,.
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Mr. Robert   S. CalVert,   Page 3 (No. C- 86)


statute was announced In Ford Motor Co. v. Beauchamp, 308 U.S.
331 (1939).  See generally, Texas Legislative  Council, Staff
Research Report, A Survey of Taxation in Texas, Part IIB,
pp. 209-68 (1952).
           No case Involving a rental situation      has been found
under the Texas franchise    tax statute.     The United States
Supreme Court has distinguished      between using property in
interstate    commerce and furnishing   labor or capital to another
who may operate outside of the taxpayer-lessor's          state, the
former being "Interstate"    and the latter     "intrastate".
Sound Stevedoring Co. v. State Tax Comm'r., 302 U.S. 90 ?%!I
(sup lying 1ongshoremen with t di         tlng or controlling      the
work7 ; Williams v. Fears, 17$"U.S.rE;0      (1900) (hiring laborers
In Georgia for employment outside that taxing state).            Accord,
Superior Oil Co. v. Miss., 280 U.S. 390 (1930) (sale with
mlndlfferent    knowledge" of extra-state    use).
          It has been held that the numerator of a similar allo-
cation formula was "intrastate"        business.    E.g. Pacific  Express
Co. v. Seibert,     142 U.S. 339 (1892).      In a case Involving a
sale th Texas court said that "business done in Texas" meant
"businezs begun and completed in Texas , and not business begun
in Texas and completed in some other state or foreign nation,
or vice versa.      In other words, that it means Intrastate        busl-
ness."    Clark v. Atlantic     Pipe Line Co., 134 S.W.2d 322, 328
(Tex.Civ.App.    1939, error ref.).      A8 stated'in   an Attorney
General's Opinion, it is "business originating          in and con-
summated in the State of Texas and that business originating
in the State but ,consummated outside the State would not be
construed as businesa done in Texas."          Attorney General Letter
Opinion, Book 368, P. 804 (1935).          See Flowers v. Pan American
Refining Corp       19 S.W.2d 982 (Tex.Clv.App.       1941 , error ref.);
Attorney Gene& Opinion No. R-936 (1947); Attorney General
Opinion No. WW-1503 (1962).         But see Ramsey v. Investors
Diversified    Services,   Inc., 248 S.W.2a 263 (Tex.Clv.App.
 952, error ref. n.r.e.)       (facts of each case control).         *
        The facts reveal no action by the lessors    outside of
Texas.  It appears that the lease 'contract was "begun and con-
summated" wholly within Texas.    There Is no evidence of an
agency relation  by which the lessee's  operations  outside of
Texas could be attrLbuted to these lessors.
         The 1959 revision    of the franchise   tax statute lntro-
duced the first   legislative   definition   of "business done within
TeXaS ' which, It has been said,       was not intended to change the
scope'of  the prior formula.     Texas Research League, The Alloca-
tion Formula of the Texas Franchise Tax, p. 6 (1960). However,
none of the prior authorities     dealt with a "rental"    situation

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Mr. Robert   S. Calvert,   Page 4 (No. C- 86)


which Is now treated distinctly      in section   (c)   of the statute.
A separate section (a) applies     to "sales".
        To answer this request it is necessary,  therefore,   to
analyzi the "ordinary signification"  of the words wiizh regard
to the context In which they are used.   Art. 10, section 1,
V.C.S.
          Vernonls Civil Statutes,   Article 23 defines terms used
throughout the statutes:     "The following  meaning shall be given
to each of the following    words , unless a different    meaning Is
apparent from the context:     1. 'Property'  Includes reaa and
personal property,   and life Insurance policies,      and the effects
thereof."    Because no contrary meaning appears, the equipment.
here is "property"   as used lti the Franchise Tax Act.
         The word "situated" has been construed to refer to
rules governing taxable "situs".   E.g. Great Southern Life
Insurance Co. v. City of Austin, 112 Tex. 1 243 S W 778
 1922); City of Fort Worth v. Southland GreGhound &ies,    Inc.,
   ?d'$61
          The general rule for establishing    the situs of tangible
personal property Is stated in the maxim 'mobllla       sequuntur per-
sonam"; personal property Is domiciled where the owner is.          51
Am.Jur. Taxation #448-62.(1944). Chemical Express v. City of
Roscoe. 310,S.W.2d 694 (T~x.C~V.ADD.     19%. error ref.).      The
coroor, &ions here appear to have their-charter     and princlpil
business offices    in Texas, which factors  fix one's taxable
situs.    Northwest Airlines,  Inc. v. Mlnn., 322 U.S. 292 (1944);
Chemical Express v. City of Roscoe, supra.
          Property "permanently" located In another state con-
stitutes   the primary exception to the general rule.         "Perma-
nence" may be evidenced by continuous location,        business
sltus or by sufficient       average presence in another state to
establish     kitus In such other state.     Northwest Airlines,
Inc. v. Mlnn., supra; State v. Crown Central Petroleum C0.9
 42 S W 2d 457 (Tex.Civ.App.        1951           f )  See City of
DalIa; ;. berton,        363 S.W.2d 821'(~~?&?A~p:     1962 error     _
ref. n.r.e.);      Attorney Qeneral Oplnlon'No.'V-373   (1947).
Neither ground for the exception appears from the facts pre-
sented.    The lessor has the burden of proof "to show that the
property was not taxable In this state,"         North American Dredging
Co. of Nevada v. State, 201 S.W. 1065, 1.067 (Tex.Clv.App.         19181.
        One additional  factor pointing to this result Is the                ;
word "use" to designate which patents and copyrights   generate


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       .     I




Mr. Robert S. Calvert,    Page 5 (No. C- 86)


royalties    constituting    "business done within Texas".     The
careful    statutory distinction     between the terms "use"   and
"situated"     in section  (c) suggests the Interpretation
developed above.
           Such a "situs test" for Intrastate    business Is con-
sistent with the goal of exclusivity     sought by the federal
constitutional    cases which require allocation     formulae In
state taxation.      Standard Oil Co. v. Peck, 342 U.S. 382 (1952).
          Other jurisdictions     have reached similar results    In
analogous cases.     Union Tank Line Co. v. Day, 143 La. 771,
79 So. 334 (1918);Woods v. Oklahoma Tax Corn       m1n.j 196 6kli.
94, 162 P.2d 875 (1945        distinguished   In Inlse,       201
Okla. 395, 206 P.2d 21 '(1949);        People v. m Rer,7      N.Y.
443, 112 N.E. 181 (1916).        Compare Commonwe;mv.      American
Bell Telephone Co., 129 Pa. 217, 18 Atl. 12 2 (ltrtlg) with
Commonwealth V. National Cash Register Co., 271 Pa; 406,
117 At1 439 (1921)         S     1    State v. American Refrigerator
Translt'Co.,   151 Ark. 5EJa2iY      S w 76 (1922)     But
of Cincinnati v. Commonwealth, 242'Kan. 597, i67 S.W%
Tl9431.
           The facts do not show that these lessors performed any
services    with respect to the rental equipment outside of Texas.
          Therefore, all rental revenue (monthly rental        and
fixed charges per mile) derived from the automobiles,          trucks,
tow boats and barges is "gross receipts     from business      done
within Texas", regardless    of where the lessee~may use       the
property.
        The operation of tow boats and barges by the owners
outside of Texas does not produce "gross receipts      from busi-
ness done in Texas".     Clark v. Atlantic   Pipe Line Co., 134
S.W.2d 322 (Tex.Civ.App.    1939, error ref.).


                              SUMMARY
                    All rental revenue (monthly rental and
           fixed charges per mile) from property situated
           In Texas, Is gross receipts  from business done
           In Texas .regardless of where the lessee uses
           the leased property.
    Mr. Robert   S. Calvert,   Page 6 (No.    C- 86)



                     The operation of tow boats and barges
             by the owners outside the state does not yield
             gross receipts from business done in Texas.
                                     Yciurs truly,
                                     WAGGONER CARR
                                     Attorney General of Texas




                                            Assistant   Attorney   General

    RGA:pw
.
    APPROVED:
    OPINIONCOMMITTEE
    W. V. Geppert, Chairman
    Marietta Payne
    Dudley McCalla
    J. S. Bracewell
    Joseph Trimble
    APPROVEDFOR THE ATTORNEY GENERAL
    By: Stanton Stone




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