                            Aus-       1s. -lrExAs
cap BEN SHEPPERD
 A--     o-

                               A&Ist    13, 1956


  Honorable Tom Re;avley                     Opinton No. S-212,,
  Secretary of St&e
  State of Texas                             Rar     InclusiaiopIn grdss FB-
  Austin, Texas                                      Mph     oi pro’eeeds fram
                                                     t&e sale of corporate
                                                     caplkl assets ~fer. .frM-
                                                     EBIes tax purpwes mder
  w      Mr.- W.avley:                               Artlele 7084,. V&S.
        _L
              YOU req*st    the opinion of tlrts offbe on the follov&g,.
  qae$tkW
              engross receipts from business Et&e. is generally
       thanght af as the receipts from busine8s done m the.
       c~nducf ti, Ita business gs aathoriaed~ by then charter.
       One Potable example is ‘the Salemof goods,. wares ‘and
       merchandise’.    A cqrporation will, of, course, accamu-
       late what 18 known as ‘capital assets*+; such as farmtars,
      .fixtur&, automobiles, machinery and even a building
       from whfch to conduct tts busmess,.       Such assets are
       purchased with the accumulated cash on hand or by
       notes payable.    The manner of purchasing, however, is
       immater Lal.

              )m time, the corporation might find It expedient
       to dtspose of certain capital assets, elther~ by ‘an out-
       right sale or exchange for other capital assets of equal
       or higher value.   It frequently happens that the sale
       price exactly equals the cash value as carried on the
       books.   The .entry to ,record ‘the transaction woald simply
       be to credit-the capital assets account to write Lt off
       the boolcs and to debit the cash account tith a lihe
       am~uiL    If the assbts were sold for more than the book
       valae, the excess would, presumably be credited to ‘Other
       Income ‘. A loss would be charged against surplus.

             “‘f&z qaestion we should lihe answered Is:

              Should the gross amount received in the sale of
       capital assets be Included as ‘gross receipts from bus-
       iness done’ for franchise tax purposes?*                            <

             There are no Texas cases on this point, b.ut it has been,
  held in several cases in States other than Texas, that “gross
  receipts- means all receipts arislng from. or growing out of,
_   Hon. Tom Reavley,    page 2 (S-212)



    employment of the corporation’s capital in Its designated  busin-
    ess or otherwise.    In State v. Central Trust Company, 106 Md.
    268, 67 Atl. 267,, 271 p907), the court said:

               ‘?%a courts of last resort in New York and
        Pennsylvania. in construing statutes quite similar
        to our own taxing the gross receipts of corporations
        of designated charters, have both held that by
        ‘gross receipts * the statute meant all receipts
        arising from, or growing out of,, employment of the
        corporatian’s capital in its designated businass or
        otherwlse.’ (Emphasis added)

               In 14 Fletcher Cyclopedia Corporations      (Perm.Ed.
    1945) Sac. 6953,~ p. 646, it is stated:

               *A so-called franchise tax may be either (1) a
        property tax or (2) an excise tax. ~Generally, however,
        the term is’ used as meaning an excise, as distinguished
        from a property tax, imposed on franchises, and consist-
        ing of a moreor     less arbitrary sum having little or no
        connection with the actual-value, although such a tax,
        even when an excise, is often measured, at least to some~
        extent, by the amount of property’ or earnings of the
        corporation.. ..,  (Emphasis added,)

               The franchise tax ls not a tax upon the property of
    a corporation nor one ,upon its income.   United North -& south
    Development Co. v. Heath, Secretary of State, et al., 78 S.W.Zd
    b50 ITeX.CiVd%DD. 1934. error ref.1 AS the franchise ‘& on
                   _-~                    ~I


    corporations in Texas is not Ia property tax, its would be an excise
    tax.

               The proceeds from a sale of capital assets ~by a corpora-
    tion in Texas would not constitute gross receipts from business
    done in Texas as long as it did not reallae a profit .frem the saLe
    thereof.   Of course, the profits, lf anyI wou,ld constitute “gross
    receipts*.

              In the abs,ence of Texas cases, we quote from Corbett
    Investment Company v. State Tax ‘Commission, 181 P.2d 130;2,
    133 181 0    ~244 (1947) in which the Supreme  Court of Oregon,
    in &n&r&      the term *gross’ receipts? said:
               ic
                 . . * It does not include the proceeds    of the
         conversion of capital assets,     without gain, as in the
         instant case.-
Hgm. Porn Reaviey,   pfige 3 (S-212)



                               kSUMMARY

            The proceeds ‘&ifa sale of capital assets, or
     the conversion of capital assets to’ cask by a corpor-
     atrOn,, wLtho& gain, does not constitute *gross receipts
     fF@rn its basineas done in Texas* under Article 7084,
     V.C.S.l profits from.t&e sale of capital assets would
     constitite *gross receipts.‘.

                                   Y,ours very truly,~

APPROVED1                           JOHN ~BEN SHEPPERD
                                   ,Attorney .General

Wi V. Geppert
Taxation Divis ion
                                   *m,:..~E&+F~
Elhert M. Morrow                       “X-I&@    Gates Steen
RevLewer                                 Assistant

J; cl& Lkvis., Jr.
Reviewer                                                        i-!

Will D. Davis
Special RevLewer

Davis Grant
First ‘Assistant

John Ben Shbpperd
Attorney General

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