            OFFICE   OF THE AITORNEY           GENERAL OF TEXAS
                                      AUSTIN




Rosorsble    Ceo.    U. Sheppard
Conptroller     of   Public Accounts
Austin,    Texas


Dear Sir:




            This is in answer to                          s to whether or not
    astsfie Tire and Rubber Con                           under the law for a
    in store    tax on places of                        tidg under what is called
    restone's    Budget Plan

                                                        e us Firestone   Tire
                                                        nufactures   and sells   at




                                 is     purchasing   and selling   to   the



       merchandi3ing,       developed and as improved and recomended
       fron time to      tize by Firestone  known a3 Firestone's  Bud-
       get Plan.

            "NOW, therefore,       ‘in considerstion   of dealer   purchas-
       ing End Daintaining        a Stack Of Fire3tone    prO6UCtS for re-
       sale by dealer      an2 in csnsiderstion      of the lrutual covenants
       hereinafter     contsired,      it is hereby aSreed between the
       partie     hereto   a3 folio?;::;:
              .

    n. G;o.       9.   Sheppard,   Pase 2



        “8irestone      ~111 forthvyith ::&e known to an.3 rec.:iL-&end
        to dealer      it’s   current     plan and method of &erc:andising
        by tine paynent,          kno*;ln as its Budget Plan and will from
        tili;e -to tize     kee? dealer advisad         of im2rovezent.s    therein
        developed      by Firestone;
        “Firestone      will    likevise     select,   and recoasnd      for hire
        by dealer      a rerson trained         in solesnanship      unier such      .
        Budget Plan &d corpetent              in Firestone*;      opiniz     to con-
        duct and Esnage for dealer. sales               of Firestone     Products
        by dealers       under such EMget Plan.
        “Dealer     qrees     to adopt and en>loy the :tisrchnndising
        ffiethods of such Budget plan in dealers               sala of Fire-
        atone product.s frsrr. such c’ealers            stocks   and agrees to
        hire and’ take into dealers             eqloy     the person so recoc;-
        *mended by Firestone          and place bin in charge of the
        installat,ion       and ~p.,~
                                    *“ation     of such Budget Plan and depart-
        ment for dealer         in dealer’s       place of busines      , . .n

         “This agreer,ent       shall becon, = effective       on the date hereof
         and shell      continue    in force   until   canceled    or terminated
         by either      party   on  30  days written     notice,   by   rgisiered
         nail,    registery     receipt   requested    to the other of its
         intention      to cancel e
         *In the event of any violation            of the terzs      of this agree-
         ment of either        party hereto,    the party hot in default           may
        -notify     the other in writing       and if such default         or violation        is
         not corrested        in 5 days after     the receipt     of said notice,
         the party not in default          Eay at its option        terminate     this
:        agreement within        10 days after     the receipt     of said written
         notification       to the party in default.”

             The Chain Store Tax law of Texas is House Bill No. 18,
    Chapter 400, First    Called Session,      44th Legislature,    Acts 1935, [now
    Codified as Article    lllld   of Vernon’s     Annotated   Pens1 Code).   It
    provides  for certain    prescribed   license    fees to be paid on stores,
    end reads in part as follows:

                  “Sec.    2.    Any person,      apent,    receiver,     trustee,
          firm,     eorporation,        association      or copartnership        desiring
          to operate,         maintain,     open or establish         a store or nier-
          cantile       establishment.      in this State shall          apply to the
          Comptroller         of Public Accounts         for a license       so to do.
           . . .
                  “Sec.    5.    Every person,       agent,    receiver,     trustee,
          firm,      corooration,       associatisn      or copartnership        opening,
          establishing,          operating     or mnintaining        one or Icore stores
          or mercantile          establishments       within    this State,      under
          the sarre general          zanagezent,       or ownership,       shall pay the
          X;;;“,e       fee.    hereinafter      pr escribed     for tha nrivilage        of
                     c establishing           operatin.     or maintaining       such stores
         ‘0;. s!ergintile        estebli&mants.n.          . .
                .
              “Sec.    6.    The crovisi.Xm       sf this Act shall be
     construed      to apply t,o every person,            agent,  receiver,
     trustee,     fir=,     corporation,     copartnzrship       or associs-
     tion,    either     do:aestic    or foregin,      w:lich is controlled
     or held wit.h others          by 2ajorit.y     stock ovmershi~      or
     ultimately       csrtrolled      or directed      b; one zsnaaazent
     or association         of ultizste     nanage~ent,

             “Sec.    7.  The tern cstore’       as used’in this Act shall
     be .construed     to mean and include       any store or stores      or
     any slercanti:e     estsblishent       or est.ablis&ents      zot spaci-
     fically    exempted wit.hin this Act which ar;t owned, operated,
     Eaintained,     or controlled      by the sa%e person,       agent,  re-
     ceiver,    trustee,    fir=,   corpora;ion,     copsrtnershlp     or associa-
     tion,   either    domestic    or forelin,    in which :7oods, wares
     or merchandise      of any kind are sold,         at retsil   or whole-
     sale .”

             It is apparent. that the answer to the question       involved
t-rein  depends on whether or not Firestcne       Tire and Rubber Co.-;?any
WcontrolsW the stores     in questi&.    We b.:lieve   everyone concemed
~111 ad&it that the places     of business   operated   by the dealers,     in
which t.ires   tubes and other merchandise     are sold at retail,      are
stores within   the definition    and nzaning of the statute.

             In the case of State Board of Tax Co@dssioners          v. Jack-
scn, 283 U.S. 527,    75 L.  Rd.  1248, in which the  constitutionality       of
tte Indiana chain store     tax law was upheld,  the Suprecle Court of the
United Stat.es pointed   out the ear-marks   of chain stores,     as Pollov~s:

              “These consist         in quantity       buying,     which involves
     the applicatioc         of the siass process           t.o distribution,
     comparable      to the mass method used in production;                     buyirg
     for cash and obtairling            th e advaatare        of a cash discount;
     skill    in buying,~ so as not to overbuy,                 and at the sane
     time keep the stores            stocked    with products         suit~able in
     size,    style    and quality       for the oeighborhcod            customers.
     who pat.rsnize       then; r,arehousing          of goods and distributing
     frors a single      wareh:use        to nuzerous stores;          abundant sup-
     ply of capital,         whereby advantage cay ba taken of oppor-
     tunities     for establishment           of new units;        a pricing      and
      sales policy      different       from that of the individual               store,
     invalviag      slightly     lovter price;;         a ‘greater    turn-over,       ahd
     constsnt      analysis     of the turs-over          to ascertain        relative
     pfofits     on varying       items;     unified,      and t.h:.refore     cheaper and
                                 -           .



     2~s. (30..   H. Sheppard;       page   4,



          better     advsrtisinC      for the’e’ntire       chain In a river, local-
          ity;    stondord     forzs    of display     for tie pm;ztion       of sales;
i         superior     zamisrent        a~:? rYathod~; concentration      of crsnige-
;         uent ih th- special           lines   of g,oc?s handle.3 by t.hs chain;
          special     accounting      cethods;     stacdardization      of store cans-e-
1         Ir;ent, sales     policies’and       goods sold.
                    “The appellants’        evidecce     indicsted   t.hat all of these
f         advs ntages are Interrelated             and interdependent      In the chain
          store business.          . .*I
1
ir   13 the case of Fox v. Standard oil Co:G:any,             294 E.3. 87, 73 I.. Ed.
 :   7d0, the Suprene Court of the United States,              speakii?g through
 :   Justice  Car9020, upheld the csnstituti?nality             or the ‘Zest Virginia
 ;   chain store tax law and said:

                  ‘“The opinion  in Jackson’ 5 case enurier:2’:3s   s33e of
        s the advantages     of chai2 store   operation,    and finds   a
          sufficient    basis for tsxing    chains differently fro3 Stores
          separately    omed.   . .

                   Ye have here abundant capital;          standsrdizatioa       in
          ~equiwent     and displsy;    superior   mnazeme3t;      zore rapid
           turnover;    uniformity   in store rian3:zc:xt;       special   account-
           ing fiethods;    and a unified    sales policy     coordinating     the
;         diverse    units ,”

t.  Ih,ose features      coffie into existence    as a natursl  result  of a central
 i  control   of a group of storm.           They are the outgcwth     of unified
    ccntrolo     v;here those ear-siarlks are found you may expect        tb find a
 i central      control.       Ze have a situation    in the case under cocalders-
 1, tion in which those features           can very easily   be brought Into exist-
,: sate, if they are not alr*eady in existence.

                    A reading of the contract           shot-s that Fir,sstone      Tira and
 .   Rubber COmpaay       controls    the dealers     in question.       It says:    “Firestone
;    ‘till    . . . select    and recomend        for hire by dealer a person t mined
      in sales;ianship      . . . and competent       in Firestone’s       opinion   to conduct
     snd rasnage for dealer          sales    of Firezone      products.     . . Dealer agrees
i     to adoptnd       e-ploy    the &erchsndislsg       zet!lods   of such Budget Flan
            . ,and agrees to hire       . . . the person so recsmended             by Fire-
      itine and prace bin in char2.e of the operation                of such Xdget       Flan
      %d departgent       for dealer     in destercs     place of business        . . .n
      ;&is clearly     a11oj13 Firestone       Tire‘ aiid Ru‘:ber Coi!:.:any to pick a
      :?n and require       the dealer     to put him in charse and control            of the
      d-,le of merchandise.         That is just the same as if Firestone              Tire
       :nd Rubber CoKpanv had put him in charge directly.                   As we view
       it., it makes no difference         th-it this c;3n in chezge is theoretically
      :zployed    by and v;srklng for the desler,           because tie h3s been selected
       -7 Firestone    Tire and Rubber Cos&pany and. his ezl~lsymnt               depend.5
b ::c. Ges. I-?.~Sheppard,        ?aCe   5
1
5~              ,.

  -;;n t::z col.;pany;;     Will.     Eis    actions   are as mush    under   the csntrol
  -? tne company as t.hs act,ion s sf a toy zechanicsl              jumyinc-jack     are
  i:,:er the control        of’ a child vrh,o ov:ns 3ach en intoresting        toy, -rith
  ..T.? exception      that tke child     sson tirss    of his jumping-jack       but the
  :;;pany will constantly           be on the alert     in watching   the man in charge
  :f the dealer’s        bausiness.     And when this man ir. ch:zrge of the dealer’s
  :l;in?ss     direct;     the activities     affectin:   the sale of this merchan-
  ;:
  .-se,    it constitute::      Fir--&one    Tire and Rubtr     Comp.>ny being in
  ii:‘ect    control.

              As we under stsnd the rcts            the -dealer’s  business    consists
  ;rimsrily   of selling     tires,     tubes and "uta supplies       at retail;
  i.:d the contract    recites      that the “.desler     is nurchssinz     and sell-
  :r.g, tz the trade Rrsst:one        tir3s,   tubes,    batt-riss  and auto
  i::rplies  and sther Firestone         prducts     .* The Fix.ttsne     Tire and
  l&bor Csmp.eny has such a qqcontrolW thr?t it could,              snd~ 2robsbly
  ides, sell    tires,   tubs3 and other        products    in the dealer’s    plnce of
  t~sinzss as effectively         ss if it diractly       owned the place.

             The& are no Texas appellate             court cases on this question
  .*
  s_ control  in chain store      oreinizaiis:s,        but there ar-3 a few c:~ses
  in other jurisdictions      that sh+d scme light         on the subject.      In the
  :ase of Gulf Pefining      Comp.?ny v..Fox,       11 Fed. Supp. 425, the court
  :Jnstru?d the provisions       concerning      “control”   ir. the ;‘:est Virginia
  :&in store tax law, which are the s%e as the Texas chain store                       tax
  !Z*X, and, after   considering     the m,lnaC;szent and lease contract;          in-
  Mved in that case, said:

                  “It may be conceded        that it does not exercise         full
           control    ovar all of the actions        of the dealers       in a
           strict    legal   sense,    but its actual    control    is so effective
           that little      room is left     for independent     action     on their
           part, v;hile full       enjoyment    of the advantages      inherent     in
           a chain store system on its part is ensured.                 Adequate con-
           trol    over the operating      methods of the dealers         and of the
           retail    prices    of the goods is secured by the right retained
           by the csmpany to cancel          the license    ageement      and to put
           an end to the business         relations    between the Parties:          . .
           It 13 of little        moment to the ccpany       whether the legal
           title    to the good; resides        in it or passes upon delivery
           to the dealer;        . . .”

   -f think     that that lsn,cuace fits   the case under c.onsiderition.      Cther
   :3S33    that   shed some l<gh< on this    ouest~isn are kshlsnd Refining
   :Lpany      v. Pox, 11 Fed. Supp. 431; E,lid;:estern Petrsleun     Corpsra-
:!Jn             v.       State            Bar?         of Tax Co.tinissioners,    206 Ir,d. 625, 187 N.X.
5:;;             Eelk‘Rros.                       C.o:;pany v. ~:amell,     215 X.2. 10, 200 S."J. 915.

            '$Ve are nst umindful          of th.2 fact that there aze certain
;rJVisians’     in the nature of exceptions           in the Cbjn Store Tax La::1
:I Texas , 'one of theC: providing          that, th: ter;r "store"      shall not
;aclude "any place of business             eng;Sed esclusiveiy      i.;: t.he st.crinc,
;r?llin~,   or distributirg         of petrolem    products    and se:vicinS       of
;:tcr   veh.icles";      but we are asswisS       tha: the parties       concerned
::': not limitinS        their   trade in such 3 .-,anner sa as to collie with12
;?.st exce$t isn.
                               I
              our answer to your question           is that Firestax        Tire ,and
:ubbey Csuqany i3 liable            under the la-v for a chaio store tax on
geces     of business      operiting     under the V??irestone    BudSet Plan
;,peemntq*      csntract     described    abore.

                      .           ._.'                                       Yours   v2ry   truly




                                                                                             hssistsnt


:iPPROVZDJUL 14,                                   1939

S.      i'f. F.              Xoore




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