                                  The Attorney            General of Texas
                                                      April   17,   1986
JIM MATTOX
Attorney General



Supreme Court Building            Honorable Bob Bullock                    Opinion No.   m-478
P. 0. Box 12546                   Comptroller of Public Accounts
Austin, TX. 78?11- 2546           L.B.J. Building                          RI?: Application of the franchise
512/475.2501
                                  Austin, Texas   78711                    tax to "oil exchange" contracts and
Telex 9101574-1367
Telecopier   5121475-0268
                                                                           "oil matching buy-sell" contracts

                                  Dear Mr. Bullock:
714 Jackson, Suite 700
Dallas. TX. 75202.4506
                                       You ask about the meaning of "gross receipts" for purposes of
2141742-6944
                                  calculating the franchise tax.

4624 Alberta Ave., Suite 160           Texas imposer, a franchise tax on every corporation that does
El Paso, TX. 79905.2793           business in Texas OL- that is chartered or authorized to do business in
915/533-3464                      Texas. Tax Code 5171.001. In most cases, the amount of franchise tax
P
                                  a corporation must pay is based on the portion of the corporation's
       1 Texas, Suite 700         taxable capital that is allocable to Texas. Tax Code 8171.002. To
    “ouston. TX. 77002~3111       determine the'portion of a corporation's taxable capital allocable to
    7131223-5886                  Texas, “the corporsttion'stotal   taxable capital [is] multiplied by a
                                  fraction, the numczator of which is the corporation's gross receipts
                                  from business done! in this state and the denominator of which is the
    806 Broadway, Suite 312
    Lubbock, TX. 79401-3479
                                  corporation's grorm receipts from its entire business." Tax Code
    6061747-5236                  §171.106. Gross receipts from business done in Texas is determined as
                                  follows:
    4309 N. Tenth. Suite B
    McAllen. TX. 76501-1065
                                              The fi;rossreceipts of 8 corporation from its
    5121662-4547                           business done in this state is the sum of the
                                           corporatLon's receipts from:
    200 Main Plaza, Bulb 400
    San Antonio, TX. 76205-2797
                                                 (1) each sale of tangible personal property
    512/2254191
                                              if the property is delivered or shipped to a
                                              buyer :inthis state regardless of the FCE point
                                              or anvther condition of the sale, and each sale
    An Equal OppOrtUnityI                     of taa:piblepersonal property shipped from this
    Affirmative Action Employer               state to a purchaser in another state in which
                                              the seller is not subject to taxation;

                                                  (2) each service performed in this        state;

                                                  (3) each rental of property situated in
                                               this state;




                                                                p. 2187
Honorable Bob Bullock - Paga 2 W-478)




               (4) each royalty for the use of a patent or
            copyright in tbts state; and

                (5) other business done in this state.

Tax Code $171.103.     Gross receipts   from   an   entire business   is
determined by a similar formula:

             (a) The gross receipts of a corporation from
          its entire business is the sum of the corpora-
          tion's receipts fmm:

               (1) each sale of the corporation's tangible
            personal property;

                (2)   each service, rental, or royalty; and

                (3) other business.

Tax Code 5171.105(a).

     Your question is whet'ner proceeds from "oil exchange" contracts
and proceeds from "oil matching buy-sell" contrscts are "gross
receipts" for purposes of sections 171.103 and 171.105 of the Tax
Code.

     You describe "oil exchange" contracts as follows:

             Oil exchanges typically occur when an oil
          company needs a certain grade cr type of oil in a
          location where t!leyhave a refinery or customer.
          The company will find another oil company that hss
          the product it ncsds and [will agree] to exchange
          the product barrel-for-barrel. A dollar value is
          assigned to the oil exchanged, and the difference
          is periodically paid in cash.

You describe "oil matching buy-sell" contracts as follows:

             Under an 'oil matching buy-sell' contract, one
          oil company will agree to sell a certain amount of
          oil to a seconi. company. The second company,
          correspondingly, .will agree to sell the first
          company a like amount of oil. These agreements
          are entered into for the same reasons as 'oil
          exchange' agreements.

     You tell us that since 1972 you have not included oil received in
an exchange as a part of ",3:cossreceipts" for franchise tax purposes,




                              p. 2188
i

    Honorable Bob Bullock - Pa::e3 (JM-478)




    but that you have always included amounts received under 'oil matching
    buy-sell" contracts as part of 'Igross receipts.' Recently several
    companies have complained about your treating exchanges differently
    from sales made pursuant ':o"oil matching buy-sell" contracts. Con-
    sequently, you ask how you should treat proceeds from each of these
    types of transactions.

         We think that you hsve been treating cash proceeds received by a
    corporation pursuant to au "oil matching buy-sell" agreement properly
    for purposes of sections 171.103 and 171.105 of the Tax Code. For
    purposes of both section l'rl..103
                                     and section 171.105, 'gross receipts'
    are "the sum of the co~loretion's receipts" from various business
    activities, including the sale of tangible personal property. Oil
    that has been recovered is tangible personal property.          Sabine
    Production Co. v. Frost Nzc_ionalBank of San Antonio, 596 S.W.2d 271
    (Tex. Civ. App. - Corpus Christ1 1980, no writ). There can be no
    question but that cash proceeds from the sale of oil are receipts from
    the sale of tangible pe%onal property and includable in 'gross
    receipts" under sections 171.103 and 171.105. You suggest and we
    perceive no basis for ex::Luding cash proceeds from receipts under
    section 171.103 or sect,ion 171.105 simply because the seller
    corporation is selling pursuant to a contract whereby each party is
    selling property to the ot.her. If the legislature wanted to exclude
    proceeds from this type of bilateral sale from gross receipts, it
    could have done so expresr,ly. Therefore, you have .acted properly by
    including cash received under "oil matching buy-sell' contracts ir.
    gross receipts.

         An "oil exchange' agrc:t:ment
                                     and an 'oil matching buy-sell' agree-
    u.ent contemplate essentis.lly the same transaction. The exchange
    simply eliminates the step %n which each party pays cssh to the other.
    Apparently, your office has concluded in the past, hcwever, that
    non-cash property a corporstion receives in exchange for its tangible
    personal property does nN)t constitute "receipts' for purposes of
    sections 171.103 and 171.105. In other words, your office has
    apparently been interpreting the word "receipts' to mean cash receipts
    only. Webster's Ninth New Collegiate Dictionary defines 'receipts' as
    "something received."     (Sac
                               .-- definition of "receipt.")      Although
    "receipts' might mean cash receipts in certain contexts, we do not
    think it can be read so narrowly in this context.

         The Texas Legislatur':has expressly limited the definition of
    "receipts" in at least two instances in which it intended to limit the
    kind of proceeds that were 'cobe included in a particular calculation
    of receipts. First, in former article 3926, V.T.C.S., the legislature
    used the term 'actual cash receipts' in setting out the commission
    that executors, administrat,ors,or guardians could charge on amounts
    they received. Acts 1876, at 284, repealed by Acts 1971, 62nd Leg.,
    ch. 714. §I, at 2351. Srcond, for purposes of the Limired Sales,




                                   p. 2189
                                                                         ?

Honorable Bob Bullock - Page 4 (~~-478)




Excise, and Use Tax Act, the basic definition of "receipts" is "the
total amount for which a taxzblc item is sold, leased, or rented."
Tax Code 5151.007(a). However,, the legislature expressly excluded a
number of items from the deii,nition of "receipts," including "the
value of tangible personal pro?arty taken by a seller in trade as all
or part of the consideration for a sale of a taxable item." Tax Code
1151.007(c)(6). In sections 171.003 and 171.005, in contrast, the
legislature did not limit the hcope of the word "receipts" in any way.

     Also, in Eppstein v. Stat':,,
                                 143 S.W. 144 (Tex. 1912). the Supreme
Court considered whether "groE,sreceipts" from sales for purposes of
sn occupation tax statute included only cash received during a certain
period or whether it also inc.ludedaccounts payable accruing during
that period. The court concluded the gross receipts included all
sales, whether for cash or on credit. In so holding the court wrcte,
"[nlo significance arises from the use of the word 'receipts' as
indicating cash in the connection in which it is used." 143 S.W. at
146. The policy reasons for including accounts receivable in receipts
for purposes of the tax in question in Eppstein are probably not
applicable in this case. It is significant, though, that the court
found that the word "receipts" was not synonymous with "cash
receipts."

     Finally, because the receipts in question here are receipts from
sales, we think it is instrcctive to examine how the courts hcve
interpreted the word "sale." In Ullmann v. Land. 84 S.W. 294, 295-96
(Tex. Civ. App. 1904, writ dil,m'd),the court adopted the definition
of "sale" set out in Tiedeman ou Sales:

          Although it has been sometimes held that the sale
          must be a transfer for money, and that every other
          transfer is an exc'iange or barter, the better
          opinion is that the transaction is still a sale,
          although the transfer is made for something else
          than money, provide'1 each article is transferred
          at an agreed or the market value, 50 that the one
          thing is received in payment of the price of the
          other.

In McKinney v. City of Abilene, 250 S.W.2d 924, 925 (Tex. Civ. App. -
Eastland 1952, writ ref'd n.r.e.), the court applied an even broader
definition of sales:

          Although there is a technical distinction between
          a sale and an exchange of property, a sale in its
          broadest sense comprehends any transfer of
          property from one person to another for a valuable
          consideration.




                                 p. 2190
Honorable Bob Bullock - Pal+ 5    (JM-478)




     If a sale includes an exchange of property, then the property
received is necessarily "rweipts" from a sale.

     Therefore, absent any legislative expression of contrary intelit.
ve must conclude that ycu should Include the property received in
exchange for a corporatiox's property as 'lreceipts'l for purposes of
sections 171.103 and 171.1(15of the Tax Code.

                               SUMMARY

             The Comptrollm of Public Accounts must include
          as "receipts" for purposes of sections 171.103 ar.d
          171.105 of the Pax Code property received by a
          corporation in exchange for -tangible personal
          property of the corporation.


                                         / veq.zh

                                          JIM     MATTOX
                                          Attorney General of Texas

JACK HIGRTOWBR
First Assistant Attorney Gmeral

MARY KELLER
Executive Assistant Attormy    General

RCBERT GRAY
Special Assistant Attorney CIeneral

RICK GILPIN
Chairman, Opinion Comaittec!

Prepared by Sarah Woelk
Assistant Attorney General




                               p. 2191
