    I.




                               May 14, 1956


Hon. Tom Reavley                       Opinion   No.    S-196
Secretary   of State
Capitol   Station                      Re: Use of assessed   property
Austin,   Texas                            value in computation    of
                                           the franchise   tax.
Dear Mr. Reavley:
             You have   requested   an opinion     of    this   Office    as
follows:

           “A question   has arisen as to the proper basis    of
computing  the franchise   tax for certain   periods where the
assessed  value is the factor    rather  than the taxable capital.

             “There is a foreign      corporation     that was granted
a permit to transact      business    in Texas March 19, 1952. The
first   franchise   tax return was filed        within 90 days after
March 19, 1953 in accordance        with the provisions        of Article
:;C$ V.C.S.     of Texas, as amended by the .5Lst Legislature,
      .   The return shows no gross receipts,           either   in Texas
or elsewhere,     and the minimum tax of $25 was paid for the
first   permit year ended March J9, 19.53, the proportionate
part of $25 for the period        to May 1, 19.53 and $25 for the
year beginning     May 1, 1953.     The corporation        also reported
that there was no assessed        value of property        for County ad
valorem tax purposes.       Under the schedule        for furnishing
such information     as of January 1, 1953, the date we requested,
the corporation     made the following       statement:
              rAt the date   of this    return   property       has not
         been assessed for   195301

Although the return was presented   with a balance   sheet as of
March 31, 195’3, it was signed before   a notary public   June 9,
1953, at which time it can be assumed the ad valorem assess-
ment had been made.
Hon.   Tom Reavley,          page 2.    (Opinion    No. S-196)



            “Upon comparing this return against        the March 15,
1954 return,   which shows a close    of December 31, 1953, it
was discovered   that there was an assessed       value as of Janu-
ary 1, 1953 amounting to $2,000,040.00.          Incidentally,      the
report form called    for the assessed    value as of January 1,
1953.   It appearing    that such assessed    value should have
been reported   in the first   year tax return and the tax com-
puted thereon,   additional   tax has been proposed       for the three
periods  mentioned   in the second paragraph hereof.          . . .

              “.     . .

          “It is            agreed that the corporation    owned no property
in Texas January            1, 1952.   The corporation  did, however,   own
property subject            to ad valorem tax assessment    on January 1,
1953. . . .

              “With        the foregoing    facts    before    you,   please   give
us your    opinion         on the following:

             “(1) Should the assessed  value for County
          advalorem tax purposes   as of January 1, 1953, be
          used in computing the tax under the first    year
          return?

             “(2) If your answer is in the affirmative,
          should the assessed  value be used for all three
          periods,  namely March 19, ,1952 to March 19, 1953,
          for the short period  from that date to May 1,
          1953 and for the year beginning   May 1, 19.53?
             “(3)     If    not for all three       periods,    then what
          specific         period  or periods?”
             We answer your first     and second questions    in the
affirmative.      The assessed   value,   for county ad valorem tax
purposes,    of the property    owned by the corporation    in this
State as of January 1, 1953, should be used in computing            the
franchise    taxes for all three periods,      namely March 19, 1952,
to March 19, 1953, for the period         from March 19, 19.53, to
May 1,    1953,  and for  the  year  beginning  May 1, 1953.

            The 47th Legislature,        in its Regular Session    in
1941,  reenacted    Article   7084,   Vertonrs   Civil Statutes  and
added thereto    the provision      that   . . . and provided   further
that the tax shall      in no case be computed on a sum less than
the assessed    value,    for State ad valorem tax purposes,       of
the property    owned by the corporation        in this State.  . . .‘I
Hon. Tom Reavley,     page 3 (Opinion     No.   S-196)



             The departmental    construction     of the Secretary    of
State placed upon this amendment to Article           7084 is that the
corporation    should show in its first       year franchise    tax re-
port the total     assessed  value,   for county ad valorem tax
purposes    of all property   owned by the corporation        on the first
day of January occurring      within    said first   year after    the date
of the filing     of its charter    or the granting     of its permit,    as
the case may be.

           Since this departmental       construction    of the Secre-
tary of State has been consistently         followed  for a period     of
more than fifteen     years,  and, the Legislature     has met many
times since the establishment      of this departmental      construc-
  tion, the following     rule enunciated     by the Supreme Court of
Texas in the case of Isbell      v. Gulf Union Oil Company, 147
Tex. 6, 209 S.W.2d 762 (194b), would govern:

              “While the Legislature     has met many times since
      Article    7092 was construed     as above indicated,    it has
      not undertaken        to change the statute   so as to alter
      the construction        which had been given it.    If the
      Legislature      did not approve the construction      which
      had been given the statute,         it could have easily    a-
      mended the law.         This was not done.    This Court does
      not feel     Justified    to hold now that the Secretary     of
      State was in error        in the construction   of this
      statute.”

             You are advised,    therefore,     that a corporation    should
include   in its first   year franchise      tax return the assessed
value of its property      held or owned in this State,        for county
ad valorem tax purposes,       on the first     day of January occurring
within   the first  year after    the filing     of its charter    or the
granting    of its permit,   as the case may be.

             In the case of the corporat.ion      in question,     the
first   year of the granting     of its permit ended on March 19,
19.53. This corporation       did not file   its first     year franchise
tax return or pay its initial        tax unti1~June     9, 1953.     This
corporation    reported,    as of June 9, 1953, that no property          had
been assessed     as of January 1, 1953.      However, in its franchise
tax return,    filed   March 15, 19.54, it showed an assessed         value
as of January 1, 1953, of $2,OOO,OhO.           Therefore,     the first
year franchise      tax return of said corporation       was improper
and incorrect     wherein   it showed that no property       was assessed
as of January 1, 1953.
Hon.   Tom Reavley,    page 4     (Opinion   No. S-196)



             The corporation     having been derelict          in its duty to
properly   an,d correctly     report all items on which its franchise
taxes in question      were to be computed,         owes the State addition-
al franch,ise    taxes for all three periods,           namely, the first
initial   tax year from March 19, 1952 to March 19, 1953, for the
short period     from March 19, 19.53, to May 1, 1953, and for the
tax year beginning       May 1, 19.53.     These additional         taxes are
to be computed on the basis of the assessed                value,    for county
ad valorem tax purposes,        of the property       held or owned by it
in this State as of January 1, 1953.              The reason for this is
that the said tax return,         as filed    by this corporation,         sho,wed
no business     done in Texas;     therefore,     there was no taxable
capital   allocable     to this State upon which to compute said
taxes.   These franchise       taxes would,      therefore,     have to be
computed on the ad valorem assessments             as provided       by Article
7084, wherein      it is provided    that the franchise          tax shall    in
no case be computed on a sum less than the assessed                   value,
for county ad valorem tax purposes,            of the property         owned by
the corporation      in this State.

           As the date for timely payment of these franchise
taxes has passed,  the statutory    penalty df twenty-five     (25%)
per cent of the taxes due has accrued by operation        of law.
This statutory  penalty  is provided   for in Article   7091,
v. c. 5.




             Where a corporation     had no gross receipts
       from business    done in this State during the first
       year following    the granting     of the charter   or per-
       mit, the franchise      taxes of the corporation     for the
       initial   tax year,   for the additional    period    (if
       any) between January 1, and May 1 followtng           the
       end of the f,frst    year,   and for t~he year beginning
       May 1 following     the end of the first,   year should be
       .      .




Hon.       Tom Reavley,   page 5,   (Opinion    No. S-196)



           computed on the basis of the assessed   value,   fcr
           county ad valorem tax purposes,   of the property    held
           or owned by it in this State as of the date of Janu-
           ary 1 which falls within the first   tax year.

APPROVED:                                  Yours   very   truly,

W. V. GEPPERT                             JOHN BEN SHEPPERD
   Taxation Division                      Attorney General of Texas

MARY K. WALL
  Reviewer
                                           BY
J. ARTHUR SANDLIN
   Reviewer

L. W. GRAY
   Special Reviewer

DAVIS GRANT
   First Assistant

JOHN BEN SHEPPERD
  At to,rney General
