Bullock v. National Bancshares Corp.

• Decision Date: 20 June 1979
• Docket Number: No. B-7896,B-7896
• Citation: 584 S.W.2d 268
• Parties: Bob BULLOCK, Comptroller of Public Accounts of the State of Texas et al., Petitioner, v. NATIONAL BANCSHARES CORPORATION of Texas et al., Respondent.
• Court: Texas Supreme Court

Page 268

584 S.W.2d 268

Bob BULLOCK, Comptroller of Public Accounts of the State of Texas et al., Petitioner, v. NATIONAL BANCSHARES CORPORATION of Texas et al., Respondent.

No. B-7896.

Supreme Court of Texas.

June 20, 1979.

Rehearing Denied July 25, 1979.

Mark White, Atty. Gen., Gilbert J. Bernal, Jr., and Martha E. Smiley, Asst. Attys. Gen., Austin, for petitioner.

Fulbright & Jaworski, C. W. Wellen, Thomas J. Brorby, R. Richard Coston, Alan E. Sherman, Vinson & Elkins, Marvin K. Collie, Harry M. Reasoner, Thomas P. Marinis, Jr., Ann Lents, Liddell, Sapp, Zivley & Brown, W. Robert Brown, Willis Witt, Houston, for respondent.

McGEE, Justice.

This is a suit by certain taxpayers against the comptroller of public accounts to recover in excess of $2,000,000.00 in franchise taxes paid under protest. ¹ The trial court denied relief, but the court of civil appeals reversed the lower court judgment, rendering judgment that the taxpayers recover all sums paid. 569 S.W.2d 584. We reverse the judgment of the court of civil appeals and affirm the judgment of the trial court.

The basic facts of this case are undisputed and may be briefly summarized. Taxpayers are eight national bank holding companies, which have derived income from national bank shares, and one ordinary business corporation, which has derived income from a national bank certificate of deposit. In April of 1974 the comptroller of public accounts issued a ruling which provided that dividends and interest paid on or after January 1, 1973 by a national bank located in this state are includable in the corporate payee's gross receipts for the purpose of assessing a franchise tax. The taxpayers paid the franchise tax under protest and subsequently brought this suit to recover sums paid.

The central issue presented is whether the comptroller correctly ruled that interest and dividends derived from national banks located in this state are includable in the corporate payee's Texas gross receipts for the purpose of assessing a franchise tax. The taxpayers contend, and the court of civil appeals has held, that an act of the Texas legislature, 1971 Tex.Gen.Laws, ch. 292, art. 7 § 1, at 1206, codified as a footnote in Tex.Tax.-Gen.Ann. art. 20.02 (Vernon Supp.1978-1979) (hereinafter article 7, section 1), precludes such inclusion. We cannot agree. It is our opinion that the legislature merely intended to preclude the additional taxation of banks and did not intend to preclude a franchise tax upon other, unmentioned corporate entities.

Unless otherwise provided by law, a franchise tax is imposed upon all domestic and foreign corporations doing business in Texas. See Tex.Tax.-Gen.Ann. arts. 12.01 to 12.22 (Vernon 1969 & Supp.1978-1979). The granting of the privilege to transact business in this state confers economic benefits, including the opportunity to realize gross income and the right to invoke the protection of local law. The Texas franchise tax is a tax on the value of this privilege. General Dynamics Corp. v. Bullock, 547 S.W.2d 255, 257-58 (Tex.1976); Texaco, Inc. v. Calvert, 526 S.W.2d 630, 633 (Tex.Civ.App. Austin 1975, writ ref'd n.r.e.); See Ford Motor Co. v. Beauchamp, 308 U.S. 331, 334-35, 60 S.Ct. 273, 84 L.Ed. 304 (1939) (holding Texas franchise tax constitutional).

The formula employed to compute a corporation's franchise tax is designed to achieve a tax commensurate with the value of the privilege granted. General Dynamics Corp. v. Bullock, supra at 257; United North & South Development Co. v. Heath, 78 S.W.2d 650, 652 (Tex.Civ.App. Austin 1934, writ ref'd). This is accomplished by dividing the gross receipts from business done in Texas by the gross receipts from the entire business. The resulting allocation percentage is multiplied by the total taxable capital and, in turn, the product of this calculation (capital taxable by Texas) is miltiplied by the current tax rate. The final product of this calculation is the sum of the corporation's franchise tax liability from business done in Texas. ² Tex.Tax.-Gen.Ann. arts 12.01 & 12.02 (Vernon 1969 & Supp.1978-1979); See Humble Oil & Refining Co. v. Calvert, 414 S.W.2d 172, 173 n. 1 (Tex.1967); Texaco, Inc. v. Calvert, supra at 632; Note, 5 Hous.L.Rev. 132, 133 (1967).

To determine what receipts from intangibles should be allocated to business done in this state, Texas employs the location of payor test. Humble Oil & Refining Co. v. Calvert, supra at 175. Under this test, the domicile of the debtor or payor in the case of interest or dividends is dispositive and not the domicile of the taxpaying corporate payee. If dividends or interest are received from a Texas corporation, they are Texas receipts. Conversely, if received from a foreign corporation, they are not Texas receipts. Id. at 175; Note, 5 Hous.L.Rev. 134 (1967).

Historically, the comptroller did not include dividends or interest income received from a national bank located in Texas in the corporate payee's Texas gross receipts. See Silco, Inc. v. Calvert, 482 S.W.2d 56, 59 (Tex.Civ.App. Austin 1972, writ ref'd n.r.e.). This was because national banks, as opposed to state-chartered banks, were considered foreign corporations. Thus, under the location of payor test, income received from state-chartered banks was includable in Texas gross receipts, but income received from national banks was not equally includable. Id. at 58-59.

In April of 1974 the comptroller issued ruling 80-0.18 which is set forth in full in the margin. ³ This ruling essentially provides that effective January 1, 1973 income received from national banks located in Texas is taxable on the same basis as income received from state-chartered banks. The comptroller based this change in taxation policy on Pub.L. 91-156, 83 Stat. 434 (codified at 12 U.S.C. § 548 (Supp.1979)) (hereinafter Pub.L. 91-156), which became effective January 1, 1973. ⁴ That congressional enactment provided that for the purposes of any state tax law a national bank shall be treated as a bank organized and existing under the laws of the state within which its principal office is located. Applying the location of payor test, the comptroller concluded that dividends and interest received from national banks located in Texas constituted Texas gross receipts in the hands of the corporate payee.

The taxpayers in this case contend that the comptroller is precluded by an act of the Texas legislature from including income received from national banks located in this state in their Texas gross receipts. Article 7, section 1 provides:

The passage of Public Law 91-156 by the Congress of the United States shall not operate to impose or permit the imposition of any additional tax or taxes upon the Institutions affected thereby unless:

(a) The tax or taxes were being imposed prior to January 1, 1971, or

(b) Such institutions are specifically designated as being subject to such additional tax or taxes other than the limited sales and use tax by an Act of the Legislature passed subsequent to the effective date of Public Law 91-156.

Id. (Emphasis added). The taxpayers reason that corporate payees of national bank dividends and interest specifically, national bank holding companies and corporate holders of national bank certificates of deposit are "institutions affected" by Pub.L. 91-156.

Before we undertake a determination of what institutions are affected by Pub.L. 91-156 within the meaning of article 7, section 1, we note that the present taxpayers' contention is tantamount to a claim for exemption from the franchise tax. Statutory exemptions from taxation are subject to strict construction since they are the antithesis of equality and uniformity and because they place a greater burden on other taxpaying businesses and individuals. Hilltop Village, Inc. v. Kerrville Independent School District, 426 S.W.2d 943, 948 (Tex.1968); Accord, Air Force Village Foundation v. Northside Independent School District, 561 S.W.2d 905, 909 (Tex.Civ.App. El Paso 1978, writ ref'd n.r.e.). An exemption cannot be raised by implication, but must affirmatively appear, and all doubts are resolved in favor of taxing authority and against the claimant. Simply stated, the burden of proof is on the claimant to clearly show that it comes within the statutory exemption. Aransas Hospital, Inc. v. Aransas Pass Independent School District, 521 S.W.2d 685, 689 (Tex.Civ.App. Corpus Christi 1975, writ ref'd n.r.e.); Space Precision Machining Co. v. State, 503 S.W.2d 289, 291 (Tex.Civ.App. Austin 1973, writ ref'd n.r.e.). ⁵

We now turn to an examination of article 7, section 1. This statute states that there shall be no additional taxation of "institutions affected" by Pub.L. 91-156. Since an exemption from taxation must affirmatively appear and since there is no affirmative indication in article 7, section 1 of what corporations the term "institutions" was intended to encompass, we must refer to Pub.L. 91-156. The only "institutions" mentioned or referred to in that statute are "banks."

Although we adhere to the strict construction rules aforementioned, an examination of the history of Pub.L. 91-156 is helpful to an understanding of its intended effect. Behind the passage of this statute is the long-settled rule that the several states cannot tax national banks except as permitted by Congress. This limitation on the states' taxation power is founded on the theory that national banks are chartered by the United States government and that the federal power is supreme over its instrumentalities. First Agricultural National Bank v. State Tax Commission, 392 U.S. 339, 340, 88 S.Ct. 2173, 20 L.Ed.2d 1138 (1968); See Mitchie on Banks and Banking 348-49 n. 6 (1971). Historically, this meant that state-chartered banks were subject to some types of state taxation that national banks were exempt from. A good example of this disparity in tax treatment is provided by Grayson County State Bank v. Calvert, 357 S.W.2d 160 (Tex.Civ.App. Austin 1962, writ...