Calvert v. Humble Oil & Refining Co.
| Decision Date | 11 May 1966 |
| Docket Number | No. 11403,11403 |
| Parties | Robert S. CALVERT et al., Appellants, v. HUMBLE OIL & REFINING COMPANY, Appellee. . Austin |
| Court | Texas Court of Appeals |
Waggoner Carr, Atty. Gen., Hawthorne Phillips, 1st Asst. Atty. Gen., T. B. Wright, Executive Asst. Atty. Gen., H. Grady Chandler, Kerns B. Taylor, Asst. Attys. Gen., Austin, for appellants.
McGinnis, Lochridge, Kilgore, Hunter & Wilson, Austin, Craig L. Vollmar and Walter B. Morgan, Dillard Baker, Houston, for appellee.
This suit was brought by Humble Oil & Refining Company, a Delaware Corporation and the appellee here, against the Comptroller, and others, to recover $73,201.00 in franchise taxes for the year 1963 paid under protest. Humble alleged that certain interest and dividends which the Comptroller included as an additional basis for the franchise taxes paid by Humble were received from other affiliated foreign corporations and did not constitute gross receipts from its business done in Texas within the meaning of Article 12.02, Title 122A, Taxation-General, V.A.T.S.; that such were in the nature of nonbusiness income and independent of the conduct of its Texas business; that such income is attributable to the State of Delaware, its legal domicile and that the Comptroller had not established a taxable domicile here in Texas; that in requiring its income from the above-mentioned intangibles to be reported in the Texas Franchise allocation formula, the Comptroller was giving extra-territorial effect to the Texas tax laws in violation of Article 1, Sections 3, 16 and 19 of the Texas Constitution, Vernon's Ann.St., and Article 1, Section 8, and the Fourteenth Amendment of the U.S. Constitution, and resulted in an illegal multiplicity of taxes on the same capital.
The last contention, set out above, dealing with constitutionality was abandoned by Humble on appeal and will not be discussed further other than to state that it is conceded by other parties to this appeal that the position taken by the Comptroller is not inimical to either the Federal or State Constitution.
The Comptroller defended his position on the theory that the dividends and interest in question were received in Texas by Humble and constitute a part of its gross receipts from its business done in Texas, the state of its 'business or commercial domicile,' the location of its principal business office, the heart and center of its operations, where the direction and control of the corporate activities, including the interest and dividends in question were used in Humble's business. The Comptroller cites, as the basis of his defense, the change made in the law by the 1959 Legislature which will be set out in full and discussed further in this opinion.
Both parties moved for sumary judgment and that of appellee Humble was sustained and judgment rendered thereon for a 1 major portion of the taxes paid under protest.
We reverse and render the judgment of the trial court and hold that Humble take nothing by its suit.
Appellant Comptroller is before this Court with five points of error, 2 briefed together, which can be summarized in the following questions: Can Humble, a foreign corporation incorporated in the State of Delaware, have a business or commercial domicile in Texas for the purpose of taxation by the State? Are the interest and dividends or intangibles in question, admittedly not taxable by the law and the administrative rulings of the Comptroller prior to 1959, taxable by the law as it was amended in 1959? We answer both of these questions in the affirmative.
The Texas franchise tax is a tax upon the privilege of doing business within the State. The privilege, both of domestic and foreign corporations, is measured by the Corporation's total capital, surplus and long term debt apportioned to the State. The apportionment ratio is a fraction, the numerator of which is the gross receipts from business done within Texas and the denominator of which is the gross receipts from the Corporation's entire business.
The general common law rule applicable to the taxing of intangibles is that they are taxable at the owner's domicile or State of incorporation. Humble contends that this common law rule should be applied to the intangibles in question as there has been no specific law enacted by the Legislature to change the general rule, or, in other words, the Legislature has never passed a law authorizing a commercial or business domicile for a foreign corporation.
We cannot agree with this contention. The theory of a commercial domicile has been a part of the common law since ancient times in both England and in the United States as an exception to the general rule announced above. See Wheeling Steel Corporation v. Fox, 298 U.S. 193, 80 L.Ed. 1143, 80 L.Ed. 1143; First Bank Stock Corporation v. State of Minnesota, 301 U.S. 234, 57 S.Ct. 677, 81 L.Ed. 1061 (1937). This theory has also been recognized in Texas as the common law rule. City of Amarillo v. Carter Trucking, Tex.Civ.App., 380 S.W.2d 177; Wirt Franklin Petrol Corp. v. Gruen, 5th Cir., 139 F.2d 659.
While there are no cases in Texas directly in point, we hold that if the facts are such that the exception to the general rule is applicable, it should apply.
Prior to September, 1959, Humble was a domestic corporation with a permit to do business in other states. Thereafter it became a foreign corporation incorporated in Delaware. Its Delaware charter and Texas permit authorize Humble to make loans and investments out of its surplus funds and deal in securities from which the interest and dividends are in issue here. It carries on business in forty nine states and is qualified to do business in all fifty. It maintains a domiciliary office in Washington, Delaware and region and division offices in New York City, New Orleans and Tulsa. It received $19,510,117.00 in stock dividends and $6,311,383.00 in interest during the tax year of 1963. The stock certificates are kept in its offices in Houston, Texas and the notes are located either in Houston or in the offices of the organizational unit which carries the account on its books. The Board of Directors' meetings and the stockholders' meetings have always been held in Houston, Texas. At the end of 1963, all but sixteen of the fifty-one directors and officers resided and worked in the Houston office. Those in the Houston office include the Chairman of the Board and Chief Executive officer, President and Director, two Executive Vice Presidents and Directors, General Counsel and Director and his associate, Vice Presidents for exploration, Supply and Transportation for Production and for Public Affairs, the Controller and his two assistants, Secretary and several assistants, Treasurer and several assistants. Others are stationed at designated regional offices outside Texas. There seems to be no controversy over the fact that Humble's actual corporate headquarters or business or commercial domicile is in Houston, Texas.
This brings us to our second question as to the correctness of the Comptroller's position under the present franchise tax law.
In 1930, Article 7084, V.C.S., relating to foreign corporations was amended, the language specifying that the receipt ratio in question to be 'the gross receipts From its business done in Texas bears to the total gross receipts of the corporation from its entire business.' (Italics added.) This formula remained in effect until the amendment in question of 1959 even though the rate was increased from time to time by the Legislature. Prior to the amendment of 1959 by administrative interpretation and application of the Statute, the Comptroller ruled that if dividends and interest were paid by a Texas Corporation (i.e., one incorporated in Texas), they were considered as coming from a Texas source, and such receipts were included in the numerator of the above-mentioned formula. This formula or rule was derived from that portion of Article 7084 specifying 'from its business done in Texas.' This ruling further specified that if dividends and interest were paid by a corporation chartered in a State other than Texas, such receipts were not included in the numerator of the formula. Thus the location of the payor was the deciding factor.
In 1959, Article 7084 was changed and recodified in Article 12.02, Title 122A, Taxation-General, R.C.S. of Texas and provided as follows:
'* * * the term 'gross receipts from its business done in Texas' shall include:
(c) Rentals from property...
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Humble Oil & Refining Co. v. Calvert, A--11574
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