Humble Oil & Refining Co. v. Calvert, A--11574

• Decision Date: 15 March 1967
• Docket Number: No. A--11574,A--11574
• Citation: 414 S.W.2d 172
• Parties: HUMBLE OIL & REFINING CO., Petitioner, v. Robert S. CALVERT et al., Respondents.
• Court: Texas Supreme Court

Page 172

414 S.W.2d 172

HUMBLE OIL & REFINING CO., Petitioner, v. Robert S. CALVERT et al., Respondents.

No. A--11574.

Supreme Court of Texas.

March 15, 1967.

Rehearing Denied May 3, 1967.

McGinnis, Lochridge, Kilgore, Hunter & Wilson, Lioyd Lochridge, Austin, Dillard Baker, Walter B. Morgan and Craig L. Vollmar, Houston, for petitioner.

Crawford C. Martin, Atty. Gen., Kerns B. Taylor, Asst. Atty. Gen., Don Bishop, Austin, for respondents.

POPE, Justice.

Humble Oil & Refining Co., a Delaware Corporation, with its principal place of business in Houston, Texas, sued the State Comptroller, Robert S. Calvert, and other proper officials, to recover certain franchise taxes paid under protest for 1963. Both Humble and the Comptroller filed motions for summary judgment. The trial court sustained Humble's motion and rendered judgment that it recover the sum of $69,921.00. The court of civil appeals reversed that judgment. 404 S.W.2d 147. We reverse the court civil appeals' judgment and affirm that of the trial court.

The question presented is whether the Legislature, by enacting art. 12.02, Title 122a, Tax.-Gen., V.C.S. in 1959, intended to change the corporate franchise tax allocation formula with respect to receipts from intangibles. Humble contends that from 1917 to 1963, in calculating its franchise tax, it did not include the interest and dividends it received from corporations and other entities located outside of Texas as part of its business done in this state. This practice, Humble says, was consistent with the Comptroller's long-standing construction of the ambiguous phrase, 'business done in Texas,' contained originally in art. 7084, V.C.S. Humble argues that since this same phrase appears without definition in the present franchise tax statute, art. 12.02 which replaced art. 7084, it is apparent that the Legislature had no intention of rejecting its well-established meaning and adopting or authorizing a new one. Comptroller concedes that prior to 1959, receipts from intangibles were allocated by what we shall refer to as the location of payor test, and that under that test, the dividends and interest paid to Humble by out-of-state payors would not be included as business done in Texas. However, Comptroller contends that art. 12.02 not only codified art. 7084 but also amended it. By doing this, Comptroller argues that the Legislature manifested an intent to abandon the location of payor test and adopt the commercial domicile and business situs tests under which all of Humble's receipts from intengibles would be treated as part of its business done in Texas.

Prior to 1959, Texas' basic franchise tax allocation formula ¹ was found in art. 7084. This article provided:

'* * * every domestic and foreign corporation heretofore or hereafter chartered or authorized to do business in Texas, or doing business in Texas, shall * * * pay * * * a franchise tax * * * based upon that proportion of the outstanding capital stock, surplus and undivided profits, plus the amount of outstanding bonds, notes and debentures * * * as the gross receipts from its business done in Texas bears to the total gross receipts of the corporation from its entire business, * * *.'

The Legislature, however, did not state what receipts were to be included as 'business done in Texas.' To cure this omission, the administrators of the franchise tax adopted the location of payor test. Under this test only receipts from intangibles paid by a payor located in Texas were considered a part of the corporate taxpayer's 'business done in Texas.' Receipts from intangibles paid to a corporation by an out-of-state payor were not included within the meaning of 'business done in Texas.' The location of payor test was consistently applied by the Comptroller in assessing franchise taxes until 1963.

In 1959, the Legislature recodified the tax laws. Acts 56th Legislature, 3rd C.S., p. 187, ch. 1 (1959). Article 7084 was reenacted as art. 12.02 in the recodification. The only difference between art. 7084 and art. 12.02 is the addition of four subsections which specifically allocate certain items to business done in Texas. Article 12.02 provides:

'Each corporation liable for payment of a franchise tax shall determine the portion of its entire capital taxable by the State of Texas by multiplying same by an allocation percentage which shall be the percentage relationship which the gross receipts from its business done in Texas beat to the total gross receipts of the corporation from its entire business.

'For the purpose of this Article, the term 'gross receipts from its business done in Texas' shall include:

'(a) Sales of tangible personal property located within Texas at the time of the receipt of or appropriation to the orders where shipment is made to points within this State.

'(b) Services performed within Texas,

'(c) Rentals from property situated, and royalties from the use of patents or copyrights, within Texas, and

'(d) All other business receipts within Texas.

'For the purpose of this Article, the term 'total gross receipts of the corporation from its entire business' shall include all of the proceeds of all sales of the corporation's tangible personal property, all receipts from services, all rentals, all royalties and all other business receipts, whether within or outside of Texas. Acts 1959, 56th Leg. 3rd C.S. p. 187, ch. 1.'

Four years later, in 1963, the Comptroller, by reason of the four subsections of art. 12.02, determined that the location of payor test was no longer applicable and that he was authorized to adopt and apply the commercial domicile and business situs tests in allocating receipts from intangibles.

Before determining whether the language of art. 12.02 can bear the Comptroller's interpretation it is necessary to discuss briefly the various tests applied by taxing authorities to fix the tax situs of an intangible receipt. The four tests that are relevant to the present case are the common law or Mobilia test, location of payor test, business situs test, and commercial domicile test.

The common law adopted the ancient Roman maxim 'mobilia sequuntur personam' which taught that movables follow the person. Under Mobilia, the courts indulge the fiction that intangibles are associated with the person of the owner and that situs is at the domicile of the owner. The rule was helpful in fixing the situs of intangibles which lack physical characteristics, are represented by paper evidences such as notes and stock certificates, and are mere evidences of enforceable relationships between persons. United Gas Corporation v. Fontenot, 241 La. 488, 129 So.2d 748 (1961). The rule developed when corporate operations were simple and when incorporation usually occurred in the state where the corporation intended to do its business and where it received its protection from the government. Southern Pacific Co. v. McColgan, 68 Cal.App.2d 48, 156 P.2d 81 (1945). Under this rule all of a corporation's receipts from intangibles have their location at its legal domicile, the state of incorporation. Newark Fire Ins. Co. v. State Board of Tax Appeals, 307 U.S. 313, 59 S.Ct. 918, 83 L.Ed. 1312 (1939); Farmers Loan & T. Co. v. State of Minnesota, 280 U.S. 204, 50 S.Ct. 98, 74 L.Ed. 371 (1930); Altman & Keesling, Allocation of Income in State Taxation, 34--35, 62, 75 (2d ed. 1950); 51 Am.Jur.Taxation § 463 (1944); 143 A.L.R. 361 (1943); 76 A.L.R. 806 (1932).

'Thus, even though the state of the domicile of the owner of such property confines its tax to income from sources therein, individuals and corporations domiciled in such state may be required to include interest and dividends in computing their taxable income on the theory that such income is derived from sources in the taxing state.' Altman & Keesling, supra at 75.

Prior to 1963, Texas taxing authorities treated a corporation as a Texas corporation if its legal domicile was in Texas and as a foreign corporation if its legal domicile was in another state. Humble's legal domicile is Delaware, and it is conceded that, if Mobilia applies, the receipts from dividends and interest in question would not be allocated to Humble's business done in Texas.

'Location of payor' is an exception to Mobilia. About forty years ago it was adopted as the Texas rule for determining which receipts from intangibles should be allocated to Texas. A number of states have followed this test. Curry v. McCanless, 307 U.S. 357, 59 S.Ct. 900, 83 L.Ed. 1339 (1938); Consolidated Title Corp. v. District of Columbia, 107 U.S.App.D.C. 221, 275 F.2d 885 (1960); John Hancock Mutual Life Ins. Co. v. Neill, 79 Idaho 385, 319 P.2d 195 (1957); Union Electric Co v. Morris, 359 Mo. 564, 222 S.W.2d 767 (1949); Petition of Union Electric Co., 349 Mo. 73, 161 S.W.2d 968, 143 A.L.R. 141 (1942); Union Electric Co. v. Coale, 347 Mo. 175, 146 S.W.2d 631 (1941); Montana Life Ins. Co. v. Shannon, 106 Mont. 500, 78 P.2d 946 (1938); Annot., 11 A.L.R.2d 323 (1950). Under it the domicile of the debtor or payor in the case of interest and the declaring corporation in the case of dividends is regarded as the location of the business receipt without regard to the domicile of the payee. Beamon, Paying Taxes to Other States, ch. 4, p. 18 (1963).

Texas taxing authorities, from 1917 until 1963 used the location of payor test in allocating receipts from intangibles to a corporation's business done in Texas. Under this test receipts of interest and dividends were included in the numerator of the franchise tax as a part of the business done in Texas if the payor was a Texas corporation or payor. Receipts from a foreign corporation or payor were not treated as business done in Texas. Humble's argument is that art. 12.02 did not disturb that long-standing method of allocating receipts.

'Business situs' is another exception to Mobilia that has been employed in some states to allocate receipts between states. Instead of locating the payee or payor it locates the...