Texaco Inc. v. Calvert, 12273
| Decision Date | 16 July 1975 |
| Docket Number | No. 12273,12273 |
| Citation | 526 S.W.2d 630 |
| Parties | TEXACO INC., Appellant, v. Robert S. CALVERT, Comptroller of Public Accounts, et al., Appellees. |
| Court | Texas Court of Appeals |
J. W. Bullion, Buford P. Berry, Emily A. Parker, Thompson, Knight, Simmons & Bullion, Dallas, for appellant.
John L. Hill, Atty. Gen., Rick Harrison, Gordon C. Cass, Asst. Attys. Gen., Austin, for appellees.
This appeal concerns Tex. Tax.-Gen.Ann. Art. 12.01 Et seq., commonly called the 'Franchise Tax.' More specifically, the question involves the application for an alternative 'allocation formula' by which the franchise tax of a corporation is measured.
Appellant, Texaco Inc., sued the Comptroller of Public Accounts in the district court of Travis County for a refund of $2,474,256.00 representing franchise taxes paid under protest for the year beginning May 1, 1971, and ending April 30, 1972. The basis for suit was that appellant had lodged a petition with the Comptroller, pursuant to Tex. Tax.-Gen.Ann. Art. 12.02(2), requesting the application of an alternative allocation percentage in calculating its franchise tax. The Comptroller denied the application for an alternative allocation formula, and appellant sued the Comptroller challenging that order of denial. Upon trial to the court, judgment was entered that appellant take nothing. We will affirm that judgment.
Appellant is a Delaware corporation with a valid permit to do business in Texas. In Texas and in other states appellant conducts a fully integrated oil and gas business. It also owns several subsidiary corporations and affiliated compaines within the United States which are in the pipeline, chemical, or some other aspect of the oil and gas business. All of such subsidiary corporations or affiliated companies are legally constituted and separate corporate entities. Operations outside of the United States are handled altogether through subsidiary corporations or affiliated companies.
Appellant has so structured its business operation that the only business receipts it obtains from the subsidiary corporations or affiliated companies, wherever located, are dividends and interest. The dividends and interest represent the net amount earned by the subsidiaries or affiliates after allowance is made for cost of goods sold and operating and administrative expenses. Appellant's gross receipts from domestic activities are derived from the employment of operating assets and are predominantly comprised of the gross amount received from sales of oil, gas, and other petroleum products.
Tex. Tax.-Gen.Ann. Art. 12.01 levies the franchise tax. Article 12.01(1) provides that every domestic and foreign corporation chartered or authorized to do business in Texas shall pay an annual franchise tax computed upon the basis of whichever of three methods set out in subsections (a), (b), or (c) will yield the greatest tax. Subsection (a)(i) is the 'basic tax.' The basic tax places a tax of three dollars and twenty-five cents per one thousand dollars applied to that portion of the sum of the stated capital, surplus and undivided profits of the corporation which is 'allocable to Texas' in accordance with Art. 12.02. In addition to the tax due under that subsection, subsection (a) (ii) levied upon all corporations paying a franchise tax under subsection (1) for the privilege of doing business in the corporate form an additional tax for the year May 1, 1970 to April 30, 1971 an additional tax of one dollar and fifty cents per one thousand dollars '. . . applied to that portion of taxable debt allocable to Texas.'
Art. 12.02(1)(a) sets out the measurement of the tax or the 'allocation' formula:
'(1)(a) Each corporation liable for payment of a franchise tax shall determine the portion of its entire taxable 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 bear to the total gross receipts of the corporation from its entire business.'
Art. 12.02(1)(b) and (d) sets forth the statutory definition of gross receipts to be employed in the allocation formula.
'(b) For the purpose of this Article, the term 'gross receipts from its business done in Texas' shall include:
'(i) Sales of tangible personal property when the property is delivered or shipped to a purchaser within this State, regardless of the F.O.B. point or other conditions of the sale, reduced by the deduction, if applicable, allowable under Subsection (c) of this Section (1);
'(ii) Services performed within Texas '(iii) Rentals from property situated, and royalties from the use of patents or copyrights, within Texas, and
'(iv) All other business receipts within Texas.'
'(d) 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. Provided, however, that, as to the sale of investments and capital assets, the term 'total gross receipts of the corporation from its entire business' shall include only the net gain from such sales.'
The refusal of the Comptroller to permit appellant to adopt alternate methods of allocation pursuant to the provisions of Art. 12.02(2) is the foundation of appellant's complaint in district court and in this Court. Art. 12.02(2) provides as follows:
'(2) If the allocation and apportionment provisions of Section (1) of this Article do not fairly represent the extent of the taxpayer's business activity in Texas, the taxpayer may petition for and the Comptroller may permit, in respect to all or any part of the taxpayer's business activity, if reasonable:
'(a) separate accounting;
'(b) the inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in Texas; or
'(c) the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's capital.'
The 'allocation formula,' set out in Art. 12.02(1)(a), is the method used by the Comptroller in the measurement of the franchise tax. Reduced to a mathematical equation the 'allocation formula' is as follows:
GROSS RECEIPTS
IN TEXAS ALLOCATION ENTIRE CAPITAL TAX
----------------- = PERCENTAGE x TAXABLE = TAXABLE x RATE = TAX
GROSS RECEIPTS OF CAPITAL BY TEXAS
ENTIRE BUSINESS
At all levels of the proceedings appellant has consistently claimed in the terms of Art. 12.02(2) that the allocation formula, as applied to it, does not 'fairly represent the extent of its business activity in Texas.' Appellant says that this is so whether it is considered to be a domestic operating company which receives only dividends and interest from its investments in its subsidiaries and affiliates, or whether it is considered to be an integrated operation which conducts its business activities directly as Texaco Inc. and indirectly through its foreign subsidiaries and affiliates.
To remedy the claimed unfairness appellant petitioned the Comptroller for permission to use an alternative allocation formula or, alternatively for permission to file a consolidated report. As we understand, appellant's alternative allocation formula would involve a separate accounting whereby those assets representing investment capital employed or controlled and managed outside of Texas would be deducted from taxable capital prior to the computation of the franchise tax. Tex capital remaining would be apportioned under Art. 12.02(1). Another method proposed by appellant was permission to file on a consolidated basis wherein the gross receipts of appellant's subsidiaries and affiliates would be included in the gross receipts of appellant and that the allocation percentage thus attained would be applied against the entire combined capital of appellant and its subsidiaries and affiliates. One more alternative method pressed by appellant was the use of 'constructive...
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