Case Information
*1 I
OFFICE OF THE ATTORNEY GENERAL OF TEXAS AUSTIN partmant on tba Tou requoat Ml* op 1 , quoted below,
quertion e~tained in pur aa fOllow~(
e proper bash wiu Lon8 Leaf l Lohlr o tax rep o rt, show thet it ua~ 011. I)# ooatempl~t.84 nstlon 0r the oorpor~tlon~e traaohbe it h&d in l XOeIa Of $&~.oo bi80108e# t& Xi&t in l eooant8 wablo a at the olose of btmlnoar imaombar 5 shown aa *To ‘?tookholdor8 194t #tN!,714.4t Upon ?inU 49&.tfoa~~ .” l . l .
:!f;
la our opinion tha ttm debte cf (L oorporatlon "It be paid and entSrlli U atate Or 1iqUidatiOn IBUd firat any illstrlbutlan made to the etookholdors first oher+.yd a&n8t SUIF&‘IlUS balM808, Nld apply the rmainlng a&Eat the ~Ut8tMMtill~ mpitd 8tOOk. If thi8 diVidOnd8 pToo*dure bad boon followed, approximately .?365,000.00 in outatandinr, capital 8tiOk would i!ave been available for oocalderatlon in ooaputing the amount of franohlae tax paysblo.
"In vie+ Of WS 8bOTe f#IOt8, 8hOuld t\-18 d~~tment acoopt tile minimus payment 0r #20.00 la full 8ati8raotlon of the sorporation*a franohlac tax or ohodd ua oonpute tax upan $36t,914.49 ohom a8 due Ta Btookholdora upon Flaal Llquldatloa*9a Uo -1 in this oonnoetion tbe letter 8180 oonai6u
ot Iionorable J. L. Lookott, dated July 26, aa follow8, for thi8 letter io a letter Jwt re- Vti oaaulon oelreb rrom ths offlar of seorduy State dated i8 &ttWh~b hereto. JUly 24, 1042, OOpf Or uhloh “In oonnestIon with ym,r oor:d4aratioa of the quaa- tiOU 8UbMittOa tG JOU by the SeOTewr Of d&O WO UOuld like to h** ywl take Into oau8Id*r8tIon the r0Li~ faota, afflbvit or other verlflo~tion of ubloh will br fUd8h46 t0 YOU If 80 d4~84~84dr
~Ltqu;datioa aC Wlu Long Loaf Lombor Oompuy had bea3 uodor 0008ldorutA0n, tie ia h*t qroed upan amme stookholdaa, for rorrtb8 prior of the year 1948. At me+tIly he14 oa the dookhol4ora or about Uovembu 14, 1942, llquld~$lon wu a@ead upon but formal a&Ion tharaon Ua8 not Won beowaee the roqolrwY prior notloe of the me&lag fad aot boon gltan, eo tbst lmmmdldoly or mutln6 djournnent aftor propor notloo ~88 i8aUed far a mw&In(r on %oember 1.0, nt whioh all of the otook outetaadi~ w&a rot.& for iiqul6nitioa and eir~olotion 0r the oorporatlon to ba 8irc0td rorthwith. Tbueafter, and prior to Dooam- bar St, 1942, tha corporation stually @old and deliitorti itn mill, wh10:x hd been ~eTiOU84 8hut down: it8 lo&W
. , , operations had bssn prorlou6ly dlsaontlnued. The llquldatin~ aI8trlbutlon of ~1.030.000 In
entire or8h was paid out after rdoptlon of t&e rkolutlon for liquidation and diuolutlon at:d after male of the mill, ate. Aa tiriddt ill aorpll8nea with ReTieed Statute 7097 8howI?rg the oorporatlm wa8 In otual dl&eolution was filed with tax report. the frmohl8e ”
From flu Information before un, there is no quaatlon but tht the d&r Lo Luf Lumber Conpany 18 In the prooe8s of bona lid. llqul 3 atIon, wlthln the purview ThI8 bsla(! true, the sole of Art.lol* 7097, v. R, c. 8.
quutlon for our a0t0wnhi0n 18, what 8m0unt or frM8hi8e tu, ii any under the hw, d008 t5e wla Lanp, LOat Lumber Coqany ow under Artlola 7091, V. F.. C. 3.. reading a8 iollowst
@Tf a oorporatlon I8 aotually in pro0088 0r llquldation, suo!3 oorporation 8hall only be roqufred t0 pxy 8 fmOhi80 tax oalsulated tmon the di.ffmenOe 8tOOk i88Ud t0m rrPOUn3 Of Oapiki ad 88 to iha aiwunt of 1lqulid~tIa didad l otully paid an4 8UOh OOr~OZY~tiOtl 18 &. (D aOtrdJ. bon8 iid0 8t8t4J Of llqulaatlon." (3qlh ul8 l a aod)
?Ia dO0m it helpful in UI ffmt to ~IVO at 8 thi8 <UO8tlOlk, t@ TOti8W brlof1.J tha OOrreOt M8w8r Of lq#8lmtutO i.n TO&8Td to fr~Ohl8. tue8 anrOkWit@ yin8t hri0d oo+pardlOEi8. A llUiM1 tr@Wh18. t8X -8 rir8t bip80a UpOn fOh* Md iiOM8tiO UrpOZUtiU8 itI 1695. Thi8 8tstUtO WU UOn6.6 (hot8 55th in 2897. ti43181& two, Copter 104) q the tam8 of the 8moadnont, a muoh larger frMohi80 tu wu -0804 th8n un4a the protiou8 nOt8. fn 1967, (id8 SOth h~l8htUr0, firat Called
Xo88lon, Chapter M, p. 5O5) bv mawhent, frurohlso tax08 or1907, wra agalm..lrr@y Inoro88od. In th18 aasndmsnt rhloh ampleto fraaohlu tar law, there mm8 flrst added what 18 now Artldls 7097, Y. R. C. S., whIoh has remained UnotmnRed In al.1 subaoquent rmvimiono and oodifiontion8 of frena~lne tax law. *4 44 w6 here been able ta arosrtsln in a In4ofar
oareful reb66rab, thla proti4ion of Cur 8tntutes h64 neror beeLI jUdiOi4liY The 1907 Aot, wbloh fIr8t OOII8tN4d. lnoorpor*ted wht 18 now hrtiol4 7099, rim4 rranohlse 8toOk 188tlOd 44d OUt8tafldttl& tal UQOll the 04pital p1U8 Lb? 4wQtU8 4lld UDdiVidd prOfit.8. 731.8, Of OOuf80, 18 0 tax upon the rldht to do b~sln4as a going: oono6rn. h8VO iuCr4484d the ,Ub84qUat rd8lOU8 4Iid ~4fIdm4nt8 tnx and brordoned the ba84, but Arti 7097 h48 rQmnhd unohana6cl. 9097 W48 Odd46, 4 lS4thOd W8 PO- ‘RhQll AttiOl4
tided for O4lou14tlag tkw fraaOhi84 tax whioh oorporrtlon8 in pm4488 of 1lquIdatlon are reqnired to p4y. Xn other w0M8, the 8tOtUt4 pr6aOrib6d a rule m Pethod Of OdCUl4ting tax dur by a oorporetlon In the proo48s t?i6 rranah!.n4 iiquia4ti0n 88 dI8tiCgui8hed from a g0In.r oo::o*rn, or 0114 doiC6 bu8inO88. In ooa8trulng the len*age or Artlola 7097, it 844B8 OoSp8r4tiVOly 8iJEfl4 tOr U8 to d4tUld44 Wtl4t 18 lernt br Wi4 amount Of 8tQ4k ~OtU4iiJ i88~4d,- but i8 *hat 18 moat by "the WUnt Of not UC 488y t0 det6naine liquidating diridendu otmlly paid upon 8uoh 8kWk,* the b4tww th484 tw oon8tituting b48i8 upon differenor Mioh a oorpratlon In pro0488 0f llqulaatlon ~478 a iran- ohl8a tax. The term 'liquid6tin(t dividend” ha8 bau judioi- ally deflIm6 84veral tiW8, Qnd with 8&#lt Vari4tlOKt OT in 4ooord dth that 4xpr4484d in the a684 of Xul4 4Ub8tantiti thQ ln~llq61 v’. o4mJW~, 66 f. (a) 818, ti fOlbWhg A8 ordlmrlly unduuto od, l dltidoad 18 4 did-
a4na even thou& it 18 pad out 0r a muplauJ; 1lkWi80, u orllnull~ tmduutood, J.lauld~tlau'~lvl~ead ubloh lu @a, inoidMt4l $6 00nolu8lCO 4f the OOmOr8- tiOlt'8 lif4, IlOt 8 dit148nd; it WY bo llW.17 l return of oa~ltal.~ (-18 6664)
The 0486 of Oi bIt4rti -884tt V. Ooraai881OIlU R~VSXIUO, 59 F. (24) 555, 18 of 8aw aid in oluifYtn& tha dl8tiaetlon b&wan dirld4nd pal4 out of earned UL ordinuf 8U?plU4 6nd 4 llquldOtIn,s dlrld6nd paid a OOrpr4tiOn 1x1 0484 wo quote bona fid4,prOO484 0r 1lqul4ation. ZrQpL thi8 .\ 48 fOlklWi~, *5 . .
. ;d
jion. ,ld:loy l.atlmu, pa e 9
-3hortly eftor t Q ~.xtraordlnarlly lareo SO per Qlrld4n4 me paid out of t:.e money reoelrsd for amt. thQ 8alo of tim oorporatloa. Cutainly et the time Of the p4pIOnt Of the dIvId4nd in qtlsetion the oorpora- tiO,l 148 not 4 mIf,c OOnOOrn, In the 14@,1 84,,84, 48 W48 lr446r It A4ke8 no it8 di88Oltltiofl UlldOr rrj. diff6rano6 what the direotor8 oell~d it wh6n thQ dirl- aone wan eoolus~, uor 6048 th9 inOf 8Ub84qU4nt *11qUldatit&* diVidQne8 UhOn ml8 dltidOnd8 WrQ teAed pertloular dlrldsad ~44 not 80 term84 alter it8 ohuaotu.
TM qu48tlon of whethu It ~44 a *putlel llquidatln~ dividend' 18 to be d4termined, it not from Wh4t (148 oell06, but by the f'66t8 48 8h0m by r44Ord. The l'44ahd 8hUW8 that. it W4S 8 t4rf UtlU8U41 ditidOnd, 8d Of ths dU4 OOuC84 Of th4 bU8in488 Of WtirQiY OUtSid the wrporetioa.
w deai6ioo of thm Co5mI84ion4r ttm Boed ‘p4.l-tiLt. -8 liqUid4tir~’ diVid4Ild W88 0144r& right, end ptitionur8 wra vop6rl.y charge&b14 In their lnomae tax with thQ eaount of the dlrldsad 'en ii they had 8016 their StO4k to third p4r4Ofl8.'- iOr V'OltUlt~
OUr 8btUt48 8&XeOifi4411~ pOddO Al-tiOl48 1367 3ubdiri8iOIl 4, di4801UtiOfl Of 44t&W4ti448, 1388 end lsm, v. R. C. a., en d the O~Uatiofl Of th484 8t4- in tha ore4 Of akytin 1. SOUthWUt4lTI td48 18 di84~884d Co.,lW'S.~. (ad) em, in th6 iblla*Ily len- Life In8~r4A40 we84 I
"Who 8t4tut4 (ht. 1-7, 8ubbd. 4) pl’OVhh8 t4F th4 roluutuf dI88olutIon of.4 6oiporetlon br thewrittw of 4fl 8tookhol66ra, 66rtiSi66 to ad fihd dth Wn8mt ( fUt. la), th4 S4U.tq Of st8t4 4Ud, 18 8U4h 4484 thAt the m48 6Ult dir44tO?8 QrOtid44 f Or ml8 aStaIr euporetba, 4t the fir4 of th6 d-80- 8hel.l b8 trrutOQ4 Of OreditOr Md l WOkhala*-, lutbn, 'with pow to 86ttl6 tihs tteIr8, oOll44t tbQ OUt8t44~ing d6bt8, 6n4 dlrldo thn mO6678 4116 OthU &WO rtY UOLLg the to4kh4lder8 atkr p4~lw, the debt8 dU4 4n hrlng 8uoh F 4t wrpor?tial tha til64 Of it8 di8WlUtiOll 7 4 + 8Jd for thb-p&y048 they a8y in th4 n4m4 of euoh Wrpor8tion, ma tranaf4r ell roe1 n-14 puwnal PrOrrW 4411, o’&w~ *6 belonglne to/such oompsny, oolloot al.1 debts, oohpromisc oontrmorai&s, melntsln or d&and judlolal prooudlngs, end ernois~ nil1 power ead authority of seld oompur7 01sr suoh assets pro rt.7.‘; Itbqlng also provided (Arf.lJBO) that 'Tha e xr stmoo or every oorporetlon me7 be oontIaued l'or three years mer Its 6lssolutIon from whatever 0ausc, fO? tt!* jWpOS0 Of mnblJ~~~t~~s~ OhUged with the dut7, to uottls up Its r;frelrs.
VonmtruIry WI* aeverel provIsions or the stat&o on the l ubjeot of dia8olntIon, wo think It obrloum.that, where l reoeivor Is not eppolnted, l oo oration l xl*ta aa l lagal a&It? ror three pars rrom t l riling of the ?i
oertltloati of dlmolutlon with the Yearotary of Stat., tin&u Ita l ffalrs em sooner settled, debtm paid, and mone7 or othu proprty, Ii en7 on hmd, dirI4sd among the l toekholders. Until the three ymers elapse, or the atralrs of the oorporetlon era fall7 settled, lt be8 a lIlait or do taoto r0r ti4bg-up oxistanoo purposes.*
The three 7oar limitation Is merely fixed as s measure of suttiolent tims to allw the 4Isaolting oorporation to pay Ita dobta, an6 divide the money or other property if -7, on h-6 emnng the l toakholdera. If thou nsoooo~ prerequIsit.8 of oomploto dieaolutlon era l ooorplishad prior to the l xplretion of tbru pars, wo 800 no rueon u& lta exldowe a8 a legal sntlty Is not thaseb7 fooSlrol7 tarmlnatod.
?r(% ua oonmtralnul to the riau Artiole 9099, supre proaarlbea a definite a.114 xela8im hula for deter- of the amount oi iranshl8e tax to bo pal4 a oorpora- a&don tion in prOWas oi liqtidatioa, eed that wo 8hould aonalda sopante and apart from buim provided b7 statute for the detomlmation of tha amount OS franehlmo tax dw by a going sonoorn not In ths prooeu of llquldetlon. This Ia born. oat by an xpresalon found ln tha ease of Rosa Amigos 011 00. v.
xato, 136&ly. (Ed) 996, (Suproan. Oourt) froawhloh M quota as rollows~
-nrtlolo 9099 prorldae the ml0 oc methoa for oal- euletlng the truiohlse tax rhloh oorporatlonr In She proous Of lI~.quIdetloa 8hall be requlrsd to pal.*
lf this tier bc oorrsot, let ~11 appl7 It the faots 4lsaloe86 In the affidavit filed the ‘odor Long t,he oorporetlon In proooms of llqulde- Iad Lumba Comw, tlon, mm requlrod by l mld l rtlolo. It IO obmervmd that the basis for the dstaminmtion oi the tax Intolrom l proomem of subtreotlon, that im, to find the dlireronoe betmen the as;rltel sto c k l otually Ismuad -6 tY.a mount, of llquldatlng dlvib!adO l otrull7 paid upon sueh stook. Th om ltal ‘took issued by tha oorpmretlon in tNm oeme 8 41 OOo,oOO., aotully *fiiok vs think oonetltutss ths minuend In the l ubtreo In6 p c operation nsosmsuy to dokrmlns the basis for t&s tu and llquidetlng 4IrId~ds l otumll~ paid upon smoh tu, thlmk oonmtitutmm the subtrahend in $1 050,000, whioh m thfm l ubtrmotlng operation, thue lem+iae wIthIm 119 aiitermaoe puvler of the l tetuto upon uhleh the fruaohlw tax in to be amlmuletd mgminmt tNm ~pmrmtlon in liqoidmtlom. it of 8nf pertloulu nmaent ‘r7i do not think that there wmm sot up om thm bmokm of t&e morpmntimm the Itrn 3560,914.49 To l too&hmldmre upon final lIquldetlon.* This 1s mn eesmt In le&el l Sreot OS the l toakholhrm mud
SOL of the oorpormtlaa. Un6u the l uthorltf of ma et sl.
v. Cmmls8laemr or Intunel Rltenw, 113 F. (8dJ l oorpora- 7
tlon Im not roqulred to dimtrIbut8 ml1 of th8 l ur us prior to proammtllng tith 4lmtrIbufIom cf ths umetm by Iqui4mtlng if
dlvldondm. This urns holds In &toot where a mmrpormtlmn aold l portion or ita mmsotm, and pwmumnt to remolutlam to llquidetm pmld tuo,dirIdmndm whloh ware aadormed mm liquldmting dividends on. ‘took, wllleh hmd l -ml pa ~mluo of on8 doll&r, there wem l ipoo6 With partlbl lIquldmtImm, mnd the dividends were liqUid&iXi#$ 4Irl&Aa4‘ frOP wbIoh ood of ‘took eoulb be deduota4 lm eoaputin l tookhmlderm* not lnmoro, notwI#mtawl~ the earporation roSa l d l mmetm in l zoeee of the nmdaml pm? & It must be borao In rird
rhlue of the shuu of stock: franmhlee tu, l ueh as we hare in our l tetutes, Is fom the prlvlloga of doin& bumlness mnd not ior quitting 5~lnmms.
B 9t.h o rder that l wrporatlon rh~loh ba oea(Ud to do buslnems but haa not otumlly krmInrtvl Its 1045d l atity, w::Ioh le ooorded the pItIlcg8 of rIadlnC; up Itm ftair8 xuy not ssosps eltugother th8 burdur.of tution Art1mlo rod aupr 8, wea aneetd. SIB00 UJldOr thl8 8tdRld in Our TiW fB lneknt ode, lqquldstion hme prooomdoa to where thus im
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'<on. Yidnoy Latham, Papa @
no ditforonoo botwoon the *took eotuall7 lsausd end the
smount of 1IquIdmtIng dIrIdooQm otusll7 pei4 on suoh 8tOok UPB whloh to oalmulat. tho tax, the oorporetlon would bS subjoot on17 to the ~InImtmn tax of twmnt7 dolbrm imposed upon all oorpormtIons oot othorwlee mbjeot bt tax. is l p pumt that wa uo Frar4ihe toregoIng, Lumber aompaa7 18 sub-
of the riow thet tbo WIer,LonC: Lm jeot on17 to tbo alnlzllun tax tza t7 dollus, whlohlt
has pid 0rteoda.d.
It 8hOdd be borne in mind that thlm opimlon is iSht0Ild.d to pPl7 t0 th4 iJI8tUlt OS88 OkJu Ud to t&S faOtS submItto ln ooaneotion tlamrmwlth mnd should not bo tmkon as aypl7ing to ~7 other mmrporstion unlom8 in l stusl pr~ooee of a bona fide lIquIdetImn, andor *mm* or 8imiim~ 8tSte of taots.
Tour* Tel-y truly P-T P%s m
A8*1*tuIt