Case Information

*1 OFFICE OF THE AITORNEY GENERAL OF TEXAS

AUSTIN

Rosorsble Ceo. U. Sheppard

Conptroller of Public Accounts Texas

Austin,

Dear Sir:

This is in answer to s to whether or not under the law for a astsfie Tire and Rubber Con in store tax on places tidg under what is called restone's Budget Plan

e us Firestone Tire nufactures and sells at is purchasing and selling to the and as improved and recomended

merchandi3ing, developed fron time to tize by Firestone known a3 Firestone's Bud- get Plan.

"NOW, therefore, ‘in considerstion of dealer purchas- ing End Daintaining a Stack Of Fire3tone prO6UCtS for re- sale by dealer an2 in csnsiderstion of the lrutual covenants hereinafter contsired, it is hereby aSreed between the partie hereto a3 folio?;::;:

.

n. G;o. 9. Sheppard, Pase 2

“8irestone ~111 forthvyith ::&e known to an.3 rec.:iL-&end to dealer it’s current plan and method of &erc:andising by tine paynent, kno*;ln as its Budget Plan and will from tili;e -to tize kee? dealer advisad of im2rovezent.s therein developed by Firestone;

“Firestone will likevise select, and recoasnd for hire by dealer a rerson trained in solesnanship unier such . Budget Plan &d corpetent in Firestone*; opiniz to con- duct and Esnage for dealer. sales of Firestone Products by dealers under such EMget Plan.

“Dealer qrees to adopt and en>loy the :tisrchnndising ffiethods of such Budget plan in dealers sala of Fire- atone product.s frsrr. such c’ealers stocks and agrees to hire and’ take into dealers eqloy the person so recoc;- *mended by Firestone and place bin in charge of the installat,ion and ~p.,~ *“ation of such Budget Plan and depart- ment for dealer in dealer’s place of busines , . .n “This agreer,ent shall becon, = effective on the date hereof and shell continue in force until canceled or terminated party on 30 days written notice, by rgisiered by either nail, registery receipt requested to the other of its intention to cancel e

*In the event of any violation of the terzs of this agree- ment of either party hereto, the party hot in default may -notify the other in writing and if such default or violation is

not corrested in 5 days after the receipt of said notice, the party not in default Eay at its option terminate this agreement within 10 days after the receipt of said written : notification to the party in default.”

The Chain Store Tax law of Texas is House Bill No. 18, Chapter 400, First Called Session, 44th Legislature, Acts 1935, [now Codified as Article lllld of Vernon’s Annotated Pens1 Code). It provides for certain prescribed license fees to be paid on stores, end reads in part as follows:

“Sec. 2. Any person, apent, receiver, trustee, firm, eorporation, association or copartnership desiring open or establish a store or nier- to operate, maintain, cantile establishment. in this State shall apply to the Comptroller of Public Accounts for a license so to do. . . “Sec. 5. Every person, agent, receiver, trustee,

firm, corooration, associatisn or copartnership opening, operating or mnintaining one or Icore stores establishing, or mercantile establishments within this State, under the sarre general zanagezent, or ownership, shall pay the pr escribed tha nrivilage X;;;“,e fee. hereinafter c establishing operatin. or maintaining such stores ‘0;. s!ergintile estebli&mants.n.

“Sec. 6. The crovisi.Xm sf this Act shall be construed to apply t,o every person, agent, receiver, fir=, corporation, copartnzrship or associs- trustee, tion, either do:aestic or foregin, w:lich is controlled or held wit.h others by 2ajorit.y stock ovmershi~ or ultimately csrtrolled or directed b; one zsnaaazent or association of ultizste nanage~ent, “Sec. 7. The tern cstore’ as used’in this Act shall be .construed to mean and include any store or stores or any slercanti:e estsblishent or est.ablis&ents zot spaci- fically exempted wit.hin this Act which ar;t owned, operated, Eaintained, or controlled by the sa%e person, agent, re- ceiver, trustee, fir=, corpora;ion, copsrtnershlp or associa- tion, either domestic or forelin, in which :7oods, wares or merchandise of any kind are sold, at retsil or whole- sale .”

It is apparent. that the answer to the question involved t-rein depends on whether or not Firestcne Tire and Rubber Co.-;?any WcontrolsW the stores in questi&. We b.:lieve everyone concemed ~111 ad&it that the places of business operated by the dealers, in which t.ires tubes and other merchandise are sold at retail, are stores within the definition and nzaning of the statute.

In the case of State Board of Tax Co@dssioners v. Jack- scn, 283 U.S. 527, 75 L. Rd. 1248, in which the constitutionality tte Indiana chain store tax law was upheld, the Suprecle Court of the United Stat.es pointed out the ear-marks of chain stores, as Pollov~s:

“These consist in quantity buying, which involves the applicatioc of the siass process t.o distribution, comparable to the mass method used in production; buyirg th e advaatare of a cash discount; for cash and obtairling skill in buying,~ so as not to overbuy, and at the sane time keep the stores stocked with products suit~able style and quality the oeighborhcod customers. size, r,arehousing of goods and distributing who pat.rsnize then; frors a single wareh:use to nuzerous stores; abundant sup- ply of capital, whereby advantage cay ba taken of oppor- tunities for establishment of new units; a pricing and sales policy different from that of the individual store, invalviag slightly lovter price;; a ‘greater turn-over, ahd constsnt analysis of the turs-over to ascertain relative pfofits on varying items; unified, and t.h:.refore cheaper and *4 - .

2~s. (30.. H. Sheppard; page 4,

better advsrtisinC for the’e’ntire chain In a river, local- ity; stondord forzs of display for tie pm;ztion of sales; i superior zamisrent a~:? rYathod~; concentration of crsnige- uent ih th- special lines of g,oc?s handle.3 by t.hs chain; ; special accounting cethods; stacdardization of store cans-e- Ir;ent, sales policies’and goods sold. 1 “The appellants’ evidecce indicsted t.hat all of these advs ntages are Interrelated and interdependent In the chain f store business. . .*I 1 i r 13 the case of Fox v. Standard oil Co:G:any, 294 E.3. 87, 73 I.. Ed. : 7d0, the Suprene Court of the United States, speakii?g through upheld the csnstituti?nality or the ‘Zest Virginia Justice Car9020, : ; chain store tax law and said: ‘“The opinion in Jackson’ 5 case enurier:2’:3s s33e s the advantages of chai2 store operation, and finds a

sufficient basis for tsxing chains differently fro3 Stores separately omed. . .

Ye have here abundant capital; standsrdizatioa ~equiwent and displsy; superior mnazeme3t; zore rapid turnover; uniformity in store special account- rian3:zc:xt; ing fiethods; and a unified sales policy coordinating the diverse units ,” ;

t . Ih,ose features coffie into existence as a natursl result of a central i control of a group of storm. They are the outgcwth of unified

ccntrolo v;here those ear-siarlks are found you may expect tb find a i central control. Ze have a situation in the case under cocalders- tion in which those features can very easily be brought Into exist- 1, : , sate, if they are not alr*eady in existence.

A reading of the contract shot-s that Fir,sstone Tira and . Rubber COmpaay controls the dealers in question. It says: “Firestone ; ‘till . . . select and recomend for hire by dealer a person t mined

in sales;ianship . and competent in Firestone’s opinion to conduct snd rasnage for dealer sales of Firezone products. . . Dealer agrees i to adoptnd e-ploy the &erchsndislsg zet!lods of such Budget Flan . the person so recsmended by Fire-

. ,and agrees to hire . . itine and prace bin in char2.e of the operation of such Xdget Flan %d departgent for dealer in destercs place of business .n ;&is clearly a11oj13 Firestone Tire‘ aiid Ru‘:ber Coi!:.:any to pick a put him in charse and control of the :?n and require the dealer to That is just the same as if Firestone Tire d-,le of merchandise. As we view :nd Rubber CoKpanv had put him in charge directly. it., it makes no difference th-it this c;3n in chezge is theoretically :zployed by and v;srklng the desler, because tie h3s been selected Tire and Rubber Cos&pany and. his ezl~lsymnt depend.5 -7 Firestone *5 b ::c. Ges. I-?.~ Sheppard, ?aCe 5

1 ,. 5~

-;;n t::z col.;pany;; Will. Eis actions are as mush under the csntrol -? tne company as t.hs act,ion s sf a toy zechanicsl jumyinc-jack are i:,:er the control of’ a child vrh,o ov:ns 3ach en intoresting toy, -rith ..T.? exception that tke child sson tirss of his jumping-jack but the :;;pany will constantly be on the alert in watching the man in charge :f the dealer’s bausiness. And when this man ir. ch:zrge of the dealer’s :l;in?ss direct; the activities affectin: the sale of this merchan- ; : .-se, it constitute:: Fir--&one Tire and Rubtr Comp.>ny being in ii:‘ect control.

As we under stsnd the rcts the -dealer’s business consists ;rimsrily of selling tires, tubes and "uta supplies at retail; i.:d the contract recites that the “.desler is nurchssinz and sell- :r.g, tz the trade Rrsst:one tir3s, tubes, batt-riss and auto i::rplies and sther Firestone prducts .* The Fix.ttsne Tire and l&bor Csmp.eny has such a qqcontrolW thr?t it could, snd~ 2robsbly tubs3 and other products in the dealer’s plnce of ides, sell tires, t~sinzss as effectively ss if it diractly owned the place.

The& are no Texas appellate court cases on this question oreinizaiis:s, but there ar-3 a few c:~ses .* control s_ in chain store in other jurisdictions that sh+d scme light on the subject. In the :ase of Gulf Pefining Comp.?ny v..Fox, 11 Fed. Supp. 425, the court :Jnstru?d the provisions concerning “control” ir. the ;‘:est Virginia :&in store tax law, which are the s%e as the Texas chain store tax !Z*X, and, after considering the m,lnaC;szent and lease contract; in- Mved in that case, said:

“It may be conceded that it does not exercise full control ovar all of the actions of the dealers in a strict legal sense, but its actual control is so effective that little room is left independent action on their part, v;hile full enjoyment of the advantages inherent a chain store system on its part is ensured. Adequate con- trol over the operating methods of the dealers and of the retail prices of the goods is secured by the right retained by the csmpany to cancel the license ageement and to put an end to the business relations between the Parties: It 13 little moment to the ccpany whether the legal title to the good; resides in it or passes upon delivery to the dealer; .”

-f think that that lsn,cuace fits the case under c.onsiderition. Cther that :3S33 shed some l<gh< on this ouest~isn are kshlsnd Refining :Lpany v. Pox, 11 Fed. Supp. 431; E,lid;:estern Petrsleun Corpsra- *6 of Tax Co.tinissioners, 206 Ir,d. 625, 187 N.X. :!Jn v. State Bar? 5:;; Eelk‘Rros. C.o:;pany v. ~:amell, 215 X.2. 10, 200 S."J. 915.

'$Ve are nst umindful of th.2 fact that there aze certain in the nature of exceptions in the Cbjn Store Tax La::1 ;rJVisians’ :I Texas , 'one of theC: providing that, th: ter;r "store" shall not business eng;Sed esclusiveiy i.;: t.he st.crinc, ;aclude "any place of ;r?llin~, or distributirg of petrolem products and se:vicinS ;:tcr veh.icles"; but we are asswisS tha: the parties concerned ::': not limitinS their trade in such 3 .-,anner sa as to collie with12 ;?.st exce$t isn. I

our answer to your question is that Firestax Tire ,and :ubbey Csuqany i3 liable under the la-v for a chaio store tax on geces of business operiting under the V??irestone BudSet Plan ;,peemntq* csntract described abore. Yours v2ry truly ._.'

hssistsnt :iPPROVZD JUL 14, 1939

S. i'f. F. Xoore

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