Legislative Messages of Hon. James V. Allred, Governor of Texas 1935-1939 Page: 47 of 263
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Later on in this message I shall point out the manner in which this
one-fifth of a franchise tax was placed on the statute books. For the
present I recommend that a franchise tax of one per cent be levied against
the gross assets of pipe line companies-both oil and gas-in Texas.
Such a tax would yield to the State a million dollars annually on the
assets of these twenty oil pipe line companies alone-only 1/78th of their
combined net profits. Such a tax would, I think, be equitable in view
of the tremendous net profits earned by these pipe line companies.
Franchise Tax
I now call your attention to existing evils in the franchise tax structure
applicable to corporations doing business in this State. The franchise
tax report law requires much detailed information, difficult to compile;
and in the cases of some small corporations, is such a costly procedure
as to render careful reporting virtually impossible.
I recommend that more discretion be given the Secretary of State as
to the data to be required in franchise tax reports. This administrative
officer may from time to time make applicable such reports as may be
best suited to the various types of corporations operating in Texas. Such
discretion will solve an inequity from the standpoint of the small company,
and, in addition, produce a greater amount of revenue for the State.
I further recommend that the Secretary of State, as the franchise tax
collecting agency, be given full authority to make an independent examination
of any corporate records to determine whether the report as made
by the corporation clearly and accurately reflects the condition of the
business upon which a tax is to be paid. To accomplish this, it may be
necessary to provide the Secretary of State with some additional accountants,
but by so doing thousands of dollars will be recovered in taxes
already due and not paid, as well as greatly increasing the franchise tax
collections in the State in the future.
I recommend the repeal of Article 7084-B of franchise tax law. This
article provides that any company subject to the intangible tax law shall be
required to pay only one-fifth of the amount of franchise taxes paid by
other corporations not included within the terms of the intangible tax law.
I call your attention to the fact that a franchise tax represents a tax
enacted against the privilege of maintaining an artificial entity within
the safeguards of constitutional rights given to natural persons. There
is no reason why this privilege tax should be eliminated in favor of the
companies paying the intangible assets tax when they are enjoying the
same privilege and the same governmental protection accruing to those
who are required to pay the franchise tax.
The intangible assets tax act did not impose upon corporations subject
to such law any new tax to which they were not already liable. Intangible
assets are taxable under the Constitution just the same as tangible property.
As a practical matter, however, it was difficult for counties through
which railroads or pipe line companies, for instance, might pass to make
a fair levy upon intangible assets of such companies. It was for this
reason the intangible assets tax law was passed.
Undoubtedly at the time of the passage of Article 7084-B (which provided
that corporations subject to the intangible tax law should be
required to pay only one-fifth of the amount of franchise taxes paid by
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Allred, James V. Legislative Messages of Hon. James V. Allred, Governor of Texas 1935-1939, book, 1939; (https://texashistory.unt.edu/ark:/67531/metapth3899/m1/47/: accessed April 19, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; .