                  Tmc     ATI-ORNEY    GENERAL
                              OF TEXAS
                           Aua-rw.    T-6       78711




                               December     10, 1974


    The Honorable Robert S+ Calvert              Opinion No. H-    468
    Comptroller of Public Accounts
    State Finance Building                       Re:    Guestions concerning
    Austin, Texas 78701                                 bond which must be
                                                        filed as security for
                                                        payment of sales and
    Dear Mr.   Calvert:                                 use tax.

        You ask whether in the following situations a bond must be furnished
    the Comptroller as security for the payment of the Limited Sales. Excise
    and Use Tax, TAX. -GEN. art. 20.01 et seq.:

           a) A corporation with a permit and no record
           of delinquency merges into another corporation,
           which has no permit.   The surviving corporation
           is the corporation which originally did not have a
           sales tax permit.

           b) A corporation consolidates with another cor-
           poration.   One of the consolidating corporations had
           a permit and no record of delinquency. A new cor-
           poration is created by the plan of consolidation.

           c) Husband has a permit with no delinquency record:
           the husband dies and his wife continues to operate
           the business.

           d) A single proprietor incorporates.  There is no
           delinquency under the sole ownership.

           e) A partnership changes to a single proprietor-
           ship, one partner becoming the sole owner. The
           partnership has no delinquency record.




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The Honorable Robert S. Calvert,    page 2     (H-468)




       f) A partnership incorporates.        The partnership
       has no delinquency.

       g) A sole owner enters into a partnership.        The
       sole owner has no delinquency.

    Article 20.02,   TAX. -GEN.,   imposes a sales tax of 4% on the receipts
from all retail sales of taxable items occurring within the State. Retailers
are made responsible for collecting the tax, and they are required to
obtain a separate sales tax permit for each place of business they main-
tain within the state. Art. 20.021(D) expressly provides that:

           A permit shall not be assignable and shall be
       valid only for the person in whose name it is
       issued and for the transaction of business at the
       place designated therein.

    In 1973 the Legislature added a provision to the Sales Tax Act which
is designed to protect the state from a retailer’s failure, for whatever
reason, to pay over the taxes he collects.   Essentially Article 20.021 (N)
requires unreliable or unproven businesses to furnish the Comptroller
with a bond or other security in an amount sufficient to secure payment
of the taxes that become due under the Act. In each case the amount
and kind of bond or security required is left up to the Comptroller,  taking.
into consideration the amount of money that has or is expected to become
due from the business in question.   Particularly relevant to the questions
you have posed is Article 20.021(N)(2)  which provides:

            No sales tax permit shall be issued by the
        Comptroller on or after January 1, 1974, until
        the applicant provides the Comptroller with a
        bond or security as described in Subsection 1 of
        this Paragraph,   together witb a completed sales
        tax permit application form.

    The effect of this provision, when read in conjunction with Article 20.021(D),
is to require each new retail business entity formed in Texas to furnish the
Comptroller with a bond or some other kind of security.    This is so because
under Article 20.021(D) a sales tax permit is not assignable and is valid
only for tbe person or entity in whose name it is issued.  As a result, each




                                   p. 2141
The Honorable Robert S. Calvert     page 3    (H-468)




newly formed business entity must obtain a new sales tax permit issued
in its name.  The statute does not permit a different result even though
the new entity is merely a restructured version of a pre-existing
business the ownership of which remains essentially unchanged or only
slightly: modified.   Under Article 20.021 (N)(2) no sales tax permits can
be issued by the Comptroller on or after January 1, 1974, until the applicant
provides a bond or some other kind of security,

         The Comptroller should consider the taxpaying records of the
predecessor business and the other factors you have mentioned in
exercising hia discretion as to the size and type of bond to be required.
The obvious intent of the Legislature was to protect the interest of the
State against businesses with bad or unproven taxpaying histories.
Although a permittee with an exemplary taxpaying record is required to
execute a bond if he begins to operate as a new entity, he generally
does not represent the same risk to the State as a business with no record
and should not be required to port the same type bond. Indeed, it may be
unreasonable for the Comptroller to decline to consider past taxpaying
history when a retailer changes his form of business entity without
substantially changing such factors as ownership, management and
capitalization. In most of these cases only a nominal bond need be
required.

        In each of the situations about which you have inquired, the owner-
ship of an existing business has been changed or modified, and in the
process the legal structure    of the business has been reconstituted. In each
case a new business entity has been created, and the old one has been
dissolved.   Since each of these new businesses must obtain a sales tax
permit in its name, each must also provide the Comptroller with whatever
bond or other security he reasonably deems appropriate.        Our answer
to each of the questions you have asked is in the affirmative.

                                  SUMMARY

                   Before any new business entity can obtain the sales
               tax permit required under Article 20.021(D), it must
               furnish the Comptroller with whatever bond or other




                                   p. 2142
The Honorable Robert S. Calvert    page 4   (H-468)




              security the Comptroller deems sufficient to
              protect the State from a failure to pay over’ the
              taxes that will become due under the Sales Tax.
              Act.   The Comptroller should consider the tax-
              paying record of the predecessor business in
              exercising his discretion as to the size and type
              of bond to be required 6~0that a retailer with a
              proven record of compliance with the law will
              not be required to post the same type bond as
              an unproven business.

                                             Very truly yours,




                                        u    Attorney General’of   Texas

APPROVED:




QcT2-L
DAVID M. KENDALL,     First Assistant




C. ROBERT HEATH,     Chairman
Opinion Committee

lg




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