Tollett v. Franklin Equities, Inc. , 586 S.W.2d 96 ( 1979 )

OPINION

HARBISON, Justice.

This action was instituted by a taxpayer to recover corporate franchise taxes paid, under protest. It contended that intangible assets of the corporation should not be included in the statutory franchise tax base. The trial judge allowed recovery and the Commissioner of Revenue has appealed. In our opinion the provisions of the applicable statutes support the contentions of the appellant.

Both parties moved for summary judgment in the trial court. The record consists only of brief pleadings and two very short affidavits. Neither of the parties insists that there is any disputed issue of material fact. Therefore, we will dispose of the case as presenting only a question of law.

The taxpayer, plaintiff below and appel-lee here, is a Georgia corporation, qualified to do business in Tennessee. The case involves disputed franchise taxes for the years 1972 through 1976, all prior to the effective date of revisions of the Franchise Tax Law made in that year, 1976 Tenn.Pub. Acts, ch. 537.

The taxpayer manages a motel in Blount County, Tennessee under a contract with the owner. The management contract is not in the record, nor is there any evidence concerning the exact nature of the taxpayer’s activities, the services rendered, compensation paid, or the like. The parties concede that the management of the motel was the only corporate business or activity conducted by appellee in this state during the years involved.

The motel which was managed by the taxpayer was owned by a limited partnership. Taxpayer was the general partner of that entity and owned fifty-one percent interest in the partnership. Again, the partnership documents have not been filed in evidence. An affidavit of an officer of the corporate taxpayer states that the corporation owns no real or tangible personal property within the state and that the only asset owned by the taxpayer in Tennessee is its fifty-one percent interest in the limited partnership. The affidavit further states that all real and personal property operated or utilized by the motel itself is owned by that partnership.

The Commissioner insists that the value of the taxpayer’s interest in the motel properties should have been included in computing its franchise tax base. Neither the tax returns nor any computations of value have been included in the record, there apparently being no dispute between the parties as to the amount involved.

The parties recognize that the corporate franchise tax is not an ad valorem property tax but is a tax levied upon the privilege of engaging in business in corporate form in this state. See Crown Enterprises, Inc. v. Woods, 557 S.W.2d 491 (Tenn.1977). It is levied upon the net worth or capital of the corporation. Memphis Peabody Corp. v. MacFarland, 211 Tenn. 384, 365 S.W.2d 40 (1962).

Following an amendment in 1963, and at all times during the period involved in this case, T.C.A. § 67 — 2909 ¹ provided, insofar as here pertinent:

“The measure of the tax hereby imposed shall in no case be less than the actual value of property owned, or property used, in Tennessee.”

As stated in the Crown Enterprises case, supra:

“This provides the method for determining the minimum net worth of the capital of the corporation. . . . Thus, the minimum measure of the corporate franchise tax is ‘the actual value of the property owned, or property used in Tennessee.’ ” 557 S.W.2d at 492.

Prior to 1963, the statute was worded entirely differently and read as follows:

“The measure of the tax hereby imposed shall in no case be less than the value of the real and tangible personal property owned or used by such corporation in this state as shown by the books and records of such corporation at the close of its last calendar or fiscal year preceding the making of the sworn report hereinafter required, excepting books with respect to investment costs kept pursuant to regulations of the interstate commerce commission.”

The language underscored in the foregoing quotation was deleted when the statute was re-written, 1963 Tenn.Pub.Aets, ch. 361, §3.

The revision in the statute followed immediately the decision of this Court in the case of Memphis Peabody Corp. v. MacFarland, 211 Tenn. 384, 365 S.W.2d 40 (1963), in which it was held that the value of property leased by a corporate taxpayer was not required to be included in the minimum measure of the franchise tax. The 1963 amendment provided for the inclusion of leased or rented property and contained a formula for its valuation. The amendment, however, also deleted the words “real and tangible personal” preceding the words “property owned or used.”

The taxpayer relies upon two opinions of the State Attorney General rendered several years ago that the only change effected by the 1963 amendment was to include leased or rented property. This, however, is not all that the amendment provided. The Attorney General gave opinions that intangible property owned by taxpayers was not affected by the 1963 amendment. In our opinion, this conclusion was not justified from the revisions which were made in the statutory language. It is true that the word “tangible” was retained in the caption of the code section which the 1963 amendment revised, and indeed that word is found in the caption as quoted in the 1963 act. In the text of the revised statute itself, however, all references to real and tangible personal property were omitted, and the generic term “property” was retained without any qualification or modifying language.²

It is around this revision in the statute that the present controversy revolves. The taxpayer insists that it owned no real property and no tangible personal property in Tennessee. It contends that its interest in the partnership, while a property right, is intangible in nature and is not subject to inclusion under the statute.

The first part of this contention is consistent with basic concepts of partnership law. The Uniform Partnership Act itself, T.C.A. § 61-124(1), provides:

“A partner is coowner with his partners of specific partnership property holding as a tenant in partnership.”

The incidents of this tenancy are defined and described in the following paragraph, T.C.A. § 61-124(2). A partner’s general interest in the partnership itself is defined in T.C.A. § 61-125 as follows:

“A partner’s interest in the partnership is his share of the profits and surplus and the same is personal property.” ³

For further delineation of the interest of a partner in partnership assets, see United States v. Worley, 213 F.2d 509 (6th Cir. 1954); Cultra v. Cultra, 188 Tenn. 506, 221 S.W.2d 533 (1949).

The Commissioner does not disagree with these settled principles of partnership law. He insists, however, that in the present case, through some sort of imputation or “attribution,” outright ownership of the real estate and tangible personal property of the partnership should be ascribed to the corporate taxpayer. Neither statutory authority nor any evidentiary basis for this contention has been demonstrated, and that aspect of appellant’s assignment of error is overruled.

Nevertheless, the taxpayer’s partnership interest is “property,” albeit intangible, and there is nothing in the statute since its 1963 revision which excludes valuable intangible assets or property rights such as this from the franchise tax measure. The value of stock held in any other taxpaying corporation is, and long has been, deductible from the measure of the franchise tax. See T.C.A. § 67—2906.⁴ No other exemption of intangible property, insofar as pertinent to this case, has been cited or referred to by the parties.

For this reason the assignment of error of appellant is sustained. On the issue developed in the record appellant was entitled to summary judgment. The trial court erred in ruling otherwise. Its judgment is reversed and the suit is dismissed at the cost of appellee.

HENRY, C. J., and COOPER, FONES and BROCK, JJ., concur.

2 .In later codifications and revisions, the word “property” has been preceded by the definite article “the,” but this was not part of the 1963 act or of the Code during the years involved here.

3 . The interest of a limited partner is also a personal property right. T.C.A. § 61-218.

4 . Formerly T.C.A. § 67-2907.

1 . Now codified as T.C.A. § 67-2908.