Texas Attorney General Opinion: V-1037 Page: 5 of 5
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357
Hon, John Ben Shepperd, Page 5 (V-1037)
the case of United North and South Development Go,. v. Heath, supra,
where the taxpayer by its own sworn statement to the Sectretary of
State fixed the value on what was called "appi ec.iated surpluss"
If a taxpayer has been treating intangible drilling costs
as current operating expenses and making his report to the Secre-
tary of State as required by Article 7089 upon this basis and has
paid the taxes owing upon the basis of said report, this, in our opin-
ion, is in compliance with the statute. The Secretary of State would
therefore be without authority to require the taxpayer to revise and
pay additional taxes based upon the theory that intangible drilling
costs should have been capitalized and treated as taxable capital.
If, however, the taxpayer has heretofore submitted his franchise tax
report by treating intangible drilling costs as a capital investment
to be amortized over an appropriate period of time this likewise
is acceptable.
It is our understanding that the Secretary of State has
so construed this statute over a long period of years during which
time the Legislature has met several times, and we must assume
that this construction has been with legislative approval or some
action would have been taken to change it. As was said by the Su-
preme Court in the case of Isbell v. Gulf Union Oil Co., 147 Tex. 6,
209 S.W.2d 762 (1948):
"If the Legislature did not approve the construc-
tion which had been given the statute, it could have eas-
ily amended the law, This was not done,"
SUMMARY
Intangible drilling costs may be treated as cur-
rent annual operating expense under the franchise tax
statute, or set up as a reserve by allocation from other
available capital resources and amortized over an ap-
propriate period of years. Arts,, 7084 and 7089, VCG.So
A.B. Frank Go. v. Latham, 145 Tex. 30, 193 S.W,2d 671
(1946)nited- North and South Development GCo v, Heath,
78 S.W.2 d 650 (Tex Civ, App 193 5, error adismA) om-
missioner of Internal Revenue v, Ambrose, 127 Fd47;
IsbeIl v. Gulif Jnion Oil Cc, 1. 47 TexJ, b209 S. W .Zd 762
(1948).
Yours very tz uly,
APPROVED:
PRICE DANIELW., V. Geppert Attorney General
Taxation Division B
Charles D. Mathews L. P, Lolar
Exec utive Assistant Assistant
LPL/mwb
,o . ,
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Texas. Attorney-General's Office. Texas Attorney General Opinion: V-1037, text, April 7, 1950; (https://texashistory.unt.edu/ark:/67531/metapth265856/m1/5/: accessed July 16, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.