Petition for Writ of Mandamus - Filed - Supreme Court of Texas

merely requires that a classification be rationally related to a legitimate state purpose. Hurt, 110
S.W.2d at 900-01; Tex. Co. v. Stephens, 103 S.W. 481, 484-85 (Tex. 1907). However, the
standard of reasonableness for a franchise tax is different.
12. The Texas franchise tax is a tax on the value of the privilege of doing business in
Texas (the "Privilege") and is intended to exact a tax commensurate with the value of the
Privilege. Bullock v. Nat'l Bancshares Corp„ 584 S.W.2d 268, 270 (Tex. 1979); Gen. Dynamics
Corp. v. Bullock, 547 S.W.2d 255, 257 (Tex. 1976). The franchise tax is imposed on entities that
are created by state law and that enjoy the Privilege, such as corporations and limited
partnerships, and is not imposed on entities that are not creatures of state law and that do not
enjoy the Privilege, such as sole proprietorships and general partnerships.
See TEX. TAX CODE
ANN. §§ 171.0002 and 171.001(a). The State of Texas will revoke the Privilege from a state law
entity that does not pay the franchise tax. Id, §§ 171.251-.2515 and 171.301-.3015.
13, Because the franchise tax is imposed in exchange for the Privilege and is intended
to be commensurate with the value of the Privilege, the Equal and Uniform Clause requires any
tax classifications within the franchise tax to be reasonably related to that value, and not merely
to any conceivable state purpose. In order for the tax to be commensurate with the value of the
Privilege, the value must generally be ascertained by the same standard for all taxpayers.
See
Bullock v. Sage Energy Co., 728 S.W.2d 465, 468 (Tex. App.—Austin 1987, writ ref d n.r.e.)
(citing Lively v, Mo,, K & T Ry, Co, of Texas,
120 S.W. 852, 856 (Tex. 1909)). Any
classifications among taxpayers must reasonably relate to the value of the Privilege.
14. Classifications within the Margin Tax calculation do not reasonably relate to the
value of the Privilege.
15. The calculations of total revenue, COGS, and compensation, and the
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