    PRICE   DANIEL
    AT,OR?aEYOEWERAI.
                                        June 17, 1948


             lion. C. R. Cavnrss
             State Auditor
             Austin. Texas
                    Attn:    Bon. Chao. 0. Colium
                                                     Opinion    No. V-606
                                                     Be: Whether or not Certl-
                                                           flcates   of Deposit Is-             s
                                                           sued by State banks
                                                           are 'written   evidences
                                                           of indebtedneafl    aa
                                                           that term le used in
                                                           Illt~;ic7d8'T             V.C.S.,
                                                                           .

             Dear   sir:
.                           Your recent request‘for   au opitios               on the      a-
             bove question      reads In part as follows:
                           "Wo sub&t heretith     certified    copier   of
                    Certl.ficatea    of DeporZt which are to ahew,tbe
                    form of certlflcates     issued by The Ouuanty
                    State Bank of Wew Braunfels,        Texaa, to eertaln
                    classes of depositors.       These certlf.lcatee      may
                    be, and many are, renewed by the bank issuing
                    new certificates     when the old certificates        be-
                    come due thus many of such certificates           bear
                    maturity dates of less than ‘one year from date
                    of lae,ue but represent indrbtedaeea which has
                    remained outstanding       for   one year     or more frfm
                    da;:a;fdlnceptlon       which has been roneued              or
                                . . .
                            “It la requested    that     you advise thir             Qf-
                    fico uhethor,       in your oplaloa,     the cortlfi-
                    cate:s roforrod to,      epecirene     of which are bn-
                    a lq o o d,~r ep r o ~ourlttoa
                                            a t        lvldo nc a of
                                                                  6 ladobt-
 ”


                                                                       c   ..




Hon. C. H. Cavnoae, Page 2 (V-606)


      edness of the bank on which franchise tax
      should be computed in the event they have been
      outetaadlng one year or more from date of in-
      ceptl0n.e
           The Certificates  of Deposit or Time Deposit
Certificatea   attached to your letter of request read rub
stantially  ail’follows:
            This Is to certify  that              has
      deposited with this bank $                 WY-
      able to the order of
      months after date in current fund; on the re-
      turn of this certificate   vroverlr endorsed
      with Interest   at       peE cent per annum
      from date until    -.--      , 19,.   No inter-
      est after maturity.



               ,
                                             Gamier
           That portion of Article  7084, V.C.S.,           as awad-
ed, pertinent  to this oplnian reads as follows:
               ll    shall,    on or before May let of
      each pe;r:  iay in advance to the Secretary of
      State a franchise     tax for the year following,
      based upon that proportion      of the outstanding
      capital stock, aurplue and undivided profits,
      plus the amount of outetandlng bonds, notes
      and debenturoe     (outstrndi   bonds, notee and
      debentures ehafl include al“f written rrldenc-
      ee of Indebtedness    which bear a maturity btr
      of one (1)    ear or more from dato of ieeue,
      and all auc H lnetrumente which bear a matur-
      lty date of lose than one (1) year from date
      of larrue but which reprreent   lndebtednrre
      which has remained outstanding far a period of
      one (1)    ear or more from data of Inception,
      but whit ii have been renewedor exteaded, or
      refinanced   by the iusuance of othor evldeacee
      of the Indebtedarea    . . . *
               It 1s rettled   that   our presont   frurchire   tax
,    -




    Hon. C. Ii. Cavness,      Page 3 (V-606)


    Is a charge made by the State against a corporation for
    doing business In this State.  Houston 011 Co. v. Law-
    son, 175 S. W. (2d) 716, error refused.
                Our first     franchise    tax warnenacted by the
    Legislature    In 1893 and provided for a flat tax of
    N&O;et?r      year upon private corporations.           Acte 1893,
                  158, ch. 102, sec. 5. In 1897 the statute
    was amen&d so as to base the franchise             tax upon the
    authorized    capital    stock of corporations.       Acts 1897,
    25th Leg., p. 141, ch. 104.           In 1907 our Leglslature
    enacted a franchiser tax statute which~based the tax
    upon either a corporatlon*s         authorized capital     stock
    or Its outstanding       capital   stock plus Its surplus and
    undivided profits,      depending upon which was the great-
           Acts 1907, 1st Called Session          p. 503 ch. 23
    TE’l930 the Legislature        amended thi statuti      and b&ed
    the franchise’ tax on a corporatlonts          outstanding    cap-
    ital etock, aurplus and undivided proflta            plus the a-
    mount of outstanding bonds, notes and debentures other
    than those maturing In less than a year from date of
    Issue.    Acts 1930, Fifth Called Session, 41st Leg.,
    p. 220, ch. 68.       In.&941 the statute was amended so as
    to add outstanding      bonds, notes and debsntures which
    bear a maturity     date of less than one year from date
    of Issue, but which represent          lndebtedneas which has
    remained outstanding for a period of one year or more
    from date of inception        which have been renewed or ex-
    tended or refinanced       by the leeuance of other evldeac-
    es of ladebtednese.        Acts 1941, 47th Leg., p. 269, ch.
    184, art. 8, sec. 1.
               In the opinion of this office   the above hle-
    tory of our franchise   tax statute ahews that thr Leg-
    lalature  InterMad that the franchise .tax was to be
    based upon the lavested   and bwroued   capital   of a cor-
    poration.   In  Haurton 011 Cempany  v. Lawron;    175 S. W.
    (2d) 716, error r~efueed the Court,ln dlecuselug       the
    1941 amendment to Artieie   7084, V.C.S.,   stated:

                            The amendment p r o vided
                                                    In lf-.I.
         feot     “&a;   ihe baele for computlry ihe tax
          ahouid    be the   inverted   and borrow&d   capital
          of the corporation   . . . The amendment broad-
          ened the ecope of the Inverted and borrowed’
          capital provision  of the Statute by Including
Hon. C. 33. Cavncss,      Page 4 (V-606)


        for the first  time borrowed capital represent-
        ed by renewals of indebtedness  not payable
        within one year . . . w
           The answer to the question submitted depends,
therefore,  upon whether or not the Certificates of De-
posit submitted represent borrowed capital of State
banks.
              A Certificate   of Deposit   is defined   8s:
              “A written acknowledgement by a bask or
        banker of the receipt    of a BW of 5x+ac]r on
        deposit which the bank or banker praml445 to
        pay to the depositor,    to bearer, to the QPd4r
        of the depositor,   or to stm4 other pers6n or
        to his 0rdsr.e    9 c.J.s. 636, 8 310.         '2

              In Texas de PC Ily. Co,. ‘1. UottwYf, 63 U. (Ml
              Texas, afiirmd    291 Il. 3. 815, the CowD @$a%-


                 ‘We agree with this view that a deposit
                 indeed create P debt, but it cre(Ltee
         something more.      That a, deqmsit ia oao thiry,
         a loan another.      *The striking   fact remria*
         . . . that a rerl difference       between a de-
         cosit and a loan has always been assumed, as
         a matter of custom, in the banking business
         itself,    and in all legirlation    dealing with
         the subject.*”
              This holding was based,upon Divide        County v.
Baird,     212 N. W. 236, wherein it was stated:
               Yf4 are warranted in taking judicial
         notice of tha fact that, in the banking busi-
         ness, it has bean and still     is customary to
         treat loans and deposits    as distinct  and me-
         sentially  dissimilar  transactions.n
          In Shaw v. McBrids, 9 9. W. (2d) 410, affirmed
27 S. W. (2d) 121, it was h&d that Certificates  of De-
DOSit, such as those in question here, evidence a depos-
it and not a commercial loan.   8aid the CoaHt:
-   .:




         Hon. C. H. Cavness,   Page 5 (V-606)


                     “It is said by some courts that a cer-
              tificate   of deposit in the usual form is, in
              substance/a     promissory note.     Undoubtedly
              such certificates     do possess an important
              feature of promissory notes.        Like promissory
              notes, they are written promises to pay money.
              Rut in every general deposit of money with a
              bank such a promise is either expressed or im-
              plied.    Reducing the promise to writing in the
              form of a certificate     does not alter the na-
              ture of the transactions’or      transform what the
              parties intended as a deposit into a comaer-
              cial loan . . . e
                      It has been the uniform departmental constrnc-
         tion of the Secretary of State, the officer      charged with
         the duty of administering    the franchise  tax statute,
         that Oertificates    of Deposit are not Written    evidences
         of indebtedness” within the meaning of Article      7084.
         The Legislature    has met several times since the statute
         was so construed by the Secretary of State, but it has
         not undertaken to change the statute so as to alter the
         construction    which has been given it.   We feel. as the
         Supreme Court of Texas in Isbell     v. Gulf Union Oil Co., I
         209 S. W. (2d) 762, wherein it held:
                    “If the Legislature did not approve the
              construction  which had been given the statute
              it could have easily amended the law.    This
              was not done.   This court does not feel justi-
              fied to hold now that the Secretary of State
              was in error in the construction  of this stat-
              ute.”
                    Certificates   of Deposit being in fact written
         evidence of time deposits    only and not written evidences
         of borrowed capital,    it is our opinion that certificates
         of deposit are not “written      evidences of indebtednero*
         as that term is used in Article      7084, V.C.S., as amended.
                                 SUMMARY
                    The submitted Certificates       of Deposit
              issued by State banks are not ewritten evi-
              dences of indebtedness*‘.as    that term 15 used
                                  ,., ,.           .,:,
                                                .,.,._
Hon. C. A. Caimtss,   Page 6 (V-606)
          .-
     in Article   7064, V.C.S.,   as amended.

                                  Yours very truly
                              ATTORNEY
                                     GENOBAL
                                           OP TEXAS




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