Honorable Robert S. Calvert        Opinion NO.   ~-424
Comptrollerof Public Accounts
State Capitol Building             Re: Whether penalties for
Austin. Texas                          late oavment of taxes
                                       shouldbe assessed when
                                       the check in payment of
                                       taxes.is dishonored by
                                       the drawee bank through
Dear Mr. Calvert:                      no fault of the taxpayer.
    Your opinion request reads, in part, as follows:
         “Two banks, each in a ,differentcity in
    this State, have recently had occasion to freeze
    the accounts,of some or all of their depositors.
    This became necessary, in each case, due to dif-
    ficulties not involving the depositors in question,
    and the accounts were rendered frozen suddenly,
    without warning or notice being given to these
    depositors.
         “Prior to the action by the banks, several
    depositors placed in the U. S. Post Office
    quarterly sales tax reports and enclosed there-
    with checks drawn upon their accounts with one of
    the above banks in payment of the tax due as
    reported.
         “Followingtimely receipt by this office of
    the quarterly reports and ch@cks, one of the above
    banks, upon presentment, failed and refused to
    accept the checks, and the same were dishonored,
    with the explanation that the depositor’saccount
    would be frozen for a time due to bank difficulties
    of an internal nature.
          “It is expected that the same situation will
     occur with regard to the second bank. Correspondence
     from the bank and two depositors leads us to this
     conclusion.
                           i++

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Hon. Robert S. Calvert, page 2 (W-424)


          "Your official opinion is requested as
     to whether the statutory penalty for late
     payment, under Article 20.05(H), supra, must
     be assessed the taxpayer whose check was not
     honored by his bank when presented by this
     office."
     By supplementalletter you have also advised us:
          "In regard to the recent request for en
     opinion concerning the return of checks written
     In payment of sales taxes, please be advised
     that such request was made based upon our assum-
     ing that the checks in question were executed
     prior to the depositor'sknowledge of his account
     being frozen, and that at the time the checks
     were executed there was sufficient funds on
     deposit with the bank to cover the same and at
     the time of presentmentby this office to the bank
     there still remained sufficientfunds to pay the
     checks."
     For purposes of this opinion we are assuming as true the
the same facts that you have assumed as true.
     It is the opinion of this office that under the facts
submittedno penalty should be assessed for late payment,
provided that the checks are paid within a reasonable time
after being dishonored, or the taxpayers make actual payment
in money, either with or without use of the checks in question,
within a reasonable time after notificationthat the checks
have been dishonored.
     The backdrop for this opinion Is the well-settledrule
that penalties and forfeituresare to be strictly construed
against the State, and that doubts or ambiguities in this
field will be resolved against the State by the courts. It
has also been held that a penalty will not be~inflictedwhere
the failure la occasioned by circumstancesbeyond the control
of the party or where the particular event causing the failure
could not reasonably have been foreseen and guarded against.
See 45 Tex.Jur.2d 5, Penalties g           eth v. Hamilton
Warehouse Cornpane 104 Tex. 496 12;  0     cm4   1911 *
  itfield V. Terrill Compress Cimpan       .w. 1L   ( ;x.civ.
App. 1901, error ref.); Conley v. Sh%nan S. & S. R. Company,



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Hon. Robert S. Calvert, page 3 (~-424)


90 Tex. 295, 38 S.W. 519 (1897); Bloom v. Texas State
Board of Pharmacy 390 S.w.2d 252 (T S . 19b5)' and
Chesapeake and Ohio Railway Company ?'B%rd    lOO'W.Va.
222 130 S ti 524 (1925) Th 1 t it d ca:e holds
thai where'failureof performLc?wai czused by the in-
tervention of a via major or Act of God, a recovery for
penalty will be denied.
     The leading case on this subject is Muldrow v. Texas
Frozen Foods, 299 S.W.2d 27.5(Tex.Sup.1951). There, the
mat             a check for taxes delivered to the collect-
ing official on the last day allowed for payment and
thereafter returned unpaid by the drawee bank does not
constitutea timely payment of taxes, even though the check
was dishonored solely because of a mistake on the part of
the bank end was paid when presented a second time. The court
held that under our Constitutionand statutes payment of
taxes must be in money and that no official can obligate the
State to accept a check as either absolute or conditional
payment. Since a check cannot be accepted as conditional
payment of taxes, the court rejected the general doctrine of
relation which is that when a check is accepted as conditional
payment and the condition is satisfied when the check is paid,
it is proper to treat the payment as having been made at the
time the check was received. However, the court further held
that if a check Is given for purposes of paying taxes and is
promptly paid when first presented in due course to the drawee
bank, then for all practical purposes the funds are as readily
available to the taxing authority as If payment had been made
in money, and that, therefore, such a check would be the legal
equivalent of money and the taxes would be considered as paid
when the check was received by the collecting official. Thus,
although a check can never constitutepayment or conditional
payment of taxes, the court nevertheless approved a limited
form of the "relation back" doctrine, limited to checks paid
when first presented in due course. The Muldrow case is in
any event distinguishablefrom the situatme        presented
wherein apparently neither the taxpayer nor his agent, the
bank, is at fault, and payment was delayed due to circumstances
beyond his control.
     In 1961, after the Muldrow decision, the Legislature
enacted Article 1.13, ,Title 3.2&I Taxation-General,Vernon's
Civil Statutes, and it was smendgd in 1967. The 1961




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Hon. Robert S. Calvert, page 4 (~-424)


enactment was in substancewhat is now Section (a) of
Article 1.13. Then in 1967,  Sections (b) through (g)
were added. It will be noted that Section (c) is not
limited to the provisions relating to the time a report
is placed in the United States mail. Section (c) deals
with standards of care required of a taxpayer in making
timely payments and with situationswhere payments will
be deemed to have been timely filed. Therefore, the
helm       Muldrow must now be interpretedend applied
in the lighmch       statute.
     Article 1.13 (a) and (c) are as follows:
           "(a) Any report, required by any
     provision of this Title to be filed or made
     on or before a specific date shall be deemed
     timely filed if said report, shall be placed
     in the United State Post Office or in the hands
     of a common or contract carrier properly addres-
     sed to the Comptrollerof Public Accounts on or
     before the date required for such payment, report,
     annual report, return, declaration, statement,
     or document to be filed or made.
                          ***
           "(c) The person making the report shall
     be deemed to have substantiallycomplied with
     ~the filing requirementsas to timeliness if he
     exercised reasonable diligence to comply and :.
     through no fault of his own the reports were not
     timely filed."
     Section (f) of Article 1.13 provides that:
          'The term 'report' shall include any payment,
     report, annual report, return, declaration,
     statement or other document required by any pro-
     vision of this Title to be filed with the Comptroller."
     Therefore, the word "payment" can properly be substituted
for the word "report" in Section (c), making it read as
follows:
          (c) The person making the "payment" shall
     be deemed to have substantiallycomplied with




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Hon. Robert S. Calvert, page 5 ( ~-424)


     the filing requirementsas to timeliness
     if he exercised reasonable diligence to
     comply and through no fault of hfs own the
     "payments"were not timely filed.
     We do not view Article 1.13 as altering the mode of
paying taxes; however, because payment is computed from
the time provided for filing of the tax reports, a sub-
stantial compliance rule for reports logically governs
in connectionwith the time determinativefor payment.
The delivery of money continues to be the only mr,thodof
effecting payment of taxes. It follows that the "in fact"
time of payment is always when money is delivered, never
before. However, Article 1.13 altered the rule as to when
payment shall be~deemed as having been timely made insofar
as penalty assessments are concerned on1    The question of
timelinessnow denends on the dearee of    liaence exercised
by the taxpayer and the presence-or absence Gf fault on his
part.
     Under the Muldrow decision if the money is readily
available to the taxing authority, then the time of payment
should be related to the time of the receipt of the check
by the taxing authority. Our interpretationof Muldrow in
the light of Article 1.13 is that if the taxpayemsed
reasonable diligence to make the funds time1.yand readily
available, and if they are unavailable through no fault of
his, then the eventual payment of the check within a reason-
able time is related to the time the Comptrollerreceives
the check.
     We cannot accept the concept that reasonable diligence
as to timely payment csn only be exhibited by the timely
delivery of money or by the timely delivery of a check which
is paid when first presented in due course.
     If actual payment in money, either by use of the check
or otherwise, is not received within a reasonable time after
the taxpayer is notified that the check has been dishonored,
then the taxpayer will not have exercised reasonable dili-
gence so as to excuse an untimely payment, and the time of
actual payment cannot be deemed to relate to any previous
time.
     Our interpretationnecessarily involves fact questions
dealing with reasonable diligence, taxpayer's fault, and
reasonable time. These fact questions must first be determined




                             -2121-
Hon. Robert S. Calvert, page 6 (M-424)


by the Comptrollerand finally by the courts in the event
of a dispute between the taxpayer and the Comptroller.
     In many cases the issues of reasonable diligence,
fault and reasonable time will be matters about whjch
reasonableminds can differ, depending on the facts of the
particular case. However, in our opinion, the facts stated
in your request reveal reasonable diligence and lack of
fault on the part of the taxpayers to the time of the dis-
honoring of the checks, as a matter of law. The fact
question of whether such payment in money is actually made
within a reasonable time is open and must be determined as
stated above.
     We conclude that, under the facts stated In your request,
if the checks in question are paid,within a reasonable time
after they were first dishonored by the bank or ,ifpayment
in money is otherwise made by the taxpayers within a reason-
able'time after notice that the checks were dishonored, then
the time of such payment will relate to the time of the
receipt of the checks by the Comptroller.
                         SUMMARY
     Under Article 1.13 of Title 122A, Taxation-
     General, Vernon's Civil Statutes, no penalty
     should be assessed for late payment of taxes
     under circumstanceswhere the taxpayer's return
     and check In payment of the taxes are timely
     filed with the Comptrollerand where the tax-
     payer had sufficient funds in the drawee bank
     to pay the check but where the check was dis-
     honored when presented for payment solely
     because the bank account, after receipt of the
     check, was suddenly frozen for a time due to
     internal difficulties in the bank which did not
     involve the taxpayer and over which he had no
     control, provided that the check is paid within
     a reasonable time after being dishonored or
     the taxpayer makes actual payment in money,
     either with or without use of the check, within
     a reasonable time after notificationthat the
     check has been dishonored. The fact question
     of whether such payment in money is made within



                            -2122-
Hon. Robert S. Calvert, page 7 (~-424)


     a reasonable time must first be determined by
     the Comptroller and later by the courts in the
     event of a dispute between the taxpayer and
     the Comptroller.              ,r)




AW:dc
Prepared by Alfred Walker
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Taylor, Chairman
George Kelton, Vice-Chairman
'James Broadhurst
 Louis Neunan
 Sam Kelley
 Malcolm Qxick
Hawthorne Phillips
Executive Assistant




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