Honorable John Q. McAdams, Commissioner
Department of Banking
Austin, Texas
Dear Sir:                Oplnlon Bo. O-5797
                         Re: Franchise tax llablllty of State
                              banks placed In voluntary llqui-
                              dation pursuant to applicable
                              provisions of law.
       In your letter of January 5, 1944 you request the opinion
of this department upon the question therein contalned, which
for convenience we quote a8 follows:

       "The question has arisen regarding franchise       /
    tax liability of state banks pla.cedin voluntary
    liquidation pursuant to applicable provisions of
    law. Article 7084a reads as follows:
       "'Hereafter no franchise tax shall be as-
    sessed against a state bank after it has closed
    its doors and has gone lnto~the hands of the
    Banking Commlssloner for~liquldatlon according
    to law, nor shall any such corporation be liable
    for any franchise tax while in the hands of the
    Commissioner for liquidation. The failure of
    the Commissioner to pay franchise taxes for any
    bank in his hands for liquldatlon shall&   op-
    erate to revoke or forfeit the charter of such
    corporation.
       "'Provided, that after such liquidation should
    there be any funds left that would go to the stock-
    holders, then all past due franchise taxes (em-
    phasis ours) shall be.paid before distributing such
    funds, if any, to outstanding stockholders.
       "'Provided further, that the Banking Commisslon-
    er of Texas shall not be required to file with the
    Secretary of State any reports for the purpose of
    assessing franchise taxes, as provided in Article
    7088, Revised Civil Statutes, 1925'.
       "We understand that the last paragraph of the
Honorable John Q. &Adams,   page 2        o-5797


    Article quoted above is meaningless in that Article
    7088 has been repealed. However, the language of
    this particular paragraph along with the provljions
    of the Article may be pertinent in respect to a de-
    termination of the meaning of the term 'past due
    franchise taxes'.
       "A bank was placed in voluntary liquidation
    pursuant to applicable provisions of'law on March
    20, 1939, on which date it owed franchise taxes -in
    the sum of $15.00. It has now completed its llqui-
    dation procedure, that is to,say; has paid all.of
    its depositors and cr6ditors,~except the State,
    and has on hand an amount of cash subject to dls-
    trlbution to the stockholders of record. It de;.
    sires to effect the distribution and bring about
    a cancellation of its corporate status.
       "Question:
        "Should this bank be required to pay the Set-,
    retary of State under the franchise tax require-
    ment the $15.00 which.was~pastdue at the time the
    bank was placed in liquidation, plus additional fran-
    chlse taxes for subsequent years from the date said
    bank was placed in voluntary liquidation pursuant
    to provisions of law? Or Is the amount of liability
    limited to.$l5.00 by reason of the fact that the
    Secretary  of State cannot assess a state baiGcln-
    cldent to franchise taxes after It has closed its'
    doors and by reason of the further expression which
    says, 'nor shall any such corporation be liable .for
    any franchlse.tax while in the hands of the Commls-
    sloner for llquidatlon.'
       "We are presuming that the provlslons of law set
    out in Article 7084a apply with equal force to ~a-bank
    placed in voluntary liquidation according to law,
    since we have an opinion to such~effect, An answer
    to this inquiry Is deemed lmpoptant for the reason
    that this Department should not certify to the Sec-
    retary of State that a bank has discharged all of
    its liabllltles and thus Is eligible for a cancella-
    tion of its corporate status in the absence of evl-
    dence as to the payment of franchises taxes up to
    date of the dissolution rkquest if you should hold that
    the bank is liable for franchise taxes after it has
    closed Its doors."
Honorable John Q. McAdams, page 3         o-5797


         Xe take it that your question 1s submitted upon the as-
  sumption that a State bank in process of voluntary liquidation
 under Articles 539 and 540 of Vernon's Revised Civil Statutes
  In effect before repealed by the Banking Code passed by the
  48th Legislature, and now superseded by Article 342'-802V.R.C.S.
  of said Banking Code has, in the language of Article 7084A
 quoted in your letter, "gone into the hands of the Banking Com-
 mission for liquidation according to the law." If this as-
  sumption be correct -- and we hold it %IInot -- we would in
  our view have a less difficult question for solution. We would
  in our opinion, under this view, have to adopt the same rule
 as to a solvent bank In the process of voluntary liquidation as
 would apply to one Insolvent in Involuntary liquidation. Under
  the applicable provisions of the statute tinderthe prior law
  or under the present Banking Code, as concerns a liquidation by
  the Commission there could be no doubt but that such a bank‘
  'has gone into the hands of the Bank@   Commissioner for llqul-
  datibn, according to law", within the purview of Article 70848,
          Underthis assumption we would be constrained to hold
  zU%?iegardless of whether a~bank is llqufdated by voluntary
  process or by being taken over by the Banking Commissioner for
  liquidation no franchise tax would accrue and become due during
  the process of liquidation under the express terms of s&id
I Artlele 7084A, exceftif Ithere be any funds left that would go
  to the stockholders   then all past due franchise taxes shall
  be paid before distributing such funds, if any, to outstanding
  stockholders, and that the term "past due franchise taxes" re-
  ferred to in the proviso to the statute has reference to fran-
  chise taxes due at the time llquidatlon was begun.
        Since we have reached the conclusion that Article 7084A
 is applicable only to banks taken over and liquidated by the
 Banking Commissioner, as distinguished from a voluntary llqul-
 datlon by the stockholders, we must look elsewhere for an ex-
 emptlon from franchise tax, if such exists, as is Imposed UP-
 on every domestic and foreign corporation by virtue of Article
 7084 which provides:
        "(A) Except as herein provided, every domestic
     and foreign corporation heretofore or hereafter
     chartered or authorized to do business in Texas,
     shall, on or before'May 1st of each year, pay In
     advance to.the Secretary of State a franchise tax
     for the year following,.based upon that propor-
     tion of the outstanding capital stock, surplus and
     undivided profits, plus the amount of outstanding
     bonds, notes and debentures, other than those-ma-
     turing in less than a year from date of Issue, as the
     gross receipts from its business done in Texas
     bears to the total gross receipts of the corporation
Honorable John Q. PIcAdams,page 4          o-5797



    from its entire business, which tax shall be com-
    puted at the following rates D . D .‘I
       Admittedly State banks are domestic corporations sub-
ject to franchise tax, and we know of no other exemption.from
such tax accorded to them except that found in Article 7084A.
       The dlstinc’tionwe have here made~ 13 of too much .impor-
tance to pass without supporting comment, although we frankly
confess that we have not found a case passing upon or deciding
the question either way,
       A brief survej-of the applicable statutory provisions as
to voluntary liquidation of State banks Is found in Vol. 6 Tex.
Jur. p0 315 in the following language:
       "While it is declared to be unlawful for any
    banking corporation to make a voluntary general as-
    signment, a solvent banking corporation may volun-
    tarily close the bank and 1lqtiFdat.e
                                        its business up-
    on the vote of shareholders tiavlngtwo-thirds of the
    shares, The procedure is that, after the board of
    directors have resolved that closing of the business
    is necessary or expedient, notice of~a meetlng'of
    shareholders called-'togive effect tb the pr&posi-
    tion is advertised and mailed to stockhdlders-bat
    least sixty days prior to the intended meeting.' If
    adopted by stockholders, a certified copy ofthe
    resolution of adoptibn ii to be filed with the Com-
    missioner. The~notice required by statute to be
    given pursuant to the dissolution of a banking car-
    poration is for'the benefit of stockholders, d@os-
    ltors and creditors. The statute requires a copy
    of the resolution to be filed with the Secretary of
    State. D O D
       “Acting under their statutory povers, the re-
    quired majority of stockholders may put the bank in
    liquidation, and so long as the liquidators act in
    good faith in the disposition of the assets and fee
    that full value IS obtalned therefor, the minority
    stockholders may not complain. 0 . 0"
This, we think, is a fair statement of the statutory authority
PQr a voluntary liquidation, and we are unable to ghther from'
these statutes, or Article 342-802 of the present Banking Code,
Vernon's Revised Civil Statutes 48th Legislature, that their
effect is to place such banks Ln the "hands of the Banking Com-
missioner for liquidation according to law," but to our mfnd
the reasonable import of these statutes is to place such banks
                                    .

Honorable John Q. McA&ams,.Page 5        o-5797


in the hands of their stockholders for llquldatlbn, subject,
of course, to the large discretion vested Inthe Commissioner
under the Constitution and statutes where a question of ln-
solvency or Irregularity arises.
       The circumstances under which the Commissioner is au-
thorized to close a banking corporation Is stated in Tex. Jur.
Vol. 6, p. 321 In the following language:
       "The circumstances under which the Commissioner
    is directed to close a banking corporation are: 1.
    Insolvency; 2. Jeopardy to the safety of depositors
    or by its continuance in business; 3. The making or
    undertaking to make a voluntary assignment of its as-
    sets; 4. Disapproval of the Banking Board of the Bank
    and a determination that it Is not entitled to.con-
    duct a banking business (unless in th#s instance the
    bank goes Into voluntary liquidation).
       “A large dlscretlon is given to the Commissioner
    by this statute; and his determlntitionthat the bank
    Is insolvent Is ,1
                     final and not subject to judicial
    review."
       There~obvlously exists a marked dlstitictlon~
                                                   between the'
power of the banking Commlssloner with respect~to solv6nt :banki
voluntarily liquidating through an order1y:proces.qof voluntary
acticinupon the part of the stockholders and insolvent banks
taken over by the Commissioner and llquldated by him utiderhis
statutory authority and this distinction is appisrentfrom-an
examination of the various provisions of the statute noted
briefly as follows:
       Article 539 and 540, R.C.S. nov repealed by
    the BankFng Code and Article 342-802 of the present
    Banking Code provide (1) that the llquldatlon of .9
    solvent bank is initiated onlg by the stockholders;
     (2) that the doors of the bank are closed by the vol-
    untary act of the stockholders; (3) that the liqui-
    dating process Is carried on under the direction of
    the stockholders; arid (4) that the stockholders wind
    up the liquidation and submit a final report to the
    Commissioner, which, If regular, he would have no
    discretion except to approve. In the case of insol-
    vency or involuntary liquidation the liquidation is
    initiated by the Commlssloner;~he.closes the doors,
    takes overtthe assets of the bank, and proceeds.with
    the liquidation to -the final winding up of thieaffairs
    of the bank. In such latter case the bank has 'closed
    Its doors' and in the language of the statute 'has gone
Honorable John Q. McAdams, page 6        o-5797



    into the hands of the Banking Commissioner for llqui-
    datlon, according to law,' D . c .
       In this instance, and this alone, does-theexemption
from franshise tax imposed upon all domestic corporations exist
in favor of State banks, They,do-not come tiithany of the ex-
ceptions provided In Article 7094, R.C.S., and these exceptions
are not necessary ,tobe enumerated here,
       Having reached the conclusion that a solvent bank vol-
untarily llquidatlng doesnot come within the provIsions of..
Article 708411,R.C.S, or any other exemption provided by sta-
tute we are constralned to the view that such banks' llablllty
for franshlse tax must be determined by general statutes ap-
plicable to all domestic corporations as is provtded in Article
7097, R.C.S. applicable to corporations In the process of li-
quidation. This statute reads as follows:
       "If a corporation is actually in process of li-
    quldation, such corporation shall only be required ~to
    pay a franchise tax calculated upon the difference'.be-
    tween the amount of stock actually lssued~.and'thea-~
    mount ~of llquldating dividends actually paid upon such
    stock;~provfded, thatrthe president and secretary offs
    such corporation shall make~aff'idavltas to 'the'~tota1
    amountof capital stock issued and as to the amount
    of liquidating divfdends actually paid Andythat ~such
    corporation fs in an actual bona~fide state of liqul-
    dation."
       Our Supreme Court speaking through Justice Sharp said in
the case of Ross Amigos Oil Company vs. State 138~~s.W~ (2d)
798 in commenting upon ~thebroad operations of our statute im-
posing a franchise tax upon all corporations used the following
language:
       0 D,/
           00D.0 The clear purpose of this law Is to levy
    a franchise tax on each and every corporation that-Is
    chartered in the State, -- with certain exemptions,
    which are not involved here, 0 a o"
In this case Justice Sharp quoted from the Court's opinion in
Federal Crude Oil Company vs. Yount Lee Oil Company 52 S..W.
I    56 as follows in speaking of the effect of Article 7091
and 7092 which deal with penalties and forfeitures fOF failure
to report and pay the franchise tax imposed by law:
       "This statute Is purely a revenue measure. Rn-
    der it large sums are collected for the support of the
    state government. Statutes of this nature are always
     Honorable John Q. &Adams,    page 7         o-5797



          liberally construed so as to effectuate the chief ob-
          ject and purpose of their enactment. In making provl-
          slon for the collection of public revenue, ordinarily
          time is not of the essence of the thing sougHtto be
          accomplished. The primary purpos6 of such a statute
          is to secye the payment of the taxes therein levied.
          . . . . .
      .-
       ;     From the foregoing It follows that we are of the opinion
      that under the state of facts submitted by you a solvent State
      bgnk in process of liquidatfon~through the voluntary action of
      it% stockholders is subject to franchise taxes as any other
      corporation in the process of'llquidatlon upon the basis of
      Article 7089, supra, and you are accordingly so advised.
                                       Very truly yours
                                    ATTORNEY GENERAL OF TEXAS

                                       By s/L. P. Lollar
     -.                                 ...~..:i
                                        ," .i L. P . Lollar
                                            *TP;ssistant
~~
      LPL:gm:wc                                   ',


      APPROi'EDJAN 28, 1944
      s/Grover Sellers
      ATl'ORNEYGENERAL OF TEXAS
      Approved Opinion Committee By s/A.W. Chairman
