.   ’




                    9‘HE     ,!TI-ORNEY             GENERAL

                                 OF       TEXAS

                                 AUSTIN     ,,.TExA~

                                  September 13, 1957

        Honorable Zollia Steakley           Opinion No. W-227
        Secretary of State of Texas
        Austin, Texas                       Re: Can the Secretary of
                                                  State, under Art. 9.14 C
                                                  (3) of~the Texas Business
                                                  Corporation Act, demand
                                                  of a trustee of a,corp-
                                                  oration which is ,in pro-
                                                  cess of reorganliation
                                                  under Ch. X of the Fedar-
                                                  61 +-&ruptcy Act the sum
                                                  of,money required under
                                                  Art. 7092 V.C.S. to re-
                                                  vive the right to do
                                                  business in Texas, where
                                                  petition ~for suoh,,reor-
                                                  ganization was filed in
                                                  the Federal Court prior
                                                  to the date upon which
                                                  such right to do,business
                                                  was required to be for-
                                                  feited under Art. 7091,
        Dear Mr. Steakiey:                        v.c.9.
                In your recentletter you:,requestour oplnjon baaed
        upon the facts you state and which are hereinafter recited,
        on the following question:
                    "Was the Secretary,of State authorized to,
                 require the payment of the penalty of $473.85
                 and the revival fee of $2,132.33 from this,
                 corporationunder the above facts, or on the
                 other hand, Is the corporation entitled to a
                 refund of either or both sums so paid to the
                 Secretary of State?"
                 The corporation ln'question is Texas City'Chemicals,
        Inc.   You recite the following fact situation:
                   "The captioned corporation, properly
                chartered by the State ,o~f
                                          Texas, failed to I
                pdcvits franchise taxes in the amount of
                f&,738.50 which was due on May 1, 1956. On
                June 22, 1956, a petition for reorganiza-
                tion of the corporation under Chapter X
                                                            .   .




Hon. Zollie Steakley   Page 2   Opinion No. NW-227


       of the Bankruptcy Act was filed In the
       Federal District Court and subsequently
       approved with a trustee being duly ap-
       pointed.
           "On July ,2,1956, during the pendency of
        reorganization proceedings, the Seoretary
        of State, in conformity with the provisions
        of Article 7091, R.C.S., as amended,,for-
        felted the corporation's right to do business
        in this State.
           !'?!he
                State of Texas on October 18, 1956,
       filed in the reorganization proceedings its
       claim against the corporation for delinquent
       franchise tax of $4,738.50, plus the penalty
       ,of lo$,amounting to $473.85, as provided in
       Article 7091, R.C.,S.,as amended. On January
       3, 1957, after due notice and hearing on
       Trustee's objections to the allowance of a
       10% penalty, the federal distrlot
       ordered only the franchise tax of
       to be allowed as the claim of the State of
       Texas and specifically denied any right to
       the penalty of $473.85. No appeal was taken.
           "Under a plan of reorganization of the
       corporation application for adoption of the
       Texas Business Corporation Act (as a prelude
       to charter amendments under this act) was
       filed with the Secretary of State on March
       22,  1957.  Beaause of the provisions of
       Article 9.14C(3), Texas Business Corporation
       Act,.this office refused to file the adopt-
       ion unless a total amount of $7 344.68j (being
       delinquent franahlse taxes of $&,783.50, plus
       10% penalty thereon of $473.85, plus an addi-
       tional amount.for revival fee under Article
       7092, R.C.S., as amended, of $2,132.3;~tw~;
       first paid. Fn     or&l and lnf;rma: 8
       this office a reed to place $2 606 1 of the
       total amount the penalty of 10% In Ule sum
       of $473.85 and the revival fee of $2,132,23)
       in a departmental suspense account pending
       determination of the proper amount, in excess
       of the undisputed sum of $4,783.50, due the
       State of Texas."
        In addition, you have advised us that the notice
of delinquenay required by Articles 7092 and 7091, V.C.S.
.       .

    .       ”



                Hon. Zollle Steakley   Page 3     Opinion No. WW-22'7


                to be mailed by the Searetary of State to each corporation
                which failed to pay its franchise tax on or before May 1
                was mailed on May 31, 1956.
                        For convenience we have considered the laws of the
                United States whloh bear upon this inquiry in Seotion I
                of this opinion, and the laws of Texas upon the subject
                In Seotlon II.
                                             I.
                        We hold that the corporation and the trustee are
                liable for the revival fee and the penalty for late pay-
                ment of the franchise tax under the laws of the United
                States as a charge to remoVe forfeiture of 'the corporate
                right to do business which was allowed to be incurred
                subsequent to attaahment of jurisdiction of the Bankruptcy
                Court.
                        We consider the case of Bote1er.v. Ingels, 308 U.S.
                57 (1939) as determinative of this position. We would pre-
                fer to quote that entire opinion - It is unusually concise
                and precise in support of our position - but in deference
                to brevity urge that it be read and considered very care-
                fully. The Act of Congress of June 18, 1934, 48 Stat. at
                L. 993, Ch. 585, 28 U.S.C.A. Sec. 124a therein quoted is
                ndw encompassed within the provisions of 28 U.S.C. Sets.
                959(b) and 960. Changes in wording of this Act have not
                altered the force nor restricted the scope of application
                of this decision.
                        See also the following sections of the Bankruptcy
                Act of 1938: 11 U.S.C..Ch. 7,~~Sec.102 (a), beln
                62 (a) of the Act; ll,U.S.C.~Ch. 10, Sec. 616 (3
                Sec. 216 (3) of the Act; and 11 U.S.C. Ch b                ,
                bein Sec. 57 (j) of the Act; In re Chicago & N. W.
                co. 5homson v. Toman, 119 F. 2d y(l (C C C '(th1941)
                Collier on Bankruptcy. 14th Rd.. Xl. i,ia;. 13.03     (II.
                P. 4513 4 ..-_--
                             i th refer
                                  ----- &nce to Sec.~62 (a) of the l?&kr&tcy
                Act. (SeeJAW.opendixfor copy of Federal Statutes cited in
                this opinion].
                        Rightson the part of the corporation of preventing
                the forfeiture existed continually and with no qualifica-
                tions from the date of filing of the petition in reorgan-
                ization on June 22 until the right to do business was
                forfeited by the Secretary of State on July 2, 1956.
                        Under Article 7092, V.C.S. (first sentence) and
                Article 7091, V.C.S. (second sentence) the Secretary of
                State could not have forfeited the corporate right to do
                business until 30 days after mailing of the notice re-
                                                                .   .




Hon. Zollie SteijlkleyPage 4   Opinion No. WW-227


quired by these Articles. This officer advises us that
he mailed this ,notice on May 31, 1956. Theref'o~re,
                                                   the
forfeiture could not have been made until 30 days after
May 31, 1956, which was after June 22, 1956.
        When it was made on July 2, .there accrued and
became due to the State in order to restore to the corp-
oration its right to do business the sum of money to be
ascertained as provided in that portion of Article 7092
hereinabove mentioned. This sum is plainly stated by
that Article to be the consider8tlon necessary to move
to the State, not in discharge of the penalty for late
payment of the franchise tax, but in payment for a new'
and wholly different and very valuable favor from the
State, i.e. restoration of the corporate right to do
business, and release of the State's right to forfeit
the charter. (Articles 7092, 7096).
        Furthermore, this sum upon'lts :aecrual also be-
came secured by a lien, under Article 7090, V.C.S: "The
state shall,have a prior lien on all corporate,property
for allfranchise taxes and penalties. . .'
        Had the Legislature fixed a flat fee for revival,
without reference to the late payment penalty, lt'would
be clear that such sum would be due without question.
Even If the late payment penalty is considered as a part
of the cost to remove the forfeiture such component
still did not accrue until after the bankruptcy proceed-
ings were initiated.
        With reference to application of the foregoing
authorities we believe the corporation and Trustee owe
both the pena1t.yand revival fee on the basis of such
sums being necessary costs in administering and preserving
the corporate estate under Sections 62 (a) and 216 (3)
of the Bankruptcy Act, and under 28 U.S.C. Sections 959(b)
and 960 In order to comply with the laws of TeX8S in the
management, conduct and operation of the corporation while
under the jurisdiction of the bankruptcy court.
        In,Palmer.v.,Webster & Atlas National Bank of Boston,



        "The purpose o,fthis bill is to subject'
        businesses conducted under 'receivership
        in Federal courts to State 8nd 10~81 taXa-
.       .
    .       .




                Hon. Zollle Steakley   Page 5   Opinion No. WW-227


                        tion the same as if suoh businesses
                        were oondueted by private Individuals
                        or corporations. . .What Congress in-
                        tended was that a business in reoeiver-
                        ship, or conducted under court order
                        should be subject to the same tax liabi-
                        lity as the owner would have been if in
                        possession and operating the enterprise."
                        Complete jurisdiction of the bankruptcy court over
                all property and affairs of the corporation attached on
                June 22, 1956, the date on whleh petition in reorganization
                was filed in the United States District Court in Qalveston.




                        If the corporation doubted Its liability for either
                the tax or penalt or any part of either, under 11 U.S.C.
                Ch. 6, Sec. 93 (j   being Sec. 57 (j) of the Bankruptcy
                Act of 1938, or under any other law, it had a plain com-
                plete and timely mode of protection under both Article
                4388 and 7057b, V.C.S. to prevent forfeiture of its
                right to do business. Isbell v. Gulf Union Oil Co., 147
                Tex. 6, 209 S.W. 2d 762 (Tex. Sup. 1946)
                taryof State v.,Texas Frozen~Foods,,Inc.,
                275 (Tex. Sup. 1937,71-
                                    .
                        In any event the trustee legally could have pre-
                vented the forfeiture of the right to do business and con-
                sequent penalty for reViVa1 of such right, and was legally
                bound to have done so.
                        While the penalty, considered as a penalt for late
                payment, may have been barred under Section 57 (jy of the
                Bankruptcy Act it accrued and became due as an incident
                to preserving and protecting the estate of the bankrupt
                during administration by the bankrupt court, under 28 U.
                S.C. Sacs. 959 (b) and 960, and under 11 U.S.C. Sacs.
                102 (a) and 616 (3).
                        Not only was the corporate business being conducted
                through the Bankruptcy Court in a proceeding in reorgani-
                zation under Chapter X of the Bankruptcy Act, on July 2,
                1956, but such proceedings continued through March 22,
                1957 when the application to adopt the Texas Business
                Corporation Act was filed. The creditors as well as the
                stock holders were entitled and required to be protected
                                                                  .   .




Hon. Zollie Steakley   Page 6   Opinion No. W-227


by the preservation of this valuable right to do business
in the corporation.,
        Reorganization has for its main purpose the re-
habilltatlon of the debtor, and to that end contemplates
the continued corporate existence of the debtor. Forfeit-
ure of franchises or accrual of penalties for non-payment
of the tax would begserious barriers to such rehabllita-
tion. Thompson~v. State of Louisiana, 98 F. 2d 1.08,(C.
C.A. 8th 1938) Mayer v. Gros,llb,F. 2d 737 (C.C.A. 5th,
1940); MlFarlanh v. Hurley, 286Fed. 365 (C.C.A. 5th, 1923);
In re .Fonda, J. & G.R. Co, Zimmer v. New York State,Tax
Comm.,12bF     2db04(CCA 9    2d 1942 Cert Den. 31b r
mm);      In're  International Phwer Sicurities Corp..,~
                                                       109 :
F. Supp. 544 (3d3                         0   er on   nk-
ruptcy, 14th Ed. 6~1.~;, ;rS:;&1519:                     '~~ .,
        The franchise taxes3 penalties and forfeitures of'
the State of Texas are non-discriminatory as to corpora-
tions in receivership, in the hands of a trustee, or under




        In Michigan v. Michigan Trust Co., 286 U-S. 334
(1931) the Court recognized that under franchise tax
statutes similar to those of Texas the corporate franchise
might be forfeited by the state folafailure of a Receiver
appointed by a Federal court and managing the corporate
business to pay the corporation franchise taxes when due.
        Forfeiture of the,,corporation"sright to do busl-
ness was mandatory upon the Secretary of State under
Article 7091 V.C.S., Tex. Const. Art. I,!;Set, 28. Imme-
diately upon such forfeiture there accrued and became
due and payable the composite ,sum o'fmoney necessary to
restore this right to do business, as required by Article
7092 V.C.S., as follows:
        "Any corporation whose right to do business
        may have been forfeited, as provided in this
        Chapter, shall be relieved from such forfeiture
        by paying to the Secretary of State,at any
        time prior to the forfeiture of the,charter
        or permit of such corporation as hereinafter
.   -




        Hon. Zollie Steakley   Page 7   Opinion No. WW-227


               provided, the full amount of the fran-
               chise taxes and penalties due by it, to-
               gether with an additional smount of five
               per cent (52) of such taxes for each
               month, or fractional part of a month,
               whiah shall elapse after such forfeiture
               as a revival fee; provided, that such
               amount shall In no case be less than Five
               Dollars ($5). When such taxes and penal-
               ties and the revival fee shall be paid to
               the Secretary of State, he shall revive
               the right of the corporation to do business
               with the State. . . .'
                We have found only one case which at first glance
        miaht aunear to make an intrusion uvon the foregoing
        auzhori?.ies. That Is California State Board of-Equallza-
        tionv. Goggln, Inre,Exeter Refinn.1 g Co., 183 F. 2d 489
          . . .    , 930, cert. den. 340 U .S . 891) (herein re-
        ferred to as the Rxeter Case). However, this case does
        not lessen the force nor the scope of application of
        Boteler,v..Ingels (Supra) nor other authorities herein+
        above cited to the facts stated In the request for this
        opinion.
                The Exeter Case is subject to several material
        distinctionsfromthe   situation under which the Trustee
        of Texas City Chemicals, Inc., paid to the Secretary of
        State of Texas the sums of money in question (herein
        referred to as the Texas Case).
                1) In the Exeter Case the tax had become
                due prior to     inception of the bank-
                ruptcy proceedings. In the Texas case
                both the incident of forfeiture as well
                as the sum of money in question necessary
                to revive the right of the corporation to
                do business accrued and became-fixed,after
                the bankruptcy petition was filed.
                2) Only payment of a tax and penalty, with-
                out a lien therefor being asserted, was in-
                volved in the Rxeter case. Preservation and
                protection of thecorporate estate against
                loss of a very valuable right: I. e. its
                rieht to do business in Texas. is material
                in the Texas Case.
                                                                    -
                                                                .       -




Hon. Zollie Steakley   Page 8   Opinion No. W-227


     3)Exeter withheld from the sovereign a
     simple tax claim. In the Texas Case
     the corporation would ask,?%%,    that
     the State withhold exercising its sovereign
     duty of forfeiture, contrary to its Consti-
     tution, and second, that if the State be
     allowed to exercise,thls sovereign function,
     then that the corporation be allowed to ex-
     tract from the sovereign a gratituity in
     the nature of a removal of such forfeiture.
     4) The Texas corporation could have paid
     the tax and penalty under either Article
     4388 or Article 705713,V.C.S. and pre-
     vented forfeiture. No mode of preventing
     the penalty sought in the Exeter case is
     mentioned in that case.
      5)'Sxeter paid the tax with legal interest;
      the Texas corporation tendered no tax nor
      any other sum prior to and In prevention
      of forfeiture.                                   ,.
                            II.
        We further hold that the corporation was required
to pay both the late payment penalty and the revival fee
incident to the accrued franchise taxes under the Texas
Business Corporation Act, Art. 9.14 C (3), which directs
the Secretary of State to file a corporate resolutions
adopting the Act,      .when all fees and franchise taxes
have been paid as prescribed by lawz7 (underscoring added)
        The amount demanded by the Secretary of State was
paid by the Trustee for the corporation under Article 4388,
V.C.S. This amount at the option of the Trustee also
could have been paid under Article 7057b, V.C.S.
        The Trustee contends that neither the late payment
penalty nor th; revival fee are comprehended within tie scope
of the phrase . . .all fees and franchise taxes.
as used in the above Art, 9.14 C (3) of the Texas business
Corporation Act. Although we find no decisions of our
courts which have construed,Article 4388 and which apply
to this contention we believe there are applicable the
several cases hereinafter cited in which our Supreme Court
has considered penalties and fee incident to franchise
taxes paid under protest under Article 7057b. It is
our opinion that the Legislature intended the terms It. . .
all fees and franchise taxes. . -' as used in this Art.
.   .




        Hon. Zollie Steakley   Page 9   Opinion No. W-227


        9.14 C (3) to include the late payment penalty and revival
        fee which were due and paid by the Trustee.
               Article 7057b In Sec.    1 states It Is applicable
        to:                             _,
                II
                 . . .any occupation, gross receipt, fran-
                chise; license or other privilege taxor fee
                . . . paid "to the head of any department
                of the State Government. . .",-and-authorizes
                suit for recovery ".     of such taxes or
                fees. . .' (Underscoring added).
                Sec. 7 of this Article 705713reads:
               "The provisions of this law shall be cumula-
               tive of all laws relating to the payments
               of taxes orfeesof,undetermined.status and
               for the holding thereof in the suspense ac-
               count fund of the State Treasurer".
                We are aware of the holding in the case of Jcnes
        v..w1111ams, 121 Tex. 94, 45 S.W. 2d 130 (Tex. Sup.-),
        cited by the Trustee in its brief submitted in connection
        with this opinion request, wherein the Court at page 133
        said:
                ,1. . *the impositions made for delinquency
                       for failure to pay taxes, whether the
                impositions are denominated 'penalties',
                'interest', 'forfeitures', or whether pre-
                scribed without definition or name are all
                in reality penalties imposed for delinquency
                OP failure of duty, and all enated in aid
                of the state's revenue. . ."
                The Court then categorically held that such "pen-
        alties" are distinct from and not a part of the tax to
        which such impositions are incident.
                Adverting again to Article 7057b and to the case


        to the wording of that statute, at page 964 the court said:
                "We think Article 7057b, supra, and related
                statutes, should be liberally construed, to
                the end that an adtiqwateremedy be accorded
                those who are required to pay illigal taxes".
                (underscoring added).
                                                               ,   .




Hon. Zollie Strrakley Pag4 10   Opinion No. WW-227


        It seems to be settled by dacisions of OUP Texas
Supr4me Court that th4 terms "taxes OF f44s” used in this
Artlcla 705713uomprehend all penalties which may arise iri-
cident to the Texas franchise tax. Isbell v.,QulfUnion
Oll.Co., 147 Tax. 6, 209 S.W. 26 762 (T     SUP. 194tJ*
  lgham, Sec. of Stat4v. Gulf, C..& S.4?RyCo.,      2 6 S.
w. 2d 811 (Cl       .   %           f   n.P.4.); Wuldrow,
Sec..of &ate ~:~T~~asPro~s~~~df;~     '
                                     Ina.,  299 S.W.
??b (Tax. Sup. 1957).~
        Based upon these decisions Itappears to us that
Art. 9.14 C (3) of the Texas E!usiness,CorporationAct r4-
quires a corporation, delinquent in any franchise tax,
penalty OP fee incident to the,franchisetax, to pay all
these charges before the State will recognize an adoption
of the Act In any respect.
        Under Article 7092, V.C.S. there is assessed against
a corporation as one component of '. . . the amount neces-
sary to entitle it to have its right to do business re-
vived.    ' a sum denominated a "revival fee"   The word
"fee" is likewise used in both,Artlcle 7057b and in Sec.
9.14 C (3) of the Corporation Act under consideration.
Whather the composite sum necessary to revive'the right in"
to do business, lncludin# each and all its components,
is denominated a "tax", penalty" OP "fee", we believe
that both the Legislature and OUP Stat4 Supreme Court
have made it clear that under our franchise tax laws the
intent of tha Legislature is that these laws be liberally
construed as revenu4 measures, and that the terms mentlon-
ed will not be restricted to their othartise possible
fin4 distinctions.
        We believe that the language and effect of the de-
cision of the Taxas Supreme Court in th4 case of Federal-
Crude Oil Co. v. Yount-Lee Oil Co., 122 Tex. 21, 32 S W
2d >b (T    S    1932) there applied to Article 7091 'V'
C.S. is yzst %'applicable to otherarticles pertaining'
to payment and collection of the stata's'franchise,taxes,~
wherein at page 61 the Court saia:
        "This statute is purely a revenue measure.
        Under it large sums are collected for the
        support of the st,ategovernment. Statutes
        of this nature are ,alwaysliberally oon-
        strued so as to affectuate the ehiaf object
        and purpose of their enactment".
        And in the same paragraph the Court continued:
Hon. Zolll4   Steakley   Paga 11   Opinion No. WW-227


        "The primary purpose of such a statute
        Is to seoure the paym4nt of tha tax48
        therein levied."
        The Legislature has lumped together "all franchise
taxes and penalties' (Art. 7090, V.C.S.) and "any fran-
chise tax or franchise taxes or penalty or penalties" (Art.
7095, V.C.S.) as being secured by lien on all corporate
property and as being obligations for which a corporation
charter may be forfeited.
        We believe the purpose and effect of the provisions
of Art. 9.14, Sec. C(3) of the Texas Business Corporation
Act should be likewise construed to rdquire a corporation
delinquent In any franchise tax or any penalty or fee in-
cident to that tax to pay all this delinquency before the
State will file an amendme~to   the corporate charter under
which the corporation adopts any new provision of that Act
ana receives any of its benefits. The Legislature by con-
ditioninf the privilege of adoption of tha Act upon pay-
ment of . . . all fees and franchise taxes.
scribed by law. . .I'intended to and did add an'a~&.~~~nal
moans of enforced payment of all such delinquencies.
        "And where the legislative purpose and
        intent can be fairly and reasonably de-
        duced from the lanauaae of tha statute.
        when taken as a whgle; such~purpose and
        intent should be effectuated." Thompson
        v. Missouri, K.~& T Ry. Co., 103 Tex. 37
        ‘126 S W 257 (128 S W 169, rehearing dz'
        nied,'Tex. S&p. 1910j.’
        All of the above authorities and our views ar4 In
complete harmony with the long settled principle that for
purposes of payment all interest and penalties incident
to a tax become inseparably merged with the tax Itself
so that the composite sum must be paid in whole. Except
for the special act relating to ad valorem taxes which
was construed in the case of Jones v. Wllli.sms,supra,
there is no other provision in our state tax structure
wherein a delinqu4nt tax payer Is allowed to pay an ex-
isting legally delinquent tax without at the same time
also oavlnstthe Penalties and other comoonents which have
become a p&t of-the delinquency. Richhy, Tax Collector
v. Moor, 112 Tex. 493, 249 S.W. 172 (T    s    923) L&kin
Land and Lumber Co. v. Noble, 12'7S.W.e&J3uT)Tex. civR&T,
1910) .
                                                                   -.




                                                             J_.                .




                                                                        .   .




Hon. Zollie Steakley   Page 12   Opinion No. ,WW-227


        The prior refusal of the bankruptcy court to allow
the penalty for late payment as a penalty~does not effect
the liability of the corporasion ana the Trustee for such
    as a part of the expense incident to admlnistering
e": estate upon subsequent adoption by the corporation of
the Texas Business Corporation Act. Where the corporation
Invokes the baneflts of the Act It must'pay the cost set
by the Legislatura for that privilege.
                       SU   M,M~A RY
         Where the right of the Stat4 to forfeit a
         corporation's right to do business in Texas
         ac~cruedafter a,petition for reorganization
         of the corporation under Chap.,X of the
         Fedaral Bankruptcy Act has been filad the
         sum of money necessary to r4vive ,the right
         to,do businsss is payable by the Trustee In
         Bankruptcy under the bankruptcy laws as an
         4xpense of presarving and administering the
         corporate estate, and is properly demanded
         by the Secretary of State upon the corporation
         filing its resolution adopting the Texas
         Business Corporation Act under Article 9.14
         C(3) of that Act.
                                  Very truly yours
                                  WILL WILSON
                                  Attorn4mi(neral of Texas

                                       W. E. Allen
WEA/fb                                 Assistant

APPROVED:
OPINION COMMITTEE
Gaorge P. Blackburn, Chairman~
W. V. Geppert

REVIEWED FOR THE ATTORNEY GENERAL
By: James N. Ludlum
