                       IncludedIn Opinlon,No.C-519




     IylLL WILSON
    A-l-roRNEY
             OENIDIIAI.
                          September16, 1960

        Mr. R. E. Swift           OpinionNo. W-935
        County Attorney
        AndersonCounty            Re: Permlsslblllty of deducting
        Palestine,Texas               reservefor bad debt8 aet
                                      up by NationalRank pursuant
                                      to FederalRuling8In arriving
                                      at the value of ehareholder8e
                                      sh@reafor state and county
        Dear Mr. Swift:               ad valoremtax purposes.
              We quote the r0n0ting excqrptfrom your letter requesting
         Our opinionon the above captionedmatter.
                   “For state and countytax purpoees,la
                 a NationalBank requiredto .includein Its
                 capitalstructurea reservefor bad debts
                 set up under the federal.
                                         statuteor ruling
                 eometlmetireferredto 88 the.‘20year moving
                 average’statuteor z+lng?
                   “Attachedhereto are two stat&mentamade
                 by the bank In ,questlon,’
                                         one of them labeled
                 statementA and the other labeledstatement
                 B.
                   “An inspectionof the two etatementa’will
                 dlacloeea differenceor $98,505.33In the
                 total llabllltlea.and capitalaccounts,and
                 It le agreedby the bank in questionthat
                 thle dlfll~rence.iaa reservefor bad debts
                 set up under the followingrulings:



:


                   “Thlereservefor bad debta has been set
                 up under the above statuteor ruU.ng and the
                 bank In questionhae.atatedthat the limit
                 .oithese reservesunder the~federalt3tatUte
                 or ruling haa not been exceeded.
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                                    Included   ln OpinionNo. c-gig

Mr. R. E. Swift, Page 2             OpinionNo. A-935

           "Thisbank takes the positionthat this
         reserveaccountshould not be includedin
         determlnlngthe assetsof'thebank subject
         to state and co&y sd valoremtaxes.
           II
            . . . ,
           'lTheother banks ln Palestinedo notihave
         any such specialreserveset up for bad debts
         under the federalstatuteor yullng. I was
         requestedto ask your opinionthat lf,the
         bank which has,the large reserve~for bad
         debt8 was not requiredto IncludeIt as part
         of the assetsof the bank in order to determlne
         the value of the sharesand thus determinethe
         tax llabllltyfor the shareholders,  would the
         other banks be permlttedto deduct from their
         capitalaccount8a proptrtlonate  sum of their
         respectivetotal'loans.
     Article7165’and 7166 Veryon'sblvll Statutes,set out
in full in the footnotebelow, providefor the assessmentof

iArticle7165 reads as roiioti6:
           %er$ bank, whether 0r leatie or deposit,
         banker,broker,deal~rlnexehange,orstodc
         ~jobber,shall at the tlme ilxed by this chapter.,
         for listingpersonalproperty,make out and
         fui%lsh~theassessorof taxes a sworn statement
         showingt
           "1. If a nationalbank, the presidentor Soas
         other officerof such bank shall furnishto the
         astlessorof the county ln which such bank Is
         locateda list of the names of all the shareholdsrs
         of the stock,togetherwith the number and amount
         oi the sharesof each stockholderof stock In
         said bank3 and the shareholders of the stobk in
         nationalbanks shall render to ths tax assessor,oi'
         the oounty In which said bank ls.locatedthe nwitber
         of their sharesand the true and full value there-
         Of. All sharesoi stocksln nationalbanks not
         renderedto the assessorof taxes In the aounty
         where such bank.18locatedwithin the time pre-
         scribedby law for listingpropertyfor taxes shall~
         be assessedby the assessoragainstthe owner or
         owners thereofas unrenderedproperty.18assessed;
         but the tax roll shall show the name of‘theowner
         or owners thereof'a8 per statementfurnishedby the
         presidentor other officersof said bank.
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                             Inaludedln OpinionNo: C-e
NIT.R. E. Swift, Page 3      OpinionNo. WW-935

personaland real propertyof banks. In City of~Marshal1v.
State Rank 127 S.W. 1083 (lbx.Clv.App.1gIb, errorrsr.1, the
court held a state bankwas not liablefor any taxes'exoept
1 (cont .]
           "2. Nationalbanks shall render all
         otherbonds and stooksof everykind,
         exceptUnited Staeesbonds, and all shares
         0s capitalstocksor joint etook or stooks
         0s other3ompaniesor ooi?porations-held
         as an investmentor in any way representing
         assets,togetherwith all other personal
         propertybelongingor pertalning.tosaid
         bank, except such~personalpropertyas la
         speciallyexemptedin>m taxationby the
         laws of the UnitedStates..
           “3. Nationalbat&m shall be requiredto
         render all of their real estateas other
         regl estate IS mmlered; an& all thq personal
         propertyof said nationalbanks herein taxed
         shall be valued as othei. personal property
         IS valued.
           ‘4.  All other banks, bankers, brokers,or
         dealersin exhange, or stock jobbers shall
         render their list in the followlzigmanner:
           "(1) The amountof money on hand on In
         transitor In the hands of other banks,
         bankers,brokersor others subjectto draft,
         whetherthe same be In or out of the State.
           "(2) The amountof bills .recelvable,
         discountedor purchasedand other credits
         due or to become due, lncludlngaccounts
         receivable,Interestaccruedbut~notdue,'
         and Interestdue and unpaid.
           “(3) From the aggregateamcunt0s the
         items named In the first and seaond of the
         last two subdlvlsionsshall be deducted
         the amount of money on deposit.
           “(4)  The Bmotuit0s bonds and 8t0cks0s
         every kind, except United Statesbonds,~
         and all sharesof capitalstocks or j0l.M
         stocksof other companiesor W?pOratlmS -
         held as an Investmentor In any way repre-
         eentlngassets.

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                                                       -.
    _
                                Imluded    ti Oplnlon NO. c-519
HF. R. E. swift, Page 4             OpinionNo. W-935

those assessedagainstIts real estate. On Motion for
BehearIng,the courtpointed&t*hatunderthe Acts 0s
1883, page 111; 9 &unme18sLam 0s Texa6, 417, property,
both.realand personal,owned by state banks could be taxed
1 (uon4.I
          "(5) All other propertybelonging
        or appertainingto said bank or business,
        Includingboth personalpropertyand real
        'estate,
               Shallbe listed ai dther personal
        propertyand real estate,
Article7166 reads as r0ii0w8:
          %very ba+lrtg oorporatlon,  State or
        national,doing businessIn this State
        shall, In the clty.ortows In which it Is
        located,renderIts real estateto the tax
        assessoriat the time and In the manner
        requiredof lndlvlduals.At ,thetlme 0s
        making such renditionthe presidentor some
        other or?iceti0s said bank shall rile with
        said assessora ~suornstatementshowingthe
        number and amountof the sharesof said -
        bank, the nime and residenceof each share-
        holder,and the number and amountof shares
        owned by him. Every shareholder0s
        said bank shall,In the city or town where
        said bank Is located,renderat their actual
        value to the tax assessorall shares owned
        by him in such bank; and In case of hlk
        failureso to do, the assessorshall assess
        such unrenderedsharesas other unrendered
        property. Each share in such bank shall
        be;taxedonly for the differencebetween
        Its actual cash value and the proportionate
        amountper share at which Its real estate
        Is assessed. The taxes due upon the shares
        of bankI@ corporations  shall be a lien
        thereon,and no bankingcorporationshall
        pay any~dlvidendto any shareholderwho Is
        In defaultIn the paymentof taxes due on
        hi8 shares;nor shall any bankingcorporation
        permit the transferupon lte books of
        any share, the owner of which Is In default
        In the paymentof his taxes upon the same.
        Nothingherein shall be SO construedas to
        tax nationalor State banks,or the share-
        holdersthereof,at a greaterrate than Is


                           -2445-
                                                         .   .
                                         Inqludedln OpinionNo. C-U9
    Hr. R. E. Swift, We   5              OpinionNo. UN-935

    directlyIn the hands of the individualor corporateowsen
    shlle thatofnatlonal hanks oouldbe ~achedonl~WWx&ng
    the shares0i stock in the hands 0s the holders. The c4nzrt
    srld that the 1885 enactment of what aurrptls     wean&    as
    Article5080 0s the then RevisedStatutes indioatedcr
    Legi latlve intent that effect he given to both~&tlQles
    50799and 5080 The court pointedout that Arflate5079
    was broad eno&to      lnoludewithlnits tems ur~ladlvldua-
    or partnership,as weWas a oorporatlonlasage&lrim:
    banking or stodc Jobblxqbuslness.endthat it mi#kt also
    Includejoint-steak   ampmies    an6 othen’dnfpgsd   aid 4Wag
    M exchangeor brokersgebuslne88. Mole           5080 ml*ted
    exaluslvel to state or nationalbsnklngcorporations.
    At page 1056, the court said:
                1,         We oannot construeartlole
             507fi&*a'method ror as8e88ing'th.e
             property held by state bankingoorporatlons
             wlthoutsuspendingorannullingsome0s
             theprovlslonsof hrt.SO80,orholdlng
             that the Leglsl8ture.lntended    to tax both
             thd QFOpW& Of thb b@K ai& it8 SmS          Of
             stook la the hands of the stookholdef8    also.
             lhris :wouldbe.double.taxation,   and woufd be
             ottrlbutiq to the Leg%slrturean intent
             whioh would render one or the other of the
             two artlolesvoid. OiXle8plev. Ctaston,
                       l¶m proper oonstruotlon,  we think,
             %?%bs      fo hold that in adoptingthe sot
             0s 1885 (artlole5080) the Legislature
             Intendedthereby%o providea bpeoialand
             uniformmethod for taxing the personal
             propertyrepresentedby the bank*8 holding
             to be made applicableto both state and
             nationalcorporatelnstltutions.
                q,         we must asslms that in the
             enaEt&t'of article5080 the Legislature
             had a definitepurposi in view, and Intended
    1 (cont.I
             assessedagainstothsr moneysd oapltalin
             the hands 0s lndlvl&ial8.
                                     "
    %esently carrledas krtlole7166, V.C.S.
    %resently carriedas Arti&     7l65;V.C.S.
I



                                -2446-
                                                   .



                                      Includedln OpinionNo. c-519
m. R. E. Swift,Page 6                 OpinionNo. WW-935


         that all of Its provisionsshouldbe
         enforced. Those prwlslons relatingto
         the taxationof the'share8of stock of
         Incorporated  state banks cannot be
         enforceda8 a method of taxationIf It
         be held that the personalprofirtyof
         such ln8tltutlonsie subjectto.taxation
         againstthe corporationitself. We cannot
         attributeto the Legislaturethe intent.
         to have two inconsistentstatutesenforced;
         nor shouldwe treat one a8 repealingthe
         other by Implication,  unless the inconsistency
         resultsfrom timonlyreasonableconstruction
         that can be placed upon them. There are ln
         this s+fc alngleindlvidual8and association8
         of.personsengagedIn the claesesof bueiness
         referred to in article5079 to which lt.may
         apply. The requirementsas to the detailed
         lists to be furnishedmay also prove servlce-
         able to a8seBsor8and equalizationboards
         ln arrivingat the proper valuationof shares
         of stock i.nincorporatedbank8. By giving
         fill effectto the ~rovlslonsof article5080
         it operate8tily to except incorporatedstate
         banks from the provlslone,of  article5079,
         In so far a8 that articlemay be relled.on
         as a has18 of asse8slngthe personalproperty
         0s euch banks. Article507 IS generalin
         it& scope,while article50%o Is special. In
         such case8 there Is no lrreconcllable~confllct,
         and court8universallygive effect to both by
         construingane a8,an exceptionfrom the general
         terms of.thdother.
            "    . . Adoptingthis conetructlonof the
         two'&tlcle8 of the statuteto which we have
         referred,we think it 18 clearlyapparent
         that the LeglelatureIntendedby article5080
         to providea means of taxingthe personal
         propertyof state banklng corporationsin the
         hands of the shareholdere."
     ‘InOplrilonNo. WW-439, this Office held that in determlnlng
the value of bank stock,assessmentshouldbe based upon the
fair cash market value of the stock less the value of the
proportionate amountper share of the real estateowned by the
bank ratherthan the value that would be obtainedby adding
the value of the capitalstock, the amount of surplu8,undivided
profitsor reservefunds and dividingthis by the number.of
sharesof stock. This is so becauseIt Is proper~   for the.
                           -2447-
                                   IncludedIn OpinionNo. c-519
Mr. R. E. Swift,Page 7             Opin10nNo; WW-935


asse66or or board to ConSider all element6which tend to
augmentthe value of the etock In the hand6 of the lndlv%dual
stockholder.
     The fact that the bank 18 requiredunder federallaw to
set apart a reservefor bad debt6 does not changethe fact
that 6uCh reserveconstitutesa segregatedportionOf its
earned surplusand a part of Its personalproperty. Even
though such reserve8cannotbe taxed againstthe bank, they
are necessarilys'factorto.be conalderedIn arrivingat the
irctualcaeh market value of the shares for the purposeof
determiningthe tax liabllltyof 8hareholders.
     Since we have concludedthat a nationalbank's re6erve
for bad debts may not be deductedbut must be treated88 part
of the aseets in traluingIts shares,forad valoremtax pu oses,
it is efrldentthat we could find no ba6i6 for allOWingb28
other than nationalbanks to deduct from their capitalaccounts
8 proportionate sum of their respectivetotal loans.
                      SUMMARY
           The reservefor bad debts eet up by
      a NationalBank pursuantto Federalruling6
      may not be deductedin arrivingat the value
      0s the shareholder's 6haz.es
                                 for State and
      Countyad valoremtax purposes. Nor may a
      bank, other than a NationalBank, deduct a
      proportionatesum for bad debt6 In arriving
      at the value 0s the shareholder~6sharesfor
      State and Countyad.valoremtax purposes.
                              Yours very truly,
                              WILL WILSON
                              AttorneyGeneralof Texas


MMP:jlp
AFFROVEU:
OPIHIOICOMMITTEE:
W. V. Geppert,Chairman
Virgil Pulllam
James P. Ryan
Leon F. Pesek
REVIEWEDFGR!CRE'A'H?GRHBYGERERAL
By: LeonardPassmore
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