                              r




                                    QWNEY          GENERAL



                                  AusTmN 11. TEXAS
PRICE  DANIEL
ATTORNEYGENERAL
                                    fune 7, 1950


     Hon. John Ben Shepperd             Opinion No. v-iO66.
     Secretory of State
     Austin, Texas                      Rer Ioclusion of demand Beta exe-
                                            cuted and re~rwed priox to
                                             1941 but not renewed, oxtend-
                                            cd, or rofinaaced o&or, 1941,
                                            in determining taxable cap&al
                                            for francbiee thx puvpour be-
                                            tween ewtive      dotee d 1941
                                            and 1949 smeluhontr      to Arti-
     Dear Sir:                              cla.701u.

                 ,We quote the followi~ exaxp* fram your letfor of May
     8, 1950, requesting ou, opinion OILthe above captioaed matter,

               ~~ “The opinion of your office is respectfully    re-
           quested as to whether the provisions of Article     7084,
           Rqvised Civil Statutes of 1925, 6.1 amended by Chapter
            184, Acfr 1941, 47th Legirlature, appAy to a demand
           note which wa8 executed before the 1941 amendrnemt,
           extended bedore the 1941 amendment, but not renewed,
           extended or sefinauced after such amendment.        The fol-
           lowiag fact situation is typical of out problem:     A cor-
           poration issued a demand note iu 1929, a partial pay-
           ment on the indebtedness evidenced thereby      was made
           before the effective date of tbo 1941 amendment, autd a
           new note was issued to evideace the balaace of tine in-
           debtedness fhen due; no subsequent change Bas been
           mado in hdebtedness OF the evidence the~eob~ Is the
           presently outstanding aote to be Included b the basis
           for computiag the cokporation’r    fhattchiae tax liability
           foa the years between the effective date of the 1941 a-
           mendment and the ebtactive date ob the latest ~amend-
           ment to Article 7084 (Chapter 536, Section 1, Acts 1949,
           51st Legislatare)?    (The latter amendmeat, ob COUFO@~
           makes it clear it 8s to be Included.)”

                   Since the ffrat franchise tax was enacted in 1893. Acti
     23rd Leg., 1893, ch, 102, p. 158, set, 5# the fraarrhise tax baa been
     variously computed. Jn 1930 fog the dirrt     time thr, tax was ttased
     on a corporation’s   outatandinng capital rtock, aorplua, aud uadtvided
     profits   lus the amount of outstanding bomlr, ILLO~~@~  and dabmatums
              %h ose maturtng in less than a year from date of barue.
     other than
Hon. John Ben Shepperd,      Page 2 (v-1066)



Acts 4Ist Leg., 5th C.S. 1930, ch. 68, p, 220. The pertinent p~ovi-
slons of the 1941 amendment to Article   7084, K.C.S., referred to
in your letter, read as follows:

                 “Except ae herein provided, every domestic and
         foreign corporation heretofore     or hereafter chartered
         or authoriced to do business in Texas, or doing buai-
         ness in Tcxar,~rhaU,    on or before May 1st of each year,
         pay in advance to the Secretary of State a franchise tax
         for the year follow-,     based upon that proportioa of
         the outstanding capital stock, surplus and undivided prof-
         its, plus ths amount of outstanding bonds, notes and de-
         bentures, (outstanding bonds, notes, and debentures shall
         include all written evidencer of indebtedness ,which bear
         a maturity date of one (1) year or more from date of
         issue, and all such instruments which bear a maturity
         date of less than 0150 (1) par from date of issue but
         which represent indebtedness which has remained out-
         standing for a period of one (1) year or more ,from date
         of inception, but which have been renewed or extended,
         or refinanced by the issuance of other evidences of the
         indebtedness, whether to the same or other parties and
         it is further provided that ‘thir term ahall not include
         instruments which have previourly      been classified as
         surplusi) . . .” Acts 47th Lea., R.S. 1941, ch. 184, pq 289,
         Article VIII, Sec. 1.

             Shortly after the statute was amended the Attorney Gen-
eral advised the Secretary of State that he should not include in the
basis for franchise tax purposes “notes, bonds and debentures which
are issued for a period of less than one year from the date of issue,
and which represent an indebtedness which has been in existence
for a period of one year or more from the date of inception of the
indebtedness, but which have not been renewed or extended, or ~ D ~
refinanced by the issuance of other evidence of indebtedness.”    We
enclose a copy of this opinion, No. o-3330, dated July l!, 1941.

               The 1949 amendment of Article    7084 reworded    this pro-
vision   of the statute so that it now reads as follows:

               “Except as herein provided,     every domestic and
         foreign corporation  heretofore  or hereafter chartered
         or aothorieed to do buriners in Texas, or doing busi-
         ness in Texas, &all, on or before May first of each
         year, pay in advance to the Secretary of State a franc :=
         chise tax for the year following, based upon that pro-
         portion of the outstanding capital stock, rurplus and
         undivided profits, plus the amount of outstanding bonds,
         notes and debentures (outstanding bonds, notes and de-
Hon. John Ben Shepperd,     Page 3 (V-1066)




      bentures shall include all written evidences      of indebt-
      edness which bear a maturity date of one (1) year or
      more from date of issue, and all such instruments        which
      bear a maturity date of less than one (1) year from date
      of issue which represent     fndebtednesa which has ramain-
      ed continuously    outstanding for a period of one (1) year
      or more from date of inception whether or not said in-
      debtedness  has been renewed or extended by the issu-
      ance of other ev%dences of the same indebtedness        to the
      same or other parties,     and it is further provided that
      this term shall not include instruments      which have been
      previously  classified   as surplus),  . ~ 0n Acts 51et Leg.
      1949, ch. 536, pe 975, sec. 1.

              Under the change made by this amendment (underscor-
ed above) the demand note described     in your request is clearly in-
cluded in the basis for computing franchise    tax liability subsequent
to the effective date of the amendment.    This change was recom-
mended to the Legislature    by your predecessor    and the present At-
torney General.

               Whether we OP the Legislature      disapproved    of the con-
struction placed upon the 1941 act by Opinion No, O-3330 (see Is-
bell v. Gulf Union Oil Co., 147 Tex. 6, 209 S.W.Ld 762 (1948) ),ob
whether such construction       merely served to call to the attention of
the legislative    body the need for special legislation    to include such
instruments     is immaterial.    In either event it is evident that the
legislative   interpretation   of the provision  of the 1941 act is in ac-
cordance with ttiatpreviously        given by the Attorney General in said
opinion.    Had the Legislature     thought that notes maturing in less
than one year, but remaining       outstanding for one year or more with-
out subsequent renewal or extention were included in the basis for
the tax as provided by the 1941 act, there would have been no need
to amend the statute in this particular.

              You are therefore advised that a demand note executed
and extended prior to the 1941 amendment but not since renewed,
extended, or refinanced should not be included in the basis for com-
puting a corporation’s   franchise tax liability for the years between
the effective date of the 1941 amendment and the edfective date of
the 1949 amendment to Article     7084.  It should be included after the
effective date of the 1949 amendment.


                            SUMMARY

            A demand note executed prior to 1941 but not re-
      newed, extended, or refinanced after such date should
      not be included in the basis for computing franchise tax
Hon. John Ben Shrpperd, Pa80 4 (V-1066)



      tiability for the par8 betwoo. the effective date of the
      lg4t atmndment to Attkla        7084, V&.8,, and t&e efiee-
      ttva date of the 1949 amendment to Actkk       7Oa4, V.G.S.
      ophh      NO. 0-33301   Act8   47th LO&,  ad  1941, Ch. m,
      p, 289, Art. VIlI,.Soc.   1. It rhmld be inclnded aftor the
      effectiva d8ta of the 1949, lm#ldmo nt.

                                    Yours   very truly,

                                     PRICE DAMEL
                                    Attorney Canard


APPROVED:

W. V, Geppert
Taxation Divirion

Joe R. Greenhill
Firrt Aesistant

Price Dantat
Attorney General



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