Hon. John Ben Shepperd Secretary ofState Austin, Texas

Dear Mr. Shepperd: Opinion No. V-1248 **Re:** Effective dates ofincreases in corporation franchise taxes under House Bill ,285,Acts 52nd Legislature, 1951. Your letter requesting our opinion in reference to the above captioned matter reads as follows:

“In House Bill 285, ofthe 52nd Legislature., Article 7084, R.C.S., was amended byproviding that,

. . . every domestic and foreign corporation heretofore or hereafter chartered or authorized to dobusiness in Texas, or doing business in Texas, shall, on or before May first of each year, pay in advance to the Secretary ofState afranchise tax for the year following
. . .which tax shall be computed onthe basis ofOne Dollar and Twenty-five Gents ($1.25) per One Thousand Dollars ($1000.00) or fractional part thereof; provided, that such tax shall not be less than Twentyfive Dollars ($25.00) inthe case ofany corporation
. . .’ The effective date of this Act isSeptem&er 1. 19,5.1. The present effective rate oftax under Article 7084 is One Dollar ($1.00) per One Thousand Dollars ($1000.00) and aminimum of Twenty Dollars ($20.00). “Article 7086, chapter 3, title 122, provides in part that ‘wherever aforeign corporation applying for apermit has theretofore done no business inTexas, such initial tax shall not be payable until the end ofone 11)year from the date of such permit, atwhich time the tax shall be computed according to the first year’s business as prescribed, inArticle 7084, Revised Civil Statutes ofTexas, as amended; and, atthe same time, such corporation shall also pay its tax in advance, based upon the first year’s business, for the period from the end ofthe first year to and including May first following.’ (Under-. ._.
Hon. John Ben Shepperd, Page 2 (V-1248)
scoring ours.) “Article 7089, R.C.S., as amended, provides in part that ‘where aforeign corporation has not heretofore done business inthis State and is granted apermit to dobusiness in Texas, it shall file its first report as of one (1) year from the date such permit was granted, within ninety (90) days of such date.’

“It has become necessary that we have printed the required forms for ‘First Year Franchise Tax Reports.’ The order for these forms must be placed immediately ,and.the new rate Will be shown for the applicable period or periods. “We are uncertain as to the proper method of computing the franchise tax due by aforeign corporation that qualifies, for example, on June 30, 1950. Its first franchise tax payment would be due ofior before ninety (90) days after June 30, 1951, making the final date offiling andpayment before the accrual of penalties, September 30, 1951. This latter date is thirty (30) days past the effective date ofHouse Bill 285. Actually, of course, the report could be filed andthe tax paid immediately after June 30, 1951, andbefore September 1951. Bearing inmind the date,oflevy, as contemplated by statute, we respectively ask that you answer tb,efollowing questions:

“1. Inthe foregoing hypothetical case, is the tax to be paid atthe $1.00 rate for not only the first permit year ending June 30, 1951 but also for the period from June 30, 1951 to May 1, 19521

“2. Or, is the tax to be computed atthe $1.00 rate for the period from June 30, 1951 to September 1, 1951 andthen atthe $1.25 rate from September 1, 1951 to May 1, 1952?

“In another hypothetical case which will arise in the printing ofthese forms, we are confronted with another problem. A foreign corporation qualifies on November 1, 1950, thus making its first return; and tax payment due onor before ninety (90) days afterHon. John Ben Shepperd, Page 3 (V-1248)
November 1, 1951.

“1. Would the tax inthis case be computed at $1.00 only from the period Novembers 1, 1950 to September 1, 1951 and atthe rate of $1.25 for the period from September 1, 1951 to May 1, 19521

“2. Or, would the tax be computed at $1.00 for the full first permit year &ding November 1, 1951 and at $1.25 for the following period to May 1, 1952 ?

“‘3. Or, would the tax be computed atthe rate of $1.00 for the entire period from November 1, 1950 to May 1, 1952?

“4. Or, would the tax be computed atthe rate of $1.25 for the entire period from November 1, 1950 t0 May 1, 1952?

“In still another situation aforeign corporation qualifies on July 15, 1951, thus making its first return andtax payment due on or before 90 days after July 15, 1952.

“‘1. Would the tax inthis case be computed at $1.00 from July 15, 1951 to September 1, 1951 and thereafter at $1.257

‘2. Or would the tax be computed at $1.00 for the entire period ?

“3. Or would the tax be computed at $1.25 for the entire period ?

“4. Or would the tax be computed at $1.00 to May 1, 1952.and at $1.25 thereafter?” The rate to be used in computing the franchise tax depends upon the rate ineffect atthe time the tax liability is determined. Ifthe tax liability attaches prior to September 1, 1951, the effective date ofHouse Bill 285, the rate in effect at that time should be used incomputing the tax, which would be the rates prescribed byArticle 7084, V.C.S., andArticle 7084i, V.C.S., or atotal rate of $1.10. Ifsuch tax liability attaches onHon. John Ben Shepperd, Page 4 (V-1248)

or after September 1, 1951, the $1.25 rate shouldbeused in computing the tax. The time the taxpayer makes his report and pays the tax is wholly immaterial indetermining the tax rate to be applied. Inother’words, the law inforce atthe time the tax liability is determined should be looked to inorder to determine the tax rate. Kansas City Life Ins. Co. v. Love, 101 Tex. 531, 109 S.W. 863.

InOpinion V-1246, dated August 21, 1951, addressed to Hon. Robert S. Calvert, Comptroller ofPublic Accounts, this office held that House Bill 285 became effective from and after September 1, 1951, and all taxes ofwhatever kind or nature included therein should be levied and collected atthe rates thereinprescribed without regard towfiether such tax was levied on anannual, quarterly, or monthly basis. Hence, House Bill 285 imposes anadditional franchise tax atthe rate of 25$ upon all corporations for the privilege ofdoing business in Texas incorporate form for the period commencing September 1, 1951, through May 1, 1952.

Itis clear tous that the initial tax of aforeign corporation applying for apermit to dobusiness in Texas accrue3 atthe end ofone year from the date the permit is issued; and it is likewise clear that the tax liability ofthe corporation for the period from the end ofthe first year to and including May 1following, likewise attaches atthe end ofone year from the date the permit is issued. This is evident from that part ofArticle 7086, V.C.S., which reads as follows:

“Wherever aforeign corporation applying for a permit has theretofore done nobusiness inTexas, such initial tax shall not be payable until the end ofone (1) year from the date of such permit, atwhich time the tax shall be computed according to the first year’s business as prescribed byArticle 7084, Revised Civil Statutes of Texas, as amended; and, atthe same time, such corporation shall also pay its tax in advance, based uponthe first year’s business, for the period from the end ofthe first year to and including May first follow- &” (Emphasis added.) Applying the above rule, we answer your questions asHon. John Ben Shepperd, Page 5 (V-1248)

follows : Where aforeign corporation secures apermit to do business inTexas on June 30, 1950, you should use the $1.10 rate in computing the tax due for the first permit year ending June 30, 1951; and for the period from June 30, 1951, through May 1, 1952, you should use the $1.10 tax rate through August 31, 1951, andthe $1.25 rate from September i, 1951, through May 1, 1952, in computing the tax due for such period. Mann v. Gulf States Utilities Co., 167 S.W.2d 557 (Tex. Civ. App. 1942, error ref.).

Where aforeign corporation secures apermit on November 1, 1950, you should use the $1.25 rate in computing the tax due for the first permit year ending November 1, 1951; andfor the period November ,l, 1951, through May 1, 1952, you should use the $1.25 rate in computing the franchise tax due for such period.

Where aforeign corporation secures apermit on July 15, 1951, you should use the $1.25 rate incomputing the tax due for the first permit year ending July 15, 1952.

SUMMARY

1.ncomputing the franchise tax liability of a foreign corporation which secured its initial permit before September 1, 1950, the $1.10 rate prescribed by Article 7084, V.C.S., prior to its amendment by House Bill 285, andby Article 7084i,V.C.S., should beused incalculating the tax for the initial year. Incomputing the franchise tax liability ofa foreign corporation which secured its initial permit on or after September 1, 1950, the $1.25 rate prescribed by Article 7084, V.C.S., as amended by House Bill 285, should beused incalculating the taxHon. John Ben Shepperd, Page 6 (V-1248)

for the initial year andfor the period from the end ofthe initial year upto and including May 1st following. APPROVED: Everett Hutchinson Executive Assistant Charles D. Mathews First Assistant Yours very truly, PRICE DANIEL Attorney General

**BV** Price Daniel Attorney General I C. K. Richards Assistant CKR:mf