r 

QWNEY GENERAL 

AusTmN 11. TEXAS 

PRICE DANIEL 

ATTORNEY GENERAL 

fune 7, 1950 

Hon. John Ben Shepperd 

Secretory of State 

Austin, Texas 

Opinion No. v-iO66. 

Rer Ioclusion of demand Beta executed and re~rwed priox to 

1941 but not renewed, oxtendcd, or rofinaaced o&or, 1941, 

in determining taxable cap&al 

for francbiee thx puvpour between ewtive dotee d 1941 

and 1949 smeluhontr to ArtiDear Sir: cla.701u. 

,We quote the followi~ exaxp* fram your letfor of May 

8, 1950, requesting ou, opinion OIL the above captioaed matter, 

~~ “The opinion of your office is respectfully requested 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 followiag fact situation is typical of out problem: A corporation issued a demand note iu 1929, a partial payment 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 indebtedness 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 amendment and the ebtactive date ob the latest ~amendment 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 

other than %hose maturtng in less than a year from date of barue. 
Hon. John Ben Shepperd, Page 2 (v-1066) 

Acts 4Ist Leg., 5th C.S. 1930, ch. 68, p, 220. The pertinent p~ovislons 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 buainess 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 profits, plus ths amount of outstanding bonds, notes and debentures, (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 outstanding 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 General 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 provision 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 business 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 proportion 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 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 one (1) year from date 

of issue which represent fndebtednesa which has ramained continuously outstanding for a period of one (1) year 

or more from date of inception whether or not said indebtedness has been renewed or extended by the issuance 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 (underscored above) the demand note described in your request is clearly included in the basis for computing franchise tax liability subsequent 

to the effective date of the amendment. This change was recommended to the Legislature by your predecessor and the present Attorney General. 

Whether we OP the Legislature disapproved of the construction placed upon the 1941 act by Opinion No, O-3330 (see Isbell 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 accordance 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 without 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 computing 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 renewed, 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 efieettva 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, l m#ldmo nt. 

Yours very truly, 

PRICE DAMEL 

Attorney Canard 

APPROVED: 

W. V, Geppert 

Taxation Divirion 

Joe R. Greenhill 

Firrt Aesistant 

Price Dantat 

Attorney General 

MMG/mwb