r
QWNEY GENERAL

AusTmN 11.TEXAS **PRICE DANIEL**  **ATTORNEY**

**GENERAL** fune 7, 1950

Hon. John Ben Shepperd Secretory 

### ofState Austin, Texas 

### Opinion No. v-iO66.
**Rer** Ioclusion ofdemand Beta executed and re~rwed priox to 1941butnot renewed, oxtendcd, or rofinaaced o&or, 1941, in determining taxable cap&al for francbiee thxpuvpour between ewtive dotee d 1941 and 1949smeluhontr to ArtiDear Sir: cla.701u.

,We quote thefollowi~ exaxp* fram your letfor ofMay 8, 1950, requesting ou, opinion OIL theabove captioaed **matter,**

~~“The opinion ofyour office is respectfully requested as towhether the provisions ofArticle 7084, Rqvised Civil Statutes of 1925,6.1amended by Chapter 184,Acfr 1941, 47th **Legirlature,** appAytoa demand note which wa8 executed before the 1941amendrnemt, extended bedore the 1941amendment, butnot renewed, extended or sefinauced after such amendment. The followiag fact situation is typical of out problem: **A** corporation issued ademand note iu 1929,a partial pay**ment** onthe indebtedness evidenced thereby was made before the effective date oftbo 1941amendment, autda new note was issued to evideace the balaace oftineindebtedness fhen due; nosubsequent change Basbeen mado in hdebtedness OFthe evidence the~eob~ Is the presently outstanding aote tobe **Included b**  **the basis**  for computiag the cokporation’r fhattchiae tax liability foa the years between the effective **date**ofthe 1941amendment **and the** **ebtactive**date **ob**the latest ~amendment toArticle 7084 (Chapter 536, Section 1,Acts 1949, 51st Legislatare)? (The latter amendmeat, obCOUFO@~ makes it clear it 8sto be Included.)” Since the ffrat franchise taxwas enacted in 1893. Acti 23rd Leg., 1893, ch, 102, **p.** 158, set, 5#the fraarrhise tax baa been variously computed. Jn 1930fog the dirrt time thr,tax was ttased ona corporation’s outatandinngcapital rtock, aorplua, aud uadtvided profits lus theamount of outstanding bomlr, **ILLO~~@~ and** **dabmatums %h**  **other than**  ose maturtng in less thanayear from date of **barue.**Hon. JohnBen Shepperd, Page 2 (v-1066)

Acts 4Ist Leg., 5th C.S. 1930, ch. 68, p, 220. The pertinent p~ovislons ofthe 1941amendment toArticle 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 todo 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, andall such instruments which bear a maturity date of less than 0150(1) par from date ofissue but which represent indebtedness which has remained outstanding 

### for a period ofone (1) year or more 

### ,from date of inception, butwhich have been renewed or extended, or refinanced by the issuance of other evidences ofthe 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, pq289, Article VIII, Sec. 1. Shortly **after the**  statute was amended theAttorney 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 ofinception of the indebtedness, butwhich have not been renewed or extended, or ~D~ refinanced by the issuance of other evidence 

### ofindebtedness.” We enclose a copy ofthis opinion, No. o-3330, dated July l!, 1941.

The 1949amendment ofArticle 7084reworded this provision ofthe 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 ofeach year, pay in advance to the **Secretary** of State a franc := chise tax for the year following, based **upon** that proportion ofthe 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, pe975, 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 OPthe Legislature disapproved of the **con** struction 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 taxHon. John Ben **Shrpperd,** Pa80 4 (V-1066)

tiability for thepar8 betwoo. the effective date ofthe lg4t atmndment toAttkla 7084, V&.8,, and t&eefieettva date ofthe 1949amendment toActkk 7Oa4,V.G.S. ophh **NO.** 0-33301 **Act8 47th**  LO&, **ad** 1941, **Ch. m,**  **p, 289,**  **Art.** VIlI,.Soc. 

### 1. It 

### rhmld beinclnded aftor the effectiva d8ta ofthe 

### 1949,lm#ldmont.
**Yours very**  **truly,** PRICE DAMEL **Attorney** Canard

APPROVED:
**W.** V, Geppert Taxation Divirion
Joe R. Greenhill **Firrt** Aesistant **Price** Dantat Attorney General

MMG/mwb