Honorable Robert S. Calvert Opinion NO. ~-424 

Comptroller of Public Accounts 

State Capitol Building Re: Whether penalties for 

Austin. Texas late oavment of taxes 

Dear 

shouldbe assessed when 

the check in payment of 

taxes. is dishonored by 

the drawee bank through 

Mr. Calvert : no fault of the taxpayer. 

Your opinion request reads, in part, as follows: 

“Two banks, each in a ,different city in 

this State, have recently had occasion to freeze 

the accounts,of some or all of their depositors. 

This became necessary, in each case, due to difficulties not involving the depositors in question, 

and the accounts were rendered frozen suddenly, 

without warning or notice being given to these 

depositors. 

“Prior to the action by the banks, several 

depositors placed in the U. S. Post Office 

quarterly sales tax reports and enclosed therewith checks drawn upon their accounts with one of 

the above banks in payment of the tax due as 

reported. 

“Following timely receipt by this office of 

the quarterly reports and ch@cks, one of the above 

banks, upon presentment, failed and refused to 

accept the checks, and the same were dishonored, 

with the explanation that the depositor’s account 

would be frozen for a time due to bank difficulties 

of an internal nature. 

“It is expected that the same situation will 

occur with regard to the second bank. Correspondence 

from the bank and two depositors leads us to this 

conclusion. 

i++ 

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Hon. Robert S. Calvert, page 2 (W-424) 

"Your official opinion is requested as 

to whether the statutory penalty for late 

payment, under Article 20.05(H), supra, must 

be assessed the taxpayer whose check was not 

honored by his bank when presented by this 

office." 

By supplemental letter you have also advised us: 

"In regard to the recent request for en 

opinion concerning the return of checks written 

In payment of sales taxes, please be advised 

that such request was made based upon our assuming that the checks in question were executed 

prior to the depositor's knowledge of his account 

being frozen, and that at the time the checks 

were executed there was sufficient funds on 

deposit with the bank to cover the same and at 

the time of presentment by this office to the bank 

there still remained sufficient funds to pay the 

checks." 

For purposes of this opinion we are assuming as true the 

the same facts that you have assumed as true. 

It is the opinion of this office that under the facts 

submitted no penalty should be assessed for late payment, 

provided that the checks are paid within a reasonable time 

after being dishonored, or the taxpayers make actual payment 

in money, either with or without use of the checks in question, 

within a reasonable time after notification that the checks 

have been dishonored. 

The backdrop for this opinion Is the well-settled rule 

that penalties and forfeitures are to be strictly construed 

against the State, and that doubts or ambiguities in this 

field will be resolved against the State by the courts. It 

has also been held that a penalty will not be~inflicted where 

the failure la occasioned by circumstances beyond the control 

of the party or where the particular event causing the failure 

could not reasonably have been foreseen and guarded against. 

See 45 Tex.Jur.2d 5, Penalties g 

Warehouse Cornpane 104 Tex. 496 2; 

eth v. Hamilton 

1 0 cm4 1911 * 

itfield V. Terrill Compress Cimpan 

App. 1901, error ref.); Conley v. 

.w. 1L ( ;x.civ. 

Sh%nan S. & S. R. Company, 

-2118- 
Hon. Robert S. Calvert, page 3 (~-424) 

90 Tex. 295, 38 S.W. 519 (1897); Bloom v. Texas State 

Board of Pharmacy 390 S.w.2d 252 (T S . 19b5)' and 

Chesapeake and Ohio Railway Company ?'B%rd lOO'W.Va. 

222 130 S ti 524 (1925) Th 1 t it d ca:e holds 

thai where'failure of performLc?wai czused by the intervention of a via major or Act of God, a recovery for 

penalty will be denied. 

The leading case on this subject is Muldrow v. Texas 

Frozen Foods, 299 S.W.2d 27.5 (Tex.Sup. 1951). There, the 

mat a check for taxes delivered to the collecting official on the last day allowed for payment and 

thereafter returned unpaid by the drawee bank does not 

constitute a timely payment of taxes, even though the check 

was dishonored solely because of a mistake on the part of 

the bank end was paid when presented a second time. The court 

held that under our Constitution and statutes payment of 

taxes must be in money and that no official can obligate the 

State to accept a check as either absolute or conditional 

payment. Since a check cannot be accepted as conditional 

payment of taxes, the court rejected the general doctrine of 

relation which is that when a check is accepted as conditional 

payment and the condition is satisfied when the check is paid, 

it is proper to treat the payment as having been made at the 

time the check was received. However, the court further held 

that if a check Is given for purposes of paying taxes and is 

promptly paid when first presented in due course to the drawee 

bank, then for all practical purposes the funds are as readily 

available to the taxing authority as If payment had been made 

in money, and that, therefore, such a check would be the legal 

equivalent of money and the taxes would be considered as paid 

when the check was received by the collecting official. Thus, 

although a check can never constitute payment or conditional 

payment of taxes, the court nevertheless approved a limited 

form of the "relation back" doctrine, limited to checks paid 

when first presented in due course. The Muldrow case is in 

any event distinguishable from the situatme presented 

wherein apparently neither the taxpayer nor his agent, the 

bank, is at fault, and payment was delayed due to circumstances 

beyond his control. 

In 1961, after the Muldrow decision, the Legislature 

enacted Article 1.13, ,Title 3.2&I Taxation-General, Vernon's 

Civil Statutes, and it was smendgd in 1967. The 1961 

-2119- 
Hon. Robert S. Calvert, page 4 (~-424) 

enactment was in substance what is now Section (a) of 

Article 1.13. Then in 1967, Sections (b) through (g) 

were added. It will be noted that Section (c) is not 

limited to the provisions relating to the time a report 

is placed in the United States mail. Section (c) deals 

with standards of care required of a taxpayer in making 

timely payments and with situations where payments will 

be deemed to have been timely filed. Therefore, the 

helm Muldrow must now be interpreted end applied 

in the lighmch statute. 

Article 1.13 (a) and (c) are as follows: 

"(a) Any report, required by any 

provision of this Title to be filed or made 

on or before a specific date shall be deemed 

timely filed if said report, shall be placed 

in the United State Post Office or in the hands 

of a common or contract carrier properly addressed to the Comptroller of Public Accounts on or 

before the date required for such payment, report, 

annual report, return, declaration, statement, 

or document to be filed or made. 

*** 

"(c) The person making the report shall 

be deemed to have substantially complied with 

~the filing requirements as to timeliness if he 

exercised reasonable diligence to comply and :. 

through no fault of his own the reports were not 

timely filed." 

Section (f) of Article 1.13 provides that: 

'The term 'report' shall include any payment, 

report, annual report, return, declaration, 

statement or other document required by any provision of this Title to be filed with the Comptroller." 

Therefore, the word "payment" can properly be substituted 

for the word "report" in Section (c), making it read as 

follows: 

(c) The person making the "payment" shall 

be deemed to have substantially complied with 

-2120- 
Hon. Robert S. Calvert, page 5 ( ~-424) 

the filing requirements as to timeliness 

if he exercised reasonable diligence to 

comply and through no fault of hfs own the 

"payments" were not timely filed. 

We do not view Article 1.13 as altering the mode of 

paying taxes; however, because payment is computed from 

the time provided for filing of the tax reports, a substantial compliance rule for reports logically governs 

in connection with the time determinative for payment. 

The delivery of money continues to be the only mr,thod of 

effecting payment of taxes. It follows that the "in fact" 

time of payment is always when money is delivered, never 

before. However, Article 1.13 altered the rule as to when 

payment shall be~deemed as having been timely made insofar 

as penalty assessments are concerned on1 The question of 

timeliness now denends on the dearee of liaence exercised 

by the taxpayer and the presence-or absence Gf fault on his 

part. 

Under the Muldrow decision if the money is readily 

available to the taxing authority, then the time of payment 

should be related to the time of the receipt of the check 

by the taxing authority. Our interpretation of Muldrow in 

the light of Article 1.13 is that if the taxpayemsed 

reasonable diligence to make the funds time1.y and readily 

available, and if they are unavailable through no fault of 

his, then the eventual payment of the check within a reasonable time is related to the time the Comptroller receives 

the check. 

We cannot accept the concept that reasonable diligence 

as to timely payment csn only be exhibited by the timely 

delivery of money or by the timely delivery of a check which 

is paid when first presented in due course. 

If actual payment in money, either by use of the check 

or otherwise, is not received within a reasonable time after 

the taxpayer is notified that the check has been dishonored, 

then the taxpayer will not have exercised reasonable diligence so as to excuse an untimely payment, and the time of 

actual payment cannot be deemed to relate to any previous 

time. 

Our interpretation necessarily involves fact questions 

dealing with reasonable diligence, taxpayer's fault, and 

reasonable time. These fact questions must first be determined 

-2121- 
Hon. Robert S. Calvert, pag e 6 (M-424) 

by the Comptroller and finally by the courts in the event 

of a dispute between the taxpayer and the Comptroller. 

In many cases the issues of reasonable diligence, 

fault and reasonable time will be matters about whjch 

reasonable minds can differ, depending on the facts of the 

particular case. However, in our opinion, the facts stated 

in your request reveal reasonable diligence and lack of 

fault on the part of the taxpayers to the time of the dishonoring of the checks, as a matter of law. The fact 

question of whether such payment in money is actually made 

within a reasonable time is open and must be determined as 

stated above. 

We conclude that, under the facts stated In your request, 

if the checks in question are paid, within a reasonable time 

after they were first dishonored by the bank or ,if payment 

in money is otherwise made by the taxpayers within a reasonable' time after notice that the checks were dishonored, then 

the time of such payment will relate to the time of the 

receipt of the checks by the Comptroller. 

SUMMARY 

Under Article 1.13 of Title 122A, TaxationGeneral, Vernon's Civil Statutes, no penalty 

should be assessed for late payment of taxes 

under circumstances where the taxpayer's return 

and check In payment of the taxes are timely 

filed with the Comptroller and where the taxpayer had sufficient funds in the drawee bank 

to pay the check but where the check was dishonored when presented for payment solely 

because the bank account, after receipt of the 

check, was suddenly frozen for a time due to 

internal difficulties in the bank which did not 

involve the taxpayer and over which he had no 

control, provided that the check is paid within 

a reasonable time after being dishonored or 

the taxpayer makes actual payment in money, 

either with or without use of the check, within 

a reasonable time after notification that the 

check has been dishonored. The fact question 

of whether such payment in money is made within 

-2122- 
Hon. Robert S. Calvert, page 7 (~-424) 

a reasonable time must first be determined by 

the Comptroller and later by the courts in the 

event of a dispute between the taxpayer and 

the Comptroller. ,r) 

AW:dc 

Prepared by Alfred Walker 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Kerns Taylor, Chairman 

George Kelton, Vice-Chairman 

'James Broadhurst 

Louis Neunan 

Sam Kelley 

Malcolm Qxick 

Hawthorne Phillips 

Executive Assistant 

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