. PRICE DANIEL

AT,OR?aEY

OEWERAI. June 17, 1948

lion. C. R. Cavnrss State Auditor Austin. Texas

Dear



### bove Attn: Bon. Chao. 0. Colium Opinion No. V-606 Be: Whether or not Certl

### flcates of Deposit Is- s sued by State 

### banks are 'written 

### evidences of indebtedneafl aa that term le used in Illt~;ic7d8'T V.C.S.,

. 

## sir: Your recent request‘for auopitios on

### the aquestion reads In part as follows: "Wosub&t heretith certified copier of Certl.ficatea of DeporZt which are to ahew,tbe form of certlflcates issued by TheOuuanty State Bankof WewBraunfels, 

### Texaa, to eertaln classes of depositors. 

### These certlf.lcatee may be, andmanyare, renewedby the bank issuing newcertificates whenthe old certificates becomedue thus manyof such certificates bear maturity dates of less than ‘oneyear from date of lae,ue but represent indrbtedaeea which has 

### remained outstanding for one 

### year or morefrfm da;:a;fdlnceptlon which has been roneued or

. . . 

### “It la requested that you advise thir Qf

### fico uhethor, 

### inyour oplaloa, 

### the cortlficate:s **roforrod** to, epecirene 

### of which are bnalqood,~repro~oat urlttoa lvldonca6



### of ladobt-”

c

..



### Hon. C. H. Cavnoae, Page 2 

### (V-606)

edness of the bank onwhich franchise tax should be computed in 

### the event they have been outetaadlng one

### year or morefrom date of inceptl0n.e TheCertificates of Deposit or TimeDeposit Certificatea attached to your letter of 

### request read rub stantially ail’follows:

This Is to certify that deposited with this bank $ able to the order of hasWYmonths after date in current fund; onthe return of this certificate vroverlr endorsed with Interest at peEcent per annum from date until -.-- est after maturity. 

### , 19,. No inter-

, 

### Gamier That portion 

### of Article 7084, V.C.S., as ed, pertinent to this oplnian reads as follows:

ll 

### shall, onor before Maylet of 

### each pe;r: iay in 

### advance to the Secretary of State a franchise 

### tax for the year 

### following, based upon that proportion of the outstanding capital 

### stock, aurplue andundivided profits, plus the amount

### of outetandlng bonds, notes and

### debenturoe (outstrndi bonds, notee and debentures 

### ehafl include al written rrldenc“f ee 

### of Indebtedness which bear a maturity btr 

### of one (1) ear ormore fromdato of 

### ieeue, and all 

### aucH

### lnetrumente which bear a

### maturlty 

### date of lose than 

### one (1) year from date 

### of larrue

### but which reprreent lndebtednrre which 

### has remained outstanding 

### far aperiod of one (1) 

### ear or 

### morefromdata 

### of Inception, but whitii

### have been **renewed**

### or exteaded, or 

### refinanced by the 

### iusuance of othor 

### evldeacee 

### of the Indebtedarea . . . * awadIt 1s rettled that our presont frurchire tax, -

Hon. C. Ii. Cavness, Page 3 (V-606)

Is a charge madeby the State against a corporation for doing business In this State. Houston 011 Co. v. Lawson, 175 S. W. (2d) 716, error refused.

Ourfirst franchise tax warnenacted by the Legislature In 1893 andprovided for a flat tax of N&O;et?r year upon private corporations. Acte 1893,

was amen&d158, ch. 102, sec. 5. In 1897 the statute

so as to base the franchise tax upon the authorized capital stock of corporations. 25th Leg., p. 141, ch. 104. Acts 1897, In 1907 our Leglslature enacted a franchiser tax statute which~based the tax upon either a corporatlon*s authorized capital stock or Its outstanding capital stock plus Its surplus and undivided profits, depending upon which wasthe greatActs 1907, 1st Called Session p. 503 ch. 23 TE’l930 the Legislature amendedthi statuti and b&ed the franchise’ tax on a corporatlonts outstanding capital etock, aurplus andundivided proflta plus the amountof outstanding bonds, notes anddebentures other than those maturing In less than a year from date of Issue. Acts 1930, Fifth Called Session, 41st Leg., p. 220, ch. 68. In.&941 the statute was amendedso as to add outstanding bonds, notes anddebsntures which bear a maturity date of less than one year from date of Issue, but which represent lndebtedneas which has remained outstanding for a period of one year or more from date of inception which have been renewed or extended or refinanced by the leeuance of other evldeaces of ladebtednese. 184, art. 8, sec. 1. Acts 1941, 47th Leg., p. 269, ch.

In the opinion of this office the above hletory of our franchise tax statute ahewsthat thr Leglalature InterMad that the franchise .tax was to be based upon the lavested and bwroued capital of a corporation. In Haurton 011 Cempanyv. Lawron; 175 S. W. (2d) 716, error r~efueed the Court,ln dlecuselug the 1941 amendmentto Artieie 7084, V.C.S., stated: The amendment 

### provided In 

### l f-.I. feot “&a; ihe baele 

### for computlry ihe tax ahouid be the inverted and borrow&d capital of the corporation

. . . Theamendmentbroadened the ecope of the Inverted and borrowed’ capital provision of the Statute by IncludingHon. C. 33.Cavncss, Page 4 (V-606)

for the first time borrowed capital represented by renewals of indebtedness not payable within one year
. . . w Theanswer to the question submitted depends, therefore, upon whether or not the Certificates of Deposit submitted represent borrowed capital of State banks. ACertificate of Deposit is defined 8s:

“Awritten acknowledgement by abask or banker of the receipt of a BWof 5x+ac]ron deposit which the bank or banker praml445 to pay to the depositor, to bearer, to the QPd4r of the depositor, or to stm4other pers6n or tohis 0rdsr.e 9 c.J.s. 636, 8 310. '2 In Texas dePCIly. Co,. ‘1. 

### UottwYf, 63U. (Ml 

### Texas, afiirmd 291 Il.3. 815, the CowD @$a%-

‘We agree with this view that adeposit indeed create P debt, but it cre(Ltee something more. a loan another. That a,**deqmsit**ia oao thiry, *Thestriking fact remria*

. . . that a rerl difference between adecosit and a loan has always been assumed, as amatter of custom, in the banking business itself, and in all legirlation dealing with the subject.*” This holding was based,upon Divide County v. Baird, 212 N. W. 236, wherein it was stated:

Yf4 are warranted in taking judicial notice of tha fact that, in the banking business, it has bean and still is customary to treat loans anddeposits as distinct andmesentially dissimilar transactions.n In Shawv. McBrids, 9 9. W. (2d) 410, affirmed 27 S. W. (2d) 121, it wash&d that Certificates of DeDOSit, such as those in question here, evidence a deposit andnot a commercial loan. 8aid the CoaHt:- .:

Hon. C. H. Cavness, Page 5 (V-606)

“It is said by some courts that a certificate of deposit in the usual form is, in substance/a promissory note. Undoubtedly such certificates do possess an important feature of promissory notes. Like promissory notes, they are written promises to pay money. Rut in every general deposit of moneywith a bank such a promise is either expressed or implied. Reducing the promise to writing in the form of a certificate does not alter the nature of the transactions’or transform what the parties intended as a deposit into a comaercial loan

. . . e It has been the uniform departmental constrnction of the Secretary of State, the officer charged with the duty of administering the franchise tax statute, that Oertificates of Deposit are not Written evidences of indebtedness” within the meaning of Article 7084. TheLegislature has met several times since the statute was so construed by the Secretary of State, but it has not undertaken to change the statute so as to alter the construction which has been given it. Wefeel. as the SupremeCourt of Texas in Isbell v. Gulf Union Oil Co., I 209 S. W. (2d) 762, wherein it held:

“If the Legislature did not approve the construction which had been given the statute it could have easily amendedthe law. This was not done. This court does not feel justified to hold nowthat the Secretary of State was in error in the construction of this statute.” Certificates of Deposit being in fact written evidence of time deposits only andnot written evidences of borrowed capital, it is our opinion that certificates of deposit are not “written evidences of indebtednero* as that term is used in Article 7084, V.C.S., as amended. SUMMARY The submitted Certificates of Deposit issued by State banks are not ewritten evidences of indebtedness*‘.as that term 15 used .,:, ,., ,. .,.,._Hon. C. A. Caimtss, Page 

### 6 (V-606)

.- in Article 7064, V.C.S., as amended. Yours very truly ATTORNEY

GENOBAL

OPTEXAS



### DMG:eh