. 

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 Certlflcates 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 au opitios on the aquestion reads In part as follows: 

"Wo sub&t heretith certified copier of 

Certl.ficatea of DeporZt which are to ahew,tbe 

form of certlflcates issued by The Ouuanty 

State Bank of Wew Braunfels, Texaa, to eertaln 

classes of depositors. These certlf.lcatee may 

be, and many are, renewed by the bank issuing 

new certificates when the old certificates become due thus many of such certificates bear 

maturity dates of less than ‘one year from date 

of lae,ue but represent indrbtedaeea which has 

remained outstanding for one year or more frfm 

da;:a;fdlnceptlon which has been roneued or 

. . . 

“It la requested that you advise thir Qffico uhethor, in your oplaloa, the cortlficate:s roforrod to, epecirene of which are bna lqoo d,~r epro ~ourlttoa a t l vldo nc a of 6 ladobt- 
” 

c . . 

Hon. C. H. Cavnoae, Page 2 (V-606) 

edness of the bank on which franchise tax 

should be computed in the event they have been 

outetaadlng one year or more from date of inceptl0n.e 

The Certificates of Deposit or Time Deposit 

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 

has 

WYmonths after date in current fund; on the return of this certificate vroverlr endorsed 

with Interest at peE cent 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, on or before May let 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 and undivided profits, 

plus the amount of outetandlng bonds, notes 

and debenturoe (outstrndi bonds, notee and 

debentures ehafl include al “f written rrldencee of Indebtedness which bear a maturity btr 

of one (1) ear or more from dato of ieeue, 

and all auc H 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 a period of 

one (1) ear or more from data of Inception, 

but whit ii 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 made by the State against a corporation for 

doing business In this State. Houston 011 Co. v. Lawson, 175 S. W. (2d) 716, error refused. 

Our first franchise tax warn enacted by the 

Legislature In 1893 and provided for a flat tax of 

N&O;et?r year upon private corporations. Acte 1893, 

was amen&d 

158, 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 was the greatActs 1907, 1st Called Session p. 503 ch. 23 

TE’l930 the Legislature amended thi statuti and b&ed 

the franchise’ tax on a corporatlonts outstanding capital etock, aurplus and undivided proflta plus the amount of outstanding bonds, notes and debentures 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 amended so as 

to add outstanding bonds, notes and debsntures 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 ahews that thr Leglalature InterMad that the franchise .tax was to be 

based upon the lavested and bwroued capital of a corporation. In Haurton 011 Cempany v. Lawron; 175 S. W. 

(2d) 716, error r~efueed the Court,ln dlecuselug the 

1941 amendment to Artieie 7084, V.C.S., stated: 

The amendment pro vided In l f-.I. 

feot “&a; ihe baele for computlry ihe tax 

ahouid be the inverted and borrow&d capital 

of the corporation . . . The amendment broadened the ecope of the Inverted and borrowed’ 

capital provision of the Statute by Including 
Hon. C. 33. Cavncss, Page 4 (V-606) 

for the first time borrowed capital represented by renewals of indebtedness not payable 

within one year . . . w 

The answer to the question submitted depends, 

therefore, upon whether or not the Certificates of Deposit submitted represent borrowed capital of State 

banks. 

A Certificate of Deposit is defined 8s: 

“A written acknowledgement by a bask or 

banker of the receipt of a BW of 5x+ac]r on 

deposit which the bank or banker praml445 to 

pay to the depositor, to bearer, to the QPd4r 

of the depositor, or to stm4 other pers6n or 

to his 0rdsr.e 9 c.J.s. 636, 8 310. '2 

In Texas de PC Ily. Co,. ‘1. UottwYf, 63 U. (Ml 

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

‘We agree with this view that a deposit 

indeed create P debt, but it cre(Ltee 

something more. 

a loan another. 

That a, deqmsit ia oao thiry, 

*The striking fact remria* 

. . . that a rerl difference between a decosit and a loan has always been assumed, as 

a matter 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 and deposits as distinct and mesentially dissimilar transactions.n 

In Shaw v. McBrids, 9 9. W. (2d) 410, affirmed 

27 S. W. (2d) 121, it was h&d that Certificates of DeDOSit, such as those in question here, evidence a deposit and not 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 money with 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. 

The Legislature 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. We feel. as the 

Supreme Court 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 amended the law. This 

was not done. This court does not feel justified to hold now that 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 and not 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 OP TEXAS 

DMG:eh