Court Opinion

ID: 4139870
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:52:32.225953+00
Date Added: 2024-06-11T14:26:55.775136
License: Public Domain

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              THEA~TORNEY                      GENERAL
                           OF      TEXAS
                          AUSTIN    ~~.TExA~
GROVER SELLERS

     Honorable W. R. Chambers, Chairman
     Revenue & Taxation Committee
     Honorable W.W. Roark, Chairman
     Insurance Commlttee
     House of Representatives
     Forty-ninth Legislature
     Austin, Texas
     Gentlemen:                 Opinion No. O-6443
                                Re: Constitutionality of House Bill No.
                                     23, and Rouse Bill No. 54, concern-
                                     ing taxes on insurance companies.
               We have your request for an opinion as to the constitu-
     tionality of House Bill No. 23 and House Bill No. 54, and reply
     thereto as follows:
               'House Bill No. 23 provides that the insurance companies
     therein named shall pay an annual tax equal to three percent (3s)
     of the gross amount of premiums collected during the year ending
     December 31, preceding, said tax subject to be reduced.,however,
     as follows:
                1,
                 e . 0 however, if the annual statement of
         such insurance organization, as of December 31,
         preceding, shows such organization to have in-
         vested in Texas Securities, as defined by Article
         4766 of the Revised Civil Statutes of Texas, 1925,
         as amended, an amount equal to ten (10%) per cent
         of its admitted assets, then its tax shall be two
         and seventy-five hundredths (2.75%) per cent of
         such gross premium receipts; if the annual state-
         ment shows such Insurance organization to have
         invested in such Texas Securities on such date an
         amount equal to fifteen (15%) per cent of Its
         admitted assets, then its tax shall be two and
         one-half (2$$) per cent of such gross premium
         receipts; if the annual statement shows such or-
         ganization to have invested in such Texas Becuri-
         ties on such date an amount equal to eighteen
          (18%) per cent of its admitted assets, then its
         tax shall be two (2s) per cent of such gross pre-
         mium receipts: if the annual statement shows such
         insurance organization to have invested in such
Honorable W. R. Chambers, Chairman, Honorable W. W. Roark,
  Chairman, page 2          O-6443 .'

    Texas Securities on such date an amount equal to’
    twenty-two"(22$) per cent of its admitted assets,
    then Its tax shall be one and one-half (1s) per
    cent of such gross premium receipts; and if the
    annual statement shows such insurance organLzation
    tb have invested in such Texas Securities on such
    date an amount equal to twenty-five (25%) per
    cent of its admitted assets then Its tax shall
    be three-fourths of one (3/4$) per cent of such
    gross premium receipts, . . . . *'
            House Bill No, 54 amends Article 7064 of the Revised
Civil Statutes   of 1925 as amended so as'to provide that the in-
surance  companies named therein shall pay an annual tax of three
per cent (3%) upon the gross amount of premiums received upon
property located In this state or other'risks located in this
state during the preceding year, said taxes subject to be reduced,
however, as follows:
            II     If any such insurance carrier shall
     have as'&&    as ten (10%) per cent of its admitted
     assets, as shown by such sworn statement, invested
     in real estate in this state; bonds of the State
     of Texas; bonds OP interest bearing warrants of
     any county, city, town, school district or any mu-
     nicipality or subdivision which ls'now or may here-
     after be constituted or organized and authorized
     to Issue such bonds or warrants under the Consti-
     tution and laws of this state, notes or bonds
     secured by mortgage OP trust deed insured by the
     Federal Housing Administrator; the case deposits
     in regularly established national or"sta,tebanks
     or trust companies in this state on the basis of
     average monthly balances throughout the calendar
     year; that percentage of such insurance company's
     investments in the bonds of the United States of
     America, that its ~Texas Reserves are of its total
     reserves; but this provls,ienshall apply only to
     United States Government Bonds purchased between
     December 8, 1941 and the termination of the war in
     which the United States Is now engaged; in any
     other property in this state in which by law such
     insurance carriers may invest their funds, then'
     the annual tax of any such Insurance carrier shall
     be two and seventy-five hundredths (2.75%) per
     cent of Its said gross premium receipts; if any
     such insurance carrier shall have invested In such
     securities on such date as much as fifteen'(l5$)
     per cent of Its admitted assets,'then the annual
     tax of such insurance carrier shall be two and
     one-half (24%) per cent of such gross premium
Honorable W;R.' Chambers, Chairman, Honorable W.W. Roark,
   Chairman, page 3          o-6443

    receipts; If any such Insurance carrier shall have
    invested In such securities on such date-as much as
    eighteen (18s) per cent of its admitted assets, then
    the annual tax of such insurance carrier shall be
    two'(2$) per cent of such gross premium receipts;
    if any such insurance carrier shall have invested In
    such securities on such date as much as twenty-two
    (22%) per cent of its admitted assets, then the
    annual tax of such insurance carrier shall be one
    and one-half (13%) per cent of such gross premium
    receipts; and if any such insurance carrier shall
    have invested in such securities on such date as
    much as twenty-five (25$)'per cent of its admitted
    assets, then the annual tax shall be three-fourths
              one (1) per cent,!ofsuch gross premium
                ........ ......
          House Bill No. 54 also provides that foreign assessment
casualty companies admitted to do business in,Texas under Chapter
5'.Title 78, Revised Civil Statutes of Texas of 1925, shall also
pay a tax of three percent (3%) of their grosspremium receipts
from Texas business, said tax subject to be reduced, however, as
follows:
          II-
           .  . . Provided, however, if any such company
    shall have'an amount equal to one half of the gross
    amount of assessments, dues, premiums, or other a-
    mounts collected from policyholders within this
    State during the preceding'year, as shown by the
    sworn statement herein required to be filed, in-
    vested in any or:all~of the above-mentibned s'ecur-
    itles, then the annual tax of such company shall
    be one and one-half (1s) per cent'of its said re-
    ceipts for such prec,edingperiod, and if such
    company shall have invested as aforesaid an amount
    equal to the gross amount of such receipts for
    the preced.Lngyear, as shown by said sworn state-
    ment, then the annual tax of such company shall
    be one-half (3) of one (1) per cent of its said 8
    receipts.

          Article 1, Section 8, of the Constitution of the United
States, Is in part as follows:
          "The Congress shall have Power 8 . + .

          "To regulate Commerce with foreign Nations, and
    among the several States, and with the Indian Tribes;
Honorab1e'W.R.~Chambers, Chairman, Honorable W.W. Roark,
   Chairman, page 4         0 -6443

          The United States Supreme Court recently'held in~the
case of United States v; South-Eastern UnderwrI.ters~'Assoclation
et al., 88 Law Ed..l082,,that the business of~insurance, when
some of its activitiesare across state lines is inter-state
commerce and comes within the Inter-state comkerce clause of the
United States Constltutlon, therefore, there is raised the
question of whether or not House Bill No. 23 and House Bill No.
54 are constitutional, on the ground that they are dlscrimina-
tory as between domestic and foreign companies doing business in
Texas.
          We have recently received from Hoiiorable~FredHansen,
First Assistant Attorney General of Oklahoma, a memorandum on
this question wherein he was dealing with a similar law that'was
before the Legislature of Oklahoma. We agree with the memoran-
dum so prepared, therefore, we here quote and adopt same:
          "Would a proposed law of this State, levying
    an annual tax against both domestic and foreign
    insurance companies doing business in Oklahoma,
    equal to 3% of the total amount of premiums, less
    authorized deductions, collected thereby from
    Oklahoma business during a calendar year, for the
    privilege of doing business in Oklahoma during the
    succeeding license year, be an invalid discrimina-
    tory law within the meaning of the Commerce Clause
    of the Constitution of the United States, if said
    law In effect orovldes, as stated in its title,
    that:
          such tax shall be two and seventy-five
          hundredths (2/75$) per cent if ten (10%)
          per cent of such companies' admitted as-
          sets are Invested in Oklahoma securities,
          two and one-half (23%) per cent if fif-
          teen (15%) per cent of such companies' '
          admitted assets are invested in Oklahoma
          securities, two (2%) per cent if eighteen
          (18%) per cent of such companies' admit-
          ted assets are invested in Oklahoma se-
          curlties, one and one-half (13%) per cent
          if twenty-two (22%) per cent of such com-
          panies "admitted assets are invested in
          Oklahoma securities, three-fourths of one
                er cent if twenty-five (25$j per
          !',% Ef such companies' admitted assets
          are Invested in Oklahoma securltles, one-
          half of one (1s) per cent if thirty-five
Honorable W.R. Chambers, Chairman, Honorable W.W. Roark,
   Chairman, page 5         0 -6443

         (35%) per cent of such companies' admlt-
         ted assets are 'investedin Oklahoma secur-
         ities, and no tax If fifty (50%) per cent
         of such companies' admitted assets are
         invested in Oklahoma securities?
         "It Is contended that the above proposed~law
   is non~dlscrlminatorg for the asserted reason that
   both domestic and foreign insurance companies do-
   ing business ln this State can Invest any percent-
   age of their admitted assets In Oklahbma securities
   that they desire, and that the"mere fact that most
   domestic Insurance companies have'approximately
   50% of their admitted assets invested at this time
   in Oklahoma securities and hence would not be re-
   quired to pay any part of said 3% tax while most
   foreign insurance companies have less than 10% of
   their admitted assets invested at this time In
   Oklahoma securities and hence would be-required
   to pay all of said 3% tax, Is immaterial.
         "In this connection attention Is called to
   a recent memorandum prepared by Professors Dowling
   and Patterson of the School of Law of Columbia
   University for certain committees of the American
   Life Convention and fm the Life Insurance Asso-
   ciation of America wherein the important case of
   Bethlehem Motors Co'.v. Flynt, 256 U.3. 421, 65
   L. ed 1029 (1921) was,revlewed as follows:
         "'North Carolina required a license tax
         of $500 of all persons 0~ corporations
         engaged in selling automoblles within the
         State, and the statute contained a pro-
         viso that if three-fourths of the "entire
         assetsl(of the manufacturer of the auto-
         mobiles were invested In securities of,
         or'in property located within the State,
         the tax should be reduced'to $100. Plaln-
         tiffs (including two foreign corporations
         engaged in the manufacture of automobiles
         and two domestic corporations engaged in
         the sale) attacked the statutory scheme
         as a denial of equal protection of' the
         laws and as a regulation of interstate
         commerce. They won on both grounds. If
         the sales were considered wholly lntna-
         state, that is occurring after the inter-
         state transaction was completed, there
         was "a,real discrimination' contrary to
Honorable W;R.~ Chambers, Chairman, Honorable W.W. Roark,
   Chairman, page 6          0 -6443

          the equal protection clause of the Four-
          teenth Amendment,; if, on the"other hand,
          the sales were consIdered a part of the
          interstate transaction, the commerce clause
          stood in the way.'
          "Inasmuch as the Bethlehem case, supra,  pro-
    bably is 'the case most directly In point as to the
    Issues raised in this memorandum the syllabus is
    quoted herein as follows:
          " '1~. Foreign corporatlbns.doing business
          in a state, and having an agents there;
          are within the jurisdictionof the state
          for the purpose of suit against them.
          $1
           ‘2 . A state act imposing a license tax
         upon all manufacturers or persons or cor-
         poratlons~engaged in selling automobiles
          In the state unconstitutionally discrim-
          inates against nonresident manufacturers
         doing business In the state through local
          sales agents, where it reduces the tax to
          on& fifth of Its normal amount if the,man-
         ufacturer of the automobiles has three
          fourths of his assets-invested in the
         ,bonds,of the state or of some of lts'mUni-
         cloalitles. or 'In other orboerty situated
         therein ,and returned~for tslxatlon.
          W(
            3. The imposition of a state license
          tax uponlocal agents to whom automobiles
          are consigned for sale by their nonresi-
          dent manufacturers, which discriminates
          In favor of the product of resident manu-
          facturers, is an unconetltutional attempt
          by'~thestate to 'regulate interstate com-
          merce, it being in effect a tax upon the
          importation of the automobiles into the
          state.'
          ff
          "In the body of the opinion appears the fol-
    lowing language:
          ""It will be observed, however, that the
          act under review applies to all manufactur-
          ers and persons engaged Inselling automo-
          biles in the state.   The act makes no
          distlnctions between nonresident and resi-
          dent manufacturers. Wherein, then, is
Honorable W. R~. Chambers, Chairman, Honorable W. W. Roark,
   ChaIrman, page 7          o-6443

         there discrimination? It is contended to
         be in the provision which reduces the tax
         to one fifth of Itsamount--from $500 to
         $lOO--if the manufacturer of the-automo-
         biles has'three fourths of his assets
         invested in the bonas of the state or
         some of its municipalities, or in other
         property situated therein, and returned for
         taxation. The provision isdeclared to be
         impossible of performance, and its effect
         to be that a manufacturer not having,such
         investment of property is charged'$500 for
         a license, and one having such investment
         of'property is charged only $100. And
         plaintiffs in error it ls'asserted, are
         necessarily In the $500 class. The con-
         trasting assertion is that local manufac-
         turers are in the $100 class, and that
         therefore, there is Illegal discrimination
         in their favor. * * * +
         "'In resistance to the assertion that the
         provision discriminates against nonresident
         manufacturers, the attorney general contends
         that it 1s as applicable to resident manui
         facturers as to nonresldent manufacturers,
         ati, of course, his Inference is that its
         condition can be performed as easily by one
         as by the other, and discriminates against
         neither.
         "“To this we cannot assent. The condition
         can be satisfied by a resident manufacturer,
         his factory and Its products in the'first in-
         stance being within the state; it cannot be
         satisfied-by a nonresident manufacturer, his
         factory necessarily being in another state,
         some of its products only at a given time
         being within the state. Therefore,'there is
         a real discrimination, and an offense against
         the 14th Amendment, if we assume that the cor-
         porations are wlthin the state.
          "'If they are not within the state, their
          second contentton is that the act is an at-
          tempt to regulate interstate commerce. If
          it have that effect it Is illegal; for a tax
          on an agent 'ofa foreign corporation, for
          the sale of a product, Is a tax on the pro-
          duct, and if the product .be that of another
Honorable W. R. Chambers, Ch;'r4;,   Honorable W. W. Roark,
   Chairman, page 8

          state, It is a tax on commerce between the
          states. * * *I
          "The principles of law announced in the'above
    case were followed Ln the case of Best & Company,
    Inc. v. Maxwell, Commlhslbner of Revenue for the
    State of North Carolina,'311 U.S. 454, 85 L. ed
    275, the syllabus being as follows:
          (I,1
            1 . The commerce clause forbids discrlmi-
          nation, whether forthright or lngentous.
          (1
           ‘2 . Whether a state statute unconstitu-
          tionally discriminates against commerce
          is'to be determined, not by the ostensible
          reach oftits language, but by Its practi-
          cal operation.

            3. A state statute levying an annual
          privilege tax of $250 on every person or
          corporation not a regular retail merchant
          in the state, who displays samples in any
          room rented nor occupied temporarily for
          the purpose of securing retail 'brders,
          unconstitutionally discriminates against
          commerce, where the only tax tomwhich reg-
          ular retail merchants in the state are
          subject is a tax,of $l,OO per annum for the
          privilege of doing business, even where
          they engage in the sale of goods by~'sample
          In display rooms at places other than that
          In which their retail stores are located.'
          "In the body of the opinion it is stated:
          "'The commerce clause forbids dlscrimlna-
          tion, whether forthright or ingenious.
          In each case it Is our duty to determine
          whether the statute  under attack, whatever
          its name may be, will in its practical
          operation on work discrimination against ln-
          terstate commerce. ’
          "Probably the most recent decision Involving
    issues such as are presented in this memorandum is
    General Trading Company v. ;t;te Tax Commission of
    the State of Iowa,          . .               , aa
    L, ed 914, the third paragraph of the syllabus
    being as follows:
Honorab1e.W. R. Chambers, Ch;igry4;, Honorable W. W. Roark,
   Chairman, page 9

          "'While no state can tax the privilege .of
          doing interstate business, the mere fact
          that property Is used f'brinterstate com-
          merce or has come into an owner's posses-
          sion as a result of interstate commerce,
          does not exempt it 'fromstate'taxation,
          so long as such taxation is not obviously
          hostile orwractically discriminatory
          toward such commerce.'
          "In the body of the opinion it is stated:
          "'Of course, no State can tax the privl-
          lege of doing Interstate business. See
          Western Live Stock v. Bureau,~303 U. 3.
          250, 82 L ed 823, 58 3 Ct 546, 115 A.L.R.
944. ~That is within the protection of
          the Commerce Clause and subject to- the
          power of Congress. On the other hand,~
          the mere fact that property is used for
          Interstate commerce~or has come into an
          owner's possession as a result of inter-
          state commerce does not diminish the pro-
          tection which it may draw from a State
          to the upkeep' of which it may be asked
          to bear its fair share. But a fair
          share orecludes legislation obviously
          hostile or nractlcally discriminatory
          toward interstate counaerce. See Best &
          Co. v. Maxwell, 311 U.S. 454, 85 L ed 275,
          61 3 ct 334.'
          "In consideration of the principles of law
    announced in the above decisions it Is clear'that
    a state law which either on its face, or as a mat-
    ter of practical application, discriminate8 against
    a foreign insurance company doing business In this
    State would be invalid under the Commerce Clause of
    the Constitution of the United States.
          "The contention that the proposed law, here-
    tofore referred to, is non-discriminatory for the
    asserted reason that both domestic and foreign in-
    surance companies doing business in this State can
    invest any percentage of their admitted assets in
    Oklahoma securities that they desire, and that a
    foreign insurance company by investing 5C$ of Its
    admitted assets in Oklahoma securities can, like a
    domestic Insurance company, escape ,payment of said
    3$ privilege tax, aooarentls does not take into
Honorable W. R. CRambers, Chairman, Honorable W. W. Roark,
   Chairman, page 10         O-6443

   consideration the nractlcal oneration of said
   proposed law. In this connection it will be noted:
          "(a) that If said proposed law Is valid
          a similar law ln'each of the other states
          would likewise be valid,~and that If such
          laws have been or are enacted St'will be
          impossible for an insurance company doing
          business, for instance, in 40 of the 48
          state3 to Invest 50% of theiradmitted
          assets in each of said states,
          "(b) that since, for example, the Metro-
          politan LTfe Insurance Company has admit-
          ted assets~aggregating approximate,lg
          $6,463,803,552.00,it'would be required
          under said proposed law to Invest approx-
          imately $3;231,gO1,776.00.of said assets
          in Oklahoma In order to escape said tax
          even though the total amount of premium3
          collected in Oklahoma during'the last
          reported calendar year only aggregated
          $2,511,649.00,and
          "(c) that it would be a practical~lmpos-
          sibllitg for said company to'purchase
          $3,231,901,776.00in Oklahoma securities."
           In addition to the decision3 referred to by Mr.
Hansen, we  direct your attention to the following:
           In the case of Gwin, White and Prince, Inc., v. Henne-
ford, 83 L. Ed. 272, the Supreme Court of the United States had
-under consideration the'question of whether or not a Washington
tax measured by the gross recetpts from'the business of marketing
fruit shipped from Washington to the places of sale in various
state3 and in foreign countries was a burden on interstate commerce
under the Commerce Clause of the Federal Constitution'. In hold-
ing 'saidtax unconstitutional on the ground that it was a viola-
tlon of said Commerce Clause, in that it was not limited to
receipt3 from the activities within the state but applied to
gross receipts from activities both within and wlthout the state,
the court laid down the following rules of law which are appll-
cable here:
          "While appellant is engaged in business with-
    in the state, and the state court3 have sustained
    the tax as laid on its activities there,'the inter-
    state commerce service which it render8 and for
    which the taxed compensation is paid is not wholly
   .

Honorable'W: R'. Chambers, Chairman, Honorable W. W,.Roark,
   Chairman, page 11          o-6443

       performed within the state. A substantial part
       of it is outside the state where sales are nego-
       tiated and written contracts of sale are executed,
       and where deliveries and collections are made.
       Both the compensation and the tax laid upon it
       are measured by the amount 'bfthe commerce-'.-the
       number of'boxes of fruit transported from Washing-
       ton to purchasers elsewhere; So that the tax,
       though nominally imposed upon appellant's activl-
       ties in Washington, by the very method of its
       measurement reaches the entire Interstate commerce
       service rendered both within and without the state
       and burdens the commerce in direct proportion to
       Its volume.
             (1. . . . But it 13 enough for present pur-
       poses that under the commerce clause, in'the ab-
       3ence of congre33lonal action, state taxation,
       whatever'Its form, is precluded if it diBCriml-
       nates against Interstate commerce or undertakes
       to lay a privilege tax measured by gross receipts
       derived from activities in such commerce which
       extend beyond the territorial limits of the taxing
       state. Such a tax, at least when not apportioned
       to the activities carried on within the state, see
       Wisconsin & M. R. Co. v. Powers, 191 U.S. 379,
       48 L. ed. 229, 24 S, Ct. 107; Maine v. Grand Trunk
       R. Co. 142 U.9, 217, 35 L. ed. 994, 12 5. Ct. 121,
       163, 3 Inters. Corn.Rep. 807; Cudahg Pack1
       v. Minnesota, 246 UPS. 450, 62 L. ed. 827, ';5",:*
               0 United States Exp. Co. v. Minnesota, 223
       ?i.3::{    56 L. ed. 601 12 5. Ct. 810, 4 Inters.
       Corn.Rep: 79, and Ameridan Mfg. Co. v. St. Louis;
       250 U.S. 459, 62 L. ed. 1084, 39 S. Ct. 522, supra,
       burdens the commerce in the same manner and to
       the same extent as if the exaction were for the
       privilege of engaging in interstate'commerce and
       would, if sustained, expose it to umltiple tax bur-
       dens, each measured by'the entire amount of the
       commerce, to which local commerce is not subject.
             "Here the tax, measured by the entire volume
       of the interstate commerce In which appellant par-
       ticipates, Is not apportioned to Its activities
       within the state. If Washington is free to exact
       such a tax, other states to which the commerce
       extends may, with equal right, lay a tax similarly
       measured for the privilege of conducting within
       their respective territorial limits the activities
       there which contribute to'the service. The present
       tax, though nominally local, thus In Its practical
Honorable W. R. Chambers, Chairman, Honorable W. W. Roark,
   Chairman, page 12         O-6443

   operation discriminates against interstate commerce,
   since It imposes upon it, merely because Interstate
   commerce is being done, the risk of a nmltiple bur-
   den to which local commerce Is snot exposed. '3. D.
   Adams Mfg. Co:v. Storen, supra (304.U.S. 310, 311,
   WL; ",df;  1;z;io1;6g,58 3. Ct; 913, 117 A&R.
            .         . Michigan (Fargo v; Stevens) 121
U.S. 230. 3O.L. ed'.888. 7 S. Ct.'857. 1 Inters.
   Corn.Rep':51; Philadelphia & S. Mail'S.S:'Co. v.
   Pennsylvania, 122 U.S. 326, 30 L."ed. 1200, 7 S. Ct.
1118, 1 Inters.'Com. Rep. 308; Galveston, Z-I. & S.A.
   R. co. V. Texas, 210 U.S. 217, 225, 227, 52 L. ed;
   1031, 1036. 1037, 28 S. Ct. 638; Meyer v. Wells,
   F. a co. 223 u. s. 298, 56 L. ed.'445; 32 s. ct.
   218; Crew Levick Co. v. Pennsylvania, 245 U. 9.
   292, 62 L. ed. 295, 38 S. Ct. 126; Fisher s Blend
   Stationv. Tax Commission, 297 U.S. 650, 80 L.
   ed. 956, 56 S. Ct; 608; see Western Live Stock v.
   Bureau of Revenue, supra (303 U.S. 260, 82"~. ed.
   830, ,58 S. Ct. 546, 115 A.L.R. 944): Such a nrul-
   tiplication of state taxes, each measured by the"
   volume of the commerce, would re-establish the bar-
   riers to interstate trade which It was the object
   of the commerce clause to remove. ,Unlawfulness of
   the burden depends upon its nature, measured in
   terma,of its capacity to obstruct Interstate com-
   merce, and not on the contingency that some other
   St&e may first have subjected the commerce to a
   like burden.

          In the case of Postal Telegraph Cable CO. v. Adams 39
Law ed. 311, the Supreme Court of the United States was passing
upon the right of the state to levy a charge upon a"forelgn
telegraph company, doing business within the state and also doing
an interstate business, in the form of a franchise tax, but
arrived at with reference to, and graduated according to, the
value,of the property within the state and in lieu of all other
taxes, and this right wa3 upheld as not being a regulation of
interstate commerce and did not put an unconstitutional restraint
thereon.
          In the case of Looneg v. CranesCo., 62 L. Rd. 230, the
Supreme Court of the United State8 was passing upon Texas statutes
which required foreign corporations to file their articles of ln-
corporation with the Secretary of State and to pay certain permit3
and franchise taxes based upon the amount of their capital stock.
These amount3 had been increased from time to time until this
suit was brought by the Crane Co. to enjoin the enforcement of
Honorable'W. R. Chambers, Chairman,   Honorable W. W. Roark,
   Chairman, page 13         o-6443

such statutes on the grounds that they were repugnant to,the
Commerce Clause of the Conatitutloiiof the United States, as
well as to the due process and equal'protection clauses thereof.
In holding that the enforcement of said statute should be en-
joined, the court held:
         "It may not be doubted under the case stated
   that, Intrinsically and Inherently considered,
   both the permit tax and the tax denominated a3 a
   franchise tax,were direct burdens on lhterstate
   commerce, .and, moreover, exerted the taxing au-
   thority of the state over property and rights which
   were wholly beyond the confines of the state, and
   not subject to its jurisdiction, and therefore"con-
   stituted a taking without due process. It is also
   clear, however, that both~the permit tax and the
   franchise tax exerted a power which the state un-
   doubtedly possessed; that Is, the authority to
   control the doing of business within the state by
   a forelgn corporation and the right to tax the in-
   trastate business of such corporation, carried on
   as the result of permiaslon to come in. The sole
   contention, then',upon which the acts can be 3u3-
   tained, In that although they exerted a power,whlch,
   could not be called into play consistently with the
   Constitution of the"United States, they were yet
   valid because they also exercised an intrinsically
   local power. But this view can only be sustained
   upon.the assumption that the limitations of the
   Constitution of the United States are not paramount,
   but are subordinate to and may be set aside by
   state authority as the result of the exertion of a
   local power. In substance, therefore, the propo-
   sition must rest upon the theory that our dual
   system of government has no existence because the
   exertion of the lawful powers of the one lnvblves
   the'negation or destruction of the rightful author-
   ity of the other. But original discussion is un-
   necessary, since to state the proposition 1s to
   demonstrate its want to foundation, and because
   the fundamental error upon which It rests ha3 been
   conclusively established. Indeed, the cases refer-
   red to were concerned in various forms with the
   Identical questions here involved, and authorlta-
   tively settled that the states are without power
   to use their lawful authority to exclude foreign
   corporations by directly burdening interstate com-
   merce as a condition of permitting them to do bus-
   lness in the state, In violation of the Constitution,
   or, because of the right to exclude, to exert the
Honorable W; R. Chambers, Chairman, Honorable W. W. Roark,
   Chairman, page 14         o-6443

    power to tax the property of the corporation and
    its actlvlties outside of and beyond the jurisdic-
    tion of the state, in disregard, not only of the
    commerce clause, but of the due process clause of
    the 14th Amendment. . . . . .'I
           Many other decisions might be referred to and quoted
from In line with the above holdings and, while said House Bill
No. 23 and House Bill No. 54 contain the-same provisions-as to
domestic and‘foreign insurance companies, the dtfference, and
possible discrimination, arises in the application of said pro-
visions whereby said taxes are reduced. It is very likely that
domestic companies will havesmost, if not all, of their admitted
assets invested in property and Texas securities whereby the
ammnt of said taxes can be reduced, and it is'just a3 likely
that foreign companies will have their admitted assets invested
in their home and other states, po83lbly under similar  provi-
sions in the laws qf said other states,'and' In many instances it
will be almost impossible for such companies to comply with the
provislona of these bills in order to"reduce the amount of"thelr
taxes as can be done by domestic compan,ies. As an illustration
of what we"are trying to say, we call your attention to the
report of a foreign insurance company which wa'sfiled with the
Board of Insurance Commissioner3 and which would furnish the
basis for compliance wLth these bills. Its admitted assets
were $1,456,973.26; its total reserves Were $l,b47,577.60;it3
Texas reserves were $30,827.00;its required Investments of
its Texas reserve3 which is necessary in order to secure a per-
mit to do busine.88In Texas was $23,120.00;and 1;; E;;;; to
jjremiumsfor the preceding year were $13,000.00.
avail itself of the reduction in tax a3 Is given to domestic
companies under these bills, It would have to Invest the re-
quired percent of its admitted assets. If it were also doing
business in other states which had the same requirements, it
would hardly be possible for such companies to meet the require-
ments of this law and Secure the aame tax rate as domestic
companies can have b,ymerely investing their property in their
home state D In addition, it would seem to-be an attempt to'
compel foreign companies to bring into Texas assetaaccumula-
ted from busFne,ssdone in other states and over which Texas
ha3 no jurisdiction.
          We have devoted a lot of time to a study of the
various questions raised by the decision in the South-Eastern
case and, while we have not found any declslon dealing with a
3imilar"situation since the questlon had not been heretofore
raised a3 to insurance, the decisions above referred to, as
well as many others we have read, cause us to have great doubt
that'said bills, as now wri.tten,',can
                                     or Will be upheld, since
they may be held to be discriminatory and in violation of the
_ .,   .

Honorable W. R: Chambers, Chairman, Honorable W. W, Roark,
   Chairman, page 15         O-6443

Commerce Clause of the ConstLtution of the United States.
          Trusting that this satisfactorily answers your re-
quest, we remafn
                              Very truly yours
                           ATTORNEX GENERAL OF TEXAS

                              By s/Ardell Williams
                                   Ardell Williams
                                   As~slstant
                              By s/Jaa. W. Bassett
                                   Jas. W. Bassett
                                   Assistant

JwB:mp:wc

APPROVRD MAR 3, 1945
s/Grover Seller3
ATTORNEY GENWAL OF TEXAS
Approved Opinion Committee By s/WMR Chairman