. ’
9‘HE ,!TI-ORNEY GENERAL
OF TEXAS
AUSTIN ,,.TExA~
September 13, 1957
Honorable Zollia Steakley Opinion No. W-227
Secretary of State of Texas
Austin, Texas Re: Can the Secretary of
State, under Art. 9.14 C
(3) of~the Texas Business
Corporation Act, demand
of a trustee of a,corp-
oration which is ,in pro-
cess of reorganliation
under Ch. X of the Fedar-
61 +-&ruptcy Act the sum
of,money required under
Art. 7092 V.C.S. to re-
vive the right to do
business in Texas, where
petition ~for suoh,,reor-
ganization was filed in
the Federal Court prior
to the date upon which
such right to do,business
was required to be for-
feited under Art. 7091,
Dear Mr. Steakiey: v.c.9.
In your recentletter you:,requestour oplnjon baaed
upon the facts you state and which are hereinafter recited,
on the following question:
"Was the Secretary,of State authorized to,
require the payment of the penalty of $473.85
and the revival fee of $2,132.33 from this,
corporationunder the above facts, or on the
other hand, Is the corporation entitled to a
refund of either or both sums so paid to the
Secretary of State?"
The corporation ln'question is Texas City'Chemicals,
Inc. You recite the following fact situation:
"The captioned corporation, properly
chartered by the State ,o~f
Texas, failed to I
pdcvits franchise taxes in the amount of
f&,738.50 which was due on May 1, 1956. On
June 22, 1956, a petition for reorganiza-
tion of the corporation under Chapter X
. .
Hon. Zollie Steakley Page 2 Opinion No. NW-227
of the Bankruptcy Act was filed In the
Federal District Court and subsequently
approved with a trustee being duly ap-
pointed.
"On July ,2,1956, during the pendency of
reorganization proceedings, the Seoretary
of State, in conformity with the provisions
of Article 7091, R.C.S., as amended,,for-
felted the corporation's right to do business
in this State.
!'?!he
State of Texas on October 18, 1956,
filed in the reorganization proceedings its
claim against the corporation for delinquent
franchise tax of $4,738.50, plus the penalty
,of lo$,amounting to $473.85, as provided in
Article 7091, R.C.,S.,as amended. On January
3, 1957, after due notice and hearing on
Trustee's objections to the allowance of a
10% penalty, the federal distrlot
ordered only the franchise tax of
to be allowed as the claim of the State of
Texas and specifically denied any right to
the penalty of $473.85. No appeal was taken.
"Under a plan of reorganization of the
corporation application for adoption of the
Texas Business Corporation Act (as a prelude
to charter amendments under this act) was
filed with the Secretary of State on March
22, 1957. Beaause of the provisions of
Article 9.14C(3), Texas Business Corporation
Act,.this office refused to file the adopt-
ion unless a total amount of $7 344.68j (being
delinquent franahlse taxes of $&,783.50, plus
10% penalty thereon of $473.85, plus an addi-
tional amount.for revival fee under Article
7092, R.C.S., as amended, of $2,132.3;~tw~;
first paid. Fn or&l and lnf;rma: 8
this office a reed to place $2 606 1 of the
total amount the penalty of 10% In Ule sum
of $473.85 and the revival fee of $2,132,23)
in a departmental suspense account pending
determination of the proper amount, in excess
of the undisputed sum of $4,783.50, due the
State of Texas."
In addition, you have advised us that the notice
of delinquenay required by Articles 7092 and 7091, V.C.S.
. .
. ”
Hon. Zollle Steakley Page 3 Opinion No. WW-22'7
to be mailed by the Searetary of State to each corporation
which failed to pay its franchise tax on or before May 1
was mailed on May 31, 1956.
For convenience we have considered the laws of the
United States whloh bear upon this inquiry in Seotion I
of this opinion, and the laws of Texas upon the subject
In Seotlon II.
I.
We hold that the corporation and the trustee are
liable for the revival fee and the penalty for late pay-
ment of the franchise tax under the laws of the United
States as a charge to remoVe forfeiture of 'the corporate
right to do business which was allowed to be incurred
subsequent to attaahment of jurisdiction of the Bankruptcy
Court.
We consider the case of Bote1er.v. Ingels, 308 U.S.
57 (1939) as determinative of this position. We would pre-
fer to quote that entire opinion - It is unusually concise
and precise in support of our position - but in deference
to brevity urge that it be read and considered very care-
fully. The Act of Congress of June 18, 1934, 48 Stat. at
L. 993, Ch. 585, 28 U.S.C.A. Sec. 124a therein quoted is
ndw encompassed within the provisions of 28 U.S.C. Sets.
959(b) and 960. Changes in wording of this Act have not
altered the force nor restricted the scope of application
of this decision.
See also the following sections of the Bankruptcy
Act of 1938: 11 U.S.C..Ch. 7,~~Sec.102 (a), beln
62 (a) of the Act; ll,U.S.C.~Ch. 10, Sec. 616 (3
Sec. 216 (3) of the Act; and 11 U.S.C. Ch b ,
bein Sec. 57 (j) of the Act; In re Chicago & N. W.
co. 5homson v. Toman, 119 F. 2d y(l (C C C '(th1941)
Collier on Bankruptcy. 14th Rd.. Xl. i,ia;. 13.03 (II.
P. 4513 4 ..-_--
i th refer
----- &nce to Sec.~62 (a) of the l?&kr&tcy
Act. (SeeJAW.opendixfor copy of Federal Statutes cited in
this opinion].
Rightson the part of the corporation of preventing
the forfeiture existed continually and with no qualifica-
tions from the date of filing of the petition in reorgan-
ization on June 22 until the right to do business was
forfeited by the Secretary of State on July 2, 1956.
Under Article 7092, V.C.S. (first sentence) and
Article 7091, V.C.S. (second sentence) the Secretary of
State could not have forfeited the corporate right to do
business until 30 days after mailing of the notice re-
. .
Hon. Zollie SteijlkleyPage 4 Opinion No. WW-227
quired by these Articles. This officer advises us that
he mailed this ,notice on May 31, 1956. Theref'o~re,
the
forfeiture could not have been made until 30 days after
May 31, 1956, which was after June 22, 1956.
When it was made on July 2, .there accrued and
became due to the State in order to restore to the corp-
oration its right to do business the sum of money to be
ascertained as provided in that portion of Article 7092
hereinabove mentioned. This sum is plainly stated by
that Article to be the consider8tlon necessary to move
to the State, not in discharge of the penalty for late
payment of the franchise tax, but in payment for a new'
and wholly different and very valuable favor from the
State, i.e. restoration of the corporate right to do
business, and release of the State's right to forfeit
the charter. (Articles 7092, 7096).
Furthermore, this sum upon'lts :aecrual also be-
came secured by a lien, under Article 7090, V.C.S: "The
state shall,have a prior lien on all corporate,property
for allfranchise taxes and penalties. . .'
Had the Legislature fixed a flat fee for revival,
without reference to the late payment penalty, lt'would
be clear that such sum would be due without question.
Even If the late payment penalty is considered as a part
of the cost to remove the forfeiture such component
still did not accrue until after the bankruptcy proceed-
ings were initiated.
With reference to application of the foregoing
authorities we believe the corporation and Trustee owe
both the pena1t.yand revival fee on the basis of such
sums being necessary costs in administering and preserving
the corporate estate under Sections 62 (a) and 216 (3)
of the Bankruptcy Act, and under 28 U.S.C. Sections 959(b)
and 960 In order to comply with the laws of TeX8S in the
management, conduct and operation of the corporation while
under the jurisdiction of the bankruptcy court.
In,Palmer.v.,Webster & Atlas National Bank of Boston,
"The purpose o,fthis bill is to subject'
businesses conducted under 'receivership
in Federal courts to State 8nd 10~81 taXa-
. .
. .
Hon. Zollle Steakley Page 5 Opinion No. WW-227
tion the same as if suoh businesses
were oondueted by private Individuals
or corporations. . .What Congress in-
tended was that a business in reoeiver-
ship, or conducted under court order
should be subject to the same tax liabi-
lity as the owner would have been if in
possession and operating the enterprise."
Complete jurisdiction of the bankruptcy court over
all property and affairs of the corporation attached on
June 22, 1956, the date on whleh petition in reorganization
was filed in the United States District Court in Qalveston.
If the corporation doubted Its liability for either
the tax or penalt or any part of either, under 11 U.S.C.
Ch. 6, Sec. 93 (j being Sec. 57 (j) of the Bankruptcy
Act of 1938, or under any other law, it had a plain com-
plete and timely mode of protection under both Article
4388 and 7057b, V.C.S. to prevent forfeiture of its
right to do business. Isbell v. Gulf Union Oil Co., 147
Tex. 6, 209 S.W. 2d 762 (Tex. Sup. 1946)
taryof State v.,Texas Frozen~Foods,,Inc.,
275 (Tex. Sup. 1937,71-
.
In any event the trustee legally could have pre-
vented the forfeiture of the right to do business and con-
sequent penalty for reViVa1 of such right, and was legally
bound to have done so.
While the penalty, considered as a penalt for late
payment, may have been barred under Section 57 (jy of the
Bankruptcy Act it accrued and became due as an incident
to preserving and protecting the estate of the bankrupt
during administration by the bankrupt court, under 28 U.
S.C. Sacs. 959 (b) and 960, and under 11 U.S.C. Sacs.
102 (a) and 616 (3).
Not only was the corporate business being conducted
through the Bankruptcy Court in a proceeding in reorgani-
zation under Chapter X of the Bankruptcy Act, on July 2,
1956, but such proceedings continued through March 22,
1957 when the application to adopt the Texas Business
Corporation Act was filed. The creditors as well as the
stock holders were entitled and required to be protected
. .
Hon. Zollie Steakley Page 6 Opinion No. W-227
by the preservation of this valuable right to do business
in the corporation.,
Reorganization has for its main purpose the re-
habilltatlon of the debtor, and to that end contemplates
the continued corporate existence of the debtor. Forfeit-
ure of franchises or accrual of penalties for non-payment
of the tax would begserious barriers to such rehabllita-
tion. Thompson~v. State of Louisiana, 98 F. 2d 1.08,(C.
C.A. 8th 1938) Mayer v. Gros,llb,F. 2d 737 (C.C.A. 5th,
1940); MlFarlanh v. Hurley, 286Fed. 365 (C.C.A. 5th, 1923);
In re .Fonda, J. & G.R. Co, Zimmer v. New York State,Tax
Comm.,12bF 2db04(CCA 9 2d 1942 Cert Den. 31b r
mm); In're International Phwer Sicurities Corp..,~
109 :
F. Supp. 544 (3d3 0 er on nk-
ruptcy, 14th Ed. 6~1.~;, ;rS:;&1519: '~~ .,
The franchise taxes3 penalties and forfeitures of'
the State of Texas are non-discriminatory as to corpora-
tions in receivership, in the hands of a trustee, or under
In Michigan v. Michigan Trust Co., 286 U-S. 334
(1931) the Court recognized that under franchise tax
statutes similar to those of Texas the corporate franchise
might be forfeited by the state folafailure of a Receiver
appointed by a Federal court and managing the corporate
business to pay the corporation franchise taxes when due.
Forfeiture of the,,corporation"sright to do busl-
ness was mandatory upon the Secretary of State under
Article 7091 V.C.S., Tex. Const. Art. I,!;Set, 28. Imme-
diately upon such forfeiture there accrued and became
due and payable the composite ,sum o'fmoney necessary to
restore this right to do business, as required by Article
7092 V.C.S., as follows:
"Any corporation whose right to do business
may have been forfeited, as provided in this
Chapter, shall be relieved from such forfeiture
by paying to the Secretary of State,at any
time prior to the forfeiture of the,charter
or permit of such corporation as hereinafter
. -
Hon. Zollie Steakley Page 7 Opinion No. WW-227
provided, the full amount of the fran-
chise taxes and penalties due by it, to-
gether with an additional smount of five
per cent (52) of such taxes for each
month, or fractional part of a month,
whiah shall elapse after such forfeiture
as a revival fee; provided, that such
amount shall In no case be less than Five
Dollars ($5). When such taxes and penal-
ties and the revival fee shall be paid to
the Secretary of State, he shall revive
the right of the corporation to do business
with the State. . . .'
We have found only one case which at first glance
miaht aunear to make an intrusion uvon the foregoing
auzhori?.ies. That Is California State Board of-Equallza-
tionv. Goggln, Inre,Exeter Refinn.1 g Co., 183 F. 2d 489
. . . , 930, cert. den. 340 U .S . 891) (herein re-
ferred to as the Rxeter Case). However, this case does
not lessen the force nor the scope of application of
Boteler,v..Ingels (Supra) nor other authorities herein+
above cited to the facts stated In the request for this
opinion.
The Exeter Case is subject to several material
distinctionsfromthe situation under which the Trustee
of Texas City Chemicals, Inc., paid to the Secretary of
State of Texas the sums of money in question (herein
referred to as the Texas Case).
1) In the Exeter Case the tax had become
due prior to inception of the bank-
ruptcy proceedings. In the Texas case
both the incident of forfeiture as well
as the sum of money in question necessary
to revive the right of the corporation to
do business accrued and became-fixed,after
the bankruptcy petition was filed.
2) Only payment of a tax and penalty, with-
out a lien therefor being asserted, was in-
volved in the Rxeter case. Preservation and
protection of thecorporate estate against
loss of a very valuable right: I. e. its
rieht to do business in Texas. is material
in the Texas Case.
-
. -
Hon. Zollie Steakley Page 8 Opinion No. W-227
3)Exeter withheld from the sovereign a
simple tax claim. In the Texas Case
the corporation would ask,?%%, that
the State withhold exercising its sovereign
duty of forfeiture, contrary to its Consti-
tution, and second, that if the State be
allowed to exercise,thls sovereign function,
then that the corporation be allowed to ex-
tract from the sovereign a gratituity in
the nature of a removal of such forfeiture.
4) The Texas corporation could have paid
the tax and penalty under either Article
4388 or Article 705713,V.C.S. and pre-
vented forfeiture. No mode of preventing
the penalty sought in the Exeter case is
mentioned in that case.
5)'Sxeter paid the tax with legal interest;
the Texas corporation tendered no tax nor
any other sum prior to and In prevention
of forfeiture. ,.
II.
We further hold that the corporation was required
to pay both the late payment penalty and the revival fee
incident to the accrued franchise taxes under the Texas
Business Corporation Act, Art. 9.14 C (3), which directs
the Secretary of State to file a corporate resolutions
adopting the Act, .when all fees and franchise taxes
have been paid as prescribed by lawz7 (underscoring added)
The amount demanded by the Secretary of State was
paid by the Trustee for the corporation under Article 4388,
V.C.S. This amount at the option of the Trustee also
could have been paid under Article 7057b, V.C.S.
The Trustee contends that neither the late payment
penalty nor th; revival fee are comprehended within tie scope
of the phrase . . .all fees and franchise taxes.
as used in the above Art, 9.14 C (3) of the Texas business
Corporation Act. Although we find no decisions of our
courts which have construed,Article 4388 and which apply
to this contention we believe there are applicable the
several cases hereinafter cited in which our Supreme Court
has considered penalties and fee incident to franchise
taxes paid under protest under Article 7057b. It is
our opinion that the Legislature intended the terms It. . .
all fees and franchise taxes. . -' as used in this Art.
. .
Hon. Zollie Steakley Page 9 Opinion No. W-227
9.14 C (3) to include the late payment penalty and revival
fee which were due and paid by the Trustee.
Article 7057b In Sec. 1 states It Is applicable
to: _,
II
. . .any occupation, gross receipt, fran-
chise; license or other privilege taxor fee
. . . paid "to the head of any department
of the State Government. . .",-and-authorizes
suit for recovery ". of such taxes or
fees. . .' (Underscoring added).
Sec. 7 of this Article 705713reads:
"The provisions of this law shall be cumula-
tive of all laws relating to the payments
of taxes orfeesof,undetermined.status and
for the holding thereof in the suspense ac-
count fund of the State Treasurer".
We are aware of the holding in the case of Jcnes
v..w1111ams, 121 Tex. 94, 45 S.W. 2d 130 (Tex. Sup.-),
cited by the Trustee in its brief submitted in connection
with this opinion request, wherein the Court at page 133
said:
,1. . *the impositions made for delinquency
for failure to pay taxes, whether the
impositions are denominated 'penalties',
'interest', 'forfeitures', or whether pre-
scribed without definition or name are all
in reality penalties imposed for delinquency
OP failure of duty, and all enated in aid
of the state's revenue. . ."
The Court then categorically held that such "pen-
alties" are distinct from and not a part of the tax to
which such impositions are incident.
Adverting again to Article 7057b and to the case
to the wording of that statute, at page 964 the court said:
"We think Article 7057b, supra, and related
statutes, should be liberally construed, to
the end that an adtiqwateremedy be accorded
those who are required to pay illigal taxes".
(underscoring added).
, .
Hon. Zollie Strrakley Pag4 10 Opinion No. WW-227
It seems to be settled by dacisions of OUP Texas
Supr4me Court that th4 terms "taxes OF f44s” used in this
Artlcla 705713uomprehend all penalties which may arise iri-
cident to the Texas franchise tax. Isbell v.,QulfUnion
Oll.Co., 147 Tax. 6, 209 S.W. 26 762 (T SUP. 194tJ*
lgham, Sec. of Stat4v. Gulf, C..& S.4?RyCo., 2 6 S.
w. 2d 811 (Cl . % f n.P.4.); Wuldrow,
Sec..of &ate ~:~T~~asPro~s~~~df;~ '
Ina., 299 S.W.
??b (Tax. Sup. 1957).~
Based upon these decisions Itappears to us that
Art. 9.14 C (3) of the Texas E!usiness,CorporationAct r4-
quires a corporation, delinquent in any franchise tax,
penalty OP fee incident to the,franchisetax, to pay all
these charges before the State will recognize an adoption
of the Act In any respect.
Under Article 7092, V.C.S. there is assessed against
a corporation as one component of '. . . the amount neces-
sary to entitle it to have its right to do business re-
vived. ' a sum denominated a "revival fee" The word
"fee" is likewise used in both,Artlcle 7057b and in Sec.
9.14 C (3) of the Corporation Act under consideration.
Whather the composite sum necessary to revive'the right in"
to do business, lncludin# each and all its components,
is denominated a "tax", penalty" OP "fee", we believe
that both the Legislature and OUP Stat4 Supreme Court
have made it clear that under our franchise tax laws the
intent of tha Legislature is that these laws be liberally
construed as revenu4 measures, and that the terms mentlon-
ed will not be restricted to their othartise possible
fin4 distinctions.
We believe that the language and effect of the de-
cision of the Taxas Supreme Court in th4 case of Federal-
Crude Oil Co. v. Yount-Lee Oil Co., 122 Tex. 21, 32 S W
2d >b (T S 1932) there applied to Article 7091 'V'
C.S. is yzst %'applicable to otherarticles pertaining'
to payment and collection of the stata's'franchise,taxes,~
wherein at page 61 the Court saia:
"This statute is purely a revenue measure.
Under it large sums are collected for the
support of the st,ategovernment. Statutes
of this nature are ,alwaysliberally oon-
strued so as to affectuate the ehiaf object
and purpose of their enactment".
And in the same paragraph the Court continued:
Hon. Zolll4 Steakley Paga 11 Opinion No. WW-227
"The primary purpose of such a statute
Is to seoure the paym4nt of tha tax48
therein levied."
The Legislature has lumped together "all franchise
taxes and penalties' (Art. 7090, V.C.S.) and "any fran-
chise tax or franchise taxes or penalty or penalties" (Art.
7095, V.C.S.) as being secured by lien on all corporate
property and as being obligations for which a corporation
charter may be forfeited.
We believe the purpose and effect of the provisions
of Art. 9.14, Sec. C(3) of the Texas Business Corporation
Act should be likewise construed to rdquire a corporation
delinquent In any franchise tax or any penalty or fee in-
cident to that tax to pay all this delinquency before the
State will file an amendme~to the corporate charter under
which the corporation adopts any new provision of that Act
ana receives any of its benefits. The Legislature by con-
ditioninf the privilege of adoption of tha Act upon pay-
ment of . . . all fees and franchise taxes.
scribed by law. . .I'intended to and did add an'a~&.~~~nal
moans of enforced payment of all such delinquencies.
"And where the legislative purpose and
intent can be fairly and reasonably de-
duced from the lanauaae of tha statute.
when taken as a whgle; such~purpose and
intent should be effectuated." Thompson
v. Missouri, K.~& T Ry. Co., 103 Tex. 37
‘126 S W 257 (128 S W 169, rehearing dz'
nied,'Tex. S&p. 1910j.’
All of the above authorities and our views ar4 In
complete harmony with the long settled principle that for
purposes of payment all interest and penalties incident
to a tax become inseparably merged with the tax Itself
so that the composite sum must be paid in whole. Except
for the special act relating to ad valorem taxes which
was construed in the case of Jones v. Wllli.sms,supra,
there is no other provision in our state tax structure
wherein a delinqu4nt tax payer Is allowed to pay an ex-
isting legally delinquent tax without at the same time
also oavlnstthe Penalties and other comoonents which have
become a p&t of-the delinquency. Richhy, Tax Collector
v. Moor, 112 Tex. 493, 249 S.W. 172 (T s 923) L&kin
Land and Lumber Co. v. Noble, 12'7S.W.e&J3uT)Tex. civR&T,
1910) .
-.
J_. .
. .
Hon. Zollie Steakley Page 12 Opinion No. ,WW-227
The prior refusal of the bankruptcy court to allow
the penalty for late payment as a penalty~does not effect
the liability of the corporasion ana the Trustee for such
as a part of the expense incident to admlnistering
e": estate upon subsequent adoption by the corporation of
the Texas Business Corporation Act. Where the corporation
Invokes the baneflts of the Act It must'pay the cost set
by the Legislatura for that privilege.
SU M,M~A RY
Where the right of the Stat4 to forfeit a
corporation's right to do business in Texas
ac~cruedafter a,petition for reorganization
of the corporation under Chap.,X of the
Fedaral Bankruptcy Act has been filad the
sum of money necessary to r4vive ,the right
to,do businsss is payable by the Trustee In
Bankruptcy under the bankruptcy laws as an
4xpense of presarving and administering the
corporate estate, and is properly demanded
by the Secretary of State upon the corporation
filing its resolution adopting the Texas
Business Corporation Act under Article 9.14
C(3) of that Act.
Very truly yours
WILL WILSON
Attorn4mi(neral of Texas
W. E. Allen
WEA/fb Assistant
APPROVED:
OPINION COMMITTEE
Gaorge P. Blackburn, Chairman~
W. V. Geppert
REVIEWED FOR THE ATTORNEY GENERAL
By: James N. Ludlum