PRICE DANIEL
AT,OR?aEYOEWERAI.
June 17, 1948
lion. C. R. Cavnrss
State Auditor
Austin. Texas
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.,
.
Dear sir:
. Your recent request‘for au opitios on the a-
bove question 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 be-
come 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 Qf-
fico uhethor, in your oplaloa, the cortlfi-
cate:s roforrod to, epecirene of which are bn-
a lq o o d,~r ep r o ~ourlttoa
a t lvldo 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 in-
ceptl0n.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 has
deposited with this bank $ WY-
able to the order of
months after date in current fund; on the re-
turn of this certificate vroverlr endorsed
with Interest at peE cent per annum
from date until -.-- , 19,. No inter-
est after maturity.
,
Gamier
That portion of Article 7084, V.C.S., as awad-
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 rrldenc-
ee 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 matur-
lty 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 renewedor exteaded, or
refinanced by the iusuance of othor evldeacee
of the Indebtedarea . . . *
It 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. Law-
son, 175 S. W. (2d) 716, error refused.
Our first franchise tax warnenacted by the
Legislature In 1893 and provided for a flat tax of
N&O;et?r year upon private corporations. Acte 1893,
158, ch. 102, sec. 5. In 1897 the statute
was amen&d so as to base the franchise tax upon the
authorized capital stock of corporations. Acts 1897,
25th Leg., p. 141, ch. 104. 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 great-
Acts 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 cap-
ital etock, aurplus and undivided proflta plus the a-
mount 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 ex-
tended or refinanced by the leeuance of other evldeac-
es of ladebtednese. Acts 1941, 47th Leg., p. 269, ch.
184, art. 8, sec. 1.
In the opinion of this office the above hle-
tory of our franchise tax statute ahews that thr Leg-
lalature InterMad that the franchise .tax was to be
based upon the lavested and bwroued capital of a cor-
poration. 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 p r o vided
In lf-.I.
feot “&a; ihe baele for computlry ihe tax
ahouid be the inverted and borrow&d capital
of the corporation . . . The amendment broad-
ened 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 represent-
ed 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 De-
posit 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. That a, deqmsit ia oao thiry,
a loan another. *The striking fact remria*
. . . that a rerl difference between a de-
cosit 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 busi-
ness, it has bean and still is customary to
treat loans and deposits as distinct and me-
sentially 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 De-
DOSit, such as those in question here, evidence a depos-
it and not a commercial loan. 8aid the CoaHt:
- .:
Hon. C. H. Cavness, Page 5 (V-606)
“It is said by some courts that a cer-
tificate 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 im-
plied. Reducing the promise to writing in the
form of a certificate does not alter the na-
ture of the transactions’or transform what the
parties intended as a deposit into a comaer-
cial loan . . . e
It has been the uniform departmental constrnc-
tion 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 justi-
fied to hold now that the Secretary of State
was in error in the construction of this stat-
ute.”
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 evi-
dences 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