Untitled Texas Attorney General Opinion

r

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 ALR
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 US 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