Hon. 0. P, Lockhart Opinion No. O-5473
Chairman Re: Do the Texas and Pacific Rail-
Board of Insurance way Company Ffrst Mortgage 5% Bonds
Commissioners qualffy as tax reducing securities
Austin, Texas under Article 7064, Vernon’s Annotated
Civil Statutes?
Dear Sir:
Your letter of July 20, 1943> requesting the opinion
of this department on the above stated question reads as fol-
1owsr
“Your opinion is requested as to whether or
not Texas and Pacfffc RaLlway Company First Mort-
gage 5s Bonds due 2000 qualify as tax reducing
securftfes under Article 7064. We are giving you
some general information about the nature of this
company and the nature of the bond issue. It may
be that this bond issue qualifies as tax reducing
under the term in said Article 7064: Ior other
property fn this state in which by law such lnsur-
ante carriers may invest ,theEr funds.’ The quoted
phrase names a type of securfty which is classed
as tax reducfng.
“The home office of the Texas and Pacific
Raflway Company is en Dallas, Texas.
“Out of the total mileage, 1,800, about 1,200
mfles o,f the Railway are located fn Texas.
“Beca,use of the condftions listed in the next
preceding paragraph a majority of the employees
are residents of Texas and most of the money dis-
bursed by the company is spent in Texas.
“The company operates under a Federal charter,
but some other securi,ties qualify as tax reducing
where the corporateons or associations have Federal
charters such as Savings and Loan Associations.
“There is also attached for your information a
detailed statement of this particular bona issue.”
-- -
Hon. 0. P. Lockhart, page 2 (o-5473)
The detailed statement of the bonds under considera-
tion which is attached to your inquiry is as follows:
Due J\ana 1. 2004
“$24,989,000 outstanding - Closed Mortgage (no
further bonds ranking equally with or prior to this
mortgage can be issued.)
“Secured by a first lien on 1394.38 miles of
railroad from Texarkana Texas, via Marshall and
Whitesboro, to Sierra B 5.anca, Texas (near El Paso),
with branch from Marshall to Thurber, Texas, from
Marshall to Reisor, La., and from Shreveport, La.
to New Orleans, La. with branches to Port Allen and
Indian Village, La.; a second lien on 387.96 miles
of road.
“Legal for pu.rchase by savings banks in Cali-
fornia, Maine, Massachusetts, New Hampshire, New York
and Rhode Island.
“Total value of road and equipment approximately
$19090009000 Q
“First Mortgage Bonds are followed by junior
debt in the amount of about ~52,000,000,by $23,-
703,000 (Par $100) 5% non-cumulative preferred stock
and $,38,755,000 (Par $100) common stock.
“Interest on all debt earned as follows:
1930 1.36 times 1.92 times
;;g 3: 3.34 ”
x20 11
)’ 1943 3.49 times (12
mos. ending May
31, 1943)
Interest payments have been made promptly, when
due, for the past ten years.”
Article 7064, Vernon’s Annotated Civil Statutes, pro-
vides in part:
“Every insurance corporation, Lloyds or recip-
rocals, and any other organization or concern trans-
acting the business of fire, marine, marine inland,
accident 9 credit title, livestock, fidelity, guaranty,
surety, casualty, or any other kind or character of
insurance business other ,than the business of life
- -
Hon. 0. P. Lockhart, page 3 (0-5473)
insurance, and other than fraternal benefit asso-
ciations, within this State at the time of filing
its annual statement , shall report to the Board of
Insurance Commissioners the gross amount of premiums
received upon property located in this state or on
risks located in this State during the preceding
year, and each of such insurance carriers shall pay
an annual tax upon such gross premium receipts as
follows : If any such insurance carriers
shall have’ag &ch as one-fourth of its ‘entire as-
sets, as shown by said sworn statement invested in
any or all of the following securities; real estate
in this State, bonds of this state or of any county,
incorporated city or town of this 3tate, or other
property in this State in which by law such insur-
ance carriersmay invest their funds, then the annual
tax of any such insurance carrier shall be one and
one-half cl*) percent of its said gross premium re-
ceipts; . . .I’
Article 7064, supra, provides for a further reduc-
tion in taxes where greater amounts of the funds mentioned in
said statute are invested in securities therein named.
Article 4706, Vernon’s Annotated Civil 3tatutes, sets
forth or n&ties the securities in which Insurance companies, ex-
cept companies writing life, health and accident insurance, may
invest their funds over and above their paid up capital stock.
Article 4706, Vernon’s Annotated Civil Statutes, pro-
vides in partr
“No company, except any writing Life, Health,
and Accident Insurance, organized under the provi-
sions of this Chapter shall Invest its funds over
and above its paid-up capital stock in any other
manner than as follows:
“cd) In the capital stock, bonds, debentures,
bills of exchange or other commercial notes or bills
and securities of any solvent dividend paying cor-
poration which has not defaulted in the payment of
any of its o’bligations for a period of five (5)
years; provided that no such insurance company
shall invest in its own stock, and provided that
no such insurance company shall invest any of its
funds in any stock on account of which the holders
or owners thereof may, in any event, be or become
liable to any ,assessment except for taxes, nor in
Hon. 0. P. Lockhart, page 4 (O-5473)
the stock of any oil manufacturing or mercantile
corporation organize !i under the laws of this 3tate
unless such corporation had a net worth of not less
than Two Hundred Fifty Thousand ($25O,OGO.O0) Dol-
lars provided that such corporation is solvent,
dividend paying, and has not defaulted in the’pay-
ment of any of Its obligations for a period of five
(5) years, nor in the stock of any oil, manufactur-
ing or mercantile corporation not organized under
the laws of this State unless such corporation has
a capital stock of not less than Five Million
($5,000,000.00) Dollars and unless such corpora-
tion is solvent, dividend paying, and has not de-
faulted in the payment of any of its obligations
for a period of five (5) years.”
A representative of your department has informed us
orally that there is no available information in the insurance
department reflecting whether or not the corporation whose bonds
are offered for sale is a dividend paying corporation which has
not defaulted in the payment of any of its obligations for a
period of five years.
In view of the foregoing statutes, you are respectful-
ly advised that it is our opinion that the insurance carriers
mentioned in Article 4706, Vernon’s Annotated Civil Statutes,
are authorized to invest in such bonds provided the corpora-
tion selling or offering to sell such bonds is a dividend pay-
ing corporation which has not defaulted in the payment 01 any
of its obligations for a period of five years. It is our
further opinion that the above mentioned bonds are eligible
as tax reducing securities under Article 7064, supra, provided,
such bonds are within the State of Texas for any tax year for
which they are offered or claimed as tax reducing securities
and provided, as above stated, that the corporation selling such
bonds is a dividend paying corporation which has not defaulted
in the payment of any of its obligations for a period of five
years.
Yours very truly
ATTORNEYGENERALOF TEXAS
By /s/ Ardell Williams
Ardell Williams, Assistant
APPROVEDWC 12, 1943
/s/ Grover Sellers
FIRST ASSISTANT ATTORNEYGENERAL
(This opinion considered and approved in limited conference)
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