Case Information

*1 l.* /,’ T.’ OFFICE OF THE ATTORNEY GENERAL OF TEXAS AUSTIN

.

Hon. SMnep Latham

Seoretary of State

Austin, Texas

Dear Sir: \ \ :’ Opinion No, O-5988 Re: Under the Paots, 9

“renewal” note

for franchise You subdit for the the question, contained in your le 24, 1944, reading as follows:

“A franohise~ tax re filed with this shows an outstanding en.ting the unpaid G0,000,00, of the report under ion’ the date -Jandary 1, is QkWf Schedule x under the Extens.ion or Refinanoel It was shown by the tax- E that t.+ note. was ‘payable‘- ormat ion’ shown on the unpaid balanoe of taxable ,item under Article 7084, R. C. S, being an Indebtedness evidenced by a note an one year which had been renewed since and served notice on tha taxpayer that an additional ?d of $977.00 was due by reason of suoh note.

*Xvidenoe has now been subnitted to this office which the taxpayer offers to reauoe to affidavit form to be executed. by an authorized representative of the colnpsny having knowledge of all the facts, trhich shows that an ori&innl.:note was ex- eouted on January 1, 1935, in the sum of ;~19,000,000.00.

Hon. SiUney.Latham, page 2

This advanoe of money was made from the parent company of whioh the taxpayer is a wholly own&l subsidiary. On December 31, 1943, another note was execute8 .oovering $~~,~OO,OOOCOO, representing the unpaid balanoe of the *3 Hon. Sidney Latham, page 3

January 1, 1975, for ~19,000,000,00, Is a renewal of said note as that term is used in Subaeotlon a of Artiole ‘7.084, R. C. S,. If it is, then said renewal note must be inoluded by the oor- poration in dotermining the franchise tax due by it. It is helpful Ii we have the statute before us, and espeoially portion of it whioh we have undersoored, It reads as follows:

“(a) Exoept as herein provided, every domestio and foreign corporation heretofore or hereafter chartered or authorized to do buslnoss in Texas, or doing business in Texas, shall, on or before May 1st of eaoh year, pay in aavanoe to the Seoretary, of State a franohlse tax for the year following, baaed upon that proportion of the outstand- surplus and undivided profita, plus the ing oapital stock, amount of outstanding bonus, notes and debentures, (outstand- ing bonas, notes, and debentures shall include all written evidenoea of indebtedness which bear a maturity date of,one (1) year or more from date of Issue and all such instruments -which bear a maturity date of less than on%-(i) year from

date of issue but which rspresent indebtedness ~wh-ich has remained outstanding for a period of one (lY)i%Zyoar or m-ore $1: from date of inception, but which have been renewed or

ztended, or refinanoed by the issuanoe of other. evidences of the indebtedness, whether to the same or other parties and it is further provided that this term shall not inolude ” instruments whiah have previously been classified as surplus) . . . ” (Rmphasis ours)

That the note for $l9,000,000.00, dated January 1, 1935, has remained outstanding for a period of more than one year is patent on the face of it, hence this need not give us further concern. We, ~therefors, turn our attention to the question of whether or cot the note for $16,500,000.00, rspresenting , balance due on the $19,000,000.00 note, as of December 31, 1943, is a ren6wal of this unRaia balance. Vhat is a renewal of a note? The Legislature has not elcoted in its,use of the Eerm Venewal” to define its meaning as used In the not; hence the oommonly accepted definition in a comercial is the one that should sense be adopted; The Supreme Court of South Dakota, in the case of Wilcox v. XoCain Land and Live Stock Co., et al., 159 N. I?. 49, “A renewal of a note is the giving of a new note defines it thus: in the place of t ho former one.*

In Clifford V. United States Fidelity Guaranty Co., (Supreme Court of Oklahoma) 249 Rr 938, it is said: *4 ( , ‘* t

Hon. Sldaey Latham, page 4

I "The courts have also held that the word ‘renew* or trenenal,' as applied to or used in notes, certificates of and bills of exchange ilzplies, and for that matter deposit, requires the exocut,ion of a new instrumnt; in other words, Parchen v. Chessman, 53 the oroation oS a new oontraot.

)Zont. 430, 164 P. 531; gponhaur v. Kalloy, 21 Ind. App. 287, 52 N; E. 245; state v. icider, 163 Iowa, 319,163 N. 7. 698; I'iiloox v. HcCain Land C: Live Stock Co., 37 S. D. ,511, 159 N. 71, 49."

A definition perhaps no& oomprehensive then the two noted above, Is found in the Case of Grace &* Co, v, Strickland; .(~upr0ne Court OS North Carolina) 35 A. I,. R. in the following language: '

n As applied to negotiable instruments the word 'renewed' ++ *ssncvrLil; & signifies more than the substitution of one obligation for another. It means the substitution In plaoe of one engsgemeht of a new obligation on the same terms and oanditions; that Is, the m-establishment of a partioular oontmct 'for ahother period of tim."(~iting *;.. 0 a 3 e 3 )

- =-~

me find the following language in King v. Xdeil,et al., ^[26] S. X. (2d) 365 (Court of Civil Appeals of Ceorgia)r . , The term *rene?val,* as applied to a note, means

- ". the reestablisime::t of the particular. oontraot for another period OS tim. There my be a change of parties or an increase of' security, but there is'no renewal unless the 18 the mm. A renewal, as distinguished from obligation a nsre extension, 13 usually evidenoed by a ne:v note or 8 C, J. p. 425 0626. Se; also 10 C.J.S.: other lnstrumnt.~ ~11s and l<otes, 0160.. . ."

Froln the foi-csgoin,~ we are led~ to the oonolusioli tbG $16,500,03O.OO note dated Deoe:i!ber 31, 1943, has all the legal charaotsristics of a renewal of the unpaid bnlaocs of the original note for ~~19,000,000.00, dated Jan. 1, 1935, am3 falls olearly in the follcwir~g part OS the statute:

“. . . and all such instrumnts vihJch bear a mturity date of lesn than one (1) year fro!2 date of issue but which rapresent indebtsdness which has rcnaln# outstanding for a period of oz0 (1.) year oFyore from dare of inception, but which have been renewed or x&ended! or refinsnoed by the issuance of other sviden~eg of the mdebtedno8s, . . ." *5 hi \. ‘.

Hon. Sidney Latham, page 5

and is one of the taxable elements upon which the franohise tax of the oorporation is to be calculated, and you are aooora 2 ngly 80 advised,'

Yours Very truly ATTORN~ZY GENIZERAL OF T@XAS Assistant LPL : AF.%?

.* \

_. original obligation. Copies of the two notes .are enolosed herewith, omitting only the names of the maker and payee. Kit fs to be noted that the only difference in the language of the’two notes is that the phrase ~‘provitiions .-for insuranoe and for contingent liabilities’ is aaaea in the tote of December 31, 1943, and the seritence appearing in the original note reading ‘In case of .a~y ilispute or uncertainty in this respect, the determination made for Fedesal income tax purposes shall govern’ is ,deletea. A slight ohange wa8 nade in the last paragraph vihich appears to be of no consequonoe in this inquiry, t “The ta’xpayer represents that the note of Deoenber 31, 1943, was executed not -as a renewal of ths original indebted- ness, but for the sole and only purpose of clarifying method of computing net inoose for purposes of interest payments on the note and to compute the interest entirely by a msthoii agreed upon between the parties rather than according to the regulations governing Fedjral income taxes. It is further represontea that the interest based upon net profits had always been oomgutsd under the original note in the manner now ?rovidet?t Under the note cf Deoember 1943, and that. no dispute had ever arisen between the maker and payee of the note such as would neoessitnte resorting to Federal income tax regulations. The taxpayer further contenas it has receive8 no financial gain or benefit by reason of the exeoution of the latter note an& that no demand for payment of the original note haa been made prior to the execution of the latter note, and that suoh dazana hris not shoe been made at any time. “In the light of the above facts, will you please advise th~is Departrlent upon the following inquiry: HIS the note dated Deoenber 31, 1943, a renewal of the note date& January 1, 1935, as the term *rens7id1 is used in (a) of Article 7084 so as to renc?er~ the note Subdivision taxable for franchise tax purposes?* Under the oiroumstanoes disolosed by your letter we if the note of Deoedber 3&, 191!3, in the sum of to determine are ~16,500,000.00, representing the unpaid baltince of the note of