Was a motor-carrier permit or certificate transferred for tax purposes when a creditor took it after default on a secured note, and how was the transfer tax calculated?
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This page answers the general question as of 1983. Ezel answers yours: what it means for your facts, under current Texas law, with citations.
Texas AG Opinion JM-69: Motor-Carrier Authority as Collateral and Transfer Tax
Plain-English summary
JM-69 concluded that assigning a motor-carrier permit or certificate of authority to a secured creditor after default was a taxable transfer when the creditor was willing and able to operate under the authority. The transfer of the interest from the original owner to the creditor brought the transaction within former article 911b.
"Because the interest in the permit or certificate of authority passes from the possession of the owner who pledges it as collateral to that of the creditor to whom it is assigned after default on the note, we believe the transaction is a taxable event under article 911b."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
The transfer tax was 10% of the consideration. On the submitted facts, consideration included cancellation of the $75,000 debt plus $1 in cash, producing a tax of $7,500.10.
"The parties at hand clearly contemplate a certificate value of at least $75,000."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf"Therefore, the amount of the tax to be paid by the transferee in this instance is 10 percent of $75,000, plus 10 percent of the $1 given as actual cash consideration, resulting in a total transfer tax of $7,500.10."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
The opinion did not address other statutory requirements governing transfers of operating authority.
"We express no opinion as to other requirements regarding transfers of operating authority under article 911b."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
Currency note
This opinion was issued in 1983. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Common questions
What transaction did JM-69 analyze?
A motor carrier borrowed $75,000 and pledged its operating authority as security. After default, the authority was assigned to the creditor in cancellation of the debt, with the assignment apparently reciting $1 cash consideration.
"When the original owner defaulted on the note, the operating authority was transferred to the creditor in cancellation of the debt of $75,000, apparently by a voluntary assignment reciting $1 as cash consideration."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
Why was the creditor treated as a transferee?
The governing law covered authority that was sold, assigned, leased, transferred, or inherited. The creditor also was willing and able to operate under the authority until a later transfer.
"Sections 5a(a), 6(e), and 6(f) envision several types of transfers in that they each state that any certificate or permit 'held, owned, or obtained by any motor carrier . . . may be sold, assigned, leased, transferred, or inherited.'"
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf"That aspect of a taxable transfer is not an issue under the facts presented to us because the creditor holding the operating authority is willing and able to operate it until such time as it may be transferred to a third party."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
What did the statute require the transferee to pay?
For a transferred certificate, it required 10% of the consideration paid; the permit provisions contained the same requirement.
"[I]n case a certificate is transferred . . . the transferee shall pay the Commission a sum of money equal to ten (10) percent of the amount paid as a consideration for the transfer of the certificate . . . ."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf"Sections 6(e) and 6(f) contain the same provision in case a permit is transferred."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
Was the $1 stated in the assignment the only consideration?
No. JM-69 treated the cancelled $75,000 debt as part of the true consideration because the permit or certificate secured that note.
"The actual cash consideration under the facts presented to us is $1. When a permit or certificate of authority is used to secure a note for $75,000, the true consideration is much greater than $1."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
How did JM-69 define a transfer?
It quoted Ditto Investment Company for the ordinary meaning: passing title or an interest in property from one person to another with intent to pass the owner's rights.
"Common use of the word 'transfer' is to denote the passing of title in property, or an interest therein, from one person to another, and, in this sense, the term means that the owner of property delivers it to another with the intent of passing the rights which he had in it to the latter."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
Did every creditor automatically qualify to receive motor-carrier authority?
JM-69 noted that a certificate recipient had to show, among other things, an ability to continue service. The creditor in the submitted transaction satisfied that issue, so the opinion did not have to resolve it.
"To qualify as a transferee of a motor carrier certificate within the contemplation of article 911b, section 5a(a), the recipient of the certificate must show, among other things, that it is capable of continuing service under the certificate."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
Background and statutory framework
The Railroad Commission's chairman asked what transfer tax, if any, applied when an owner pledged motor-carrier operating authority as collateral and then defaulted.
"You have asked the amount of transfer tax, if any, that is due the Railroad Commission of Texas under article 911b, sections 5a(a), 6(e) and 6(f), V.T.C.S., when the owner of a motor carrier permit or certificate of authority pledges it as collateral for a note and defaults on the note."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
The opinion framed two questions: whether the parties were a statutory transferor and transferee, and whether the creditor's receipt of the authority was taxable.
"The questions are whether an owner who pledges its operating authority as collateral and a creditor who holds the operating authority after default and assignment are a 'transferor' and 'transferee,' respectively, and whether the receipt of the permit or certificate under these facts is a taxable transfer."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
Holding
"The transfer tax provisions of article 911b, sections 5a(a), 6(e), and 6(f), V.T.C.S., apply to a creditor capable of continuing service under a motor carrier permit or certificate of authority that is assigned to the creditor after default on a note for which the authority is collateral. Since the amount of the transfer tax is 10 percent of the amount paid as consideration for the transfer, the tax is 10 percent of the amount of the cancelled debt, plus 10 percent of any additional cash consideration."
Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
Citations and references
Statutes discussed by JM-69:
- "article 911b, section 5a(a), V.T.C.S." Official PDF
- "article 911b, section 6(e), V.T.C.S." Official PDF
- "article 911b, section 6(f), V.T.C.S." Official PDF
Cases cited by JM-69:
- "Brown Express, Inc. v. Railroad Commission of Texas, 415 S.W.2d 394, 396 (Tex. 1967)" Official PDF
- "Ditto Investment Company v. Ditto, 302 S.W.2d 692, 694 (Tex. Civ. App. - Fort Worth 1957), rev'd on other grounds, 309 S.W.2d 219 (Tex. 1958)" Official PDF
Source
- Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0069
- Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1983/jm0069.pdf
Original opinion text
Best-effort transcription from a scanned PDF. Minor errors may remain. The linked PDF is authoritative.
The Attorney General of Texas
JIM MATTOX
Attorney General
September 19, 1983
Honorable Mack Wallace
Chairman
Railroad Commission of Texas
P. O. Drawer 12967
Austin, Texas 78711
Opinion No. JM-69
Re: Fee payable to Railroad Commission on transfer of certificate or permit of authority
Dear Mr. Wallace:
You have asked the amount of transfer tax, if any, that is due the Railroad Commission of Texas under article 911b, sections 5a(a), 6(e) and 6(f), V.T.C.S., when the owner of a motor carrier permit or certificate of authority pledges it as collateral for a note and defaults on the note.
Under the facts presented to us, it appears that the original owner of a permit or certificate of authority issued by the Railroad Commission was a motor carrier, operating pursuant to that authority, who borrowed $75,000. The creditor who loaned the $75,000 held the operating authority as security for the note. When the original owner defaulted on the note, the operating authority was transferred to the creditor in cancellation of the debt of $75,000, apparently by a voluntary assignment reciting $1 as cash consideration. We believe that the transfer tax provisions apply under these facts and that the amount of tax to be paid by the holder of the operating authority is $7,500.10. We express no opinion as to other requirements regarding transfers of operating authority under article 911b.
Section 5a(a) of article 911b provides:
[I]n case a certificate is transferred . . . the transferee shall pay the Commission a sum of money equal to ten (10) percent of the amount paid as a consideration for the transfer of the certificate . . . .
Sections 6(e) and 6(f) contain the same provision in case a permit is transferred.
The questions are whether an owner who pledges its operating authority as collateral and a creditor who holds the operating authority after default and assignment are a "transferor" and "transferee," respectively, and whether the receipt of the permit or certificate under these facts is a taxable transfer. To qualify as a transferee of a motor carrier certificate within the contemplation of article 911b, section 5a(a), the recipient of the certificate must show, among other things, that it is capable of continuing service under the certificate. See Brown Express, Inc. v. Railroad Commission of Texas, 415 S.W.2d 394, 396 (Tex. 1967); Attorney General Opinion M-1201 (1972). That aspect of a taxable transfer is not an issue under the facts presented to us because the creditor holding the operating authority is willing and able to operate it until such time as it may be transferred to a third party.
Sections 5a(a), 6(e), and 6(f) envision several types of transfers in that they each state that any certificate or permit "held, owned, or obtained by any motor carrier . . . may be sold, assigned, leased, transferred, or inherited." (Emphasis added). The word "obtain" in its general sense means to get hold of by effort, to get possession of, to procure, and to acquire in any way. See Black's Law Dictionary 972 (5th ed. 1979); Webster's New International Dictionary 1682 (2nd ed. 1947). The word "transfer" was defined in Ditto Investment Company v. Ditto, 302 S.W.2d 692, 694 (Tex. Civ. App. - Fort Worth 1957), rev'd on other grounds, 309 S.W.2d 219 (Tex. 1958), wherein the court stated:
Common use of the word 'transfer' is to denote the passing of title in property, or an interest therein, from one person to another, and, in this sense, the term means that the owner of property delivers it to another with the intent of passing the rights which he had in it to the latter.
Because the interest in the permit or certificate of authority passes from the possession of the owner who pledges it as collateral to that of the creditor to whom it is assigned after default on the note, we believe the transaction is a taxable event under article 911b.
The amount of tax on such a transfer is 10 percent of the amount paid as consideration for the transfer of the permit or certificate of authority. The actual cash consideration under the facts presented to us is $1. When a permit or certificate of authority is used to secure a note for $75,000, the true consideration is much greater than $1. Attorney General Opinion O-1505 (1939) dealt with the transfer tax for a certificate that was leased. In that opinion, this office stated that the value of the use of the certificate is determined by the parties themselves. The parties at hand clearly contemplate a certificate value of at least $75,000. Therefore, the amount of the tax to be paid by the transferee in this instance is 10 percent of $75,000, plus 10 percent of the $1 given as actual cash consideration, resulting in a total transfer tax of $7,500.10.
SUMMARY
The transfer tax provisions of article 911b, sections 5a(a), 6(e), and 6(f), V.T.C.S., apply to a creditor capable of continuing service under a motor carrier permit or certificate of authority that is assigned to the creditor after default on a note for which the authority is collateral. Since the amount of the transfer tax is 10 percent of the amount paid as consideration for the transfer, the tax is 10 percent of the amount of the cancelled debt, plus 10 percent of any additional cash consideration.
Very truly yours,
JIM MATTOX
Attorney General of Texas
TOM GREEN
First Assistant Attorney General
DAVID R. RICHARDS
Executive Assistant Attorney General
Prepared by Nancy Sutton
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Rick Gilpin, Chairman
Jon Bible
David Brooks
Colin Carl
Jim Moellinger
Nancy Sutton
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