.- ‘ 

September 25, 1973 

The Honorable Ivan WiDiams Opinion No. H-110 

Executive Director 

Texas Amusement Machine Commission Re: The applicability of reguP. 0. Box 13226 Capitol Station latory Article 13.02 to 

Austin, Texas 78711 coin-operated machines 

on U.S. military installaDear Mr. Williams: tions in Texas 

On behalf of the Texas Amusement Machine Commission you have 

requested the opinion of this office about the application of Article 13.02(2). 

V.T.C.S., in connection with a controversy involving the Army and Air 

Force Exchange Service. Your letter expl .@s: 

1 \ 

“The Texas Vending Commission was created 

by Senate Bill 268, [Acts 1971, 62nd Leg., R.S., 

p. 1942, ch. 5871 . . . . Section 2 of S.B. 268 

transfers to the Texas Vending Commission [subsequently renamed the Texas Amusement Machine 

Commission, Acts 1973, 63rd Leg., R.S., p. 362, 

ch. 1591 all of the functions previously exercised by 

the State Comptroller under Chapter 13, [V. T. C. S. 1, 

Taxation-General, as amended. 

“Subsection 2, Article 13.02, [V. T. C.S.], 

Taxation-General provides in part as follows: 

‘No owner shal:l agree or contract with a bailee 

or lessee of a coin-operated machine to compensate said bailee or lessee in excess of fifty percent (50%) of the gross receipt of such machine 

after the above reimbursement has been made. 

In addition to all other penalties provided by law, 

the [Texas Amusement Machine Commission] 

p. 528 
The Honorable Ivan Williams, page 2 (H-110) 

. . . shall revoke any License held under 

Article 13.17 by any person who violates 

this subsection. ’ 

“This specifi.c statutory provision has been 

declared valid by the court [Thompson 

489 S.W. 2d 95 (Tex. 197311. 

“The Unitt:d States A,rmy and Air Force 

Exchange Service has taken the posi.ti,on that the 

subject st:atutory p:roti.sfon may not be enforced 

by this Commissi,on agaj,nst the Army and Air 

Force Exchange Service. ‘( 

You note: 

!I 

. . . the Army and Air Force Exchange Service 

purchases goods and servi.ces from !non-appropriated fun.ds’ and . . . the Army and ASP Force Exchange 

Service is a c’LviPian rather than a military operation 

of the Department of Defense. ” 

You then asks: 

'I1 

. Whetherr the provisions of SubsectLon 2, 

A’rtlcl,e 1 ,3. 02, [‘V. T. C.S. 1, Taxation-General may 

be enforced by this commission against a Kcenseeowner under thi,s act who contracts with a U.S. 

military post exchange, U.S. mi.litary ser,uice club 

or some othe:r lessee of coin-operated mac,hines 

when the lessee is physi.cally l,ocated on lands [over] 

which the State of Texas [has] ceded exclusive jurisdict!on to the UnZ”:ed States, reserving only jurisdiction to execute judicial process there? 

“2 

. What would be your answer to question No. 1 

if such lessee was physically loc:ated on laods not ceded 

or ceded onl,y in part by the State of Texas to the United 

States? 

p. 529 
The Honorable Ivan Williams, page 3 (H-110) 

“3. Would the fact that some lessees of coinoperated machines which are physically located on 

U.S. military installations contract to purchase goods 

and services from ‘appropriated funds’ while others 

do so from ‘non-appropriated funds’ have any effect 

on your answer? ” 

Your questions are broader than your premise, since the term 

“lessee” used in your first question applies to persons or entities other 

than the Army and Air Force Exchange Service, but we will answer in 

the broader context. The questions involve two different clauses of the 

federal Constitution. 

Article 1, 5 8, Clause 17 of the Constitution of the United States 

reads, in part: 

“The Congress shall have power. . . to 

exercise exclusive Legislation in all Cases whatsoever . . . over all Places purchased by the 

Consent of the Legislature of the State in which the 

Same shall be, for the Erection of Forts, Magazines, 

Arsenals, Dock-Yards, and other needful Buildings 

I, 

. . . . 

Article 6, cl,. 2, the so-called Supremacy Clause, provides: 

“This Constitution, and the Laws of the 

United States which sha,Ll be made in Pursuance 

thereof: and all Treaties made, or which shall be 

made, under the Authority of the United States, 

shall be the supreme Law of the Land; and the 

Judges in every State shal.1 be bound thereby, any 

Thing in the Consti,tution or Laws of any State to 

the Contrary notwithstanding. ” \ 

Our system is one of dual sovereignty. Though the federal government 

may acquire land within a State by purchase or condemnati.on without the consent of the State, in the absence of such consent, the United States does not 

become an exclusive sovereign as authorized by A,rticle 1, $ 8, cl. 17, and its 

p. 5,30 
The Honorable Ivan Williams, page 4 (H-110) 

possession is regarded as that of an ordinary proprietor. Any ‘!consent” 

given by a State may be conditioned upon its retention of jurisdiction over 

the land consistent with the federa. use, but when consent has been given, 

if a portion of the State’s jurisdiction is not expressly retained (or to the 

extent that it is not retained), the jurisdiction of the federal government 

becomes “exclusive” if the federal government assents to the transfer of 

the jurisdiction. If the State’s legislative jurisdiction is not retained, 

subsequent laws of the State have no force in a federal enclave. However, 

state laws applicable at the time of transfer remain in effect, until abrogated, 

to assure that no area is left without a developed system for private rights. 

Paul v. United States, 371 U.S. 245 (1963). See Adams v. Calvert, 396 

S. W. 2d 948 (Tex. 1965). 

In ceded areas where only the jurisdiction to execute judicial process 

has been reserved, the applicability of Article 13.02, Taxation General, 

‘V. T. C. S., to private persons depends upon whether the basic provisions 

of that law were in force at the time the land was ceded, and whether it 

has been abrogated by federal law. We are aware of no federal legislation 

or policy which abrogates such laws as they might apply to private persons 

in such circumstances. 

However, U.S. Military Post Exchanges and U.S. Military Service 

Clubs operated by the Army and Air Force Exchange are not purely private 

personages. The Exchange Service evolved from the original “sutler” 

system of provisioning armi.es. Its establishment has never rested on 

statutory law, but, rather, on General Orders of the War Department and, 

now, Regulations issued by authority of the Secretary of Defense. See 8 

JAG L. Rev. 19, Scolnick and Packer, Evolution of the Army and Air Force 

Exchange Service (1966). 

Post Exchanges and Service Clubs are instrumentalities of the federal 

government, though some might classify them as “civilian” rather than 

“military, ” and thou.gh they are operated exclusively with “non-appropriated” 

funds. Standard Oil Co. v. JohnsoriL 316 U.S. 481 (1942). Compare Paul v. 

United States, su.pra. And see United States v. State Tax Commi.ssion of Missis sippi. , U.S. --.-9 37 L.jEd Ld 1 (1973). 

p. 531 
The Honorable Ivan Williams, page 5 (H-110) 

Paul v. United States was decided January 14, 1963. It involved 

the right of the State of California to enforce minimum wholesale price 

regulations with respect to milk sold at three U.S. military installations 

in California and used for three different purposes; for strictly military 

consumption, for resale at federal commissaries, and for consumption 

or resale at various military clubs and post exchanges. Milk for the 

first two uses was paid for with appropriated funds while that to be used 

or resold at the clubs and exchanges was not. 

The Supreme Court held that, as to milk paid for with appropriated 

funds (and without regard to “jurisdiction” questions), the federal policy 

set by 10 U.S.C. § 2301, et seq., and the Armed Services Procurement 

Regulations promulgated pursuant thereto, required competitive bidding. 

Milk purchased for military consumption and for resale at federal commissaries was purchased with appropriated funds. The Supreme Court 

held, therefore, that the Regulations promulgated pursuant to the statutes 

were to be given the force of law and took precedence over any contrary 

state laws. 

But milk purchased for consumption or resale at the various military 

clubs and post exchanges was purchased with non-appropriated funds. The 

Court, through Justice Douglas, observed that “[t]here is no. . . conflicting 

federal policy concerning purchases and sales from non-appropriated funds” 

and concluded that California’s current price controls over milk were applicable.to such sales, provided the basic State law authorizing such control 

had been in effect since the times of the various acquisitions of ceded areas. 

In other words, exchanges and clubs using non-appropriated funds 

were to be considered subject to the State law to the same extent as private 

persons in the same circumstances would be subject to it. 

Subsequent to the decision in Paul v. United States, new regulations 

applicable to the Army and Air Force Exchange Service have been promulgated, stating that the A & A F E S is immune from direct State taxation and 

from State regulatory laws, such as licensing and price control, statutes, 

whose application wou1.d result in interference with the performance by the 

A & A F E S of its assigned Federal functions. (32 C. F. R., 5 554.6). And 

p. 532 
The Honorable Ivan Williams, page 6 (H-110) 

see 32 C. F. R., § 554.9, purporting to require full competition in procurement “consistent with the immunity of exchanges from State regulations and 

control, ” 

The above A & A F E S Regulations have no statutory basis other than 

that contained in 10 USC 3012 (g) conferring upon the Secretary of the Army 

power to “prescribe regulations to carry out his functions, powers and 

duties. . . .” 

In Paul v. United States, the Supreme Court specifically noted that the 

provisions of 10 USC 2301 et seq., relating to Defense Department procurement and which authorized the adoption of Regulations making State price 

controls inapplicable, were themselves applicable only to purchases made 

with appropriated funds: it found no existing federal policy of immunity for 

the Exchange Service against the enforcement of State price controls where 

only non-appropriated funds were concerned. We have found no laterenacted federal statutes applicable to the Army and Air Force Exchange 

Service which would change that policy. 

Congress authorized immunization from State price controls for 

purchases made under the authority of the Department of Defense only as 

respects purchases made with appropriated funds. The express appl,ication 

of those statutes only to payments made from appropriated funds impliedly 

excludes from their policy operation those payments made from non-appropriated funds. The Secretary of the Army was without the power or authority to extend that immunization policy beyond the limits set by Congress, 

and we think the above A & A F E S Regulations attempting to do so are 

nullities in that respect. See Hirshberg v. Cooke, 336 U.S. 210 (1949). 

In Penn Dairies v. Mil,k Control Commission, 318 U.S. 261 (1943) the 

Supreme Court, after considering another “milk” price control case under 

statutory and administrative provisions antecedent to (but different from) 

those concerned in Paul v. United States, said (at p, 621): 

1, 

. . . [T]hose burdens [state taxation and regulation], save as Congress may act to remove them, are 

to be regarded as the normal incidents of the operation 

p. 533 
. 0 

The Honorable Ivan Williams, page 7 (H-11Q) 

within the same territory of a dual system of 

government, and. . . no immunity of the national 

government from such burdens is to be implied 

from the Constitution. . . . 

“Even in the case of agencies created or 

appointed to do the government’s work we have 

been slow to infer an immunity which Congress 

has not granted and which Congressional policy 

does not require. ” 

Also see Polar Ices Cream & Creamery Co. v. Andrews, 375 U.S. 361 

(1964). Compare United States v. Georgia Public Service Commission, 

371 U.S. 285 (1963), and Public Utilities Commission of the State of 

California v. United States, 355 U.S. 534 (1958). 

We conclude that the more recent A & A F E S Regulations attempting 

to extend the immunity from State regulations are ineffective to give immunity to non-appropriated fund activities and that contracts made by the Army 

and Air Force Exchange Service with such funds are subject to the provisions 

of Article 13.02 (2); Taxation General, V. T. C. S., in the same manner as 

contracts of a private individual or corporation. As to ceded areas, immunity will depend upon the cession agreement, the statute’s u existence 

prior thereto, and federal abrogations thereof. 

Adams v. Calvert, 396 S. W. 2d 948 (Tex. 1965). involved the right of 

the State to tax the interests of a private individual in coin-operated machines 

located at Fort Hood. The taxes were levied under Article 13.02. The 

Supreme Court said: 

“It thus appears that at the time the Fort Hood 

lands were acquired by the United States there were 

both federal and state limitations on the authority of 

the Governor of Texas to reserve jurisdiction to the 

State over the lands. By the federal law the Governor 

could reserve a:l,l juri.sdiction over the lands consistent 

with the federaxses, but no more, and by Artic1.e 5427 

p. 534 
. 

The Honorable Ivan Williams, page 8 (H-110) 

the Governor was required to reserve only jurisdiction to execute state judicial process anywhere 

on the lands. There is no sound reason for saying 

that the authority conferred on the Governor by 

Art. 5247 to cede exclusive jurisdiction does not 

include authority to cede a lesser jurisdiction. We 

hold, therefore, that in the area between the maximum permitted by federal law and the minimum 

required by Article 5247, the extent of juris~diction 

reserved to the State over lands acquired by the 

United States with the consent given in Article 5242 

is, in the absence of other limitations, a matter for 

negotiation by the Governor and is settled and con- 

,cluded by his deed of cession. . . . ” (396 S. W. 2d 

at 950). 

Your first question assumes that as to the lands involved the State 

has”ceded exclusive jurisdiction to the United States, reserving only 

jurisdiction to execute judicial process there. ‘I Our answer to your first 

question, therefore, is that, absent a reservation of jurisdiction over 

matters not in conflict with federal jurisdiction, the State has no power 

and the price control aspects of Subsection 2, Article 13.02, TaxationGeneral, V. T. C. S., may not be enforced on such a post. 

Your second question asks whether our answer would be different 

if the lessee was physically located on lands not ceded or ceded only in 

part by the State of Texas to the United States. If the lands were not 

ceded at all, our answer would be that the State would have the same rights 

as to the lessee as it would have to any other lessee. If they were ceded in 

part only, the jurisdiction of the State would have to depend upon the cession 

agreement in each case; thus, we cannot give an unequivocal answer. 

The answer to your third question would be that as to machines or 

services purchased with appropriated funds, the State price control regulations would conflict with the Federal. Procurement Act and the Federal 

statute would prevail,. As, to those purchased with “non-appropriated funds, ” 

the answer cou1.d differ depending upon whether the machines were located 

p. 535 
.I . 

. . ,. 

The Honorable Ivan Williams, page 9 (H-110) 

on or off ceded property and, if on ceded property, the terms of the 

cession agreement would c,ontrol. 

SUMMARY 

Jurisdiction of the Texas Amusement Machine 

Commission over coin-operated machines located 

upon Federal bases wil11 depend upon the following 

principles: (1) If acquired with appropriated funds, 

state regulation is totally ineffective; (2) Lf acquired 

with non-appropriated funds and located on ceded land, 

the extent of the State’s jurisdiction will depend upon 

the terms of the cession agreement and the State :law 

in existence at the time of cession; and (3) If located 

on :land which has not been ceded to the United States 

and acquired with non-appropriated funds, the jurisdiction of the Commission will be complete, 

c86 HN L. HILL 

Attorney General of Texas 

APPRC&‘ED: 

Q 

‘j 

LARRY \F. YOR First As &ant 

u~-_~~~ DAVID M. KE:NDALL, Chairman, 

Opinion Commj,tt.ee 

po 536