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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 Onbehalf ofthe Texas Amusement Machine Commission you have requested the opinion ofthis office about the application ofArticle 13.02(2). V.T.C.S., in connection with a controversy involving theArmy andAir 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 2ofS.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 ofthe 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 ofa coin-operated machine to compensate said bailee or lessee in excess offifty percent (50%) ofthe gross receipt of such machine after the above reimbursement has been made. Inaddition to all other penalties provided by law, the [Texas Amusement Machine Commission]

p. 528The 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 andAir 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 theArmy andAir Force Exchange Service. ‘( You note:

!I

. . . the Army andAir Force Exchange Service purchases goods and servi.ces from !non-appropriated fun.ds’ and
. . . theArmy andASPForce Exchange Service is a c’LviPianrather than a military operation ofthe Department of Defense. ” You then asks:

'I1

. Whetherr the provisions ofSubsectLon 2, A’rtlcl,e 1,3.02, [‘V.T. C.S. 1, Taxation-General may be enforced bythis 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 onlands [over] which the State ofTexas [has] ceded exclusive jurisdict!on to the UnZ”:edStates, reserving onlyjurisdiction to execute judicial process there?

“2

. What would beyour answer to question No. 1 if such lessee was physically loc:ated onlaods not ceded or ceded onl,yin part by the State of Texas to the United

States?

p. 529The 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 onyour answer? ” Your questions are broader thanyour premise, since the term

“lessee” used inyour first question applies topersons or entities other than theArmy andAir Force Exchange Service, butwewill answer in the broader context. The questions involve two different clauses ofthe federal Constitution. Article 1, 58, Clause 17 ofthe Constitution ofthe 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 ofthe Legislature ofthe State inwhich the Same shall be, for the Erection ofForts, Magazines, Arsenals, Dock-Yards, and other needful Buildings

I,

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

“This Constitution, and the Laws ofthe United States which sha,Llbe made in Pursuance thereof: and all Treaties made, or which shall be made, under the Authority ofthe United States, shall be the supreme Law ofthe Land; and the Judges in every State shal.1be bound thereby, any Thing in the Consti,tution or Laws ofany State to the Contrary notwithstanding. ” \ Our system is one ofdual sovereignty. Though the federal government may acquire land within a State by purchase or condemnati.on without the consent ofthe State, in the absence of such consent, the United States does not become an exclusive sovereign as authorized byA,rticle 1, $8, cl. 17, and its

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

possession is regarded as that ofan ordinary proprietor. Any ‘!consent” given by a State may be conditioned upon its retention ofjurisdiction over the land consistent with the federa. use, butwhen consent has been given, if a portion ofthe State’s jurisdiction is not expressly retained (or to the extent that it is not retained), thejurisdiction ofthe federal government becomes “exclusive” if the federal government assents to the transfer of thejurisdiction. Ifthe State’s legislative jurisdiction is not retained, subsequent laws ofthe State have no force in a federal enclave. However, state laws applicable at the time oftransfer 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). Inceded areas where only thejurisdiction to execute judicial process has been reserved, the applicability ofArticle 13.02, Taxation General,

‘V.T. C.S., to private persons depends upon whether the basic provisions ofthat law were in force atthe time the land was ceded, and whether it has been abrogated byfederal law. We are aware ofnofederal 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 ofprovisioning 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 ofthe Secretary ofDefense. See 8 JAG L. Rev. 19, Scolnick and Packer, Evolution oftheArmy andAir Force Exchange Service (1966). Post Exchanges and Service Clubs are instrumentalities ofthe federal government, though some might classify them as “civilian” rather than “military, ” and thou.ghthey 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 ofMississippi. , U.S. --.-9 37 L.jEd Ld 1 (1973).

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

Paul v. United States was decided January 14, 1963. Itinvolved the right ofthe 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 atvarious 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 (andwithout 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 oflaw 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 ofthe 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 andAir Force Exchange Service have been promulgated, stating that the A &A F E Sis immune from direct State taxation and from State regulatory laws, such as licensing and price control, statutes, whose application wou1.dresult in interference with the performance by the A &A F E Sofits assigned Federal functions. (32 C.F. R., 5554.6). And

p. 532The 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 ofexchanges from State regulations and control, ” The above A &A F E SRegulations have no statutory basis other than that contained in 10 USC 3012 (g) conferring upon the Secretary ofthe Army power to “prescribe regulations to carry outhis functions, powers and duties.
. . .” InPaul 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 ofRegulations making State price controls inapplicable, were themselves applicable only topurchases made with appropriated funds: it found no existing federal policy ofimmunity for the Exchange Service against the enforcement ofState price controls where only non-appropriated funds were concerned. We have found no laterenacted federal statutes applicable to theArmy andAir Force Exchange Service which would change that policy. Congress authorized immunization from State price controls for purchases made under the authority ofthe Department ofDefense only as respects purchases made with appropriated funds. The express appl,ication ofthose statutes only to payments made from appropriated funds impliedly excludes from their policy operation those payments made from non-appropriated funds. The Secretary ofthe 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 SRegulations attempting to do so are nullities in that respect. See Hirshberg v. Cooke, 336 U.S. 210 (1949). InPenn 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 (butdifferent 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 ofthe operation

p. 533. 0

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

within the same territory ofa dual system of government, and.
. . no immunity ofthe national government from such burdens is to be implied from the Constitution.
. . . “Even inthe case ofagencies created or appointed to dothe government’s work wehave been slow to infer an immunity which Congress has not granted and which Congressional policy does not require. ” Also see Polar IcesCream & 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 ofthe State of California v. United States, 355 U.S. 534 (1958). We conclude that the more recent A &A F E SRegulations attempting to extend the immunity from State regulations are ineffective to give immunity to non-appropriated fund activities and that contracts made bytheArmy andAir Force Exchange Service with such funds are subject tothe provisions ofArticle 13.02 (2); Taxation General, V. T. C.S., inthe same manner as contracts ofa 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 ofaprivate 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 onthe authority of the Governor of Texas to reserve jurisdiction to the State over the lands. By thefederal law the Governor could reserve a:l,ljuri.sdiction over the lands consistent with the federaxses, but no more, and byArtic1.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 onthe lands. There is no sound reason for saying that the authority conferred onthe 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 byfederal law and the minimum required byArticle 5247, the extent ofjuris~diction reserved to the State over lands acquired by the United States with the consent given inArticle 5242 is, in the absence of other limitations, a matter for negotiation by the Governor and is settled and con- ,cluded byhis deed of cession.
. . .” (396 S.W. 2d at 950). Your first question assumes that as tothe lands involved the State has”ceded exclusive jurisdiction to the United States, reserving only jurisdiction to execute judicial process there. ‘I Our answer toyour first question, therefore, is that, absent a reservation ofjurisdiction over matters not in conflict with federal jurisdiction, the State has nopower and the price control aspects ofSubsection 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 onlands not ceded or ceded only in part by the State ofTexas to the United States. Ifthe 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. Ifthey were ceded in part only, thejurisdiction ofthe State would have to depend upon the cession agreement in each case; thus, we cannot give anunequivocal answer. The answer toyour 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.ddiffer depending upon whether the machines were located

p. 535.I

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. . ,.

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

on or off ceded property and, if on ceded property, the terms ofthe cession agreement would c,ontrol. SUMMARY Jurisdiction ofthe Texas Amusement Machine Commission over coin-operated machines located upon Federal bases wil11depend upon the following principles: (1)Ifacquired with appropriated funds, state regulation is totally ineffective; (2) Lfacquired with non-appropriated funds and located on ceded land, the extent ofthe State’s jurisdiction will depend upon the terms ofthe cession agreement and the State :law in existence at the time of cession; and (3) Iflocated on :landwhich has not been ceded to the United States and acquired with non-appropriated funds, thejurisdiction ofthe 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