March27, 1987

Eonorable BobBullock Comptroller of Public Accounts L.B.J. State Office Building Austin, Texas 78774 Opinion No. .TM-659
lb: Whetheramunicipality which does not at present impose a property tax mayimpose the L/2 percent additional sales tax authorized by Acts 1985, 69th Leg.. 3rd C.S., ch. 10 [House Bill No. 791

DearMr.Bullock:

Section 12of HouseBill No. 79, enacted during the recent third called session, amendsarticle 1066c, V.T.C.S., the Local Sales and UseTaxAct, by adding section 2A. which permits cities to adopt in certain **instances** anadditional one-half percent local sales anduse tax. Acts 1985, 69th Leg., 3rd C.S., ch. 10, 112, at 29-36. Youask the following three questions:

1. Maya city which does not currently impose
a local property tax impose the l/2 percent additional tax authorized by House Bill No. 79, Acts 69th Legislature, Third Called Session, chapter 101

2. If the answer to question number 1 is 'yes,' mayall the sales tax revenue be used to reduce lawful city debt and for other uses consistent with the city's budget?

3. May a city simultaneously adopt a local property tax andimpose the l/2 percent additional sales tax?

Weconclude that a city that currently does not impose anadvalorem taxmaynot impose the additional one-half percent Local Sales andUse Tax authorized by House Bill No. 79. Because we answer your first question in the negative, weneed not address your second question. Finally. weconclude that a city simultaneously may**not** impose **an** ad valorem tax for **the** first tima andthe additional local sales anduse tax.

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You first ask, “May a city which does not currently impose a local property tax impose the l/2 percent additions1 tax authorized by House Bill No. 792” Section 12 of House Bill No. 79 permits the impositiou of the tax either by a vote of the governing body or by petition and election by the requisite number of qualified voters. Subsection **F** of section 12 specifies the contents of **the** ballot proposition andprovides the following in pertinent part:

P. The ballot at such election shall be printed to provide for voting for or against the following proposition:

‘The adoption of anadditional one-half of one percent (1/2X) local sales anduse tax within the city to be used to reduce the property tax rata.' (Emphasis added).

V.T.C.S. art. 1066c, **52A.** subdiv. F.

Section 16of HouseBill No. 79amendsarticle 1066c, V.T.C.S.. by adding subsection (b) to section 9, which sets forth the purposes for which such additional tax revenue maybe expanded. Section 16 contemplates that the revenue generated by the additional tax will be used for the maintenance and operation of the city; the amount of additional revenue generated that is in excess of the amount calculated under section 26.04(c) of the Tax Code (i.e. the amount representing the previous year’s advalorem tax levy forpurposes of the affective tax rate calculation in the present tax year), will be used for debt service. Section 16provides the following:

SECTION16. Section 9, Local Sales and Use Tax**Act** (Article 1066c, Vernon's Texas Civil Statutes), is amended[V.T.C.S. art. 1066~. $91to read as follovs:

Sec. 9. (a) Moneycollected under this Act is for the use and benefit **of** the cities of the state; but nocity maypledge anticipated revenue fromthis source to secure the paymentof bonds or other indebtedness. (b) In each year in which a city imposes an additional city sales anduse tax under Section 2A of this Act, if the revenue fromthe collection of the additional tax exceeds the amount of taxes calculated for the city under Section 26.04(c), Tax Coda, the excess shall be deposited in an account to be called the city sales tax debt service fund. Revenuedeposited in the city sales tax debt service fund maybe spent only for the reduction of lawful debts of the city. except that

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deposits that exceed the amountof revenue needed to pay the debt service needs of the city in the currant year maybe used for any city purpose consistent with the city budget.

**Acts** 1985. 69th Lag., 3rdC.S., ch. 10, $16, at 40.
Section 17of gouse Bill **No.** 79amendschapter 26of the TaxCode byadding section 26.041, which governs the calculation of the city’s effective tax rate in each tax year in which the city imposes the additional sales anduse tax. Theaffective tax rate calculation is designed to provide taxpayers with an accurate means **of** determining the amountof increase or decrease in property taxes levied from one year to the next. The “effective tax rate” is the tax rata that will produce both the revenue necessary to satisfy the taxing unit’s debt paymentobligations for the year in which the rate is calculated and the sameamountof operating revenue levied onproperties taxed in the previous year andtaxable in the current year. SeeAttorney General Opinion MU-495 (1982). Section 17requires a city to determine, the amountof additional revenue that it anticipates will be generated by the imposition of the additional local sales anduse tax authorized by HouseBill No. 79 and to factor that amount into its effective tax rata. In the calculation. the amount of additional tax the city anticipates will be generated is subtracted from the amount of ad valorem tax revenue generated in the previous year; the effective tax rate is then accordingly reduced. Section 17provides in pertinent part:
SECTION17. Chapter 26. Tax Code, is amended

by adding [Tax Coda 526.0411 Section 26.041 to read as follovs:

Sec. 26.041. TAXRATB**OF** CITYIMPOSINGADDITIONALSALESANDUSETAX. (a) In each tax year In which a city imposes an additional sales and
use tax under Section 2A. Local Sales and Use TaxAct (Article 1066~. Vernon’s Texas Civil Statutes), the governing body maynot adopt atax rate that exceeds the tax rate calculated under Section 26.04 of this code andadjusted under this section bymorethan three percent. Thegoverning body shall reduce atax rata set bylawor byvote of the electorate to a rate that does not exceed the rata permitted by this subsection. In a year in which this subsection applies, Sections 26.05(c), 26.06, and 26.07 of this code do not apply to the city. (b) Theofficer or employee designated tomake the calculations provfded bySection 26.04 of this code for a city shall adjust the tax rata

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calculated under that section as provided by Subsection (c) or (a) of this section, as applicable. (c) In each tax year in which a city imposes
anadditional sales anduse tax under Section 2A, Local Sales and Use Tax Act (Article 1066~~ Vernon's Texas Civil Statutes): (1) if the amount of additional tax to be imposed in the currant year as determined under Subsection (d) of this section exceeds the amount of additional tax, if any. used for purposes of this section in the preceding year as determined under Subsection (d) in that year, the officer or employee shall subtract from the rate calculated for the city under Section 26.04 of this code the rate that, if applied to the total taxable value submitted to the governing body, would impose taxes equal to the amountby which the amount of additional tax to be imposed in the current year exceeds the amountof additional tax used in the praceding year; or (2) if **the** amount of additional tax to be imposed in the currant year as determined under Subsection (d) **of** this section is less than the amount of additional tax, if any, used **for** purposes of this section in the preceding year as determined under Subsection (d) in that year, the officer or employee shall addto the rate calculated for the city under Section 26.04 of this coda the rate that, if applied to the total taxable value submitted to the governing body, would impose taxes equal to the amountby vhich the amount of additional tax used in the preceding year exceeds the amount of additional tax to be imposed in the current year.

**Acts** 1985, 69th Leg., 3rdC.S., ch. 10, 117, at 41.
Statutes should be given areasonable andsensible construction, State HighwayDepartment **v. Gorham,**  **162**S.W.2d 934 (Tex. 1942); Brown &Root v. Durland, 84 S.W.2d 1073 (Tex. 1935). vith a view to accomplishing the legislative intent. Magnolia Petroleum Companyv. Walker, 83 S.W.2d 929 (Tax. 1935); McKinneyv. City of Abilene. 250 S.W.2d 924 (Tax. Civ. App. - Eastland 1952, writ ref'd n.r.e.).

It is clear fromareading of HouseBill No. 79, as awhole, that the legislature intended that the additional one-half percent sales

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anduse tax offset revenue normally generated by advalorem taxes: an obvious corollary to this proposition is that, if acity imposes noad valoram tax, the city maynot impose the additional sales tax designed to offset it. That the legislature intended the additional sales and
use tax be used to offset property **taxes** is clear not only from a reading of the statute; it is clear from an examination of **the** legislative history. TheBill Analysis to Bouse Bill No. 79includes the following language setting forth the purpose 

### ofarticle I of the bill, the article in vhich sections 12. 16, and 17are located:

This article allows certain cities to adopt an additional one-half percent local sales and use tax for the purpose of reducing city ad valorem taxes.
In the "section by section" analysis of the Bill Analysis to House Bill No. 79. the purpose andeffect of sections 16and 17are stated tobe the following:

Section 16: Adds anewSubsection (b) to Article 1066c, Section 9, V.T.C.S., which provides that in cities which impose the additional sales anduse tax, if the amountof additional sales tax revenue exceeds the amount of property taxes calculated under Section 26.04(c) (effective tax rate calculation), the excess shall be used to service debt.

Section 17: Amends Chapter 26, Tax Coda, by adding anewSection 26.041 which provides that a city which imposes the additional sales and use tax under Section 2Aof this Act shall take the anticipated additional revenue derived **from** the additional tax into account when calculating its effective tax rate andshall reduce the effective rata accordingly.
Bill Analysis to H.B. No. 79, prepared for Senate Finance Committee, filed in Bill File toB.B. No. 79, Legislative Reference Library.
Thebill andits legislative history require us to conclude that the legislature intended the additional tax be used 

### toreduce local property taxes. It necessarily follows that any city that does not impose anadvalorem tax cannot then impose the additional sales and
use tax. It **makes** no sense for the legislature to permit the imposition 

### ofone tax for the purpose of providing tax relief from a second tax in an instance in which the second tax is not imposed. Accordingly, we conclude that a city that does not impose an ad valorem tax maynot impose an additional local sales and use tax authorized by House Bill No. 79, Because we answer your first question in the negative, weneed not address your second question.

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With your third question, you ask, "Maya city simultaneously adopt alocal property tax andimpose the l/2 percent additional sales tax7" Weanswer your third question in the negative. Thereduction in the effective tax rata calculation required by sections 16and 17 of Eouse Bill No. 79requires areduction calculated on the basis of the advalorem taxes imposed in the previous year; subsection (c) of section 26.04 of the Tax Coda specifically details the subtractions that mustbemade"from the total amountof property taxes imposed by theunit in the preceding year." (Emphasis added.)

Section 26.04 of the Tax Code sets forth the method of calculating the "effective tax rate" for the taxing unit. Subsection (d) of section 26.04 of the TaxCodeprovides in pertinent part:

Thedesignated officer or employee shall calculate the tax rate that if applied 

### tothe total taxable value submitted to the governing body lass the taxable value of new property would impose the amountof property taxes determined as provided by Subsection (c) of this section.
Subsection (c) provides the following:

(c) Anofficer or employee designated by the governing body shall subtract from the total amount of property taxes imposed by the unit ip the preceding year: (1) the amount of taxes imposed in the preceding year topayprincipal of andinterest on debt of the unit and to pay lawfully incurred contractual obligations providing security for the payment of principal of and interest **on** bonds or other evidences of indebtedness issued on behalf of the unit by another political subdivision;

**(2)** the amount of taxes imposed in the preceding year on property in territory that has ceased tobe apart of the unit; (3) the amount of **taxes** imposed in the preceding year on taxable value that is exempt in the currant year; (4) the smount of taxes imposed in the preceding year on taxable value that is not taxable in the currant year because property appraised at marketvalue in the preceding year is required bylav tobe appraised at less **than** marketvalue in the currant year;

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(5) the amount of taxes imposed in the preceding year pursuant to Subsection (d) of this section to recoup taxes lost in the year before as aresult of anerror or errors; and (6) the amount of **taxes** imposed in the preceding year dedicated to theuse of ajunior college district under Section 20.48(s), Education Code. (Emphasis added).

TsxCode 126.04(c).
The calculation procedure and ad valorem tax rate reduction requirements makesense only if the city has imposed anadvalorem tax at least in the year preceding the year in which the additional sales anduse tax is imposed. Otherwise, there wouldbe **no**wayto calculate the affective tax rate; both sections 16 and 17would be rendered meaningless, at least in the situation that youdescribe. Accordingly,
weconclude that a city maynot impose simultaneously an advalorem tax for the first time andthe additional sales anduse tax authorized byEouseBill No. 79of the 69th Legislature.
SUMMARY

Acity that does not impose anadvalorem tax may not impose an additional one-half percent sales anduse tax authorized byHouseBill No. 79. Acity that does not impose anadvalorem tax may not impose simultaneously an ad valoram tax for the first time and the additional sales and use tax.

JACF.HIGRTOWER First Assistant Attorney General

MARY KELLER Executive Assistant Attorney General

RICHGILPIN Chairman, Opinion Committee Prepared byJimMoellinger Assistant Attorney General

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