March 27, 1987 

Eonorable Bob Bullock 

Comptroller of Public Accounts 

L.B.J. State Office Building 

Austin, Texas 78774 

Opinion No. .TM-659 

lb: Whether a municipality which 

does not at present impose a 

property tax may impose the L/2 

percent additional sales tax 

authorized by Acts 1985, 69th 

Leg.. 3rd C.S., ch. 10 [House 

Bill No. 791 

Dear Mr. Bullock: 

Section 12 of House Bill No. 79, enacted during the recent third 

called session, amends article 1066c, V.T.C.S., the Local Sales and 

Use Tax Act, by adding section 2A. which permits cities to adopt in 

certain instances an additional one-half percent local sales and use 

tax. Acts 1985, 69th Leg., 3rd C.S., ch. 10, 112, at 29-36. You ask 

the following three questions: 

1. May a 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,' may all 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 and impose the l/2 percent additional 

sales tax? 

We conclude that a city that currently does not impose an ad valorem 

tax may not impose the additional one-half percent Local Sales and Use 

Tax authorized by House Bill No. 79. Because we answer your first 

question in the negative, we need not address your second question. 

Finally. we conclude that a city simultaneously may not impose an ad 

valorem tax for the first tima and the additional local sales and use 

tax. 

p. 3002 
Bonorable Bob Bullock - Page 2 .(JM-659) 

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 and provides 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 an additional one-half of one 

percent (1/2X) local sales and use 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 16 of House Bill No. 79 amends article 1066c, V.T.C.S.. 

by adding subsection (b) to section 9 , which sets forth the purposes 

for which such additional tax revenue may be 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 ad valorem tax levy forpurposes of 

the affective tax rate calculation in the present tax year), will be 

used for debt service. Section 16 provides the following: 

SECTION 16. Section 9, Local Sales and Use 

Tax Act (Article 1066c, Vernon's Texas Civil 

Statutes), is amended [V.T.C.S. art. 1066~. $91 to 

read as follovs: 

Sec. 9. (a) Money collected under this Act is 

for the use and benefit of the cities of the 

state; but no city may pledge anticipated revenue 

from this source to secure the payment of bonds or 

other indebtedness. 

(b) In each year in which a city imposes an 

additional city sales and use tax under Section 2A 

of this Act, if the revenue from the 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. Revenue deposited in the city sales 

tax debt service fund may be spent only for the 

reduction of lawful debts of the city. except that 

p. 3003 
Honorable Bob Bullock - Page 3 (34-659) 

deposits that exceed the amount of revenue needed 

to pay the debt service needs of the city in the 

currant year may be used for any city purpose 

consistent with the city budget. 

Acts 1985. 69th Lag., 3rd C.S., ch. 10, $16, at 40. 

Section 17 of gouse Bill No. 79 amends chapter 26 of the Tax Code 

by adding 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 and use tax. The affective tax rate calculation is 

designed to provide taxpayers with an accurate means of determining 

the amount of 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 

payment obligations for the year in which the rate is calculated and 

the same amount of operating revenue levied on properties taxed in the 

previous year and taxable in the current year. See Attorney General 

Opinion MU-495 (1982). Section 17 requires a city to determine, the 

amount of additional revenue that it anticipates will be generated by 

the imposition of the additional local sales and use tax authorized by 

House Bill 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 17 provides in pertinent 

part: 

SECTION 17. Chapter 26. Tax Code, is amended 

by adding [Tax Coda 526.0411 Section 26.041 to 

read as follovs: 

Sec. 26.041. TAX RATB OF CITY IMPOSING ADDITIONAL SALES AND USE TAX. (a) In each tax year 

In which a city imposes an additional sales and 

use tax under Section 2A. Local Sales and Use 

Tax Act (Article 1066~. Vernon’s Texas Civil 

Statutes), the governing body may not adopt a tax 

rate that exceeds the tax rate calculated under 

Section 26.04 of this code and adjusted under this 

section by more than three percent. The governing 

body shall reduce a tax rata set by law or by vote 

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) The officer or employee designated to make 

the calculations provfded by Section 26.04 of this 

code for a city shall adjust the tax rata 

p. 3004 
Honorable Bob Bullock - Page 4 (JM-659) 

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 

an additional sales and use 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 amount by which the amount of additional 

tax to be imposed in the current year exceeds 

the amount of 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 add to 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 

amount by 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., 3rd C.S., ch. 10, 117, at 41. 

Statutes should be given a reasonable and sensible construction, 

State Highway Department 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 Company v. 

Walker, 83 S.W.2d 929 (Tax. 1935); McKinney v. City of Abilene. 250 

S.W.2d 924 (Tax. Civ. App. - Eastland 1952, writ ref'd n.r.e.). 

It is clear from a reading of House Bill No. 79, as a whole, that 

the legislature intended that the additional one-half percent sales 

p. 3005 
Bonorable Bob Bullock - Page 5 (JM-659) 

and use tax offset revenue normally generated by ad valorem taxes: an 

obvious corollary to this proposition is that, if a city imposes no ad 

valoram tax, the city may not 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. The Bill Analysis to Bouse Bill No. 79 includes 

the following language setting forth the purpose of article I of the 

bill, the article in vhich sections 12. 16, and 17 are 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 and effect of sections 16 and 17 are stated 

to be the following: 

Section 16: Adds a new Subsection (b) to Article 

1066c, Section 9, V.T.C.S., which provides that in 

cities which impose the additional sales and use 

tax, if the amount of 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 a new Section 26.041 which provides that a 

city which imposes the additional sales and use 

tax under Section 2A of this Act shall take the 

anticipated additional revenue derived from the 

additional tax into account when calculating its 

effective tax rate and shall reduce the effective 

rata accordingly. 

Bill Analysis to H.B. No. 79, prepared for Senate Finance Committee, 

filed in Bill File to B.B. No. 79, Legislative Reference Library. 

The bill and its legislative history require us to conclude that 

the legislature intended the additional tax be used to reduce local 

property taxes. It necessarily follows that any city that does not 

impose an ad valorem tax cannot then impose the additional sales and 

use tax. It makes no sense for the legislature to permit the 

imposition of one 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 may not impose an additional local sales and use tax 

authorized by House Bill No. 79, Because we answer your first 

question in the negative, we need not address your second question. 

p. 3006 
Honorable Bob Bullock - Page 6 (JM-639) 

With your third question, you ask, "May a city simultaneously 

adopt a local property tax and impose the l/2 percent additional sales 

tax7" We answer your third question in the negative. The reduction 

in the effective tax rata calculation required by sections 16 and 17 

of Eouse Bill No. 79 requires a reduction calculated on the basis of 

the ad valorem taxes imposed in the previous year; subsection (c) of 

section 26.04 of the Tax Coda specifically details the subtractions 

that must be made "from the total amount of property taxes imposed by 

the unit 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 Tax Code provides in pertinent part: 

The designated officer or employee shall calculate 

the tax rate that if applied to the total taxable 

value submitted to the governing body lass the 

taxable value of new property would impose the 

amount of property taxes determined as provided by 

Subsection (c) of this section. 

Subsection (c) provides the following: 

(c) An officer 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 to pay principal of and interest 

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 to be a part 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 market value in the preceding year 

is required by lav to be appraised at less than 

market value in the currant year; 

p. 3007 
Honorable Bob Bullock - Page 7 (JM-660) 

(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 a result of an error or errors; and 

(6) the amount of taxes imposed in the 

preceding year dedicated to the use of a junior 

college district under Section 20.48(s), Education Code. (Emphasis added). 

Tsx Code 126.04(c). 

The calculation procedure and ad valorem tax rate reduction 

requirements make sense only if the city has imposed an ad valorem tax 

at least in the year preceding the year in which the additional sales 

and use tax is imposed. Otherwise, there would be no way to calculate 

the affective tax rate; both sections 16 and 17 would be rendered 

meaningless, at least in the situation that you describe. Accordingly, 

we conclude that a city may not impose simultaneously an ad valorem 

tax for the first time and the additional sales and use tax authorized 

by Eouse Bill No. 79 of the 69th Legislature. 

SUMMARY 

A city that does not impose an ad valorem tax 

may not impose an additional one-half percent 

sales and use tax authorized by House Bill No. 79. 

A city that does not impose an ad valorem 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 

RICH GILPIN 

Chairman, Opinion Committee 

Prepared by Jim Moellinger 

Assistant Attorney General 

p. 3008