GENERAL HE .s~-JITORNEY

OF TEXAS

April 2, 1959

Honorable Truett Latimer O-oinion No. W-584 Chairman AgricultureCommittee House of Representatives Re: Constitutionalityof H.B. 174, 56th Leg., relating Austin,Texas to producers of peanutsacting jointlywith the Commissionerof Agrlculture In promoting the production and use of Dear Sir: peanuts,

In your recent letteryou have advisedus that the House AgricultureCommittee, 56th Legislature,has referredHouse Bill 174 to thls.office for an opinion regarding its constitutionality.

House Bill 174 authorizes the Commissionerof Agricultureto certify an associationrecommendedby the Southwestern Peanut Growers Associationto conduct a Statewide referendum among commercial%reducers of peanuts. An annual assessment of One Dollar ( 1) per net ton of peanuts marketed by suchproducers is to be levied against suchproducer8, if as many as two-thirds (2/X)of those voting in such referendum favor the levy.

The annual assessment Is to be continueduntil at least ten per cent (10%) of themembers of the association call for another referendum,and at such subsequentreferendum a certainpercentagevote to discontinue the assessment.

We note here that the bill is not @ear on the matter of ,whatcircumstancesare required In order to discontinue the assessments, the last sentence of Section 12 in the proposed legislationproviding as follows:
If such a partition 1 sic ‘i--z1 presented'& the saidboard, is then he oard shall conduct a subsequentreferendum in the samemanner as outlined above and future assessmentswill be made only two-thirds orHonorable Truett Latimer, page 2 (~~334)

more of the producers eligible to participate in such referendumand voting therein shall vote in the affirmative." (Emphasisours.)

We assume that the error is typographicaland will be correctedbefore final enactmentof the legislation.

House Bill 174 provides that the Commissionerof Agriculture shallupon request of the certifiedassociation following a vote in the referendum favoring the assessment notify all purchasers of the product that on and after a certain date the assessments shallbe deductedby the purchaser or his agent from the purchaseprice of suchproduct. The assessment SO deducted is to be remittedby the purchaser to the Commissioneron or before the 20th day of themonth following suchdeduction. The ComjaXssioner of Agricultureis to pay ninety-fiveper cent (95%)' of the assessments to the certifiedassociation or organizationby the end of themonth.

Inspectionof the purchaser'sbooks and records by the Commissioneris authorizedby the bill. On all sums so remitted to the Commissionerhe is entitled to deduct five per cent (5%) for administrationof the act. These amounts deductedby the Commissionerare to be paid into the State Treasuryand are by the act appropriated for the use of the CommissionerIn carrying out the provisions of the act.
With the exceptionof the fiveper cent (5s) noted above, thebill does not authorize the deposit of the asaessments in the State Treasury,but providesonly that they shall be receivedby the Commissionerof Agricultureand by him remitted to the certifiedassociation or organization.

Under the bill any producerwho is dissatisfied with the assessmentmay demand and receive from the treasurer of said assooiationa refund If the demand is made in writing within thirty (30) days from the date on which the assessment is collected from the producer.

The proposed statute indicates that the portjon of the assessments in excess of the fjve per cent (5%) to be deductedby the Commissioner is to be used for the purpose of financing or contributingtoward the financing ofHonorable Truett Latimer,page 3 (WWz584)

a program of research, educationand promotion designed to increase the production, consumptionand quality of Texas grown peanuts.

Does the exaction authorizedby House Bill 174 constitute a tax?

A tax is not a voluntar but an enforced contribution. 54 payment or donation, C.J.S. 32, Taxation,~ Sec. 1. Although the peanut producerwho is dissatisfied with an annual assessment is authorizedby House Bill 174 demand the return of his money, the fact remains that he has been made by law to part with it involuntarilyIn the first Instance. Under this billmoney may be taken, for a time at least,without the consent of as many as onethird (l/3)of the class subject to the exaction. The farmer is deprived of the use of his money, but no provision ismade to pay him interest. Further,he is put to the trouble ofhaving to make written demand for the return of his money, and no provision ismade as to when the money must be returned to him following demand. The fact that the farmer'smoney has been takenwithout his consent and diverted to other uses for a time is not ex-

. .. . _. to

plalnea away Dy saying tne conustlonmay only be temporary.

The revenue derived from the exation authorized by House Bill 174 does not enter the State Treasury. But the case of Friedmanv. American Surety Co. of New:=, 137 Tex. 149, 151 S.W.2d 570 (1941)indicates that circulation through the State Treasury is not a prerequisite of a tax. In that case ituasheld that the "contributions"required by the UnemploymentAct to be made by employers to provide compensation ?or certain employees during involuntary unemployment are taxes, and that the statute is a tax statute, even though the fund Intowhich such contributionsare made never becomes a "Statefund," that is, paid into the State Treasury,but only a fund in the custody or trust of the State Treasurer. In thewords of the Court:

I! The taxes are levied and collected ho; such fund, and not for the State in its sovereign capacity.

. . .'
Under House Bill 174money Is to be collected from a certainclass for a particular fund. It is notHonorable Truett Latimer,page 4 (W-584)

colleated for the general use of the State and does not come into the State Treasury. It comeswithin the custody of a State officer to be expended for the primary benefit of a certain class. In these respects the "assessments" provided for in House Bill 174 are like the "contributions" held to be a tax in the Friedman case, supra.

The question of whether a particular charge or burden .is

a tax depends on its real nature, and if in 1~s natureit is a tax, itmakes no difference that it be otherwise labeled in-the statute imposing suchburden. of Harris v. 84 C J S Shepperd, 156 Tex. 18, 291 S.W.2d 721

. . . 34
, Taxation, Sec. 1.

In Texas Jurisprudencea tax is described in the following t&ma::

"Broadly speaking, 'tax'embraces every levy made by the government (orany subdivision thereof) for public uses. But in a narrower sense, the term connotesa charge imposed in aid of revenue,
. . ." 40 Tex.Jvr. 11, Taxation, Sec. 2.
That the exaction of money authorizedby House Bill 174 from producers of peanuts is a levymade by the government for what are ostensiblypublic uses is selfevident. The exaction is plainly a charge imposed in aid of revenue, as is seen from the case of R. Rouw Co. v. Texas Citrus Commission, 151 Tex. 182, 237 S.W 2d 231 n9‘52), which is hereinafter considered in detail.

If the revenue derived from the charge is not for a public,,or

governmental'purposethen the Legislature has no authority to authorize'the levy, the bill thereby becoming unconstitutionalon that ground alone. Fourteenth Amendment,U.S. Con&.; Tex. Const. Art.VIII, Sec. 3. For presentpurposes onlywe assume that the exaction is for'a "publicpurpose"within themeaning of the foregoing constitutionalprovisions,

Under the instantbill producers of peanuts supposedly benefit from the money deducted from the sale of their crop,but the public In general is also benefited and, hence the benefits aremerged. Anypayment exacted at the instance of the State as a contributiontowardmaintainingHonorable Truett Latimer,page 

### 5 (~~-584)

governmental functions is a tax rather than an assessment, if the specialbenefits derivedby thosewho pay the charge are merged in general benefit. Dickson v. Jefferson Count Board of Education, 

### 311Ky. 

### 781,225 s.w.26

### b’/2* State ex rel Fargo v. Wetz, 40 N.D. 299, 

### 168N.W. 

### 835 (1918); 5 A.L.R. 

### 731;51 Am, Jur. 

### 38,Taxation, Set, 4.

True assessmentsare leviedwith reference to specialbenefitwhich the property is supposed to receive from the charge. City of Wichita Falls v. Williams, 119 Tex. 

### 163,26 S.W.2d 910 (1930)

. But if the exaction is levied upon all within the class in proportion to the value of the thing taxed, such charge is ordinarilyheld to be a tax and not-an assessment. Wharton CountyDrainage District No. 1 v. Holmes, 149 S.W. 

### 381 (Tex.Civ.App.1912, error ref.)

Here the levy is against all within the class, the producers of peanuts for commercialpurposes. The value derived by the various producers from research, education and promotion is practically incapable of estimation. The levy is not in proportion to the,benefits to be derived from the charge as in the aase of assessments.

A charge or a fee, if for the purpose of raising revenue, is a tax and levied under the taxingpower. Harris Countyv. Shepperd, supra. Themonies securedby the exaction made under House Bill are to be used for research, education and promotion Instead of regulation of the peanut industry. As is hereafter shownby the case of H. Rouw Co. v. Texas Citrus Commission, supra, an exaction for suchpurnose is regarded as a revenuemeasure. Being a revenue measure rather than a regulatorymeasure, it-is B tax.

Presenthere are the essential characteristicsof a tax. Moneymay be takenwithout the consent of the person paying the exaction. It is taken under the authority of legislativeact. It is taken for revenuepurposes. A State official receives and handles the revenue derived from the "assessment,"using his State office and powers in an integralphase of the collectionand disbursementof the revenue, This official is calledupon to certify the agency that will conduct the referendumand expend the funds collected from peanutproducers. He is empowered to inspect the books of thosewho collect the charge against producers. The funds collectedare to be spent for the purposes designated In the bill. Clearly, the State lends its authorityHonorable Truett Latimer,page 6 (WbJ-584)

and the aura of governmentalpower to the impositionof this burden and the expenditure of the revenue derived from the exaction.

What kind of tax is authorizedby House Bill 174?

In H. Rouw Co.v. Texas Citrus Commission, supra, the Texas Supreme Court held that a tax authorizedby the Texas Citrus Law (Art. 118d, V.T.C.9.) to be imposedbv the Texas Citrus Commission on persons, firms, associationsand corporations of not exceedingThree Cents (3#) per standardbox or bag on all aitrus fruit grown in the State and packed or placed In containers andmarketed or processed and sold during a certain timewas an occupation tax. The chargewas not designatedas an oocupation tax in the statute.

The Texas Citrus Law provided that the tax money was '

. . . to be used

. . . in eduaation and research for the purpose of increasingknowledgewith respect to Texas citrus fruits and by-products, and~protectingTexas citrus fruits from pests and diseases and of finding new uses for Texas.citrus fruits and by-products and of improving the quality and y&&l&of~ such fruit and by-products." The test laid downby the Court and its application to the facts of that easewere as follows:

Therehas been much written upon the dlffere&& between a license tax, and an occupation tax. This court, in very clear and compelling la&age, laid down the rule for determining the distinction in the case of Hurt v. Cooper, 130 Tex. 433, 110 S.W.2d 899, (1)as follows: 'Itis sometfmeedifficult to determinewhether a given atatute shouldbe classed a8 a regulatorymeasure 6r ‘a tax measure. The principle of distinction generally reoognized is thatwhen; from"a'donsideration of the statute as a.whole, the primary purpose of the fees~providedtherein~is~the'ralsing'ofrevenue, then aii&'feeKare In fadt ocduijation taxes, and ;;;zdregardless of the name by which they are deslg-

. On the otherhand, if its primary purpose appears to be that of regulation, then the fees levlddc~ are license fees and not taxes. Hoefling
v. Clt~ of San Antonio, 85 Tex. 228, 20 S.W. 85, 16 '&.L..Ri.'

608;. Brown v. City of Qalveston, 97 Tex. 1, 75 S.W.

488; Cit,;r-yof.

.Fort Worth v. Gulf Refining Co.,Honorable Truett Latimer, page '7 (~~-584)

125 Tex. 512,

## a3S.W.2d 610; Royal1v. Virginia, 116 U.S. 572, 577; 6 S.Ct. 510. 29 L. Rd. 735: Dayton-Goose Creek Ry. Co. v. United States, D. C., 287 F. 728; Te~xasco, v. Brown, D, c., 266 r. 577, 37 C.J.p. 169, & 6.' "Applyingthe above rule tc the Actunder considerationwe find the taz levied to oe an occupation tax, A reading of the Act clearly demonstrates that its primary purpose is to raise revenue, and not a regulation of the citrus fruit industry.underthe police power. Laudable as the purpose of the Actmay be; viz.: to advertise and enlarge the markets for Texas citrus fruit and its by-products, and for researchbeneficial to the citrus fruit Industry, the primarypurpose being the ralsing of revenues In excess of the amount needed for regulation of the industry to carry out the above provisions,under the well established rules of law, the tax leviedmust of necessity be classed as an occupation tax.

. . ."

From the Rouw case, au ra it is seen that House Bill 174 is an occupation tax ra her than a license tax -5 because it authorizes the levy of a tax on growers for the primary purpose of raising revenue to stimulate the sale of peanuts instead of regulating the industry.

There canbe no doubt that the tax provided by the bill is an occupation tax by reason of being a tax on the grower or aotivity of commerciallyproducing peanuts rather than a property or sales tax. Like the tax in the Rouw case, supra, it is levied on persons based on certain occupational activity ensaged in by them. The bill purports in its title to provide

. . ,., that producersmay levy upon themselves assessments

. . (Rnphasisours.) again in Sections 4, 7 and 21 This languageappears Nowhere in the bill Is it provided that the “assessmenthis on peanuts; that is, the property. Nowhere in the bill is the "assessment"called a sales tax.

The tax is not an ad valorem tax in that It Is not based on the value of the crop,but on the quantity sold.

The bill provides that the "assessment" shallbe levied on the commercialproducer and fixes the rate at One Dollar ($1)per net ton of farmer's stockpeanutsHonorable Truett Latimer, page 

### 8 (Ww-584)

marketed. The effect of the bill is to place a tax on the commercialproduction of peanuts,*thesale of the crop being a necessary incident to.duch commercialproduction. Louisiana State Department of Agriculturev. Sibille, 207 La. 

### 877, 22 So. 2d 202 (1945). Consequently, the levy of an occupation tax is authorizedby the bill.

Section,

### 3 of ArticleVIII of the Constitution of Texas provides in part as follows:

"Sec. 

### 3. One-fourth of the revenue derived from the State occupation taxes

. . . shallbe set apart annually for thebenefit of the public free schools;

. . ."

House Bill 

### 174 is, in our opinion, repugnant to Section 

### 3 of ArticleVII of the Texas Constitutionby reason of not setting apart annually one-fourth (+) of the revenue derived from the occupation tax for thebenefit of the public free schools of Texas. All of the revenue derived from this occupation tax, except five per cent 

### (5%) which goes to the Commissioner of Agriculture, is by House Bill 174 diverted to the certifiedassociation in violation of the Texas Constitution.

Section 1 of ArticleVIII of the Constitution ,or ’ Texas provides In part as follows:

”

. . . persons engaged in mechanical and agriculturalpursuits shall neverbe required to pay an occupation tax;

. . .'
The Constitution of the State of Louisiana similarly forbids the levying of license taxes on persons engaged in agriculturalpursuits. La. Const. Art. X, Sec. 

### 8. The Supreme Court of that State in Louisiana State Department of Agriculturev. Sibille, supra, struckdown the Louisiana statute imposing a tax on all sweet potatoes shipped in Louisiana in so far as the tax violated the aforesaid constitutionalprovisionby imposing a tax on the farmer shippingor carryinghis crop to market. The Court stated:

"In the case of State v. Hayes, 

### 143La.

39, 

### 78 So. 

### 143,144,which Involved a provision of the 1913 Constitution identicalwith that above quoted, it was stated:Honorable Truett Latimer,page 9 

### (WW-584)

'Ithas been dgcided~by'thiscourt that a farmerwho goes from place to place selling at retail the products of his farm is only pursuinghis farmingbusiness and is not a peddler or hawker. He is engaged in an agriculturalpursuit,which is,by the terms of article 229 of the Constitution, exempt from any license tax. 

### 86, 24 So. 

### 788.1 Roy v. Schuff, 

### 51 La. Ann.

"The cited case of Roy v. &huff concerned Article 

### 206of the Constitution

### of.1879which exempted all persons engaged in agricultural pursuits from the payment of a license tax. In refusing to compel defendant to pay a municipal license Imposed on peddlers the court said L51 La. Ann. 

### 86, 24 So.,

### 78$:

I* * * He was only carrying out the purpose he had In view in making the crop,--to sell it at retail or wholesale, as deemed most advantageous to him as a farmer. The sellingwas an incident of farming, it may be said. It was a part of his pursuit as a farmer, and he thereby in no way became a peddler or a merchant. 'The exemption covers both the farmer and the sale by the farmer of thatwhich his industry~produces.

. . .I"
The rationale of the above-citedLouisiana case is persuasive on the issue now before us.

It is the farmer that Is required to pay the tax although it is not due until he sellshis crop. How else than by sale does the farmer utilize his agriculturalpursuits? He cannot live on peanuts. The sale of the crop is a vital and necessary element of and incident to the occupation of farming. To hold that the producerof peanuts is not engaged in agriculturalpursuitswhen he harvests the fruits of his labors from the sale of his cropwould be wholly unrealistic.

Inasmuch as the charge authorizedby House Bill 174 is plainly an occupation tax and onewhich is to be levied on persons engaged in agriculturalpursuits; namely, the producer of peanuts at the timehe sellshis crop, the proposed legislationviolates Section 1 of ArticleVIII of the Texas Constitution..

Honorable Truett Latimer,page 10 

### (W-584)

In H. Rouw Co. v. Texas Citrus Commission, supra, it was held t,hat

Section 1 of ArticleVIII of the Texas Constitutionwas not contravenedby a statute requiring the vavment or ?.tax on citrus fruft by all whn q%c:lr or wlace in containersand market or process and :ell citrus fruits, the opirlion

of the Coui*L;

on reheariog I'~~cL~II~, in part, a0 follows:

"In Its motion for rehearing appellee, for

the first time, contends that even if the tax be held to be an occupation tax, it is valid within that part of Sec. 1 of Art.VIII of the State Constitution,which reads as follows: I* * * except that persons engaged in mechanical and agriculturalpursuits shall never be required to pay an occupation tax; * * *.I The present tax is not a tax leviedupon persons engaged in 'agriculturalpursuits'within the meaning of the above quoted phrase from the Constitution. As Is said in the amicus curiae brief supportingappellee's position 'thetax is levied upon the activity of packing or placing in containersand marketing or processing and selling citrus fruit grown in Texas.

. . .The tax is exacted of any person, engaged in any vocationwhatever,who performs these acts,whether he be commercialpacker, gift fruit shipper, canner of citrus or bottler of lemon juice,processor of frozen orange juices, marmalade manufacturer, or whatever."'

In contradistinctionto the Texas Citrus Law under consideration in the Rouw case, supra, the instant bill taxes only "personsengaged in theproduction of peanuts in the State of Texas". It does not tax all who engage in the activity of sellingpeanuts,but only the producer who sellshis own peanuts. The tax is not paid until the time of sale,but it is paid by the producer then and by no other person. It does not tax "anyperson engaged in any vocationwhatever who performs the acts", but only the farmer, and thereby, In our opinion, places an occupation tax on persons engaged in "agriculturalpursuits" within the purview of the constitutionalprovisionprohibiting such taxes.

We examine now the effectwhich the invalidity of the tax provided by House Bill 174will have on the remainder of the bill. Considerationwill be given by the: -

<.

Honorable Truett Latlmer,page 11 

### (~~-584)

courts to a legislativedeclaration to the effect that an adjudication of the invalidity of a portion of the act should not affect any other portion. 39 Tex.Jur, 24, Statutes,Sec. 9. House Bill 174 contains such a declaration in its "severabilityclause".

Nevertheless,when the invalid portions of an act are an integral and necessarypart of the act, so as to preclude a separation leaving a complete,workable and otherwise valid law capable of being executed in accordancewith legislative Intent the entire act must fall. and Fuel Co. v. State, 121 Tex. 

### 138,47 S.W. 2d 2 

### 5 1932); -=P Taylor v. Taylor Bedding Mfg. Co., 245 S.W. 2d 215 (Tex.Civ. APP. 1948 error ref g v. State, 267 S.W. 2d 423 (T~xr%%%~~. 1954); 39 &e:?&. 22, Statutes, Sec. 9. Without the portion of the act authorizing the levy of an "assessment"on producers of peanuts, themain purpose of House Bill 

### 174 is defeated, it being apparent that the design of thebill is to raise revenue to finance promotion of the sale of Texas peanuts. The provisions for "assessment" are so intimately connectedwith the remainder of the bill that they are inseparable. The portion of thebill left after taking away the invalidpart is plainly incomplete and unworkable. Here the invalidity of a part permeates the whole, andwe must adviseyou that the entirebill would follow the fate of the unconstitutionalprovisions authorizing the levy of a tax.

As the question of constitutionalityposed by your letter is resolved on the above grounds,we deem it unnecessary to consider others. Accordingly,we base our opinion solely on the grounds stated and do not pass on any constitutional issues other than those expressly considered herein.

SUMMARY

House Bill 174 is unconstitutional by reason of (1) authorizing the levying of an occupation tax without setting apart annually onefourth (t) of the revenue derived.. *

.

Honorable Truett Latimer,page 12 

### (ww-584)

from such tax for the benefit of the public free schools of Texas in violation of Section 

### 3 of Article VII of the Texas Constitution and (2)authorizing the levyingof an occupation tax on persons engaged in agriculturalpursuits, in violation of Section 1 of ArticleVII of the Texas Constitution.

Very truly yours,
WILL WILSON Attorney General of Texas

BY J49vybu Henry

.Braswell Assistant
HGB:mg

APPROVED:

OPINION COMMITTEE Geo. P.Blackburn, Chairman Riley Eugene Fletcher Charles D. Cabaniss William R. Hemphill Tom I. McFarling

REVIEWED FOR THE ATTORNEY GENERAL By: W. V. Geppert