JIM MATTOX 

Attorney General 

Supreme Court Building 

P. 0. Box 12549 

Austin. TX. 7971% 2549 

512/47~~2501 

Telex 9101874-1397 

Telecopier 512/475.0266 . 

714 Jackson, Suite 700 

Dallas, TX. 75202-450s 

214/742-9944 

4924 Alberta Ave., Suite 160 

El Paso, TX. 79905.2793 

91515334464 

r 

Texas, Suite 700 

Houston, TX. 77002~3111 

7131223-5888 

606 Broadway, Suite 312 

Lubbock, TX. 79401-3479 

8061747-5238 

4302 N. Tenth, Suite B 

McAllen. TX. 79501-1685 

5121692-4547 

200 Main Plaza, Suite 400 

San Antonio. TX. 782052797 

512/225.4191 

An Equal OppOrtUnitYl 

Affirmative Action Employer 

The Attorney General 

August 19, 1986 

Honorable Bob Bul1oc.k 

Comptroller of Public 

L.B.J. Building 

Austin. Texas 78774 

Dear Mr. Bullock: 

Accounts 

You inform us that you have received numerous inquiries from city 

and county officials regarding whether interest should be paid on 

of Texas 

Opinion No. JM-539 

Re: Whether interest should be 

paid on taxes collected by the 

Comptroller on behalf of local 

jurisdictions 

taxes collected by your office OII behalf of local taxing units. YOU 

note that heretofom no interest has been paid to local taxing units 

on these funds between the date on which your office collects the 

taxes and the datf: on which such funds are disbursed to the local 

taxing units. Accordingly you ask us four questions: 

1. Must interest earned on all taxes collected on 

behalf of' local jurisdictions be remitted to the 

jurisdictions for which the taxes were collected? 

2. If the answer to question (1) is "yesrn should 

the Statf: Treasurer calculate the interest based 

upon the rate earned by the State Treasury while 

they [sic] held the funds? 

3. If interest is payable on such amounts, should 

interest earned in previous periods be remitted to 

the local jurisdictions? 

4. If the answer to question (3) is “yes,” how 

far back must interest calculations be made and 

interest remitted? 

We do not understmd you to ask whether the state is entitled to 

interest on taxes collected by local taxing units on behalf of the 

state and deposited in their accounts prior to their remittance to the 

state. See, m, Tax Code, 55152.001 et seq. 

The Local Sales and Use Tax Act, V.T.C.S.. article 1066c, permits 

a city, by a major:ity vote of the qualified voters of the city voting 

p. 2480 
Honorable Bob Bullock - Page! 2 (X3-539) 

at an election held for thm.t purpose, to adopt a local sales and use 

tax. Section 5(a) of the act provides in pertinent part that 

I, 

. . . the comptroller sha:.3. perform all functions incident to the 

administration, collection, enforcement, and operation of the 

tax. . . .” Section 7.A of the act provides the following: 

Any local sales and use tax collected by the 

Comptroller under this Act on behalf of any city 

shall be depositlzd with the State Treasurer & 

trust and shall be kept in a separate suspense 

account for each mch city. (Emphasis added). 

Section 8(a) of the act setli forth the following in pertinent part: 

‘Each city’s share of all local sales and use tax 

collected under ti:Ls Act by the Comptroller shall 

be transmitted to the Treasurer or the officer 

performing the fractions of such office of such 

city by the Conptroller payable to the city 

periodically as smromptly as feasible. Transmittals required unlier this Act shall be made at 

least twice in eac:h state fiscal year. The funds 

so transmitted m&y be used by the city for any 

purpose for “hid. the general funds of the city 

may be used. Befo.ce transmitting such funds, the 

Comptroller shall deduct two percent (2%) of the 

sum collected from each such city during such 

period as a charge by the State of Texas for its 

services specified in this Act, and the amounts so 

deducted, subject ‘to the provisions of Section 7B 

of this Act, shal:. be deposited by the Comptroller 

in the State Trealrury to the credit of the General 

Revenue Fund of the State. 

Section 9 of this act provides that “[mloney collected under this 

[a]ct is for the use and b’znefit of the cities of the state; but no 

city may pledge anticipate’3 revenue from this’ source to secure the 

payment of bonds or oth#!r: indebtedness.” The act contains no 

provision specifically detailing the proper disposition of interest 

accruing to the accounts of the cities imposing the tax. 

The comptroller also has responsibility under V.T.C.S. articles 

1118x and 1118~. which aut’vlrlze the creation of metropolitan rapid 

transit authorities and regional transportation authorities, 

respectively. Each act pe:mlits authorities created pursuant to the 

act to levy local sales and use taxes. Such taxes are to be 

administered and collected by the comptroller. V.T.C.S. arts. 1118x. 

§llB; 1118y, §16. Under both acts, the provisions of the Limited 

Sales, Excise and Use Tax, V.T.C.S. art. 1066c, are applicable to the 

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P. 2481 
Honorable Bob Bullock - PaSe 3 (JM-539) 

,- 

collection of the tax. V.T.C.S. arts. 1118x, §llB(c)(3); 1118y, 

516(f) (2) Cc). It is the interest generated by the deposit of these 

taxes with which you are ccncerned. 

Article VIII, section 7, of the Texas Constitution provides the 

follo"ing: 

The Legislature shall not have power to borrow, or 

in any manner divert from its purpose, any special 

fund that may, cr ought to, come into the Treasury; and shall make it penal for any person or 

persons to borrow, withhold or in any manner to 

divert from its purpose.any special fund, or any 

part thereof. 

Article VIII, section 7, has been construed to require that 

interest on constitutionally dedicated funds may be spent only for the 

purposes for which the fund was created; a diversion of such interest 

to other purposes would v::olate the constitution. Lawson v. Baker, 

220 S.W. 260, 272 (Tex. Civ. App. - Austin 1920, writ ref'd). 

Consequently, interest earned on a constitutional fund must be 

credited to that fund, unless the constitution itself otherwise 

directs. Attorney General Opinions JM-323, JM-321 (1985); M-468 

(1969). Then interest on E,tate funds dedicated by statute, however, 

may be legally severed ar.d placed in the general fund. See Gulf 

-- 

Insurance Co. v. James, 185 S.W.Zd 966 (Tex. 1945) (article VIII, 

section 7, of the Texas Constitution applies only to special funds 

created by the constitution, not by statute); Attorney General 

Opinions JM-323, JM-321 (17135); MW-338 (1981); see also Brazos River 

Conservation & Reclamation-District v. M&raw, 91 S.W.2d 665 (Tex. 

1936) (article VIII, section 7, does not apply to general revenue 

funds). Article 2543d (since repealed and m-codified es section 

3.042(a) of V.T.C.S., article 4393-l) effects such a severance of 

interest on statutory funds as a general rule. 

Section 3.042(a) of ;.rticle 4393-1, V.T.C.S., the article that 

sets forth the powers and duties of the state treasurer, provides the 

following: 

Interest receivei. fro" time deposits of money in 

funds and accouni:s in the charge of the treasurer 

shall be allocated es follows: to each constitutional fund there shall be credited the pro rata 

portion of the interest received due the fund; the 

remainder of th; interest received, with the 

exceotion of tha.t vortion required by other 

statutes to be credited on a pro rata basis to 

protested tax payments. shall be credited to the 

General Revenue Fund. The interest received shall 

-- 

p. 2482 
, 

Honorable Bob Bullock - Page 4 (.Jki-539) 

be allocated on a monthly basis. (Emphasis 

added). 

The funds about which you inquire are not constitutionally dedicated 

funds; rather, they are statutory funds. Consequently, pursuant to 

section 3.042(a), the in,:erest on such funds would normally be 

credited to the General Rerenue Fund. However, the rule with regard 

to the disposition of interest earned by the deposit of trust funds is 

different. 

This office previously 'has determined that the provisions of whet 

is now section 3.042(a). V.T.C.S., art. 4393-1. do not apply to 

interest earned on trust funds that are not the property of the state 

and that the state treasurer holds as trustee out of the state 

treasury. Opinions issued by this office consistently have maintained 

that interest on such trusj: funds becomes part of the principal end, 

consequently, part of the fund that generated the interest. See 

Attorney General Opinions JM-306, .Jk-300 (1985); MW-82 (1979); H-1040 

(1977); M-468 (1969). Cf. Attorney General Opinions MW-338 (1981); 

H-1187 (1978). The issur'then, is whether the funds about which you 

inquire are trust funds, as opposed to statutory funds. We conclude 

that they are trust funds. 

The opinions cited above ,indicate that in order to be 

characterized as trust fur&s, the funds in question should reflect, 

among other things, (1) that they are administered by a trustee or 

trustees, (2) that the funds neither are granted to the state in its 

sovereign capacity nor collected for the general operation of state 

government, and (3) that :they are to be spent and invested for 

specific, limited purposes and for the benefit of a specific group of 

individuals. Being in the nature of a trust, such funds are entitled 

to retain the proceeds :irom their investment. Attorney General 

Opinions MW-481 (1982); M-468 (1969). It is clear from a reading of 

V.T.C.S., articles 1066~. 1118x. and 1118~ that the funds about which 

you inquire are trust fund:; and are entitled to be credited with the 

accrued interest earned bI' their deposit. Under each statute, the 

comptroller acts as trustee on behalf of the various taxing units 

imposing the taxes. The taxes are not granted to the state nor 

collected for the general operation of the state. Each statute 

specifies the purposes for which such taxes may be spent, with each 

taxing unit receiving the amount of taxes that each imposes. 

Your remaining questions concern the proper method of crediting 

the various funds for interest earned in previous years. We decline 

to give advice as to the specific accounting methods or time intervals 

to be used in calculatirg past interest. The answers to these 

questions depends upon ini'ormation not provided by your request -- 

s, the terms, duration, and types of deposits, applicable rates of 

interest. etc. We can sta,te as a general matter, however, that the 

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P. 2483 
Honorable Bob Bullock - Page 5 (JM-539) 

funds have exhibited the aforementioned trust fund characteristics 

since their creation. Con:iequently, the funds are entitled to credit 

for depository interest from the various dates of their inception. 

Before the funds may be credited with this interest, however, certain 

limitations on the use of treasury funds must be considered. 

You first asked whett:er interest earned by the state on taxes 

collected on behalf of local taxing units must be "remitted" to the 

taxing units for which thmz taxes were collected. The word "remit" 

means "to transmit or send, especially to a distance, as money in 

payment of a demand, account, draft, etc." Nicoletti v. Bank of Los 

Banos, 214 P. 51, 52 (Cal, 1923), 27 A.L.R. 1479 (1923); Katcher v. 

American Express Cc., 109 ,4. 741, 742 (1920); First National Bank v. 

People's Bank, 140 S.E. 705 (N.C. 1927); Hollowell V. Life Insurance 

Company of Virginia, 35 S.E. 616, 617 (N.C. 1900). We understand your 

first question, then, to 'mmprise two parts: first, whether local 

jurisdictions are entitled to interest earned by the state on taxes 

collected on behalf of local jurisdictions; and, second, if the answer 

is "yes ," whether the stats treasurer must then disburse or transmit 

such funds to the respecttire taxing units. We answer the first part 

of the first question in the affirmative; the second part, in the 

negative. 

Article VIII, sectior. 6, of the Texas Constitution prohibits 

withdrawal of funds from the state treasury in the absence of 

legislative appropriation. The Texas Supreme Court has held that 

funds erroneously deposited in the treasury are nevertheless subject 

to this constitutional lirlitation and may not be removed from the 

treasury without legislative action. Manion v. Lockhart. 114 S.W.2d 

216, 219 (Tex. 1938). Accordingly, the legislature must make a 

specific appropriation befm,re any interest erroneously deposited in 

the general revenue fund may be remitted to the cities or authorities. 

We note that the disuetion that the legislature may exercise in 

this area is broad. For ertample, rather than remit such interest to 

the taxing unit, the legis:lature, if it so chose, could require by 

statute that' all such interest be retained in the General Revenue 

fund, transfered to another fund, or directed to be expended for some 

other purpose. In Gulf 1n;urance Co. v. James, 185 S.W.2d 966 (Tex. 

1945). the Texas Supreme ?ourt upheld the constitutionality of a 

statute which served to transfer from ststutory "special funds" to the 

General Revenue Fund portions deemed surplus created from taxes paid 

into the Motor Vehicle Division Fund and the Fire Insurance Division 

Fund. The Court declared: 

We agree with the holding of the Court of Civil 

Appeals' that ths: Legislature has the right to 

transfer the a&e on hand in these special 

funds to the Gengral Revenue Fund. In so doing 

p. 2484 
, 

Honorable Bob Bullock - Page: 6 

the Legislature dms not violate the provisions of 

Article VIII, section 7, of the Texas 

Constituticn. . . . The state could have required 

the funds ccllectzd for the purposes indicated to 

be paid directly to the General Revenue Fund in 

the first instance. . . . If it had done so, then 

certainly the exxss, if any, would have been 

available for uce for general purposes. The 

propriety and fairness of an enactment authoristhe use of the unexpended balances in these funds 

for general purp,%es present legislative rather 

than judicial corgideraticns. Consequently, the 

state now has the :cight, if the Legislature deems 

it wise to pass suitable laws authorizing it, to 

use the balance!; of these special funds for 

general purposes. (Emphasis added). 

185 S.W.2d 966, 971. 

Indeed, even in the case of a statutory trust fund, the Texas 

Supreme Court has ruled tha:, so long as no vested right is impaired, 

an amendment that serves t,c alter or reduce a benefit heretofore 

granted by statute is permissible. In the leading case of City of 

Dallas v. Tramnell, 101 S.W.2d 1009 (Tex. 1937), the Texas Supreme 

Court specifically upheld the constitutionality of a statute, the 

effect of which was to reduce the.pension benefits of a pensioner. 

The court stated (and restated and restated again) the issue thus: 

As we view 1:he matter, the true question 

involved is this: Does the employee, after 

retirement, have a vested right to participate in 

the pension fund to the extent of the full amount 

of retirement; that is; does he have a vested 

right in future installments which cannot be 

affected by subsequent legislation tending to 

diminish the amcuut of such installments? Putting 

the matter in somewhat different language, we may 

properly inquire if the right which the employee 

has to participate in the pension fund, acquired 

by virtue of his contract, imposes upon the city 

and the Legislature of the state (the source of 

the city's power and authority in a matter of this 

kind) the inviolal~le duty of maintaining a pension 

fund of such prcportions as will guarantee the 

right to defendant in error and others having 

equal rights with him to participate to the full 

extent of the monthly amounts previously awarded 

to them at the time the right to participate 

accrued? In other words, is the Legislature 
Honorable Bob Bullock - Page 7 (.D+539) 

without constitul:icnal power to repeal the laws 

upon which the pension system of the City of 

Dallas is based, or to modify their provisions in 

such way as to tiiminish the pensions payable to 

those who have become qualified to receive them so 

long as any one who has been granted a pension 

shall live? 

101 S.W.2d 1009, 1011. 

The court concluded that 

the right of a pensioner to receive monthly 

payments from the pension fund after retirement 

from service, or aEter his right to participate in 

the fund has accrued, is predicated upon the 

anticipated continuance of existing laws, and is 

subordinate to the right of the Legislature to 

abolish the per.sicn system, or diminish the 

accrued benefits of pensioners thereunder, is 

undoubtedly the scund rule to be adopted. 

The Court then declared th,lt a right, to be within the protection of 

the constitution, must be a .vested right or something more than a mere 

expectancy based upon an anticipated continuance of an existing law; 

in this instance, the pensioners' rights were mere "expectancies." 

101 S.W.2d 1009, 1014-16. See also Woods v. Reillv. 218 S.W.Zd 437 

--- 

(Tex. 1949); Board of Manaf;ers of the Harris County Hospital District 

v. Pension Board of the Pension System for the City of Houston, 449 

S.W.2d 33 (Tex. 1970); De& v. City of San Antonio, 443 S.W.2d 590 

--- 

(Tex. Civ. APP. - Waco 15,69, wr it ref'd): Attcrnev General Letter 

Advisory No. 5. (1973). 

, 

SUMMARY 

Interest earnai on all taxes collected on 

behalf of local Iaxing units must be credited to 

those taxing ur,its. Any interest previously 

deposited in the general revenue fund of the state 

treasury must receive specific legislative appropriation before riuch interest can be remitted to 

the various taxing units. 

JIM MATTOX 

Attorney General of Texas 

p. 2486 
Honorable Bob Bullock - Page 8 (al-539) 

JACK HIGHTOWER 

First Assistant Attorney General 

MARY KELLER 

Executive Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Jim Mcellinger 

Assistant Attorney General 

p. 2487