JOHN L. HILL 

Attorney General 

The Attorney General of Texas 

December 27, 1978 I---‘.’ -..I ..-,,. ._-. 

-.-. -.-_ _-__ 

Honorable Jackie L. Vaughan 

Executive Director 

Texas Amusement Machine Commission 

‘7600 Chevy Chase Drive, Suite 402 

Austin, Texas 78711 

Dear Mr. Vaughan: 

Re: Application of Amusement 

Machine Tax in licensing requirements to machines located on 

certain military installations. 

You have sought an opinion on the authority of the Texas Amusement 

Machine Commission to regulate and tax the machines on the four federal 

bases over which Texas and the federal government have concurrent 

jurisdiction. You state that the machines are either leased or owned by the 

nonappropriated fund instrumentalities, the Army and Air Force Exchange 

Service. 

Coin-operated machines are regulated under chapter 13 of Title 122A, 

Taxation-General, V.T.C.S. Article 13.02 provides: 

(1) Every ‘owner’ . . . who owns, controls, possesses, 

exhibits, displays, or who permits to be exhibited or 

displayed in this State any ‘coin-operated machine’ 

shall pay, and there is hereby levied on each ‘coinoperated machine’, as defined herein in Article 13.01, 

except as are exempt herein, an annual occupation tax 

of $15.00. 

(2) Provided that the first money taken from each 

coin-operated machine each calendar year shall be 

paid to the owner to reimburse the payment of that 

year’s annual occupation tax levied above and those 

levied by any city or county. No owner shall agree or 

contract or offer to agree to contract to waive this 

reimbursement either directly or indirectly. No owner 

shall agree or contract with a bailee or lessee of a 

coin-operated machine to compensate said bailee or 

lessee in excess of fifty percent (50%) of the gross 

receipts of such machine after the above reimbursement has been made. . . . 

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Honorable Jackie L. Vaughan - Page 2 (H-1307) 

There are provisions for record keeping, licensing, and registration. Tax.-Gen. 

arts. 13.10, 13.17. 

It is the view of the Department of Justice that these federal instrumentalities are constitutionally immune from state taxation and regulation. 

The United States Supreme Court has determined that a state sales tax on 

liquor bought with nonappropriated funds by a post exchange located on a 

concurrent jurisdiction base was unconstitutional. U.S. v. Tax Comm’n of 

Mississippi, 421 U.S. 599 (1975). On this authority it is our opinion that the 

provisions of chapter 13 are unenforceable against post exchanges which own coinoperated machines. See McCulloch v. Maryland, 4 Wheat. 316 (1819); Johnson v. 

Maryland, 254 U.S. 51-20); 32 C.F.R. S 554.6 (1977). 

We turn now to the applicability of chapter 13 to persons who lease machines 

to post exchanges. Generally, the states have authority to tax and otherwise 

regulate the conduct of contractors who do business with the federal government. 

Paul v. U.S., 371 U.S. 245 (1963); Penn Dairies Inc. v. Milk Control Comm’n, 318 U.S. 

-James v. Dravo Contracting Co.,vee Leslie 

Miller, Inc. v. Arkansas. 352 U.S. 187 (1956). However, state law must yield to the 

extent It confl icts with’federal law. .U.S.~ Const. art..6, cl. 2; Paul v. U.S., m; 

Leslie Miller, Inc. v. Arkansas, m; 32 C.F.R. S 554.6 (1977). 

Federal regulations provide: 

Procurement. 

(b) Exchange procurement will be conducted on the basis 

of full and free competition to the maximum extent 

practicable, and consistent with the immunity of exchanges 

from State regulations and control. Award will be made to 

that responsive and responsible contractor whose offer is 

most advantageous to the exchange, price and other factors 

considered. 

32 C.F.R. S 554.9(b) (1977). In that Texas law restricts the lessee to a maximum of 

50% of the gross receipts and designates the first $15.00 as reimbursement it 

conflicts with section 554.9(b) and is unenforceable. See Standard Oil Co. I t. 

- 

Johnson, 316 U.S. 481(1942). 

Attorney General Opinion H-110 (1973) in which it was said that your 

commission’s jurisdiction is complete with respect to nonappropriated fund 

activities on property not ceded to the United States is overruled to the extent it is 

inconsistent. 

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Hono<able Jackie L. Vaughan - Page 3 (H-1307 ) 

SUMMARY 

Federal post exchanges are wholly immune from chapter 13, 

Tax on Coin-operated Machines, Title 122A, TaxationGeneral. 

Very truly yours, 

8 

FW JOHN L. ;IILL 

Attorney General of Texas 

APPROVED: 

k& 

DAVID M. KENDALL, First Assistant 

m 

C. ROBERT HEATH, Chairman’ 

Opinion Committee 

jsn 

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