### THE ATTORNEY GENERAL OF TEXAS

October 5, 1988

Honorable Stan Schlueter Opinion No.JM- 963 Chairman Nays andMeans Committee Re:Whether aproposed delivery Texas House of feeonpetroleum products, used Representatives to create a state clean-up fund P. 0. Box 2910 to comply with federal stanAustin, Texas 78769 dards, would be subject to the provisions of article VIII, section 7-a, of the Texas Constitution (RQ-1449)

Dear Representative Schlueter:
Subchapter IXof title 42 of the United States Code governs the regulation of underground storage tanks containing "regulated substances" asdefined inthe code, principally petroleum and other substances defined as '*hazardous.1'See 42U.S.C. §§ 6991-6991i. The subchapter authorizes the administrator ofthe Environmental Protection Agency topromulgate rules regarding, inter alia, "release detection and release prevention" of such substances arising from the operation of such tanks, aswell as corrective action to be taken by owners oroperators. It further confers on the administrator authority to approve state programs that are intended to comply with the federal statutes and rules. isto be enforced when the state program isapproved, it in lieu of the federal program, with primary enforcement responsibility falling upon the state. See 42U.S.C. 56991c.l

1. Inorder to comply with the federal provisions, Texas has enacted laws governing underground storage tanks, set forth insubchapter Iof chapter 26of theWater Code. Section 26.346 of theWater Code provides that, except as specifically provided, allunderground storage tanksmust be registered with the Texas Water Commission. Pursuant to rule-making authority conferred by that section, the (Footnote Continued)

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Pursuant to subsections 9003(c) and (d)of theResource Conservation andRecovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984 and the Superfund Amendments andReauthorization Act of 1986 (codified at 42 U.S.C. §§ 6991b (c), (a)),2the Environmental Protection Agency has published proposed rules that impose financial responsibility standards upon the owners and operators of underground storage tanks containing petroleum. See 52 Fed. Reg. 12,786 and 48,638 (tobe codified at 40C.F.R. 5 280). The rules establish requirements tobe met by owners or operators of underground storage tanks for demonstrating

(Footnote Continued) commission has imposed aregistration fee of $25 for every underground storage tank. Section 26.352 of the code confers authority on the commission to adopt requirements regarding financial responsibility arising from the operation of such tanks:

The commission shall adopt requirements for maintaining evidence of financial responsibility for taking corrective action and compensating third parties for bodily injury andproperty damage caused by sudden and nonsudden accidental releases arising from operating anunderground storage tank.

Section 26.352 was included in Senate Bill No. 779 when subchapter Iwas added by amendment in 1987. Acts 1987, 70th., ch. 277, § 1 [hereinafter Senate Bill No. 7791. The commission has notyet adopted any rules regarding financial responsibility.

2. Subsection (d)(l)of section 6991b provides:

Financial responsibility required by this. subsection may be established in accordance with regulations promulgated by the Administrator by any one, orany combination, of the following: insurance, guarantee, surety bond, letter of credit, qualification
as a self-insurer or any other method satisfactory to the Administrator. In promulgating requirements under this subsection, the Administrator is authorized (Footnote Continued)

P. 4896P Honorable Stan Schlueter -Page 3 (JM-963)

their financial responsibility, and giving proof of their ability to take corrective action and to compensate third parties forbodily injury andproperty damage caused byboth sudden and gradual accidental releases arising from the operation of such tanks. Theproposed rule requires coverage inthe amount of onemillion dollars per occurrence. You claim that owners and operators of these underground storage tanks, for themost part, areunable to secure insurance coverages inthis amount forpollution clean-up. You indicate inyour request letter that petroleum marketers inTexas arepromoting legislation that would create, in effect, a clean-up fund that is intended to satisfy the financial responsibility standards set forth inthe federal rules.3

The statute that you propose would provide that funds for the pro ram Commission.% would be administered by the Texas Water

The funds would derive from a proposed "delivery fee" of sixtenths ofacent ($0.006)per gallon
on "regulated substances,l' as defined in the federal provisions, when they aredrawn from the refinery grecess andpass into themarketing or distribution system. The

(Footnote Continued)

to specify policy or other contractual terms, conditions, ordefenses which are necessary or are unacceptable in establishing such evidence or financial responsibility inorder to effectuate thepurposes of this chapter.

3. We note that section 6991c of title 42permits~the administrator of the Environmental Protection Agency to approve a state program only ifthe requirements of that program are no less stringent than the corresponding requirements under the federal program. See Water Code, g 26.357.

4. Youhave not asked us to construe any specific proposed statute: rather, you ask ingeneral about a statute thatwould create a dedicated clean-up fund. Accordingly,
we donot place our imprimatur upon any specific proposed statute orany specific proposed language.

5. We note that the fact that the charge is measured by the amount of "regulated substances," including petroleum, does not mean that the charge is a tax on (Footnote Continued)

P. 4897Honorable Stan Schlueter -Page 4 (JM-963)

proposed fee would be treated by the marketers and distributors as a "Cost of product," similar to transportation charge, thatwould not be recovered as a taZ
on consumer use. The revenues thus generated would be dedicated to establishing a back-up fund for pollution clean-up costs over and above the $10,000 of **liability** coverage tobe assumed by the owner/operator foreach site. Youdo not ask whether then proposed legislation would satisfy the proposed federal rule: rather, YOU ask two questions regarding Texas lawand theproposed statute:

1. Would the fee, as described above, fallwithin the purview ofTexas Constitution Article 8, Sec. 7-a, and require use of the funds in highway construction after the one-fourth allocation to theAvailable School Fund?

**2.** If the answer to No. 1 is *'No," then is the Legislature authorized to make a statutory dedication of the feesto the Texas Water Commission for regulation of the clean-up fund?

We answer your first question in the negative: such fundswould not fallwithin the ambit of article VIII, section 7-a, of the Texas Constitution. We answer your second question in the affirmative; the legislature is empowered to dedicate by statute the fundsderived from such
a fee asyou propose forthepurpose of securing pollution clean-up.

You first askwhether theproposed fee fallswithin the ambit of article VIII, section 7-a, of the Texas Constitution, which provides:

Subject to legislative appropriation, allocation and direction, all net revenues remaining after payment of all refunds allowed by law and expenses of collection derived frommotor vehicle registration fees, and all taxes, eXCeDt cross production and ad

**(Footnote** Continued) petroleum. Because we conclude that the charge isnot atax inthe first instance, we need notdetermine the incident upon which the charge is imposed.

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valorem taxes, onmotor fuels and lubricants used to nrDel motor vehicles DUbliC roadwavs. shOal1**be** used forthe szy: nurnose of accuirinu riahts-of-wav, constructina, * . gaintai ' such U ic roadwavs. and for the administration of such laws asmav benrescribed bv the Lecislature pertainina to the sunervision of traffic and safetv on such roads; and forthepayment of the principal and interest on county and road district bonds orwarrants voted or issued prior to January 2, 1939, and declared eligible prior to January 2, 1945, for payment out of the County andRoad District Highway Fund under existing law: provided, however, that one-fourth (l/4) of such net
revenue from the motor fuel tax shall be allocated to theAvailable School Fund: and, provided, however, that the net revenue derived from counties from motor vehicle registration fees shall never be less than themaximum amounts allowed tobe retained by each County and thepercentage allowed to be retained by each County under the **laws** in effect onJanuary 1, 1945. Nothing contained herein shallbe construed as authorizing the pledging of the State's credit for any purpose. (Emphasisadded.)

Tex. Const. art.VIII, §7-a;see Tax Code, ch. 153.

The issue iswhether the proposed "delivery fee" is a *'tax*' for purposes of article VIII, section 7-a, of the Texas Constitution. If it is, then the funds derived therefrom may be expended only pursuant to that section of the constitution.

Courts inTexas uniformly have held that, in determiningwhether a statutorily created charge is atax or a license fee, the test isthat of purpose. If the overall primary purpose of the charge isto raise revenues, then it isatax; if itsprimary purpose isregulation, then it isa license fee. Robinson v. Hill, **507** S.W.2d 521 (Tex. 1974); Countv ofHarris v. Shennard, 291 S.W.2d 721 (Tex. 1956); Hurt v. Cooner, 110S.W.2d 896 (Tex. 1937), after certified cuestions, 113 S.W.2d 929 (Tex.Civ.App. -Dallas 1938, no

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writ); Citv of Fort Worth v. Gulf Refinina Co., 83 S.W.2d 610 (Tex.1935).6 The Texas Supreme Court has declared:

It is sometimes difficult to determine whether agiven statute should be classed as a regulatory measure or asa tax measure. The principle of distinction generally recognized isthatwhen, froma consideration of the statute as a whole, the primary purpose of the fees provided therein is the raising of revenue, then such **fees** are in fact occupation taxes, and this regardless of the name by which they are designated. On the other hand, if its primary purpose appears tobe that of regulation, then the fees levied are license fees and not taxes.

Hurt v. Coovey, suvra, at 899.

It is suggested that, under the authority of Conlen Grain andMercantile. Inc.v. Texas Grain Sorahum Producers Board, 519 S.W.2d 620 (Tex.1975) [hereinafter Conlen], the charge that you propose should be denominated an occupation tax rather then a license fee. We disagree. InConlen, the Texas Supreme Court held unconstitutional acharge imposed upon grain sorghum producers: the court held that the charge
was an occupation tax onanagricultural pursuit, atax that article VIII, section 1,of the Texas Constitution explicitly forbids.

The statute inConlen authorized anonprofit organization representing theproducers of aparticular agricultural

6. We note that, because the test ispurpose and not effect, a charge may have the effect of raising revenue and notbe a tax., Beckendorff v. Harris-Galveston Coastal Subsidence District, 558 S.W.2d 75 (Tex.Civ.App. -Houston [14thDist.] 1977), aff'd per curiam, 563 S.W.2d 239 (Tex. 1987); Citv of FortWorth v. Gulf Refinina co., m. Indeed, a license fee imoosed on the orivilese of ooeratina
a certain type of business may be imposed fo; both regulation and revenue purposes; ifthe purpose of the act, taken asa whole, is primarily regulatory, the charge is denominated a license fee. House of Tobacco. Inc. v. Calvert, 394 S.W.Zd 654 (Tex.1965): Pavne v.Massey, 196 S.W.2d 493 (Tex.1946). ---.

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commodity topetition the Commissioner ofAgriculture for authority to conduct areferendum, statewide basis, to'determine on either aregional or a whether the producers of the commodity would "levy an assessment upon themselves to finance programs authorized by thisAct." 519 S.W.Zd 620, at 621. Ifthe referendum passed, then anelection was held to determine the **members** ofa commodity producers board. The board was charged with formulating and administering programs for thepurposes stated inthe act. The board was permitted to expend themoney collected as an assessment for thepurposes of

developing, carrying out, and participating inprograms of research, disease and insect control, predator control, education, and promotion, designed ~' to encourage the production, marketing, and use of the commodity upon which the assessment is levied.

P 519 S.W.2d 620, at 621-622. Inrejecting the claim of the

board that the charge imposed was not atax, the court stated, inter alia, that: "Italso appears that the primary purpose of the assessment isto raise revenue."

The court in Conlen relied in part upon its prior decision ofH.Rouwv. Texas Citrus Commission, 247 S.W.2d 231 (Tex. 1952) [hereinafter -1, which involved a similar to the one inConlen. charge The charge, however, in Rouw
was nonrefundable and was imposed on those who packed and marketed orprocessed and sold citrus fruit grown in the state. The court inRouw concluded that the purpose of ~the charge was not regulatory, but rather it simply was to promote the citrus industry:

Applying the above rule to theAct under consideration we findthe tax levied tobe an occupation tax. A readina of theAct clearlv demonstrates that its nrimarv ournose is to raise revenue, and not a reaulation of the citrus fruit industrv under thevolice vower. Laudable as thepurpose of theActmay be: viz. toadvertise and enlarge themarkets for Texas citrus fruit and itsby-products, and for research beneficial to the citrus industry, the primary purpose being the raising of revenues in excess of the amount needed for regulation of the industry to carry out the above provisions, under the

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well-established rule of law, the taxmust of necessity be classed asa occupation tax. (Emphasis added.)

519 S.W.2d 620, at 624.

Both Conlen and Rouw are consistent with Texas court decisions that looked to the actual conferral of regulatory authority in determining whether a charge imposed is intended primarily forthe raising of revenue. Texas courts consistently have characterized as license fees, rather than
as taxes, those charges thatwere imposed concomitantly with the actual conferral of regulatory authority. See. e.a Robinson v. Hill, suvra; House ofTobacco Inc., v. Calvert:
suvra: Kadane v. Clark, 143 S.W.2d 197 (Tex.1940): Citv of FortWorth v. Gulf Refinina co., yuvra; Beckendorff v. Harris-Galveston Coastal Subsidence District, suDra; Reed v. Citv ofWaco, 223 S.W.2d~247 (Tex.Civ. APP. -Waco 1949,
err. ref'd). See also, Prudential Health Care. Plan v. Commissioners of Insurance, 626 S.W.2d 822 (Tex. APP. Austin 1982, writ ref'd n.r.e.) (distinguishing Conlen).; Texas courts consistently have characterized as taxes, rather than as license fees, those charges thatwere imposed without the concomitant conferral **of** actual regulatory authority. See, e.q., Harris Countvv. SheDDard, suDra: Pavnev.Massey, suvra: Hurt v. Coover, suDraL;Ex varte Dreibelbis, 109 S.W.2d 476 (Tex.Crim. App. 1937): Tavlor v. State, 513 S.W.2d 549 (Tex.Crim.App. 1974).

There canbe little doubt that, by enacting subchapter Iof chapter 26of theWater Code, the legislature intended primarily to setup a system to regulate the operations of

7. The court ofappeals declared:

We believe, however, we would need a more specific declaration of the Supreme Court, overruling the traditional distinctions drawn between an occupation tax and a regulatory fee,before wewould be justified in holding the charge assessed by subdivision (a) [under article 20A.33 of the Insurance Code] tobe a Vax@* subject to the "equal and uniform** limitations of the Constitution. --.

--.

626 S.W.2d 822, at 830.

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underground storage tanks that contain hazardous materials rather than a system to raise revenue. The "Bill Analysis" prepared by the Senate Committee on Natural Resources for Senate BillNo. 779 sets forth thebackground of thebill:

In 1986 the Texas Water Commission surveyed relevant businesses and concluded that there are at least 120,000 underground storage tanks that would come under commissionpurview forregulatory authority. Tanks underneath gasoline stations account for 80-85% of that total. A recent amendment to the Federal Resource Conservation and Recoverv Actmandates the imvlementation of a national underaround storaae tank nroaram. which is intended to be administered at the state and local levels. Texas does not currentlv have a reculatorv vroaram to monitor and nrevent leaks in undersround storaae tanks which contain vetroleum and toxic chemical vroducts. (Emphasis added.)

The "BillAnalysis" also sets forth thepurpose of thebill: "Thisbill would provide fortheresulation of underground storage tanks by the Texas Water Commission." (Emphasis added.) Section 26.341 oftheWater Code states the purpose of the subchapter:

The legislature finds that leaking underground tanks storing certain hazardous, toxic, orotherwise harmful substances have caused and continue topose serious groundwater contamination problems inTexas. The legislature declares that it isthevolicv of this state and thevurvose of this subchanter to maintain and vrotect the crualitv f aroundwater resources in the state frZm substances in underaround tanks that mav pollute aroundwater resources and to require the use of all reasonable methods to implement this policy. (Emphasis added.)

Moreover, it isclear even fromacursory reading of chapter 26 itself that the legislature has conferred broad regulatory authority on the commission regarding the permissible operation ofunderground storage tanks. See.

-, Water Code, 55 26.345 - 26.357. Because the fee that you propose would be enacted pursuant to the state's police power and inorder to comply with federal statutes and rules

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regarding the regulation ofunderground conclude that it is storage tanks, we more closely related to a license fee than it is to atax and that any money derived therefrom would not fall within the ambit of article VIII, section 7-a, of the Texas Constitution.

You next askwhether the legislature isauthorized to make such a statutory dedication, creating a fund to be administered by the Texas of regulating pollution Water Commission for the purpose clean-up. Generally, the legislature isauthorized to enact any lawnot inconflict with either the state or the federal constitutions. Jordan v. Crudsinston, 231 S.W.2d 641 (Tex. 1950); DeShazo v. Webb, 113 S.W.2d 519 (Tex. 1938). We understand you to ask whether the creation of such adedicated would be constitutional: however, statutory fund you donot specify which constitutional provisions concern you. fear that article III, section 51, We assume that you of the Texas Constitution, which forbids the state frommaking grants of public money to persons orpolitical subdivisions, may be violated by the fact thatmoney in such a fundwould be expended both forthe costs of pollution clean-up and for compensating third parties damaged by any such accidental leakage, costs which, absent the fund,would be borne by the owners/operators themselves. We conclude that article III, section 51, **of** the Texas Constitution would not be violated by permitting the expenditure of suchmoney for such purposes.

InFriedman v. American Suretv Co. of New York, 151 S.W.2d 570 (Tex. 1941), the Texas Supreme Court upheld the Unemployment Compensation Act, declaring, inter alia, that article III, section 51, codified at was notviolated thereby. The act,

articles 5221b-1 through 5221b-21, V.T.C.S., created a fund comprising "contributions" or taxes imposed upon employers for the benefit of employees. The court refused to characterize the plan as providing a gratuity, asserting that the fundswere not state funds. Rather, the state acted merely asatrustee.
Analogously, inthe system thatyou propose, the state would be acting as trustee with administration of the respect to the clean-up fund. The beneficiaries of the trust would be those persons orpolitical subdivisions that are damaged by the sudden orgradual leakage or spill from underground storage tanks of regulated substances covered by the act. The device of creating adedicated fund
or atrust fund isone that repeatedly has been used by the legislature to effectuate aproper public purpose, both with private persons asbeneficiaries, see. e.a., V.T.C.S. art. -_

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rHonorable Stan Schlueter -Page 11 (JM-963)



### ~:~~; (W

orer's Compensation and CrimeVictims' Compensation 

### k ;Agric. Code, andwith political 55 103.00-.013 (ProduceRecovery Fund), subdivisions as beneficiaries. See.

-, V.T.C.S. art. 1066~ (Local Sales andUse Tax), 1118x (Metropolitan Transit Authorities), 1118~ (Regional Transit Authorities), 179d (Bingo Enabling Act), 4366e (Local Government Corporate Banking Franchise Tax Fund): Alto. Bev. Code, §§ 202.00-.16. We conclude that article III, section 51, of the Texas Constitution imposes no impediment to the creation and eventual disbursement of the money from the fund thatyou propose.

SUMMARY

The creation of a proposed pollution clean-up fundby the imposition of a fee on theowners/operators ofunderground storage tanks containing certain regulated substances for the purpose of complying with federal statutes and administrative regulations would not constitute a **taxi'for purposes of article VIII, section 7-a, of the Texas Constitution. Article III, section. 51, of the Texas Constitution imposes no impediment to the creation and eventual disbursement of themoney from such a fund.



# It-l- m

JIM MATTOX :- Attorney General ofTexas

MARY KELLER First Assistant Attorney General

MU MCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared byJimMoellinger Assistant Attorney General

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