March 12,

Honorable Robert S. Calvert Comptroller of Public Accounts Capitol Building Austin, Texas

Dear Mr. Calve&: Opinion No. (C-&l) Re: Whether a bonded supplier is liable to the State for the collection and payment of the tax on special fuels sold 

### and delivered fn bulk quantities to another supplier whohas not secured and does not hold avalfd supplier’s permit for the current year andrelated questions, Youhave requested the opinion of this office as to the tax liability of abonded supplier legally in possession of special fuels whomakesbulk sales to unlicensed suppliers (whousually also operate as users), or whomakesbulk sales to unlicensed dealers anduser8 whosepurchases are predominantly for offhighway use* or whomakesbulk sales to purchasers for exclusive non-highway use without securing the signed statement required in subdivision (3) of Artfcle 10~06, Vernonss Cfvfl Statutes. Article 10.06 makesft unlawful to makebulk sales to person who(1) la not licensed as a supplier, or (2) is notany licensed as a dealer or user of special fuels, or (3) does not furnish a signed statement that none of the special fuels purchased will be delivered by himor permftted by himto be delivered into the fuel supply tanks of 

### motor vehicles. In connection wfth your Pequest, you have submitted a statement of the general construction andinterpretation which you have placed 

### upon the statutes in admlnfsterfng the Motor Fuel andSpecial Fuels TaxActs. Since such administrative Interpretation is entitled to great weight, 53 Tex.Jur.2d 259- 264, Set, 177, wequote the following statement thereof.Honorable Robert S. Calvert, Page 2

“The

### legal Incidence fuel andspecial fuels is user of the fuels for the Opinion No. (C-401)

of the tax on

### motor upon the ultimate propulsion of motor - vehfcles upon the highways of Texas.

“But since there are millfons of highway users the Legislature, wherever it is possible, has imposed the, collection of the tax upon the vendor whofs usually cdnstftuted andlicensed by law as abonded fiduclar+y or agent of the State for collection purposes.

“In the case of motor fuel (gasolfne) 95% of the fuel consumed

### in the 

### State is used taxable onthe highway so the tax collection is impbeed on the first sale by the wholesale distributor andtax refunds are authorized on the 52 used off the highways.

“But 

### in case of special fuels (diesel and butanes) the highway use Is Just the reverse. Only 5s to 10%of the total c~onsumptlonis used taxable on the highways while 90s to 95s is used off the highway for non-taxable purposes. Hence9the State could not afford to adopt the motor fuel procedure of collecting the tax on the first sale of all special fuels sold 

### fn the State andthen paying back 90%to 95%fn refunds to non-highway users.
.

“Bat the Legfslature, after determfnfng that most of the special fuels used taxable on the highways wasdispensed through retail dealer statIons and storage facflftfes maintained by bulk 

### users such as bus and truck lines, devised aplan of collecting most of such tax at the wholesale level by suppliers whoape licensed andbonded by Article lO.ll(l) 60makesuch coPleetfons ,fOr the 

### State and vhf& would 

### eliminate most of the tax ref

”rPnds.

.,

“TRfa wasaccomplfehed by setting up in one category the dealers andusers handling taxable fuels mostly whopay taxes to the supplIer, and settfng up in another category the dealers andusers handPing non-taxable fuels mostly tie pay any fncfdental taxes due directly to the State3 &bfollows:Honorable Robert S. Calvert, Page 3 Opinion No. (C-401)

I'-l* Dealers andbulk users whose purchases of special fuels are predominantly
tmostly) for delivery into motor vehicles for taxable use on the highways) are required by Article 10.11(l) to secure nonbonded dealer or non-bonded user permits and are required by Article 10.03(3) to pay the tax to the supplier upon delivery to their respective storages. If any of such tax paid fuel is thereafter used or sold for use off the highway tax refunds maybe filed for such incidental diversions D

“-2. 

### Dealers andbulk users whose purchases are predominantly (mostly) for use or resale for use non-taxable off the highway, but with somelesser quantities to be delivered by the dealer or user into motor vehicles for 

### taxable use, are required by Article lO..ll(l) to secure bonded dealer **OF** bonded user permits (to purchase tax free from suppliers) andare required by Articles 10.03(k) and (5) to report andpay directly to the State the tax on any deliveries madeinto motor vehicles - unless said taxes have been paid to the supplier (as authorized by Article 10.03(3)).

“WPththis statutory arrangement the law then specifically provides in 

### Article 10,03(3) that the supplier shall collect the tax on each gallon delivered to non-bonded dealers andusers - whoare those persons in category 1, whosepurchases are predominantly for delivery by themtaxable into the fuel supply tanks of motor vehgcles.

“The above is the only provfsfon in the law which speciffcally states that the supplier shall collect the tax on a delivery.

“In the next psragraph, Article 10.03(b) and (5) provedes that every dealer and every user, respectively, shall report andpay to this State the tax on,each gallon of special fuels delivered by theminto the fuel supply tanks of motor vehicles - unless said tax has been uafd to 3 licensed euDD,lfer.

-1893 -Honorable Robert S. Calvert, Page 4 Opinion No. (C-401)

“As this Division has heretofore construed the lawp Article 10.03(3), places a mandatory duty upon every supplier- to collect the tax on each gallon of special fuels delivered to dealers or users whose purchases are predomPnantly for delivery by theminto the fuel supply tanks of motor vehicles - andregardless of whether such dealera or users had exercised thefr duty of securing the non-bonded permits that the law required themto secure to perform such functions

.

“Conver8ely, if the supplier madesuch deliveries to unlicensed dealers or users whosepurchases were predominantly for use or resale **fOr** use non-taxable off the highwaytar which bonded dealer or bonded user permits ape required by law, the;supplier would not become liable for the tax on such deliveries (most of which would be presumed to be consumed off the highway) 

### since Articles 10,03(h) and (5), provide that every dealer andevery user shall remrt yd Da; to this State the Gn each gal on o special fuels delivered by theminto the fuel supply tanks of motor vehicles - where such taxes have not been paid to a lfcexissd **eupplfer,**

“CUPthought that the Legislature Intended to punish such unlawful sales by misdemeanor or &atuPtoPy civil penaltfes, rather than bymakingthe selling supplier liable for the tax.thereon, wasbased on the fact that in Aheusual course of operations by far the greater portion of the fUe1 purchased will moveultimately into non-taxable channels off the highway.” Weare in agreement tith your conclus%on Snsofar as nontaxable us8 Is concerned for ths reason that no tax ever accrued absrentsuch taxable uBie* It is well settled that the tax in question is anindirect or “excise” tax sndthat for anytax to be due the 3ta%es the special fuels must be usedHonorable Robert S. Calvert, Page 5 Opinion No. (C- 401)



### in motor 

### vehicles operated on the public highways of this

‘State. State v. City of El Paso, 135Tex. 359, 143 S.W.2d 366 (1940). 

### Wedothink* however, that the bonded supplier would be liable for anytaxes that did actually accrue by virtue of anytaxable use as well as subject to the mis- ;;m;f?c)r and civil penalties imposed by Articles lo.25 and

. . Morespecifically therefore, our conclusions are as follows : (1) Eventhough there Is no specific provision in the Special Fuels TaxAct which requires abonded supplier to collect the tax on special fuels sold to an individual supplier, the bonded supplier has madeanunlawful bulk sale under Article 10.06. Wehold that the liability of abonded supplier whohas madesuch an

### unlawful sale to anunlicensed supplier Is limited to the amountof the tax which accrued on such portions of the special fuels as were actually put to a taxable use by the unlicensed supplier’s permitting the use of raid fuel8 in motor vehicles on the highway. Wereiterate that the bonded supplier 

### In such 

### instances is subject to misdemeanor and civil penalties as imposed by Articles 10.25 

### and 10.1%. (2) Wherea bonded supplier makeabulk sales and deliveries of special fuels to unlicensed dealers or users whosepurchases are predominantly for off-highway use, the bonded supplier has madeunlawful bulk sales under Article 10.06. Thebonded supplier 

### is liable by

### reason of said unlawful eales for the amountof anytaxes 

### nhich did accrue byvirtue of taxable use and..fs further subgect to the misdemeanor and civil penalties Imposed by Articles 10.25 and 10.18. .?‘

. (3) In those instances in which abonded supplier makes bulk sales to purchasers for exclusive non-highway consumption without securing the signed statement required by sub

### division (3) of Article 10.06 that none of the special fuels purchased will be delivered by himor permitted by himto be delivered into the fuel supply tanks of motor vehicles, such sales are unlawful. Byvirtue of this fact, the bonded supplier is liable for such taxes as accrued byvirtue of taxable use of snyportion of aaid fuels on the public highways of this State, Again the bonded supplier is subgect to the ;ns~$meanor and civil penalties imposed by Articles 10.25 and 0 0

-P895-Honorable Robert S. Calvert, Page6 Opinion No. (C-401)

Yo have asked that weadvise you as to the method of determf2ing the amountof the bonded supplier’s tax liability in cases of the type heretofore cp$@dereda Article 10~16 provides that whenanysupplier, dealer or user falls to keep the 

### records, iseue the invoices or file the reports required by Chapter 10, there is aprima facie presumption that the special fuels shownby duly verified audit by the Comptroller, +r his authorized representative, to have been delivered to such 

### supplier, dealer or user andunaccounted for 

### at each place of business or of 

### storage from which special fuels were sold, delivered or used for anytaxable purposes. The Comptroller Is authorized to,,fix the amountof the taxes, penalties andinterest duethe State from such records of delivery or from any information available to him. If the tax claim so established is not paid, the claim and anyaudit ~madeby the Comptroller or anyreport filed by the supplier, .Xealer 

### or user is admissible in evidence in anyjudicial

‘:,proceedings filed by the Attorney General as prima facie evidence of correctness of s&id claim or audit. However, Article 10.16 further expressly provides “that the prima facie presumption of the correctness of the olaim.may be overcome, upon the trial, by evidence adduced by said supplier, dealer or usero’ Since under Article 10.21 the Comptroller is expreesly siyen the power and authority to promulgate rules andregulation8 not inconsistent with this law”, wethfnk that ff the bonded eupplier in the above 

### fnstances fUrnished the Comptroller with acceptable evidence or 

### proof as to that part of the fuel unlawrully sold and put to non-highway use, you could allow a credit against the tax liability charged to him, andthus avoid the court proceeding contemplated by Article 1~9.16. Youhave directed our atten$ion to Opfnion No. WI-845 :(l%O) fn connection with the special fuels,tax law as ft pertains to “user permits” 0 TheOpinfon states that “No Provision of the law requires or authorfzes the supplier to 

### onerating upplfed) **.fnsofar** as Opinion No. C-328 held that the tax &u&be collected by,the

‘~supplier even fn cases where the dealers and users were.acting in 

### the capacity of bonded dealers ,wd bonded **~86~8** but had

### not been properly licensed,I ,

Honorable Robert S. Calvert, Page 7 Opinion No, (C-401)

Opinion No. W-845 madethe following ruling:

“Aspecial fuels ‘user’ who **is** laalntaining storage tanks In Texas andpurchasing epeclal fuels from supplLers in bulk quantities predominantly for delivery into fuel supply tanks of his motor vehicles, andis also operating a numberof the motor vehicles, in interstate commerce, necessitating Importation of special tie18 In the fuel supply tanks of **such** vehicles, **is** required to obtain both a non-bonded user permit andbonded user Import permit. ” Wequote the following paragraph from pages 2and3 of 'Opinion WW-845:
“A wholesale supplier maysell only to those holding permits as bonded or non-bonded uaera or dealers. Heis required by Article 10.03(3,) to collect the tax on each gallon of special fuels delivered to non-bonded users. Noprovision of the law requires or authorizes the supplier to collect the tax from any bonded user, or anyperson operating only in the capacity of a bonded user.” It **is** evident that the last sentenoe above quoted **was** unnecessary to the holding of the Opinion, Further, it is in conflict uith the first sentence of the above quoted paragraph andwith Article 10.09. Underthe provisions of Article 10.09, only aperson whohas acquired apermft can legally act in the capacity of. abonded user. Article 10.09 reads as follows:

‘Every person defined herein as a supplier, dealer or user shall secure from the Comptroller the kind and class of permit required herein to act in such capacities or to perform such

### f7anctions.” Wetherefore affirm that Rortion of Opinion No. ~~-845 insofar as It pertains to the user permits involved. Weare specifically not in accord tith its statement as to persons operating only "In the capacity of" bonded twers. Opinion No. C-328 **is** predicated upon the proposition that a taxable use
**was** madeof the special fuels Involved. Its statement to the effect that the tax must be collected by the supplier even when
-1897-,. .

Honorable Robert S. Calve&, Page8 Opinion No. (C-401)

the dealers andusers were acting in the capacity of bonded dealers andbonded users but hadnot been properly licensed,

“I.. is consistent with the result reached. It is therefore reaffirmed.

~,;-’ JMXJEARY --- Abonded supplier whohas madeanunlawful bulk sale to anunlicensed supplier **fa** liable for the amountof tax which accrued on such portions of the special fuels as were put to a taxable use by the unlicensed supplier and **is** subject to misdemeanor and civil penalties. A bonded supplier whohas madeunlawful bulk sales anddeliveries of special .fuels to unlicensed dealers or users whosepurchases were predominantly for off-highway use is liable for the amount of tax which accrued byvirtue of taxable use and **Is** subgect to misdemeanor and civil penalties. Abonded supplier who madebulk sales to purchasers for exclusive non-highway consumption without securing the signed statement required by Article 10.06(3) that none of the special fuels purchased will be delivered by himor permitted by him to be delivered into the fuel supply tanks of motor vehicles is liable **fop** such taxes as 

### accrued by virtue of taxable use andis subQeet to mfsdemeanor and civil penalties. When any supplier, dealer **OP** user fails to keep the records, invoices or reports required by the Special Fuels TaxActs there is a **pplma** facie presumption that the special fuels shownby the Comptroller”s audit to have been delivered to such supplier, dealer **OP** user andunaccounted for at 

### eachplace of business or storage have been used for taxable purposes. If the claim so established is not paid, the prima facie presumption of its correctness maybe 

### overcome in any suit **fop** the collection thereof by

### evidence adduced by the supplier, dealer or user. TheComptroller has authority to promulgate rules andregulations
=na,%s-. .i.

Honorable Robert 9. Culvert, Page 9 Opinion No. (C-401)

for the enforcement of the Special Fuels Tax Law. If the Comptroller is furnished with proof as to that part of the fuel unlawfully sold andput to non-highway use, the Comptroller mayallow a credit the tax cl im. and C-328 't Opinions No.

1964) are reaffirmed.

Yours very truly,
WAQQONEZ? CARR Attorney General of Texas

MMcQP:dl APPROVED

BYOPIHIONCOMMITTEE
W. V. Geppert, Chairman John Banks Jsmes Broadhurst SsmKelley Grady Chandler APPROVED

FORTHEATTORNETGE%ERAL Bg: Stanton Stone

-1899,