OFFICE OF THE ATTORNEY GENERAL. STATE OF TEXAS 

JOHN CORNYN 

December 8, 1999 

Mr. Steven G. Moore, C.P.A. 

McLennan County Auditor 

214 North Fourth Street, Suite 100 

Waco, Texas 76701-1366 

Opinion No. K-0149 

Re: Whether interest earned on motor vehicle 

inventory tax escrow accounts may be used to 

purchase certain items and is subject to audit by 

the county auditor, and related questions 

(RQ-0097-JC) 

Dear Mr. Moore: 

You ask several questions about interest earned on motor vehicle inventory tax escrow 

accounts, money that section 23.122(c) of the Tax Code requires a tax assessor-collector to retain 

to use to defray the cost of the motor vehicle inventory tax prepayment procedure. You ask whether 

the interest may be used to purchase equipment that would be used for both administration of the 

motor inventory tax prepayment procedure and general administration of the tax office. You also 

ask about the county auditor’s duties in auditing the interest and whether purchases from the fund 

are subject to the County Purchasing Act, TEX. Lot. GOV’T CODE ANN. ch. 262, subch. C (Vernon 

1999). While we conclude that interest may not be used for expenses not related to the 

administration of the prepayment procedure, we also emphasize that the determination as to whether 

and to what extent a particular purchase is a legitimate cost related to administration of the 

prepayment procedure is for the tax assessor-collector to make in the first instance. We also 

conclude that the county auditor’s authority to audit the interest monies includes the authority to 

review expenditures from the fund and to make audit reports regarding the interest monies to the 

commissioners court. Finally, we conclude that purchases made with the interest monies are not 

subject to competitive bidding under the County Purchasing Act. 

Section 23.122 of the Tax Code requires a motor-vehicle dealer to prepay property taxes 

levied against the dealer’s motor-vehicle inventory. TEX. TAX CODE ANN. 5 23.122(b) (Vernon 

Supp. 1999). Each month, a motor-vehicle dealer must deposit with the county tax assessorcollector in the county in which the inventory is located a portion of the property tax the dealer is 

expected to owe for the year. Id. The tax assessor-collector must place the prepaid taxes in an 

escrow account to the dealer’s (or “owner’s”) credit: 

(b) . The money shall be deposited by the collector in or 

otherwise credited by the collector to the owner’s escrow account for 
Mr. Steven G. Moore - Page 2 (X-0149) 

prepayment of property taxes . . An escrow account required by 

this section is used to pay property taxes levied against the dealer’s 

motor vehicle inventory, and the owner shall fund the escrow account 

as provided by this subsection. 

Id. The tax assessor-collector is required to maintain an escrow account for each owner in the county 

depository. See id. 5 23.122(c). The tax assessor-collector disburses funds in the escrow account 

to “relevant taxing units,” i.e., taxing units “authorized by law to levy property taxes against a 

dealer’s motor vehicle inventory,” id. 3 23.122(a)(7), in proportion to the amount of taxes levied, 

id. 5 23.122(i). The dealer may not withdraw funds from the escrow account. Id. fj 23.122(d). See 

generally Tex. Att’y Gen. LO-98-085, at l-2 (summarizing motor vehicle inventory tax scheme). 

Your inquiry focuses on the interest on the escrow accounts, which subsection (c) of section 

23.122 allocates to the tax assessor-collector: 

(c) The collector shall retain any interest generated by the 

escrow account to defray the cost ofadministration ofthe prepayment 

procedure established by this section. Interest generated by an 

escrow account created as provided by this section is the sole 

property of the collector, and that interest may be used by no entity 

other than the collector. Interest generated by an escrow account may 

not be used to reduce or otherwise affect the annual appropriation to 

the collector that would otherwise be made. 

Id. 5 23.122(c). This office has concluded that because interest generated by the motor 

vehicle inventory tax escrow account is the “sole property” of and may be used only by the tax 

assessor-collector, it is not subject to the control of the commissioners court. Tex. Att’y Gen. Op. 

No. DM-398 (1996) at 2; accord Tex. Att’y Gen. LO-98-085, at 5-6. The tax assessor-collector’s 

discretion with respect to the use of the fund is statutorily limited to defraying the costs of 

administering the tax prepayment procedure. See TEX. TAX CODE ANN. $23.122(c) (Vernon Supp. 

1999). Accordingly, this office has concluded that the interest may not be used for general office 

expenses of the tax assessor-collector that are unrelated to the costs of administering the prepayment 

program. See Tex. Att’y Gen. Op. No. DM-398 (1996) at 4; accord Tex. Att’y Gen. LO-98-085, at 

6. This office has also cautioned, however, that whether aparticularexpenditure is a legitimate “cost 

of administration of the prepayment procedure” and is therefore a permissible use of the interest is 

a question of fact. See Tex. Att’y Gen. Op. No. DM-398 (1996) at 3-4. “What constitutes a 

legitimate cost of administration of the prepayment program is a matter of fact upon which this 

office cannot opine.” Id. at 3; accord Tex. Att’y Gen. LO-98-085, at 6. The tax assessor-collector 

must make the initial determination that a particular expenditure is a legitimate cost ofadministration 

under section 23.122(c), subject to judicial review. See Tex. Any Gen. Op. No. JC-0135 (1999) at 

2-3. 
Mr. Steven G. Moore - Page 3 (JC-0149) 

You ask two questions regarding whether the interest may be used to purchase equipment 

that would be used for both administration of motor inventory tax prepayment and general 

administration of the tax office: “Can the interest be used to fund the entire purchase price of a 

piece of equipment, such as a vehicle or computer which will be utilized 25 percent for the 

administration of the prepayment procedure and 75 percent for general administration of the tax 

office?” See Letter from Steven G. Moore, C.P.A., McLennan County Auditor, to Office of 

Attorney General, at 2 (Aug. 4, 1999) (on file with Opinion Committee) [hereinafter “Request 

Letter”]. You also ask if equipment purchased with the interest must “be used in a manner which 

defrays only the cost of the prepayment program.” Id. at 3. You ask us to address the second 

question if we are not able to answer the first. Assuming that the tax assessor-collector has 

determined that only twenty-five percent ofthe purchase price of an item is a legitimate cost related 

to the administration of the prepayment procedure, then we believe that interest monies may be used 

to pay only twenty-five percent of the purchase price of the item. To use interest monies to fund the 

entire purchase would run afoul of the section 23.122(c) requirement that the interest be used only 

to “defray the cost of administration of the prepayment procedure.” TEX. TAX CODE ANN. 

5 23.122(c) (Vernon Supp. 1999). We emphasize, however, that the determination as to whether and 

to what extent a particular purchase is a legitimate cost related to administration under section 

23.122(c) is for the tax assessor-collector to make in the first instance, subject to judicial review. 

We also believe that the proper use of equipment in the tax office is a matter within the discretion 

of the tax assessor-collector. 

Next, we turn to your question about a county auditor’s duty to audit the interest. You ask: 

Since the funds . are solely at the control of the tax 

assessor-collector, and the commissioners court has no authority 

whatsoever over the funds, does the County Auditor have a 

responsibility to report questioned expenditures from this fund, and 

if so, to whom does the county auditor issue an audit report? 

Request Letter, supra, at 2. A county auditor is authorized and required to audit the motor vehicle 

inventory tax escrow accounts, as well as interest earned on the prepaid taxes. 

Section 115.001(l) oftheLoca1 Government Codeprovides acountyauditor with“continua1 

access” to accounting books and related materials of any officer. See TEX. Lot. GOV’T CODE ANN. 

$ 115.001 (Vernon 1999). Section 115.002(b) requires a county auditor, at least four times each 

year, to examine the county tax assessor-collector’s books to verify their correctness. Id. $115.002. 

A brief submitted by the Johnson County Tax Assessor-Collector’s Office suggests that a county 

auditor is precluded from auditing the fund because the monies are not county property. See Letter 

from Terry W. Bradley, Esq. and Keith Bradley, Esq., to W.E. Carroll, Johnson County Tax 

Assessor-Collector (June 3, 1999) at 6. We note, however, that section 115.0035 of the Local 

Government Code requires a county auditor to examine, at least annually, the “accounts” of county 

officials. TEX. LOC. Gov’TCODEANN. 5 115.0035(b) (Vernon 1999). “Accounts”means “all public 

funds that are subject to the control of any county official.” Id. 5 115.0035(a). Thus, the 
Mr. Steven G. Moore - Page 4 (JC-0149) 

county auditor has express statutory authority to examine the correctness ofthe county tax assessorcollector’s books, whether or not the books relate to county funds. See id.; see also Tex. Att’y Gen. 

Op. Nos. JC-0135 (1999) at 3; DM-398 (1996) at 4 (stating that county auditor may audit interest). 

This authority includes the authority to review expenditures from the fund. Audit reports should be 

submitted to the commissioners court, See TEX. Lot. GOV’T CODE ANN. 5 115.0035(c) (Vernon 

1999) (“The auditor shall verify the correctness of the accounts and report the findings of the 

examination to the commissioners court .“). 

Finally, you ask whether purchases made with the interest are subject to the County 

Purchasing Act, chapter 262, subchapter C ofthe Local Government Code (the “Act”). We conclude 

that purchases made by the tax assessor-collector with these monies are not subject to the Act. This 

office has equated the interest monies with the district attorney hot-check fund created pursuant to 

article 102.007 of the Code of Criminal Procedure, see Tex. Att’y Gen. Op. No. DM-398 (1996) at 

1 (“In our view, these funds are analogous to the ‘hot-check’ fund administered by the district 

attorney.“), expenditures from which are, according to that statute, “at the sole discretion of the 

attorney and may be used only to detiay the salaries and expenses of the prosecutor’s office.” TEX. 

CODE GRIM. PROC. ANN. art. 102.007(f) (Vernon Supp. 1999). Given that article 102.007 vests sole 

discretion for expenditures from the fund in the district attorney, this office has held that hot-check 

fund purchases are not subject to competitive bidding under the County Purchasing Act. See Tex. 

Any Gen. Op. Nos. JM-967 (1988) at 3; MW-439 (1982) at 8. Because subsection (c) of section 

23.122 provides that “[ilnterest generated by an escrow account created as provided by this section 

is the sole property of the collector,” TEX. TAX CODE ANN. 5 23.122(c) (Vernon Supp. 1999), and 

has been construed by this office to vest sole discretion over interest purchases in the tax assessorcollector, see Tex. Att’y Gen. Op. No. DM-398 (1996) at 2, we conclude that purchases made with 

the interest monies are not subject to competitive bidding under the Act. 
Mr. Steven G. Moore - Page 5 (X-0149) 

SUMMARY 

Interest earned on motor vehicle inventory tax escrow 

accounts may not be used for expenses not related to the 

administration ofthe prepayment procedure. The determination as to 

whether and to what extent a particular purchase is a legitimate cost 

related to administration of the prepayment procedure is for the tax 

assessor-collector to make in the first instance. A county auditor’s 

authority to audit the interest monies includes the authority to review 

expenditures from the fund and to make audit reports regarding the 

interest monies to the commissioners court. Purchases made by a tax 

assessor-collector with the interest monies are not subject to 

competitive bidding under the County Purchasing Act. 

Attorney General of Texas 

ANDY TAYLOR 

First Assistant Attorney General 

CLARK RENT ERVIN 

Deputy Attorney General - General Counsel 

ELIZABETH ROBINSON 

Chair, Opinion Committee 

Mary R. Crouter 

Assistant Attorney General - Opinion Committee