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) ofthe Tax Code requires atax assessor-collector to retain touse to defray the cost ofthe 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 ofthe 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 CODEANN.ch. 262, subch. C (Vernon 1999). While we conclude that interest may not be used for expenses not related to the administration ofthe prepayment procedure, we also emphasize that the determination astowhether 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 aportion 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 forMr. Steven G. Moore - Page 2 (X-0149)

prepayment ofproperty 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 asprovided by this subsection.
Id. The tax assessor-collector isrequired tomaintain anescrow account for each owner inthe county depository. See id.523.122(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.323.122(a)(7), in proportion to the amount of taxes levied, id.523.122(i). The dealer may not withdraw funds from the escrow account. Id. fj23.122(d). See generallyTex. Att’y Gen. LO-98-085, at l-2 (summarizing motor vehicle inventory tax scheme).

Your inquiry focuses on the interest onthe 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 anescrow 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; accordTex. 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. TAXCODE

ANN.$23.122(c) (Vernon Supp. 1999). Accordingly, this office has concluded that the interest may not be used for general office expenses ofthe tax assessor-collector that areunrelated tothe costs ofadministering the prepayment program. SeeTex. Att’y Gen. Op. No.DM-398 (1996)at 4;accordTex. Att’y Gen. LO-98-085, at 6. This office has also cautioned, however, that whether aparticularexpenditure isalegitimate “cost of administration ofthe prepayment procedure” and is therefore apermissible use ofthe 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; accordTex. Att’y Gen. LO-98-085, at 6. The tax assessor-collector must make the initial determination that aparticular expenditure isalegitimate cost ofadministration under section 23.122(c), subject tojudicial 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 ofthe 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 ifequipment purchased with the interest must “be used in amanner 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 ofanitem isalegitimate cost related tothe administration ofthe prepayment procedure, then we believe that interest monies may be used topay only twenty-five percent ofthe purchase price ofthe item. To use interest monies to fund the entire purchase would run afoul ofthe 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. 523.122(c) (Vernon Supp. 1999). We emphasize, however, that the determination astowhether 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 tojudicial review. We also believe that the proper use of equipment in the tax office is amatter within the discretion of the tax assessor-collector.
Next, we turn to your question about acounty 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 thisfund, 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, aswell as interest earned on the prepaid taxes.
Section 115.001(l) oftheLoca1 Government Codeprovides acountyauditor with“continua1
access” to accounting books and related materials ofany officer. See TEX.Lot. GOV’TCODEANN. $ 115.001 (Vernon 1999). Section 115.002(b) requiresa county auditor, at least four times each year, to examine the county tax assessor-collector’s books toverify their correctness. Id. $115.002. A brief submitted by the Johnson County Tax Assessor-Collector’s Office suggests that acounty auditor isprecluded 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 acounty auditor to examine, at least annually, the “accounts” ofcounty officials. TEX.LOC.Gov’TCODEANN. 5 115.0035(b) (Vernon 1999). “Accounts”means “allpublic funds that are subject to the control of any county official.” Id. 5 115.0035(a). Thus, theMr. Steven G. Moore - Page 4 (JC-0149)

county auditor has express statutory authority to examine the correctness ofthe county tax assessorcollector’s books, whether ornot the books relate to county funds. See id.;see also Tex. Att’y Gen. Op. Nos. JC-0135 (1999) at 3; DM-398 (1996) at4 (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’TCODE 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 Cofthe Local Government Code (the “Act”). We conclude that purchases made by the tax assessor-collector with these monies arenot subject tothe Act. This office has equated the interest monies with the district attorney hot-check fund created pursuant to article 102.007 ofthe 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 ofthe 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 asprovided by this section is the sole property ofthe collector,” TEX.TAXCODE ANN. 523.122(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 asto whether and to what extent aparticular purchase is alegitimate cost related to administration ofthe 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 toreview expenditures from the fund and to make audit reports regarding the interest monies tothe commissioners court. Purchases made by atax 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