Honorable Robert S. Calvert Opinion NO. M-361 

Comptroller of Public Accounts 

Capitol Station Re: Whether cafeterias 

Austin, Texas operated by branch banks 

of the Federal Reserve 

Bank of Dallas are required to remit the sales 

tax on the basis of the 

percentage of gross 

receipts fr6m the sale of 

Dear Mr. Calvert: food to bank employees. 

Your recent request for an opinion on the captioned 

matter reads in part as follows: 

“Branch banks of the Federal Reserve Bank of 

Dallas are located in San Antonio, Houston and 

El Paso. Each operate cafeterias serving food to 

bank employees. The cafeterias currently collect 

tax in accordance with the bracket system of the 

Acts fis authorized in Article 20.021(A) of the 

Texas Limited Sales, Excise and Use Tax Act and as 

authorized in Section (K)(2) of Article 1066~ of 

the Local Sales and Use Tax Act,-/ 

“The banks remit tax on the cafeteria sales In 

the amount collected from the patrons rather than 

remitting on the basis of a percentage of gross 

receipts as required by the Act. 

,t Because of the volume of small sales, 

the caieieiias do not collect enough tax through 

the bracket system to pay the’tax due upon their 

gross receipts. Apparently the cafeterias do not 

have fifty per cent ,(50$) of their receipts arising 

from sales under the minimum amount upon which tax 

may be collected so as to comply with the special 

reporting methods allowed by Article 20.05(B) of the 

Act. 

- 1780 - 
. r 

Hon. Robert S. Calvert, page 2 (~-361) 

"The Federal Reserve Bank has Indicated its 

inability to pay the tax stating that it Is a 

federal instrumentality and that Congress has not 

authorized payment of this type of tax under 

Section 7 of the Federal Reserve Act. . , . 

"The Comptroller thus asks your opinion as to 

whether the Comptroller can require payment of 

the sales tax based on the remittance of a percentage 

of gross receipts of the bank cafeteria operations 

of the Federal Reserve Bank of Dallas as described 

above." 

The applicable portions of the Texas Sales Tax Act are 

Article 20.02 and a portion of Article 20.021 (A), Title 122A, 

Taxation-Qeneral, Vernon16 Civil Statutes. 

"Art. 20.02 Imposition of Limited Sales Tax 

"There is hereby imposed a limited sales tax 

at the rate of three per cent (3%) on the receipts 

from the sale at retail of all tangible personal 

property within this State." 

"Art. 20.021 Method of Collection; Bracket System 

"(A) Every retailer shall add the sales tax 

imposed by Article 20.02 of this Chapter to his 

sale price and when added the tax shall constitute 

a part of the price, shall be a debt of the purchaser to the retailer until paid, and shall be 

recoverable at law in the same manner as the purchase 

price. It is further specified that where tangible 

personal property Is segregated in contemplation of 

transfer of title or possession and is thereafter to 

be transported by common carrier from the seller to 

the buyer, with the price fixed F.O.B. the seller's 

place,of business, and with transportation charges 

separately stated, the tax herein imposed shall be 

computed only upon the basis of the charge for the 

tangible personal property itself, exclusive of the 

separately stated and Independently fixed transportation charges. When the sale price shall involve 

a fraction of a dollar, the tax shall be added to the 

sale price upon the following schedule: 

-1781- 
,. 

lion. Robert S. Calvert, page 3 (M-361) 

Amount of Sale Tax 

$ .01 to $ .16 No Tax 

.17 to .4q 

1% ;o 1.1683 

1.17 to 1.49 

1.50 to 1.83 

Provided, that for successive brackets for this 

schedule in this paragraph, the tax shall be 

computed by multiplying three per cent (3s) 

times the amount of the sale. Any fraction of 

one cent 

td 

.Ol) which Is less than one half of 

one cent ,005) of tax shall not be collected. 

Any fraction of one dent ($.Ol) of tax equal to 

one half of one cent ($.005 or more shall be 

collected as a whole cent ( b .Ol) of tax." 

A Federal Reserve Bank is an operating agency of the 

Federal Government. created to CUDDLY a need of the national 

government. Federal Reserve Bank*bf"Minneapolls v. Register 

of Deeds for belta C , 264 N ** W bb7 , 2tEi Mi c h . 120 (1939 

‘1? u 

1; 

.S.C.A., BB 221 

We have not been furnished any facts concerning the 

necessity or business feasibility of the operation of the 

employee cafeterias. Ordinarily If the operation of a 

facility has a natural and reasonable tendency to aid in the 

accomplishment of the bank's business purposes, especially as 

related to Its dealings with its employees, it will be considered within the implied or Incidental powers of the bank, 

and the determination of such matters is largely within the 

discretion of those who manage the bank's affairs. Heinz v. 

National Bank of Commerce, 237 F. 942 (1916); 19 Am.Jur.2d 

308 c ti 

dhi?~~&o~~s;e 

EE 1653 - 1055. Therefore, for purposes 

of are assuming that the operation of the 

cafeterias by the bank in question is within the powers of the 

Federal Reserve Bank and in the furtherance of its functions. 

The Texas Sales Tax Act provides for exemptions with 

reference to certain types of property and also with reference 

to property sold to or-consumed by certain exempt entities and 

oraanizations. Article 20.04. Title 122A. Taxation-General. 

V.E.S. But we find no Texas iaw which grants an exemption - 

for sales tax purposes to any vendor, as such. However, there 

-1782- 
Hon. Robert S. Calvert, page 4 (M-361) 

is no doubt that Congress can provide statutory immunity from 

state taxation for federal instrumentalities. United States 

v. City of Detroit, 355 U.S. 466, 2 L.Ed.2d 424, '(8 S.Ct. 474 

(1956). 

Congress has expressly provided Federal 'Reserve Banks 

with an exemption from taxation under Section 7 of the Federal 

Reserve Act, which exemption reads as follows: 

"Federal Reserve Banks, including the capital 

stock and surplus therein and the income derived 

therefrom, shall be exempt from federal, state and 

local taxation, except taxes upon real estate." 

12 U.S.C.A., 8 531. 

It clearly follows that the Texas sales tax cannot be 

imposed on a Federal Reserve Bank itself. Hence, the ultimate 

question for our determination may be phrased as follows: 

Would a requirement that a Federal Reserve Bank remit sales 

taxes over and above those which can be collected from its 

customers under the bracket system (Article 20.021 (A)) (i.e., 

a tax based on gross receipts) amount to the imposition of a 

tax against the bank? In our opinion, such a requirement 

would be tantamount to the imposition of a tax. 

In First Agricultural National Bank of Berkshire County 

v. State Tax Commission, U.S. 20 L.Ed.2d I.138 

88 S.Ct. 2173 (1968) a National Bank: the purchaser 0: 

certain tangible perional property. After holding that a 

state sales tax could not be imposed upon a National Bank 

without express end direct authority from Congress, the court 

turned to the issue of whether the Massachusetts sales tax 

was, in fact, imposed on the purchaser-bank. The Massachusetts 

Sales Tax Act with respect to the imposition and collection 

of the tax is very similar to the above-quoted provisions of 

the Texas Act, and the Massachusetts Supreme Judicial Court 

had held that the incidence of the tax in this case was on the 

vendor, not the purchaser (229 N.E.2d 245).. This view was 

rejected by the United States Supreme Court. Mr. Justice Black, 

speaking for the majority, said: "And essential.ly the question 

for us is, on whom does the incidence of the tax fall." He 

then cited the case of Kern-,Limerick, Inc. v. Scurlock, 347 

U.S. 110, 74 S.Ct. 403, 98 L Ed 546 In Kern-Limer.ick the 

legal incidence of a tax was'held to be dxe.rmined by "who is 

responsible . ; . for pa,yment t!: the state of the exaction." 
Ron. Robert S. Calvert, page 5 (M-361) 

The Court proceeded to hold that when a sales tax must be 

passed on to the purchaser, the legal incidence of the tax 

is on the purchaser and that the Massachusetts Legislature 

intended that the sales tax in question be passed on to the 

purchaser. 

Therefore, as to the remittance of t&es additional to 

those collected from the retail purchasers, our inquiry can 

be refined to the question, !'Who is responsible . . . for 

payment to the state of the exaction?" 

In Calvert v. Canteen Compen 

Sup. 1963) th S 

371 S.W.2d 556 (Tex. 

tax was on'theesa%ie?&nsaction 

ixas held that the sales 

and if the retailer should 

not, under the bracket system, chllect all of the tax from 

his customers, then the retailer.must absorb the difference. 

The court further pointed out that the vendors were required 

to absorb the tax not collected from their customers "only 

because they have elected to sell items at a retail price 

less than the price provided for collectibility from the 

consumer." Thus a retailer can always protect himself from 

absorbing taxes by the simple expedient of always adjusting 

his prices so as to enable him to collect from his customers 

all taxes that he will be compelled to remit under the per 

cent of total receipts formula. However, this escape mechanism 

is irrelevant as to an exempt concern. We fail to perceive 

any reason for a Federal Reserve Bank to adjust its prices in 

order to escape absorbing taxes when the power of the state to 

tax that concern Is absent in the first instance. The contrary 

view envisions the bank as responding to the pressure of taxing 

power. In the face of the Federal Exemption Statute, such 

pressure does not exist. 

In conforming the rationale of First Agricultural National 

Bank of Berkshire County v. State Tax Commission, supra, to' 

this situation, this office is of the opinion that the incidence 

is on the bank's customers with respect to the tax which can be 

collected by the bank from them under the bracket system, and 

that the incidence of any further taxes is on the bank because 

as to such additional taxes it, and it alone, "is responsible 

. . . for payment to the state of the exaction." 

StJMXARY 

The only sales taxes which the branch 

banks of the Federal Reserve Bank of Dallas 

- 1781.. 
Hon. Robert S. Calvert, page 6 (M-361) 

are bound to remit in regard to their 

sales in employee cafeterias is the 

amount of taxes collected from their 

customers in accordance with the bracket 

system prescribed by Article 20.021 (A), 

Title 122A, Taxation-General, Vernon's 

Civil Statutes and Article 1066c, Section 

2(K)(2), Vernon's Civil Statutes. The 

Federal Reserve Bank is not required to 

remit sales taxes measured by gross receipts and not actually collected from 

its customers. 

Yours/jery truly, 

AW:dc 

Prepared by 

Alfred Walker 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Kerns Taylor, Chairman 

George Kelton, Vice-Chairman 

James Broadhurst 

Harold Kennedy 

Bill Allen 

Monroe Clayton 

W. V. Geppert 

Staff Legal Assistant