Honorable Robert S. Calvert OpinionNO. M-361

Comptrollerof PublicAccounts Capitol Station Re: Whether cafeterias Austin, Texas operatedby branch banks of the Federal Reserve Bank of Dallas are required to remit the sales tax on the basis of the percentageof 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:

“Branchbanks of the Federal ReserveBank of Dallas are located in San Antonio,Houston and El Paso. Each operate cafeteriasserving food to bank employees. The cafeteriascurrentlycollect tax in accordancewith 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 authorizedin Section (K)(2)of Article 1066~ of the Local Sales and Use Tax Act,-/
“The banks remit tax on the cafeteriasales In the amount collected from the patrons rather than remittingon the basis of a percentageof gross receiptsas requiredby the Act. ,t Because of the volume of small sales, the caieieiiasdo not collect enough tax through the bracket system to pay the’taxdue upon their gross receipts. Apparently the cafeteriasdo not have fifty per cent ,(50$) of their receiptsarising from sales under the minimum amount upon which tax may be collected so as to complywith the special reportingmethods allowedby Article 20.05(B) of the Act.

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

"The Federal ReserveBank has Indicated its inability to pay the tax stating that it Is a federal instrumentality and that Congresshas not authorizedpayment of this type of tax under Section 7 of the FederalReserve Act.

. , . "The Comptrollerthus asks your opinion as to whether the Comptrollercan requirepayment of the sales tax based on the remittanceof a percentage of gross receipts of the bank cafeteriaoperations of the Federal ReserveBank of Dallas as described above."
The applicableportionsof 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 Impositionof Limited Sales Tax
"There is hereby imposeda limited sales tax at the rate of three per cent (3%) on the receipts from the sale at retail of all tangiblepersonal propertywithin this State."

"Art. 20.021 Method of Collection; Bracket System
"(A) Every retailer shall add the sales tax imposedby 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 retaileruntil paid, and shall be recoverableat law in the same manner as the purchase price. It is further specifiedthat where tangible personal property Is segregatedin contemplationof transfer of title or possessionand is thereafterto be transported

by common carrier from the seller to the buyer, with the price fixed F.O.B. the seller's place,ofbusiness,and with transportation charges separatelystated, the tax herein imposed shall be computed only upon the basis of the charge for the tangiblepersonalproperty itself, exclusiveof the separatelystated 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:

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

Amount of Sale Tax $ .01 to $ .16 No Tax .17 to .4q 1% ;o 1.16

83
1.17 to 1.49 1.50 to 1.83 Provided, that for successivebrackets for this schedule in this paragraph,the tax shall be computedby multiplyingthree 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 ( .Ol) of tax." b

A Federal Reserve Bank is an operatingagency 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 h 120 (1939 ** , c
. ‘1? u 1; .S.C.A.,BB 221

We have not been furnishedany facts concerningthe necessity or business feasibilityof the operationof the employee cafeterias. OrdinarilyIf the operationof a facility has a natural and reasonable tendency to aid in the accomplishmentof the bank's business purposes, especiallyas related to Its dealingswith its employees, it will be consideredwithin the implied or Incidentalpowers of the bank, and the determinationof such matters is largelywithin the discretionof 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 cafeteriasby the bank in question is within the powers of the Federal Reserve Bank and in the furtheranceof its functions.
The Texas Sales Tax Act provides for exemptionswith reference to certain types of property and also with reference to property sold to or-consumed by certain exempt entitiesand 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

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is no doubt that Congress can provide statutoryimmunity from state taxationfor federal instrumentalities.United States
v. City of Detroit, 355 U.S. 466, 2 L.Ed.2d 424, '(8 S.Ct. 474 (1956).
Congresshas expresslyprovidedFederal 'Reserve Banks with an exemptionfrom taxation under Section 7 of the Federal Reserve Act, which exemption reads as follows:

"FederalReserve Banks, includingthe 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 requirementthat a Federal Reserve Bank remit sales taxes over and above those which can be collectedfrom its customersunder the bracket system (Article20.021 (A)) (i.e.,
a tax based on gross receipts)amount to the impositionof a tax against the bank? In our opinion, such a requirement would be tantamountto the impositionof a tax.

In First AgriculturalNationalBank 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 tangibleperional property. After holding that a state sales tax could not be imposedupon a National Bank without express end direct authority from Congress,the court turned to the issue of whether the Massachusettssales tax was, in fact, imposed on the purchaser-bank. The Massachusetts Sales Tax Act with respect to the impositionand collection of the tax is very similar to the above-quoted provisions of the Texas Act, and the MassachusettsSupreme Judicial Court had held that the incidence of the tax in this case was on the vendor,not the purchaser (229N.E.2d 245).. This view was rejectedby 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 incidenceof 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 incidenceof a tax was'held to be dxe.rminedby "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 incidenceof the tax is on the purchaser and that the Massachusetts Legislature intended that the sales tax in questionbe passed on to the purchaser.
Therefore,as to the remittanceof t&es additionalto those collectedfrom 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 vendorswere required to absorb the tax not collected from their customers "only because they have elected to sell items at a retailprice less than the price provided for collectibility from the consumer." Thus a retailer can alwaysprotecthimself from absorbingtaxes by the simple expedientof always adjusting his prices so as to enable him to collectfrom his customers all taxes that he will be compelled to remit under the per cent of total receipts formula. However, this escapemechanism is irrelevantas 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 respondingto the pressure of taxing power. In the face of the Federal ExemptionStatute, such pressure does not exist.

In conformingthe rationale of First AgriculturalNational Bank of BerkshireCounty v. State Tax Commission,supra, to' this situation,this office is of the opinion that the incidence is on the bank's customerswith respect to the tax which can be collectedby the bank from them under the bracket system, and that the incidenceof any further taxes is on the bank because
as to such additionaltaxes 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 cafeteriasis the amount of taxes collectedfrom their customers in accordancewith the bracket system prescribedby 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 collectedfrom its customers. Yours/jerytruly,

AW:dc

Preparedby Alfred Walker AssistantAttorney 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