P November 30, 1988

Mr. Perry L.Adkisson Chancellor The Texas **A&M**University System College Station, Texas 77843

Honorable Bob Bullock Comptroller of Public Accounts L.B.J. State Office Building Austin, Texas 78774

Gentlemen: OpiIliOIl 

### No. JM-987

Re: Applicability of the limited sales and use tax to public entities (RQ-1363 and RQ-1415)

This office has received two requests for opinions which ask a series ofrelated questions concerning the q&cability of certain provisions of the Texas Limited

,Excise, and Use TaxAct to public entities which engage in transactions subject to the taxes levied under the act. See aenerally Tax Code 55 151.001-151.801.
The Comptroller ofPublicAccounts requests our opinion on the following issues:

(1) Whether state agencies, cities, counties, independent school districts, state colleges and universities or their auxiliary enterprises, and special purpose districts engaged in making retail sales of tangible personal property and services subject to taxation under theTexas Sales Tax Act must collect sales taxon those sales?
(2)If [such entities must collect taxes of retail sales,] thenmust they be issued
a sales tax permit [specified in section 151.204 of the TaxCode]?
(3)If so, are they subject to the same rules as other taxpayers with regard to:
a) purchase oftaxpermits: b) filing ofreturns:Mr. Perry L.Adkisson

Honorable Bob Bullock Page 2 (JM-987) .

c)penalty and interest on late filings; andd) enforcement procedures and other matters. Additionally, Chancellor Adkisson asks whether public institutions ofhigher education are entitled towithhold a percentage ofgross sales anduse tax receipts as reimbursement for the cost of collecting the taxes. The statute permits those who collect the tax onbehalf of the state to withhold one-half ofonepercent of the tax due. Tax Code 5 151.423.

I.

It is important to note at the outset that these questions donot concern the taxation of anypublic body. See, e.u Attorney General Opinion WW-1502 (1962). Rather, the issu;; under review concern the applicability of certain provisions of the Tax Code topublic bodies that "sell@1 or "retail" tangible personal property subject to the sales and use tax. See, e.a., Tax Code 5 151.052: Part III, below.

Nor do the questions under examination pertain to exemptions from the imposition of the sales and use tax for governmental entities on purchases of tangible personal property for their use. &g Tax Code § 151.309.

Of course, the application of the provisions ofany tax law, including enforcement provisions~with interest charges andmonetary penalties, topublic bodies ma in fact promote something like what one court has identified as the "senseless process" of the sovereign taxing itself

[t]henet result of which would bebut to take itsownmoney out of one pocket for the purpose of putting it into another -- less the cost ofassessing and collecting the tax.

. . .accomplish[ing nothing] but the idle expenditure ofpublic funds.

Lower Colorado River Authoritv v. Chemical Bank and Trust Co., 190 S.W.Zd 48, 51 (Tex.1945) (citation omitted). See also Attorney General Opinion WW-1502 (1962).

II.
Section 151.051 of the Tax Code specifies that a "tax is imposed on each sale ofa taxable item inthis state."

P. 5042Mr. Perry L.Adkisson

Honorable Bob Bullock Page 3 (JM-987)

The tax iscollected by thosemaking sales of things subject to the tax:
(a)A seller whomakes a sale subject to

the sales tax imposed by this chapter shall add the amount of the tax to the sales price, andwhen the amount

### ofthe tax isadded:
(1)itbecomes apart of the sales price;
(2)it isadebt ofthe purchaser to the seller until paid: and
(3)ifunpaid, it isrecoverable at law in the samemanner as the original sales price.

Tax Code 8 151.052. Additionally, the Tax Code defines a lVsellerll

or "retailerI0inrelevant part as a
(a) . . .person engaged in thebusiness of making sales of taxable items ofakind the receipts from the saleofwh~ichare included inthe measure of the sales or use tax imposed by this chapter.

Tax Code 9151.008. 11Business11isdefined as "an activity of orcaused by a person forthe purpose of a direct or indirect gain, benefit, or advantage." Tax Code 9 151.003.

It is important tonote that the Code Construction Act mandates the inclusion of llgovernment,l' "governmental agency," and "governmental subdivision" within the general definition of U1personl' as thatword isused inthe relevant provisions of the Tax Code. Gov't Code 5 311.005(2).1

When the legislature intends forgovernmental entities tobe treated differently fromother persons in the Tax Code, it specifically provides fordistinctive treatment for

1. The first act imposing the limited sales and use tax contained a definition of "person" which included the VState, orany agency hereof, or any city, county, special district, orother political subdivision of this State to the extent engaged in the selling of tangible personal property . . . .*IActs 1961, 57th Leg., 1stC.S., ch. 24, 91,at 71.

p. 5043.

Wr. Perry L.Adkisson Honorable Bob Bullock Page 4 (JM-987)

public entities whose activities otherwise fitwithin the reach of the statute. See. e.a., Tax Code § 151.3101 (the sales of amusements "exclusively provided: by this state, municipality, county, school district, special district, or other political subdivision of this state . . .I* are exempted from the sales anduse tax); and Tax Code 5 151.309 (exemption from payment of the tax by governmental entities).
This office has noted, for example, that the sales tax isapplied to salesmade by the Department of Highways operating asa retailer selling tangible personal property topurchasers in the general public. Attorney General Opinion H-303 (1974). No general principle in the Constitution or the Tax Code limits the application of the sales anduse tax simply because transactions subject to the tax are entered into bypublic entities, or because the public body must extract the tax from those purchasers who owe itasapart of thepurchase price of tangible personal property.
Thus, when agovernmental entity acts as a "retailer"
or "seller," section 151.052 of the Tax Code makes clear that the l*sellerlq **or** "retailer*'isnot initially liable for the tax: rather, thepurchaser is liable to the seller for the tax as '*apart of the sales price." Accordingly, the key operational definitions inthe sales tax law apply to public bodies that otherwise fitwithin their terms. The provisions of the laware clear andunambiguous, and call forno examination beyond the plainmeaning of the words used inthe statute. Brazos River Authoritv v. Graham, 354 S.W.2d 99 (Tex. 1961).

III.
The collection of the sales anduse tax and the deposit of the tax receipts with the state depends on the specific efforts of sellers and retailers mandated by the Tax Code. Retailers must register with the comptroller, and all sellers must obtain sales taxpermits. Tax Code 55 151.106, 151.201.
Subchapter I,chapter 151of the Tax Code specifies the methods which must be used by retailers and sellers to report the amount of the taxes they collect. The subchapter also specifies the deadlines formaking such reports and for transmitting tax receipts to the comptroller. See Tax Code gg 151.401, 151.409. Additionally, the code permits the seller or retailer collecting the tax todeduct one-half of onepercent of theamount due for the cost of collecting the

P. 5044Mr. Perry L.Adkisson

Honorable Bob Bullock Page 5 (JM-987) F .

F-- tax and to qualify forcertain discounts for some prepayment

of the taxes collected. Tax Code 00 151.423, 151.424.
Subchapters K and L, chapter 151 of the Tax Code specify the procedures used to collect delinquent sales taxes, mandate penalties tobe levied for certain violations of the sales tax law, and prohibit certain practices with regard to the collection andpayment of the tax.
The provisions of theTax Codewhich place the burden of collecting the sales tax on sellers and retailers do not distinguish retailers and sellers inthe public sector from private retailers and sellers. Again, itappears that when the legislature meant for different rules to apply to governmental entities, itprovided so inother definitional provisions of the Tax Code. Sea the discussion atpage 5, above.
Thus, absent specific language creating an exception forgovernmental entities, all of the provisions of the limited sales, use, and excise tax law apply togovernmental entities entering into transactions subject to the provisions of the Tax Code,with the exception discussed in Part IV, and subject to the general qualifications set out in Part V. Specifically, public institutions ofhigher education when they act as l*sellersE'or "retailers** by conducting transactions subject to the sales tax, should be treated by the comptroller asanyother "seller" or "retailer" engaged inthe kinds of transactions subject to the tax. They are entitled toall of thebenefits extended to "sellers" and "retailers" in the Tax Code, and subject to all of the burdens of the law. Accordingly, they are entitled to withhold the statutorily prescribed amount permitted to sellers and retailers who collect taxes, to reimburse them for the costs of collecting the tax onbehalf of the state, and to qialify foranybounties provided forthe prepayment of taxes. Tax Code 55 151.423, 151.424. Additionally, the comptroller asks specifically whether governmental entities must purchase sales tax permits. Section 151.202 of the Tax Code provides that a "person desiring tobe a seller inthis state shall filewith the comptroller an application forapermit foreach place of business." See also Tax Code 95 151.201, 151.2021 (governs fees tobe charged for issuance and renewal of sales tax permits). There isno language inany of theprovisions of the sales and use tax lawconcerning permits to indicate that the legislature intended for governmental entities

**13.** 5045or. Perry L.Adkisson

Honorable Bob Bullock Page 6 (JM-987)

conducting business as sellers tobe exempt from either the permit requirement or the fees tobe charged for new and renewed permits. Attorney General Opinion JR-973 (1988).

IV. Subsequent to the enactment **of** the Tax Code, the legislature adopted the State Funds Reform Act. Gov't Code 3s 404.091 - 404.094. The State Funds Reform Act applies to state agencies, defined as:

anoffice, institution, or other agency that is inthe executive branch of state government, has authority that isnot limited to a geographical portion of the state, and was created by the constitution or a statute of this state, but does not include an institution ofhigher education asdefined by Section 61.003, Education Code.

Gov't Code §404.092. The act applies to state agencies only "tothe extent that they are not otherwise required to deposit funds inthe treasury." The actdoes not apply to funds.specified in section 404.093 (b) of the Government Code, none ofwhich are relevant to this inquiry.

In essential part, the state Funds Reform Act requires that:
(a)Fees, fines,penalties, taxes, charges,

gifts, donations, andother funds collected or received by a state agency under law shall be deposited in the treasury . . . .**A** deposit shall **be** made at the earliest possible time that the treasury canaccept those funds, && not later than the seventh dav after the date of receint.
(b)Money that is **required** by this subchapter orby another law tobe deposited in the treasury shall bedeposited to the credit of thegeneral revenue fundunless the money is expressly required to be deposited to another fund, trust fund, or special account not inthe general revenue fund. This subsection does not affect the authority of the comptroller or the treasurer to establish and use accounts necessary tomanage and account for state revenues and expenditures. (Emphasis added.)

p. 5046P Mr. Perry L.Adkisson

Honorable Bob Bullock Page 7 (JM-987)

Gov't Code 5404.094. Sales sellers and retailers "shall be tax receipts collected by delivered to the office of the comptroller.n Tax Code S 151.409. **At** present, the comptroller's rules require taxes collected by state agencies tobedeposited inthe treasury within seven days. Comptroller of Public Accounts, Revenue Accounting Rule 12.
This practice of the comptroller isconsistent with the State Funds Reform Act. Although the Tax Code specifies that sellers and retailers must send sales tax receipts to the comptroller on either amonthly or aquarterly basis, the comptroller may require that receipts be submitted on a different basis, if he deems that to be necessary "to facilitate the collection of taxes due." Tax Code 55 151.401, 151.405. Thus, the present practice which requires taxes collected by the state and itsagencies tobe deoosited inthe treasury within seven days isauthorized by the Tax Code. This practice isalso consistent with the provisions of the Government Code requiring that taxes collected or received by state agencies must be in the treasury within seven days ofreceipt.

V.

The comptroller also asks whether the enforcement provisions in subchapters K and L,chapter 151of the Tax Code apply to governmental entities, including the state, its agencies, counties, cities, and independent school districts. In particular, the comptroller inquires about the application ofprovisions levying penalties and interest forthe late filing of required reports and the late payment of taxes to such taxpayers.
The enforcement provisions of the Tax Code make no distinction between public and private entities subject to the code inany of the sections touching on the enforcement of the sales and use tax, including the provisions concerning the levying ofpenalties and interest.

The Constitution forbids payments tobemade from the public treasury except pursuant to a specific appropriation. Tex. Const. art. VIII, 5 6. Additionally, appropriations maybemade only under the authority ofpreviously adopted legislation. Tex. Const. art. III, §44. The state is not liable for interest on claims made against it, unless a statute authorizes the interest. See, e.a., State v. El, PasoNatural Gas Comoany, 300 S.W.Zd 170 (Tex.Civ. App. - Austin 1957, nowrit).

D. 5047Mr. Perry L.Adkisson

Honorable Bob Bullock Page 0 (JM-987)

The Tax Code requires all of the entities subject to itsprovisions to pay interest oncertain tax returns filed late: the state is such an entity. The Tax Code also does not discriminate between public andprivate entities in the provisions governing the imposition ofpenalties. Therefore, the code authorizes the state topay both the interest and penalties which may be levied against it under the enforcement provisions of the sales and use tax law. This means that the comptroller may imposepenalties and interest inthe appropriate circumstances specified by the Tax Code. Satisfaction of a levymust await action by the legislature to aooronriate funds topay any levies against the state or one of itsarms. Again, while the imposition of such a penalty by the state against itself may be a pointless process, it isnot forbidden by any provision in the law. Lower Colorado River Authoritv v. Chemical Bank and Trust Co., 190 S.W.2d 48 (Tex.1945).
Counties must adopt annual budgets which provide details ofplanned expenditures forthe county. See aeneru Local Gov't Code, ch. 111. Expenditures may be made only "in strict compliance with thebudget." See Local Gov’t Code 55 111.010, 111.041, and 111.070. This means that all payments, including fines and interest due because ofviolations of the Tax Code,mustbe provided for specifically inthe budget adopted by thecounty commissioners.

A similar pattern applies both tomunicipalities and school districts. See Local Gov't Code §102.009; Educ. Code OS 17.29, 17.56, 23.42, and 23.47.

SUMMARY

The Limited Sales andUse Tax Law applies fully to the state, including its agencies and political subdivisions, to municipalities, and to independent school districts entering intotransactions which fit within the terms of the Tax Code. All entities subject to the provisions of the sales tax law are entitled to anybenefits extended .by the statute, including the provision which allows sellers and retailers who collect the tax towithhold a specified percentage of the taxes collected as reimbursement for the costs of collection. The State Funds Reform Act, sections 404.091 through 404.094 of the Government Code, apply to the handling of sales tax receipts collected by the entities subject to the act. Penalties and interest -.

p. 5048Mr. Perry L.Adkisson

Honorable Bob Bullock Page 9 (JM-987)

levied against public entities the Tax Codemay be paid by the pursuant to law.

Very

h pursuant to entities only

JIM MATTOX Attorney General ofTexas

MARY KELLER First Assistant Attorney General

LouMCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared by D.R. Bustion, II Assistant Attorney General

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