January 9, 1989 

Honorable Bob Bullock Opinion NO. JM-1003 

Comptroller of Public 

Accounts Re: Whether foreign-produced or 

L.B.J. State Office Bldg. foreign-acquired alcohol gualiAustin, Texas 78774 fies for a credit claimed by a 

distributor on a gasoline/ 

alcohol mixture under section 

153.123 of the Tax Code and related questions 

Dear Mr. Bullock: 

Chapter 153 of the Tax Code governs 

(RQ-1509) 

state taxes on 

sets forth the 

Section 153.123 

motor fuels; subchapter B of chapter 153 

provisions regarding the tax on gasoline. 

of the code confers a tax credit on distributors of certain 

gasoline/alcohol mixtures, as defined in the section, and 

contains a reciprocity provision, which denies the tax 

credit to distributors of gasoline/alcohol mixtures containing alcohol fermented or distilled in states not conferring 

equivalent tax benefits to distributors whose mixtures 

contain Texas-produced alcohol. 

First, you ask about the proper construction of section 

153.123, specifically whether your long-standing construction of subsection (b) is correct, which denies the credit 

to distributors of gasoline/alcohol mixtures whose alcohol 

is fermented or distilled in foreign countries. Second, you 

ask whether the reciprocity provision set out in subsection 

(b)(4) of the section is constitutional under the rule of 

the recent United States Supreme Court decision, New Eneroy 

co. of Indiana v. Limbach. Tax Comm'r of Ohio, 108 S.Ct. 

1803 (1988) [hereinafter New Enercy]. 

We conclude that a court addressing this issue would 

follow the rule in New Energy and would hold that the 

reciprocity provision set forth in subsection (b) (4) of 

section 153.123 violates the interstate~commerce clause of 

the United States Constitution, Because of our answer to 

your second question, we need not address your first 

question. 

p. 5151 
Honorable Bob Bullock - Page 2 (JM-1003) 

Subsection (a) of section 153.123 of the Tax Code 

permits the granting of a tax credit to distributors of 

every gasoline and alcohol.mixture that meets the specifica- 

;$s of subsection (e), except as provided in subsection 

. Subsection (b)(4) sets forth a reciprocity clause, 

limiting the-grant of such tax credits to distributors of a 

mixture containing alcohol fermented or distilled "in 

another state" that itself provides an equivalent tax 

benefit for mixtures containing alcohol fermented or 

distilled in Texas. Subsection (b)(4) of section 153.123 of 

the Tax Code provides the following: 

(4) Except as provided in this subdivision, no mixture that contains alcohol that 

was mented or distilled In another state 

is eligible for a credit on its first sale or 

use in the state. If the comptroller 

certifies that mother state provides 

exemption from that state's taxes 

an 

applicable 

to gasoline or a credit or refund for taxes 

collected or an amount in lieu of taxes 

collected on a mixture of gasoline and 

alcohol, and if the other state's exemotion. 

credit. or refund allowance applies to a 

mixture that includes alcohol fermented or 

distilled in Texas, and if the alcohol 

nted r dista.J.led in the other state 

meets th: specifications provided 

Subdivisions (l), (2), and (3) of Subsecti% 

(e) of this section, then the specifications 

for the mixture for which credits shall be 

made shall include . . . alcohol fermented 

and distilled in the other stat or in T x 

and the other state . However,eif a mix:uZZ 

of alcohol ferm nt d or istilled in another 

state and gas%iEe guzlifies under this 

subsection for a credit, the amount of the 

credit under this section for the mixture may 

not exceed the amount of the exemption, 

credit, or refund (stated in or converted to 

cents for each gallon of the mixture) provided bv the state in which the al ho1 was 

Perme nted . . 

or distilled. (Bmphasis Ezded.) 

You ask: 

Does Texas Tax Code Section 153.123(b)(4) 

violate the Commerce Clause of the 

Constitution of the United States? 

p. 5152 
Honorable Bob Bullock - Page 3 (JM-10.03) 

We answer your question in the affirmative. 

This year, in a case involving a state ethanol tax 

credit statute containing a reciprocity provision 

substantively identical to that contained in subsection 

153.123 (b)(4) of the Tax Code, the United States Supreme 

Court held that an Ohio ethanol tax credit provision 

violated the interstate commerce clause of the United States 

Constitution and was therefore unconstitutional. 

In B&$ Energy, the following reciprocity provision, 

which was set forth in an Ohio tax statute conferring tax 

benefits in certain circumstances, was challenged: 

The qualified fuel otherwise eligible for 

the qualified fuel credit shall not contain 

ethanol produced outside Ohio unless the tax 

commissioner determines that the fuel claimed 

to be eligible for credit contains ethanol 

produced in a state that also grants an 

exemption, credit or refund from such state's 

motor vehicle fuel excise tax or sales tax 

for similar fuel containing ethanol produced 

in Ohio; provided however, that such credit 

shall not exceed the amount of the credit 

allowable for qualified fuel containing 

ethanol produced in Ohio. 

OHIO REV. CODE ANN. 5 5735.145(B) 

The Court concluded that the 

interstate commerce clause of the 

(1987). 

Ohio statute violated the 

U.S. Constitution: 

It has long been accepted that the 

Commerce Clause not only grants Congress the 

authority to regulate commerce among the 

States, but also directly limits the power of 

the States to discriminate against interstate 

commerce. This V~egative~~ aspect of the 

t;z;~e Clause prohibits economic protec- 

-- that is, regulatory measures 

designed to benefit in-state economic interests by burdening out-of-state competitors. 

Thus, state statutes that clearly discriminate against interstate commerce are routinely 

struck down, unless the discrimination is 

demonstrably justified by a valid factor 

unrelated economic 

(Citations om&ed.) 

protectionism. 

- 

p. 5153 
Honorable Bob Bullock - Page 4 (JM-1003) 

New Energy suora at 1807. The court concluded that there 

was no such valid factor in this instance: 

Our cases leave open the possibility that 

a State may validate a statute that discriminates against interstate commerce by showing 

that it advances a legitimate local purpose 

that cannot be adequately served by reasonable nondiscriminatory alternatives. This is 

perhaps just another way of saying that what 

may appear to be a "discriminatoryw provision 

in the constitutionally prohibited sense -- 

that is, a protectionist enactment -- may on 

closer analysis not be so. However it be 

put, the standards for such justification are 

high.1 

Id. at 1810. The United States Supreme Court decision in 

New Enerov was both anticipated, see. e a. 

publisher Indus.. Inc., 457, So.Zd 1374 (Fla: 1684v 

er 

Arch& 

Daniels Mid1 nd Co. v. State ex rel. Al&& 315 N.W.2d 597 

(Minn. 1982): and, of course, has been followed. Se , a 

Russell Stewart Oil Co. v. State of Illinois, 529 N.i.2: 48; 

(Ill. 1988). 

We conclude that, on the basis of New Em, a court 

presented with the issue would conclude that the Texas 

reciprocity provision of subsection (b)(4) of section 

153.123 of the Tax Code unconstitutionally violates the 

interstate commerce clause of the United States Constitution. Because of a 1983 amendment including a specific 

non-severability provision which has the effect of 

invalidating the entire statute 

declared unconstitutional,2 

if any part thereof is 

we need not address your first 

question. 

by state legislation, a virtually per se rule 

has been erected.") and Hushes v. Oklah ma 

337 (1979)("[F]acial .discrimination by itzeli 

defect [and] [a]t a minimum . . . invokes 

scrutiny.lO) 

1. The Court relied upon two fairly recent cases as 

precedent: Philadelwhia v. New Jersev, 437 U.S. 617, 624 

(1978) (w[W]here simple economic protectionism is effected 

of invalidity 

441 U.S. 322, 

may be a fatal 

the strictest 

2. Subsection (b)(5) of section 153.123 declares: 

(Footnote Continued) 

p. 5154 
Honorable Bob Bullock - Page 5 (JM-1003) 

SUMMARY 

Under the rule set out in pew Enerov Co. 

Qf Ind. v. L&p&&, 108 S.Ct. 1803 (1988), we 

conclude that a court would hold that the tax 

credit reciprocity provision set forth in 

subsection (b)(4) of section 153.123, Tax 

Code, violates the interstate commerce clause 

of the United States Constitution and is 

unconstitutional. 

(Footnote Continued) 

The provisions of Section 153.123, Tax 

Code, are not severable. If any portion of 

Section 153.123, Tax Code, is held to be 

unlawful or unconstitutional, the entire 

section shall have no force and effect. 

Acts 1983, 68th Leg., ch. 287, S 1, at 1425. A close 

reading of the statutory supplement to Volume 2 of the Tax 

Code published by West Publishing Company would lead one to 

assume that subsection (b)(5) was impliedly repealed by the 

1987 amendments to the section. However, such was not the 

case. The specific nonseverability provision in section 

153.123 was included as subdivision (5) of subsection (b) in 

1983. Acts 1983~, 68th Leg., ch. 287, § 1, at 1428. 

Subsection (b) was next amended in 1987, when Senate Bill 

No. 522 amended subdivisions (1) through (4) of that 

subsection. However, subdivision (5) was not amended: it 

remains unchanged from its original enactment. Acts 1987, 

70th Leg., ch. 552, 5 2, at 2216. If the language 

introducing the 1987 amendatory provisions had read: 

I'Subsection (b), Section 153.123, Tax Code, as amended, is 

amended to read . . .,'I we would agree with the editors of 

West Publishing Company that the 1987 amendment to 

subsection (b) effectively replaced the entire subsection. 

Instead, the language reads: %ubdivisions (l), (2), (3), 

and (4), Subsection (b), Section 153.123, Tax Code, as 

amended, are amended to read . . . .'I We have found nothing 

in the .legislative history of the 1987 amendment indicating 

that the legislature intended to repeal subdivision (5) of 

subsection (b). 

p. 5155 
Honorable Bob Bullock - Page 6 (JM-1003) 

JIM MATTOX 

Attorney General of Texas 

MARY KELLER 

First Assistant Attorney General 

Lou MCCREARY 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Jim Moellinger 

Assistant Attorney General 

, 

p. 5156