Court Opinion

ID: 4130928
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:10:01.794545+00
Date Added: 2024-06-11T14:33:14.922052
License: Public Domain

The Attorney               General of Texas
                                                         August    19,   1986
JIM MATTOX
Attorney General

Supreme Court Building               Honorable Bob Bul1oc.k                           Opinion   No.       JM-539
P. 0. Box 12549                      Comptroller    of Public     Accounts
Austin. TX. 7971% 2549               L.B.J.  Building                                 Re:    Whether interest  should be
512/47~~2501                         Austin.   Texas   78774                          paid on taxes collected     by the
Telex 9101874-1397
Telecopier   512/475.0266        .
                                                                                      Comptroller    on behalf  of local
                                                                                      jurisdictions

714 Jackson, Suite 700               Dear Mr. Bullock:
Dallas, TX. 75202-450s
214/742-9944
                                           You inform us that you have received          numerous inquiries     from city
                                     and county     officials      regarding   whether   interest   should   be paid on
4924 Alberta   Ave., Suite 160       taxes collected       by your office     OII behalf  of local  taxing   units.   YOU
El Paso, TX. 79905.2793              note that heretofom         no interest    has been paid to local      taxing  units
91515334464                          on these    funds between        the date on which your office        collects    the
                                     taxes   and the datf: on which such funds are disbursed               to the local
r
     Texas, Suite 700
                                     taxing units.       Accordingly     you ask us four questions:
Houston, TX. 77002~3111
7131223-5888                                     1. Must interest          earned on all taxes collected   on
                                                 behalf     of' local    jurisdictions  be remitted    to the
                                                 jurisdictions        for which the taxes were collected?
606 Broadway, Suite 312
Lubbock, TX. 79401-3479
8061747-5238                                     2.  If the answer to question          (1) is "yesrn          should
                                                 the Statf: Treasurer  calculate          the interest          based
                                                 upon the rate earned by the           State Treasury           while
4302 N. Tenth, Suite B
                                                 they [sic] held the funds?
McAllen. TX. 79501-1685
5121692-4547
                                                 3.   If interest     is payable     on such amounts, should
                                                 interest   earned in previous        periods be remitted  to
200 Main Plaza, Suite 400                        the local   jurisdictions?
San Antonio. TX. 782052797
512/225.4191
                                                 4.   If the answer  to question    (3)         is    “yes,”       how
                                                 far back must interest   calculations               be   made     and
An Equal OppOrtUnitYl                            interest  remitted?
Affirmative Action Employer

                                     We do not understmd       you to ask whether      the state   is entitled    to
                                     interest   on taxes collected   by local   taxing    units  on behalf   of the
                                     state and deposited  in their accounts   prior    to their remittance    to the
                                     state.   See, m,    Tax Code, 55152.001   et seq.

                                           The Local Sales and Use Tax Act, V.T.C.S..     article                 1066c, permits
                                     a city,  by a major:ity vote of the qualified    voters    of              the city voting

                                                                         p.   2480
Honorable     Bob Bullock     - Page! 2      (X3-539)

at an election   held for thm.t purpose,          to adopt a local      sales and use
tax.     Section  5(a)    of    the   act    provides    in pertinent       part    that
I, . . . the comptroller      sha:.3. perform     all functions     incident     to the
administration,     collection,        enforcement,      and    operation      of    the
tax.   . . .” Section    7.A of the act provides        the following:

                  Any local   sales   and use tax collected     by the
              Comptroller   under this Act on behalf      of any city
              shall  be depositlzd     with the State   Treasurer    &
              trust  and shall      be kept in a separate     suspense
              account for each mch city.       (Emphasis added).

Section     8(a)   of   the act   setli   forth   the   following    in pertinent       part:

             ‘Each city’s       share of all local           sales    and use tax
              collected     under ti:Ls Act by the Comptroller                 shall
              be transmitted          to the Treasurer          or the officer
              performing       the fractions        of such office          of such
              city     by the       Conptroller        payable      to    the   city
              periodically       as smromptly as feasible.                Transmit-
              tals    required      unlier this       Act shall        be made at
              least    twice in eac:h state          fiscal    year.      The funds
              so transmitted         m&y be used by the city                for any
              purpose     for “hid.        the general      funds of the city                    -,
              may be used.         Befo.ce transmitting         such funds,       the
              Comptroller       shall     deduct   two percent         (2%) of the
              sum collected          from each such city              during    such
              period    as a charge by the State of Texas for its
              services     specified       in this Act, and the amounts so
              deducted,      subject     ‘to the provisions         of Section     7B
              of this Act, shal:. be deposited              by the Comptroller
               in the State Trealrury to the credit                of the General
              Revenue Fund of the State.

Section     9 of this         act provides      that “[mloney      collected     under this
[a]ct    is for the use and b’znefit             of the cities     of the state;      but no
city   may pledge         anticipate’3     revenue   from this’ source       to secure    the
payment      of    bonds      or   oth#!r: indebtedness.”        The act       contains     no
provision       specifically       detailing     the proper    disposition      of interest
accruing     to the accounts         of the cities     imposing the tax.

       The comptroller      also has responsibility           under V.T.C.S.       articles
1118x and 1118~. which aut’vlrlze            the creation       of metropolitan         rapid
transit       authorities       and    regional       transportation         authorities,
respectively.        Each act pe:mlits      authorities      created    pursuant     to the
act    to   levy    local   sales    and use      taxes.      Such taxes       are    to be
administered      and collected     by the comptroller.          V.T.C.S.    arts.    1118x.
§llB;     1118y,   §16.    Under both     acts,     the provisions        of the Limited
Sales,    Excise and Use Tax, V.T.C.S.          art.    1066c, are applicable         to the

                                             P.    2481
     Honorable     Bob Bullock         - PaSe 3        (JM-539)

     collection    of the tax.   V.T.C.S.                      arts.    1118x,  §llB(c)(3);           1118y,
     516(f) (2) Cc).  It is the interest                      generated   by the deposit         of    these
     taxes with which you are ccncerned.

             Article       VIII,    section     7,   of     the   Texas   Constitution     provides      the
     follo"ing:

                   The Legislature    shall not have power to borrow,      or
                   in any manner divert     from its purpose,   any special
                   fund that may, cr ought to,        come into   the Trea-
                   sury;   and shall   make it penal for any person        or
                   persons    to borrow,   withhold  or in any manner to
                   divert   from its   purpose.any   special  fund,  or any
                   part thereof.

            Article      VIII,     section      7, has been construed              to require           that
     interest     on constitutionally           dedicated      funds may be spent only for the
     purposes     for which the fund was created;                  a diversion     of such interest
     to other      purposes      would v::olate        the constitution.           Lawson v. Baker,
     220 S.W. 260,     272 (Tex.        Civ.     App.     - Austin       1920,     writ      ref'd).
     Consequently,         interest      earned       on a constitutional              fund      must be
     credited      to that        fund,     unless      the    constitution       itself       otherwise
     directs.        Attorney       General      Opinions       JM-323,     JM-321      (1985);       M-468
     (1969).      Then interest        on E,tate funds dedicated             by statute,         however,
     may be legally          severed      ar.d placed       in the general          fund.       See Gulf
                                                                                                --
     Insurance      Co. v. James,          185 S.W.Zd 966 (Tex.              1945)    (article        VIII,
     section     7, of the Texas Constitution                   applies    only to special            funds
     created      by    the    constitution,          not    by statute);         Attorney         General
     Opinions     JM-323, JM-321 (17135); MW-338 (1981);                    see also Brazos River
     Conservation        & Reclamation-District              v. M&raw,        91 S.W.2d 665 (Tex.
     1936)    (article      VIII,     section      7, does not apply            to general         revenue
     funds).       Article      2543d (since         repealed       and m-codified          es section
     3.042(a)      of V.T.C.S.,         article      4393-l)      effects    such a severance              of
     interest     on statutory       funds as a general           rule.

            Section 3.042(a)             of ;.rticle          4393-1, V.T.C.S.,    the     article      that
     sets forth the powers              and duties          of the state   treasurer,      provides      the
     following:

                       Interest     receivei.     fro"    time deposits      of money in
                       funds and accouni:s          in the charge of the treasurer
                       shall be allocated          es follows:        to each constitu-
                       tional    fund there shall           be credited     the pro rata
                       portion    of the interest         received    due the fund; the
                       remainder       of   th;      interest     received,      with     the
                       exceotion       of    tha.t     vortion     required     by     other
                       statutes      to be credited          on a pro rata       basis     to
                       protested      tax payments.         shall   be credited      to the
                       General Revenue Fund.   --        The interest     received     shall
,-

                                                       p.    2482
                                                                                                                ,

Honorable     Bob Bullock       - Page 4         (.Jki-539)

              be   allocated         on     a    monthly      basis.        (Emphasis
              added).

The funds about which you inquire                are not constitutionally     dedicated
funds;     rather,     they are statutory         funds.   Consequently,   pursuant     to
section      3.042(a),      the   in,:erest     on such    funds   would   normally    be
credited      to the General Rerenue Fund.             However,  the rule with regard
to the disposition         of interest      earned by the deposit    of trust funds is
different.

       This office    previously      'has determined    that the provisions       of whet
is now section        3.042(a).       V.T.C.S.,    art.    4393-1.     do not apply      to
interest    earned on trust funds that are not the property                  of the state
and that      the state       treasurer     holds   as trustee        out of    the state
treasury.      Opinions   issued by this office         consistently     have maintained
that interest      on such trusj: funds becomes part of the principal                 end,
consequently,      part    of    the fund that       generated      the interest.      See
Attorney    General Opinions        JM-306, .Jk-300 (1985);        MW-82 (1979);    H-1040
(1977);    M-468 (1969).         Cf. Attorney     General     Opinions     MW-338 (1981);
H-1187 (1978).       The issur'then,         is whether the funds about which you
inquire    are trust    funds,     as opposed to statutory          funds.    We conclude
that they are trust funds.

       The      opinions        cited       above    ,indicate       that     in    order      to    be
characterized          as trust      fur&s,     the funds in question             should    reflect,
among other          things,     (1) that they are administered                  by a trustee         or
trustees,       (2) that the funds neither               are granted       to the state        in its
sovereign       capacity       nor collected        for the general          operation     of state
government,         and (3)       that     :they are      to be spent          and invested         for
specific,       limited      purposes     and for the benefit           of a specific       group of
individuals.           Being in the nature of a trust,                 such funds are entitled
to    retain       the    proceeds       :irom their        investment.         Attorney     General
Opinions      MW-481 (1982);          M-468    (1969).       It is clear       from a reading         of
V.T.C.S.,       articles       1066~. 1118x. and 1118~ that the funds about which
you inquire         are trust      fund:; and are entitled            to be credited       with the
accrued      interest        earned bI' their        deposit.       Under each statute,             the
comptroller         acts     as trustee       on behalf        of the various         taxing     units
imposing       the taxes.          The taxes        are not granted           to the state          nor
collected        for     the general         operation       of   the state.         Each statute
specifies       the purposes         for which such taxes may be spent,                   with each
taxing unit receiving             the amount of taxes that each imposes.

       Your remaining    questions    concern     the proper method of crediting
the various     funds for interest      earned in previous      years.    We decline
to give advice as to the specific          accounting   methods or time intervals
to be used        in calculatirg     past    interest.     The answers     to these
questions    depends upon ini'ormation         not provided    by your request      --
s,       the terms, duration,     and types of deposits,       applicable   rates of
interest.    etc.    We can sta,te as a general        matter,   however,   that the                       -,

                                                P. 2483
Honorable     Bob Bullock      - Page 5      (JM-539)

funds have exhibited          the aforementioned       trust  fund characteristics
since their     creation.      Con:iequently,    the funds are entitled     to credit
for depository       interest    from the various       dates   of their  inception.
Before    the funds may be credited         with this interest,    however,   certain
limitations    on the use of treasury         funds must be considered.

        You first      asked whett:er      interest      earned by the state           on taxes
collected      on behalf      of local    taxing     units must be "remitted"             to the
 taxing    units    for which thmz taxes were collected.                     The word "remit"
means "to transmit           or send,     especially        to a distance,         as money in
payment of a demand, account,               draft,    etc."      Nicoletti     v. Bank of Los
Banos,     214 P. 51, 52 (Cal,          1923),     27 A.L.R. 1479 (1923);      Katcher v.
American Express Cc.,           109 ,4. 741, 742 (1920);            First National      Bank v.
People's     Bank, 140 S.E. 705 (N.C. 1927);                 Hollowell      V. Life Insurance
Company of Virginia,          35 S.E. 616, 617 (N.C. 1900).               We understand       your
first     question,     then,    to 'mmprise       two parts:         first,    whether     local
jurisdictions        are entitled      to interest       earned by the state           on taxes
collected     on behalf     of local    jurisdictions;        and, second,       if the answer
is "yes ," whether the stats            treasurer      must then disburse           or transmit
such funds to the respecttire            taxing     units.      We answer the first           part
of the first         question     in the affirmative;            the second      part,   in the
negative.

       Article      VIII,     sectior.       6, of the Texas Constitution            prohibits
withdrawal       of    funds      from      the    state   treasury     in the     absence     of
legislative       appropriation.             The Texas     Supreme Court has held           that
funds erroneously           deposited       in the treasury       are nevertheless      subject
to this      constitutional          lirlitation      and may not be removed from the
treasury     without      legislative         action.    Manion v. Lockhart.        114 S.W.2d
216,     219 (Tex.        1938).        Accordingly,      the legislature       must make a
specific      appropriation         befm,re any interest         erroneously    deposited      in
the general      revenue fund may be remitted               to the cities    or authorities.

       We note that the disuetion          that the legislature       may exercise      in
this area is broad.         For ertample, rather      than remit such interest          to
the taxing     unit,   the legis:lature,      if it so chose,       could   require    by
statute    that' all    such interest      be retained    in the General        Revenue
fund, transfered      to another fund, or directed         to be expended for some
other purpose.       In Gulf 1n;urance       Co. v. James, 185 S.W.2d 966 (Tex.
1945).    the Texas      Supreme ?ourt      upheld   the constitutionality          of a
statute   which served to transfer        from ststutory     "special    funds" to the
General Revenue Fund portions          deemed surplus     created     from taxes paid
into the Motor Vehicle        Division    Fund and the Fire Insurance          Division
Fund.    The Court declared:

             We agree with the holding      of the Court of Civil
             Appeals' that ths: Legislature     has the right     to
             transfer  the a&e       on hand in these      special
             funds to the Gengral Revenue Fund.       In so doing

                                             p.   2484
                                                                                              ,

Honorable    Bob Bullock      - Page: 6

             the Legislature        dms not violate           the provisions       of
             Article       VIII,        section         7,     of      the      Texas
             Constituticn.        . . . The state could have required
             the funds ccllectzd           for the purposes           indicated     to
             be paid directly          to the General           Revenue Fund in
             the first     instance.       . . . If it had done so, then
             certainly      the exxss,           if    any,    would     have been
             available       for    uce     for      general     purposes.        The
             propriety     and fairness        of an enactment authoris-
             the use of the unexpended balances                    in these funds
             for    general      purp,%es      present      legislative       rather
             than judicial         corgideraticns.            Consequently,       the
             state now has the :cight,              if the Legislature          deems
             it wise to pass suitable                laws authorizing         it,   to
             use     the   balance!;      of     these      special      funds    for
             general     purposes.       (Emphasis added).

185 S.W.2d 966,    971.

       Indeed,     even in the case of a statutory            trust     fund,  the Texas
Supreme Court has ruled tha:,          so long as no vested         right   is impaired,
an amendment that         serves   t,c alter     or reduce     a benefit      heretofore
granted    by statute      is permissible.       In the leading        case of City of
Dallas    v. Tramnell,       101 S.W.2d 1009 (Tex.        1937),     the Texas Supreme
Court    specifically      upheld   the constitutionality          of a statute,        the
effect    of which was to reduce          the.pension     benefits      of a pensioner.
The court stated       (and restated    and restated    again)     the issue thus:

                 As we view           1:he matter,         the       true    question
             involved      is     this:       Does      the      employee,        after
             retirement,       have a vested        right      to participate         in
             the pension       fund to the extent            of the full        amount
             of retirement;          that    is;    does he have a vested
             right    in     future      installments          which       cannot     be
             affected     by subsequent            legislation           tending      to
             diminish    the amcuut of such installments?                     Putting
             the matter in somewhat different                    language,      we may
             properly    inquire       if the right         which the employee
             has to participate           in the pension             fund,   acquired
             by virtue      of his contract,           imposes upon the city
             and the Legislature            of the state            (the source       of
             the city's      power and authority           in a matter of this
             kind) the inviolal~le          duty of maintaining             a pension
             fund of such prcportions                as will          guarantee      the
             right    to defendant          in error         and others         having
             equal rights        with him to participate                to the full
             extent    of the monthly amounts previously                       awarded
             to them at the time the right                          to participate
             accrued?        In    other     words,       is      the    Legislature
Honorable    Bob Bullock       - Page 7     (.D+539)

             without   constitul:icnal    power to repeal      the laws
             upon which     the pension     system   of   the City    of
             Dallas  is based,      or to modify their   provisions    in
             such way as to tiiminish       the pensions     payable  to
             those who have become qualified       to receive    them so
             long as any one who has been granted             a pension
             shall live?

101 S.W.2d 1009,    1011.

      The court     concluded     that

             the    right     of   a pensioner        to   receive     monthly
             payments from the pension             fund after      retirement
             from service,       or aEter his right to participate            in
             the    fund has accrued,          is    predicated      upon the
             anticipated      continuance    of existing        laws,   and is
             subordinate       to the right       of the Legislature         to
             abolish      the    per.sicn   system,      or    diminish     the
             accrued      benefits      of pensioners        thereunder,      is
             undoubtedly      the scund rule to be adopted.

The Court then declared        th,lt a right,       to be within     the protection      of
the constitution,      must be a .vested right or something more than a mere
expectancy     based upon an anticipated          continuance    of an existing       law;
in this     instance,    the pensioners'       rights    were mere "expectancies."
101 S.W.2d 1009, 1014-16.           See also Woods v. Reillv.
                                    ---                                 218 S.W.Zd 437
(Tex.   1949);   Board of Manaf;ers of the Harris County Hospital               District
v. Pension Board of the Pension            System for the City of Houston,              449
S.W.2d 33 (Tex.       1970); De&
                             ---        v. City    of  San  Antonio,    443 S.W.2d 590
(Tex.    Civ.   APP. - Waco 15,69, wr it ref'd): , Attcrnev             General    Letter
Advisory    No. 5. (1973).

                                         SUMMARY

                 Interest      earnai     on all     taxes      collected       on
             behalf    of local     Iaxing    units must be credited            to
             those     taxing     ur,its.      Any   interest        previously
             deposited     in the general revenue fund of the state
             treasury     must receive      specific    legislative       appro-
             priation     before    riuch interest     can be remitted          to
             the various      taxing units.

                                                       JIM      MATTOX
                                                       Attorney  General    of   Texas

                                           p.   2486
Honorable    Bob Bullock     - Page 8      (al-539)

JACK HIGHTOWER
First Assistant Attorney         General

MARY KELLER
Executive Assistant        Attorney   General

RICK GILPIN
Chairman, Opinion     Committee

Prepared    by Jim Mcellinger
Assistant    Attorney General

                                           p.   2487