Untitled Texas Attorney General Opinion ( 1988 )

THE ATTORNEY GENERAL
OF TEXAS
October 5, 1988
Honorable Stan Schlueter Opinion No. JM- 963
Chairman
Nays and Means Committee Re: Whether a proposed delivery
Texas House of fee on petroleum products, used
Representatives to create a state clean-up fund
P. 0. Box 2910 to comply with federal stan-
Austin, Texas 78769 dards, would be subject to the
provisions of article VIII,
section 7-a, of the Texas
Constitution (RQ-1449)
Dear Representative Schlueter:
Subchapter IX of title 42 of the United States Code
governs the regulation of underground storage tanks
containing "regulated substances" as defined in the code,
principally petroleum and other substances defined as
'*hazardous.1' See 42 U.S.C. §§ 6991-6991i. The subchapter
authorizes the administrator of the Environmental Protection
Agency to promulgate rules regarding, inter alia, "release
detection and release prevention" of such substances arising
from the operation of such tanks, as well as corrective
action to be taken by owners or operators. It further
confers on the administrator authority to approve state
programs that are intended to comply with the federal
statutes and rules. when the state program is approved, it
is to be enforced in lieu of the federal program, with
primary enforcement responsibility falling upon the state.
See 42 U.S.C. 5 6991c.l
1. In order to comply with the federal provisions,
Texas has enacted laws governing underground storage tanks,
set forth in subchapter I of chapter 26 of the Water Code.
Section 26.346 of the Water Code provides that, except as
specifically provided, all underground storage tanks must be
registered with the Texas Water Commission. Pursuant to
rule-making authority conferred by that section, the
(Footnote Continued)
P. 4895
Honorable Stan Schlueter - Page 2 (JM-963)
Pursuant to subsections 9003(c) and (d) of the Resource
Conservation and Recovery Act, as amended by the Hazardous
and Solid Waste Amendments of 1984 and the Superfund
Amendments and Reauthorization Act of 1986 (codified at 42
U.S.C. §§ 6991b (c), (a)),2 the Environmental Protection
Agency has published proposed rules that impose financial
responsibility standards upon the owners and operators of
underground storage tanks containing petroleum. See 52 Fed.
Reg. 12,786 and 48,638 (to be codified at 40 C.F.R. 5 280).
The rules establish requirements to be met by owners or
operators of underground storage tanks for demonstrating
(Footnote Continued)
commission has imposed a registration fee of $25 for every
underground storage tank. Section 26.352 of the code
confers authority on the commission to adopt requirements
regarding financial responsibility arising from the
operation of such tanks:
The commission shall adopt requirements
for maintaining evidence of financial
responsibility for taking corrective action
and compensating third parties for bodily
injury and property damage caused by sudden
and nonsudden accidental releases arising
from operating an underground storage tank.
Section 26.352 was included in Senate Bill No. 779 when
subchapter I was added by amendment in 1987. Acts 1987,
70th., ch. 277, § 1 [hereinafter Senate Bill No. 7791. The
commission has not yet adopted any rules regarding financial
responsibility.
2. Subsection (d)(l) of section 6991b provides:
Financial responsibility required by this.
subsection may be established in accordance
with regulations promulgated by the
Administrator by any one, or any combination,
of the following: insurance, guarantee,
surety bond, letter of credit, qualification
as a self-insurer or any other method
satisfactory to the Administrator. In
promulgating requirements under this
subsection, the Administrator is authorized
(Footnote Continued)
P. 4896
Honorable Stan Schlueter - Page 3 (JM-963)
P
their financial responsibility, and giving proof of their
ability to take corrective action and to compensate third
parties for bodily injury and property damage caused by both
sudden and gradual accidental releases arising from the
operation of such tanks. The proposed rule requires cover-
age in the amount of one million dollars per occurrence.
You claim that owners and operators of these underground
storage tanks, for the most part, are unable to secure
insurance coverages in this amount for pollution clean-up.
You indicate in your request letter that petroleum marketers
in Texas are promoting legislation that would create, in
effect, a clean-up fund that is intended to satisfy the
financial responsibility standards set forth in the federal
rules. 3
The statute that you propose would provide that funds
for the pro ram would be administered by the Texas Water
Commission. % The funds would derive from a proposed
"delivery fee" of six tenths of a cent ($0.006) per gallon
on "regulated substances,l' as defined in the federal
provisions, when they are drawn from the refinery recess
and pass into the marketing or distribution system. g The
(Footnote Continued)
to specify policy or other contractual terms,
conditions, or defenses which are necessary
or are unacceptable in establishing such
evidence or financial responsibility in order
to effectuate the purposes of this chapter.
3. We note that section 6991c of title 42 permits~the
administrator of the Environmental Protection Agency to
approve a state program only if the requirements of that
program are no less stringent than the corresponding
requirements under the federal program. See Water Code, g
26.357.
4. You have not asked us to construe any specific
proposed statute: rather, you ask in general about a statute
that would create a dedicated clean-up fund. Accordingly,
we do not place our imprimatur upon any specific proposed
statute or any specific proposed language.
5. We note that the fact that the charge is measured
by the amount of "regulated substances," including
petroleum, does not mean that the charge is a tax on
(Footnote Continued)
P. 4897
Honorable Stan Schlueter - Page 4 (JM-963)
proposed fee would be treated by the marketers and
distributors as a "Cost of product," similar to
transportation charge, that would not be recovered as a taZ
on consumer use. The revenues thus generated would be
dedicated to establishing a back-up fund for pollution
clean-up costs over and above the $10,000 of liability
coverage to be assumed by the owner/operator for each site.
You do not ask whether then proposed legislation would
satisfy the proposed federal rule: rather, YOU ask two
questions regarding Texas law and the proposed statute:
1. Would the fee, as described above,
fall within the purview of Texas Constitution
Article 8, Sec. 7-a, and require use of the
funds in highway construction after the
one-fourth allocation to the Available School
Fund?
2. If the answer to No. 1 is *'No," then
is the Legislature authorized to make a
statutory dedication of the fees to the Texas
Water Commission for regulation of the
clean-up fund?
We answer your first question in the negative: such
funds would not fall within the ambit of article VIII,
section 7-a, of the Texas Constitution. We answer your
second question in the affirmative; the legislature is
empowered to dedicate by statute the funds derived from such
a fee as you propose for the purpose of securing pollution
clean-up.
You first ask whether the proposed fee falls within the
ambit of article VIII, section 7-a, of the Texas Constitu-
tion, which provides:
Subject to legislative appropriation,
allocation and direction, all net revenues
remaining after payment of all refunds
allowed by law and expenses of collection
derived from motor vehicle registration fees,
and all taxes, eXCeDt cross production and ad
(Footnote Continued)
petroleum. Because we conclude that the charge is not a tax
in the first instance, we need not determine the incident
upon which the charge is imposed.
P. 4898
Honorable Stan Schlueter - Page 5 (JM-963)
valorem taxes, on motor fuels and lubricants
used to nr Del motor vehicles DUbliC
roadwavs. shOal1 be used for the szy: nurnose
of accuirinu riahts-of-wav,
* . constructina,
g aintai ' such U ic
roadwavs. and for the administration of such
laws as mav be nrescribed bv the Lecislature
pertainina to the sunervision of traffic and
safetv on such roads; and for the payment of
the principal and interest on county and road
district bonds or warrants voted or issued
prior to January 2, 1939, and declared
eligible prior to January 2, 1945, for
payment out of the County and Road District
Highway Fund under existing law: provided,
however, that one-fourth (l/4) of such net
revenue from the motor fuel tax shall be
allocated to the Available School Fund: and,
provided, however, that the net revenue
derived from counties from motor vehicle
registration fees shall never be less than
the maximum amounts allowed to be retained by
each County and the percentage allowed to be
retained by each County under the laws in
effect on January 1, 1945. Nothing contained
herein shall be construed as authorizing the
pledging of the State's credit for any
purpose. (Emphasis added.)
Tex. Const. art. VIII, § 7-a; see Tax Code, ch. 153.
The issue is whether the proposed "delivery fee" is a
*'tax*'for purposes of article VIII, section 7-a, of the
Texas Constitution. If it is, then the funds derived
therefrom may be expended only pursuant to that section of
the constitution.
Courts in Texas uniformly have held that, in determin-
ing whether a statutorily created charge is a tax or a
license fee, the test is that of purpose. If the overall
primary purpose of the charge is to raise revenues, then it
is a tax; if its primary purpose is regulation, then it is a
license fee. Robinson v. Hill, 507 S.W.2d 521 (Tex. 1974);
Countv of Harris v. Shennard, 291 S.W.2d 721 (Tex. 1956);
Hurt v. Cooner, 110 S.W.2d 896 (Tex. 1937), after certified
cuestions, 113 S.W.2d 929 (Tex. Civ. App. - Dallas 1938, no
P- 4899
Honorable Stan Schlueter - Page 6 (JM-963)
writ); Citv of Fort Worth v. Gulf Refinina Co., 83 S.W.2d
610 (Tex. 1935).6 The Texas Supreme Court has declared:
It is sometimes difficult to determine
whether a given statute should be classed as
a regulatory measure or as a tax measure.
The principle of distinction generally
recognized is that when, from a consideration
of the statute as a whole, the primary
purpose of the fees provided therein is the
raising of revenue, then such fees are in
fact occupation taxes, and this regardless of
the name by which they are designated. On
the other hand, if its primary purpose
appears to be that of regulation, then the
fees levied are license fees and not taxes.
Hurt v. Coovey, suvra, at 899.
It is suggested that, under the authority of Conlen
Grain and Mercantile. Inc. v. Texas Grain Sorahum Producers
Board, 519 S.W.2d 620 (Tex. 1975) [hereinafter Conlen], the
charge that you propose should be denominated an occupation
tax rather then a license fee. We disagree. In Conlen, the
Texas Supreme Court held unconstitutional a charge imposed
upon grain sorghum producers: the court held that the charge
was an occupation tax on an agricultural pursuit, a tax that
article VIII, section 1, of the Texas Constitution explicit-
ly forbids.
The statute in Conlen authorized a nonprofit organiza-
tion representing the producers of a particular agricultural
6. We note that, because the test is purpose and not
effect, a charge may have the effect of raising revenue and
not be a tax., Beckendorff v. Harris-Galveston Coastal
Subsidence District, 558 S.W.2d 75 (Tex. Civ. App. - Houston
[14th Dist.] 1977), aff'd per curiam, 563 S.W.2d 239 (Tex.
1987); Citv of Fort Worth v. Gulf Refinina co., m.
Indeed, a license fee imoosed on the orivilese of ooeratina
a certain type of business may be imposed fo; both
regulation and revenue purposes; if the purpose of the act,
taken as a whole, is primarily regulatory, the charge is
denominated a license fee. House of Tobacco. Inc. v.
Calvert, 394 S.W.Zd 654 (Tex. 1965): Pavne v. Massey, 196
S.W.2d 493 (Tex. 1946). ---.
P. 4900
Honorable Stan Schlueter - Page 7 (JM-963)
commodity to petition the Commissioner of Agriculture for
authority to conduct a referendum, on either a regional or a
statewide basis, to'determine whether the producers of the
commodity would "levy an assessment upon themselves to
finance programs authorized by this Act." 519 S.W.Zd 620,
at 621. If the referendum passed, then an election was held
to determine the members of a commodity producers board.
The board was charged with formulating and administering
programs for the purposes stated in the act. The board was
permitted to expend the money collected as an assessment for
the purposes of
developing, carrying out, and participating
in programs of research, disease and insect
control, predator control, education, and
promotion, designed ~'to encourage the
production, marketing, and use of the
commodity upon which the assessment is
levied.
519 S.W.2d 620, at 621-622. In rejecting the claim of the
board that the charge imposed was not a tax, the court
stated, inter alia, that: "It also appears that the primary
purpose of the assessment is to raise revenue."
The court in Conlen relied in part upon its prior
decision of H. Rouw v. Texas Citrus Commission, 247 S.W.2d
231 (Tex. 1952) [hereinafter -1, which involved a charge
similar to the one in Conlen. The charge, however, in Rouw
was nonrefundable and was imposed on those who packed and
marketed or processed and sold citrus fruit grown in the
state. The court in Rouw concluded that the purpose of ~the
charge was not regulatory, but rather it simply was to
promote the citrus industry:
Applying the above rule to the Act under
consideration we find the tax levied to be an
occupation tax. A readina of the Act clearlv
demonstrates that its nrimarv ournose is to
raise revenue, and not a reaulation of the
citrus fruit industrv under the volice vower.
Laudable as the purpose of the Act may be:
viz. to advertise and enlarge the markets for
Texas citrus fruit and its by-products, and
for research beneficial to the citrus
industry, the primary purpose being the
raising of revenues in excess of the amount
P
needed for regulation of the industry to
carry out the above provisions, under the
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Honorable Stan Schlueter - Page 8 (JM-963)
--.
well-established rule of law, the tax must of
necessity be classed as a occupation tax.
(Emphasis added.)
519 S.W.2d 620, at 624.
Both Conlen and Rouw are consistent with Texas court
decisions that looked to the actual conferral of regulatory
authority in determining whether a charge imposed is
intended primarily for the raising of revenue. Texas courts
consistently have characterized as license fees, rather than
as taxes, those charges that were imposed concomitantly with
the actual conferral of regulatory authority. See. e.a
Robinson v. Hill, suvra; House of Tobacco Inc., v. Calvert:
suvra: Kadane v. Clark, 143 S.W.2d 197 (Tex. 1940): Citv of
Fort Worth v. Gulf Refinina co., yuvra ; Beckendorff v.
Harris-Galveston Coastal Subsidence District, suDra; Reed v.
Citv of Waco, 223 S.W.2d~247 (Tex. Civ. APP. - Waco 1949,
err. ref'd). See also, Prudential Health Care. Plan v.
Commissioners of Insurance, 626 S.W.2d 822 (Tex. APP.
Austin 1982, writ ref'd n.r.e.) (distinguishing Conlen). ;
Texas courts consistently have characterized as taxes,
rather than as license fees, those charges that were imposed --.
without the concomitant conferral of actual regulatory
authority. See, e.q., Harris Countv v. SheDDard, suDra:
Pavne v. Massey, suvra: Hurt v. Coover, suDraL; Ex varte
Dreibelbis, 109 S.W.2d 476 (Tex. Crim. App. 1937): Tavlor v.
State, 513 S.W.2d 549 (Tex. Crim. App. 1974).
There can be little doubt that, by enacting subchapter
I of chapter 26 of the Water Code, the legislature intended
primarily to set up a system to regulate the operations of
7. The court of appeals declared:
We believe, however, we would need a more
specific declaration of the Supreme Court,
overruling the traditional distinctions drawn
between an occupation tax and a regulatory
fee, before we would be justified in holding
the charge assessed by subdivision (a) [under
article 20A.33 of the Insurance Code] to be a
Vax@* subject to the "equal and uniform**
limitations of the Constitution.
626 S.W.2d 822, at 830.
P. 4902
Honorable Stan Schlueter - Page 9 (JM-963)
underground storage tanks that contain hazardous materials
rather than a system to raise revenue. The "Bill Analysis"
prepared by the Senate Committee on Natural Resources for
Senate Bill No. 779 sets forth the background of the bill:
In 1986 the Texas Water Commission
surveyed relevant businesses and concluded
that there are at least 120,000 underground
storage tanks that would come under commis-
sion purview for regulatory authority. Tanks
underneath gasoline stations account for
80-85% of that total. A recent amendment to
the Federal Resource Conservation and
Recoverv Act mandates the imvlementation of a
national underaround storaae tank nroaram.
which is intended to be administered at the
state and local levels. Texas does not
currentlv have a reculatorv vroaram to
monitor and nrevent leaks in undersround
storaae tanks which contain vetroleum and
toxic chemical vroducts. (Emphasis added.)
The "Bill Analysis" also sets forth the purpose of the bill:
"This bill would provide for the resulation of underground
storage tanks by the Texas Water Commission." (Emphasis
added.) Section 26.341 of the Water Code states the purpose
of the subchapter:
The legislature finds that leaking
underground tanks storing certain hazardous,
toxic, or otherwise harmful substances have
caused and continue to pose serious ground-
water contamination problems in Texas. The
legislature declares that it is the volicv of
this state and the vurvose of this subchanter
to maintain and vrotect the crualitv f
aroundwater resources in the state frZm
substances in underaround tanks that mav
pollute aroundwater resources and to require
the use of all reasonable methods to
implement this policy. (Emphasis added.)
Moreover, it is clear even from a cursory reading of chapter
26 itself that the legislature has conferred broad
regulatory authority on the commission regarding the
permissible operation of underground storage tanks. See.
-, Water Code, 55 26.345 - 26.357. Because the fee that
you propose would be enacted pursuant to the state's police
power and in order to comply with federal statutes and rules
P. 4903
Honorable Stan Schlueter - Page 10 (JM-963)
regarding the regulation of underground storage tanks, we
conclude that it is more closely related to a license fee
than it is to a tax and that any money derived therefrom
would not fall within the ambit of article VIII, section
7-a, of the Texas Constitution.
You next ask whether the legislature is authorized to
make such a statutory dedication, creating a fund to be
administered by the Texas Water Commission for the purpose
of regulating pollution clean-up. Generally, the legisla-
ture is authorized to enact any law not in conflict with
either the state or the federal constitutions. Jordan v.
Crudsinston, 231 S.W.2d 641 (Tex. 1950); DeShazo v. Webb,
113 S.W.2d 519 (Tex. 1938). We understand you to ask
whether the creation of such a dedicated statutory fund
would be constitutional: however, you do not specify which
constitutional provisions concern you. We assume that you
fear that article III, section 51, of the Texas Constitu-
tion, which forbids the state from making grants of public
money to persons or political subdivisions, may be violated
by the fact that money in such a fund would be expended both
for the costs of pollution clean-up and for compensating
third parties damaged by any such accidental leakage, costs
which, absent the fund, would be borne by the owners/opera-
tors themselves. We conclude that article III, section 51,
of the Texas Constitution would not be violated by
permitting the expenditure of such money for such purposes.
In Friedman v. American Suretv Co. of New York, 151
S.W.2d 570 (Tex. 1941), the Texas Supreme Court upheld the
Unemployment Compensation Act, declaring, inter alia, that
article III, section 51, was not violated thereby. The act,
codified at articles 5221b-1 through 5221b-21, V.T.C.S.,
created a fund comprising "contributions" or taxes imposed
upon employers for the benefit of employees. The court
refused to characterize the plan as providing a gratuity,
asserting that the funds were not state funds. Rather, the
state acted merely as a trustee.
Analogously, in the system that you propose, the state
would be acting as trustee with respect to the
administration of the clean-up fund. The beneficiaries of
the trust would be those persons or political subdivisions
that are damaged by the sudden or gradual leakage or spill
from underground storage tanks of regulated substances
covered by the act. The device of creating a dedicated fund
or a trust fund is one that repeatedly has been used by the
legislature to effectuate a proper public purpose, both with -_
private persons as beneficiaries, see. e.a., V.T.C.S. art.
P. 4904
,
Honorable Stan Schlueter - Page 11 (JM-963)
r-
~:~~; (Wor k er's Compensation and Crime Victims' Compensation
; Agric. Code, 55 103.00-.013 (Produce Recovery Fund),
and with political subdivisions as beneficiaries. See.
-, V.T.C.S. art. 1066~ (Local Sales and Use Tax), 1118x
(Metropolitan Transit Authorities), 1118~ (Regional Transit
Authorities), 179d (Bingo Enabling Act), 4366e (Local
Government Corporate Banking Franchise Tax Fund): Alto. Bev.
Code, §§ 202.00-.16. We conclude that article III, section
51, of the Texas Constitution imposes no impediment to the
creation and eventual disbursement of the money from the
fund that you propose.
SUMMARY
The creation of a proposed pollution
clean-up fund by the imposition of a fee on
the owners/operators of underground storage
tanks containing certain regulated substances
for the purpose of complying with federal
statutes and administrative regulations would
not constitute a **taxi' for purposes of
article VIII, section 7-a, of the Texas
Constitution. Article III, section. 51, of
the Texas Constitution imposes no impediment
to the creation and eventual disbursement of
the money from such a fund.
It-l- m
JIM MATTOX :-
Attorney General of Texas
MARY KELLER
First Assistant Attorney General
MU 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. 4905