Untitled Texas Attorney General Opinion ( 1986 )

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