Untitled Texas Attorney General Opinion ( 1959 )

HE .s~-JITORNEY GENERAL
OF TEXAS
April 2, 1959
Honorable Truett Latimer O-oinionNo. W-584
Chairman
Agriculture Committee Re: Constitutionality of H.B.
House of Representatives 174, 56th Leg., relating
Austin, Texas to producers of peanuts-
acting jointly with the
Commissioner of Agrlcul-
ture In promoting the
production and use of
Dear Sir: peanuts,
In your recent letter you have advised us that
the House Agriculture Committee, 56th Legislature, has
referred House Bill 174 to thls.office for an opinion re-
garding its constitutionality.
House Bill 174 authorizes the Commissioner of
Agriculture to certify an association recommended by the
Southwestern Peanut Growers Association to conduct a State-
wide referendum among commercial reducers of peanuts. An
annual assessment of One Dollar (% 1) per net ton of peanuts
marketed by such producers is to be levied against such pro-
ducer8, if as many as two-thirds (2/X) of those voting in
such referendum favor the levy.
The annual assessment Is to be continued until at
least ten per cent (10%) of the members of the association
call for another referendum, and at such subsequent referen-
dum a certain percentage vote to discontinue the assessment.
We note here that the bill is not @ear on the
matter of ,what circumstances are required In order to dis-
continue the assessments, the last sentence of Section 12
in the proposed legislation providing as follows:
If such a partition 1 sic 1 is
presented'& the said board, then ‘i--z
he oard
shall conduct a subsequent referendum in the
same manner as outlined above and future as-
sessments will be made only two-thirds or
Honorable Truett Latimer, page 2 (~~334)
more of the producers eligible to participate
in such referendum and voting therein shall
vote in the affirmative." (Emphasis ours.)
We assume that the error is typographical and
will be corrected before final enactment of the legislation.
House Bill 174 provides that the Commissioner of
Agriculture shall upon request of the certified association
following a vote in the referendum favoring the assessment
notify all purchasers of the product that on and after a cer-
tain date the assessments shall be deducted by the purchaser
or his agent from the purchase price of such product. The
assessment SO deducted is to be remitted by the purchaser to
the Commissioner on or before the 20th day of the month fol-
lowing such deduction. The ComjaXssionerof Agriculture is
to pay ninety-five per cent (95%)'of the assessments to the
certified association or organization by the end of the month.
Inspection of the purchaser's books and records
by the Commissioner is authorized by the bill. On all sums
so remitted to the Commissioner he is entitled to deduct
five per cent (5%) for administration of the act. These
amounts deducted by the Commissioner are to be paid into the
State Treasury and are by the act appropriated for the use
of the Commissioner In carrying out the provisions of the
act.
With the exception of the five per cent (5s) noted
above, the bill does not authorize the deposit of the asaess-
ments in the State Treasury, but providesonly that they
shall be received by the Commissioner of Agriculture and
by him remitted to the certified association or organization.
Under the bill any producer who is dissatisfied
with the assessment may demand and receive from the treas-
urer of said assooiation a refund If the demand is made in
writing within thirty (30) days from the date on which the
assessment is collected from the producer.
The proposed statute indicates that the portjon
of the assessments in excess of the fjve per cent (5%) to
be deducted by the Commissioner is to be used for the pur-
pose of financing or contributing toward the financing of
Honorable Truett Latimer, page 3 (WWz584)
a program of research, education and promotion designed to
increase the production, consumption and quality of Texas
grown peanuts.
Does the exaction authorized by House Bill 174
constitute a tax?
A tax is not a voluntar payment or donation,
but an enforced contribution. 54 C.J.S. 32, Taxation,~
Sec. 1. Although the peanut producer who is dissatisfied
with an annual assessment is authorized by House Bill 174 to
demand the return of his money, the fact remains that he
has been made by law to part with it involuntarily In the
first Instance. Under this bill money may be taken, for
a time at least, without the consent of as many as one-
third (l/3) of the class subject to the exaction. The
farmer is deprived of the use of his money, but no pro-
vision is made to pay him interest. Further, he is put
to the trouble of having to make written demand for the
return of his money, and no provision is made as to when
the money must be returned to him following demand. The
fact that the farmer's money has been taken without his
consent and diverted to .
other uses
.. . for a time
_. is not ex-
plalnea away Dy saying tne conustlon may only be temporary.
The revenue derived from the exation authorized
by House Bill 174 does not enter the State Treasury. But
the case of Friedman v. American Surety Co. of New:=,
137 Tex. 149, 151 S.W.2d 570 (1941) indicates that circul-
ation through the State Treasury is not a prerequisite of a
tax. In that case ituas held that the "contributions" re-
quired by the Unemployment Act to be made by employers to pro-
vide compensation ?or certain employees during involuntary
unemployment are taxes, and that the statute is a tax statute,
even though the fund Into which such contributions are made
never becomes a "State fund," that is, paid into the State
Treasury, but only a fund in the custody or trust of the
State Treasurer. In the words of the Court:
I! The taxes are levied and col-
lected ho; such fund, and not for the State
in its sovereign capacity. . . .'
Under House Bill 174 money Is to be collected
from a certainclass for a particular fund. It is not
Honorable Truett Latimer, page 4 (W-584)
colleated for the general use of the State and does not
come into the State Treasury. It comes within the custody
of a State officer to be expended for the primary benefit
of a certain class. In these respects the "assessments"
provided for in House Bill 174 are like the "contributions"
held to be a tax in the Friedman case, supra.
The question of whether a particular charge or
burden .isa tax depends on its real nature, and if in 1~s na-
tureit is a tax, it makes no difference that it be other-
wise labeled in-the statute imposing such burden.
of Harris v. Shepperd, 156 Tex. 18, 291 S.W.2d 721
84 C .J .S . 34 , Taxation, Sec. 1.
In Texas Jurisprudence a tax is described in the
following t&ma::
"Broadly speaking, 'tax' embraces every
levy made by the government (or any subdi-
vision thereof) for public uses. But in a nar-
rower sense, the term connotes a charge
imposed in aid of revenue, . . ." 40 Tex.Jvr.
11, Taxation, Sec. 2.
That the exaction of money authorized by House
Bill 174 from producers of peanuts is a levy made by the
government for what are ostensibly public uses is self-
evident. The exaction is plainly a charge imposed in aid
of revenue, as is seen from the case of R. Rouw Co. v.
Texas Citrus Commission, 151 Tex. 182, 237 S.W 2d 231
n9‘52), which is hereinafter considered in detail.
If the revenue derived from the charge is not
for a public,,orgovernmental'purpose then the Legislature
has no authority to authorize'the levy, the bill thereby
becoming unconstitutional on that ground alone. Fourteenth
Amendment, U.S. Con&.; Tex. Const. Art. VIII, Sec. 3.
For present purposes only we assume that the exaction is
for'a "public purpose" within the meaning of the foregoing
constitutional provisions,
Under the instant bill producers of peanuts sup-
posedly benefit from the money deducted from the sale of
their crop, but the public In general is also benefited and,
hence the benefits are merged. Any payment exacted at the
instance of the State as a contribution toward maintaining
Honorable Truett Latimer, page 5 (~~-584)
governmental functions is a tax rather than an assessment,
if the special benefits derived by those who pay the charge
are merged in general benefit. Dickson v. Jefferson Count
Board of Education, 311 Ky. 781, 225 s.w.26 b’/2*
State ex rel Fargo v. Wetz, 40 N.D. 299, 168 N.W. 835
(1918); 5 A.L.R. 731; 51 Am, Jur. 38, Taxation, Set, 4.
True assessments are levied with reference to
special benefit which the property is supposed to receive
from the charge. City of Wichita Falls v. Williams, 119
Tex. 163, 26 S.W.2d 910 (1930). But if the exaction is
levied upon all within the class in proportion to the value
of the thing taxed, such charge is ordinarily held to be a
tax and not-an assessment. Wharton County Drainage District
No. 1 v. Holmes, 149 S.W. 381 (Tex.Civ.App. 1912, error ref.)
Here the levy is against all within the class, the
producers of peanuts for commercial purposes. The value de-
rived by the various producers from research, education and
promotion is practically incapable of estimation. The levy
is not in proportion to the,benefits to be derived from the
charge as in the aase of assessments.
A charge or a fee, if for the purpose of raising
revenue, is a tax and levied under the taxing power. Harris
County v. Shepperd, supra. The monies secured by the exaction
made under House Bill are to be used for research, educa-
tion and promotion Instead of regulation of the peanut
industry. As is hereafter shown by the case of H. Rouw Co.
v. Texas Citrus Commission, supra, an exaction for such pur-
nose is regarded as a revenue measure. Being a revenue
measure rather than a regulatory measure, it-is B tax.
Present here are the essential characteristics of
a tax. Money may be taken without the consent of the person
paying the exaction. It is taken under the authority of
legislative act. It is taken for revenue purposes. A State
official receives and handles the revenue derived from the
"assessment," using his State office and powers in an
integral phase of the collection and disbursement of the
revenue, This official is called upon to certify the agency
that will conduct the referendum and expend the funds col-
lected from peanut producers. He is empowered to inspect
the books of those who collect the charge against producers.
The funds collected are to be spent for the purposes desig-
nated In the bill. Clearly, the State lends its authority
Honorable Truett Latimer, page 6 (WbJ-584)
and the aura of governmental power to the imposition of this
burden and the expenditure of the revenue derived from the
exaction.
What kind of tax is authorized by House Bill 174?
In H. Rouw Co. v. Texas Citrus Commission, supra, the
Texas Supreme Court held that a tax authorized by the Texas
Citrus Law (Art. 118d, V.T.C.9.) to be imposed bv the Texas
Citrus Commission on persons, firms, associations and corpora-
tions of not exceeding Three Cents (3#) per standard box or
bag on all aitrus fruit grown in the State and packed or
placed In containers and marketed or processed and sold dur-
ing a certain time was an occupation tax. The charge was
not designated as an oocupation tax in the statute.
The Texas Citrus Law provided that the tax money
was ' . . . to be used . . . in eduaation and research for
the purpose of increasing knowledge with respect to Texas
citrus fruits and by-products, and ~protecting Texas citrus
fruits from pests and diseases and of finding new uses for
Texas.citrus fruits and by-products and of improving the
quality and y&&l&of~ such fruit and by-products." The test
laid down by the Court and its application to the facts of
that ease were as follows:
There has been much written upon the
dlffere&& between a license tax, and an occupa-
tion tax. This court, in very clear and com-
pelling la&age, laid down the rule for determining
the distinction in the case of Hurt v. Cooper, 130
Tex. 433, 110 S.W.2d 899, (1) as follows: 'It is
sometfmee difficult to determine whether a given
atatute should be classed a8 a regulatory measure
6r ‘a tax measure. The principle of distinction
generally reoognized is that when; from"a'donsidera-
tion of the statute as a.whole, the primary purpose
of the fees ~providedtherein ~is~the'ralsing'of revenue,
then aii&'feeKare In fadt ocduijationtaxes, and
;;;zdregardless of the name by which they are deslg-
. On the other hand, if its primary purpose
appears to be that of regulation, then the fees
levlddc~ are license fees and not taxes. Hoefling
v. Clt~ of San Antonio, 85 Tex. 228, 20 S.W. 85,
16 '&.L..Ri.'608;. Brown v. City of Qalveston, 97 Tex. 1,
75 S.W.488; Cit,;r-yof. .FortWorth v. Gulf Refining Co.,
Honorable Truett Latimer, page '7 (~~-584)
125 Tex. 512, a3 S.W.2d 610; Royal1 v. Virginia,
116 U.S. 572, 577; 6 S. Ct. 510. 29 L. Rd. 735:
Dayton-Goose Creek Ry. Co. v. United States, D. C.,
287 F. 728; Te~xasco, v. Brown, D, c., 266 r.
577, 37 C.J. p. 169, & 6.'
"Applying the above rule tc the Act under
consideration we find the taz levied to oe an
occupation tax, A reading of the Act clearly
demonstrates that its primary purpose is to
raise revenue, and not a regulation of the
citrus fruit industry.under the police power.
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 fruit
Industry, the primary purpose being the rals-
ing of revenues In excess of the amount needed
for regulation of the industry to carry out
the above provisions, under the well established
rules of law, the tax levied must of necessity
be classed as an occupation tax. . . ."
From the Rouw case, au ra it is seen that House
Bill 174 is an occupation tax
-5 ra her than a license tax
because it authorizes the levy of a tax on growers for the
primary purpose of raising revenue to stimulate the sale
of peanuts instead of regulating the industry.
There can be no doubt that the tax provided by the
bill is an occupation tax by reason of being a tax on the
grower or aotivity of commercially producing peanuts rather
than a property or sales tax. Like the tax in the Rouw case,
supra, it is levied on persons based on certain occupational
activity ensaged in by them. The bill purports in its title
to provide . . ,.,
that producers may levy upon themselves
assessments . . (Rnphasis ours.) This language appears
again in Sections 4, 7 and 21 Nowhere in the bill Is it
provided that the “assessmenth is on peanuts; that is, the
property. Nowhere in the bill is the "assessment" called
a sales tax.
The tax is not an ad valorem tax in that It Is not
based on the value of the crop, but on the quantity sold.
The bill provides that the "assessment" shall be
levied on the commercial producer and fixes the rate at
One Dollar ($1) per net ton of farmer's stock peanuts
Honorable Truett Latimer, page 8 (Ww-584)
marketed. The effect of the bill is to place a tax on the
commercial production of peanuts, *the sale of the crop
being a necessary incident to.duch commercial production.
Louisiana State Department of Agriculture v. Sibille, 207
La. 877, 22 So. 2d 202 (1945). Consequently, the levy of
an occupation tax is authorized by the bill.
Section,3 of Article VIII of the Constitution of
Texas provides in part as follows:
"Sec. 3. One-fourth of the revenue
derived from the State occupation taxes . . .
shall be set apart annually for the benefit
of the public free schools; . . ."
House Bill 174 is, in our opinion, repugnant to
Section 3 of Article VII of the Texas Constitution by rea-
son of not setting apart annually one-fourth (+) of the
revenue derived from the occupation tax for the benefit of
the public free schools of Texas. All of the revenue de-
rived from this occupation tax, except five per cent (5%)
which goes to the Commissioner of Agriculture, is by House
Bill 174 diverted to the certified association in violation
of the Texas Constitution.
Section 1 of Article VIII of the Constitution ,or’
Texas provides In part as follows:
”
. persons engaged in mechanical and
. .
agricultural pursuits shall never be required
to pay an occupation tax; . . .'
The Constitution of the State of Louisiana simi-
larly forbids the levying of license taxes on persons
engaged in agricultural pursuits. La. Const. Art. X, Sec.
8. The Supreme Court of that State in Louisiana State De-
partment of Agriculture v. Sibille, supra, struck down the
Louisiana statute imposing a tax on all sweet potatoes
shipped in Louisiana in so far as the tax violated the
aforesaid constitutional provision by imposing a tax on
the farmer shipping or carrying his crop to market. The
Court stated:
"In the case of State v. Hayes, 143 La.
39, 78 So. 143, 144, which Involved a provi-
sion of the 1913 Constitution identical with
that above quoted, it was stated:
Honorable Truett Latimer, page 9 (WW-584)
'It has been dgcided~by'this court that
a farmer who goes from place to place selling
at retail the products of his farm is only
pursuing his farming business and is not a
peddler or hawker. He is engaged in an agri-
cultural pursuit, which is, by the terms of
article 229 of the Constitution, exempt from
any license tax. Roy v. Schuff, 51 La. Ann.
86, 24 So. 788.1
"The cited case of Roy v. &huff concerned
Article 206 of the Constitution of.1879 which
exempted all persons engaged in agricultural
pursuits from the payment of a license tax. In
refusing to compel defendant to pay a municipal
license Imposed on peddlers the court said
L5 1 La. Ann. 86, 24 So.,78$:
I* * * He was only carrying out the purpose
he had In view in making the crop,--to sell it
at retail or wholesale, as deemed most advanta-
geous to him as a farmer. The selling was an
incident of farming, it may be said. It was a
part of his pursuit as a farmer, and he thereby
in no way became a peddler or a merchant. 'The
exemption covers both the farmer and the sale
by the farmer of that which his industry ~pro-
duces. . . .I"
The rationale of the above-cited Louisiana case is
persuasive on the issue now before us.
It is the farmer that Is required to pay the tax
although it is not due until he sells his crop. How else
than by sale does the farmer utilize his agricultural pur-
suits? He cannot live on peanuts. The sale of the crop
is a vital and necessary element of and incident to the
occupation of farming. To hold that the producer of pea-
nuts is not engaged in agricultural pursuits when he harvests
the fruits of his labors from the sale of his crop would be
wholly unrealistic.
Inasmuch as the charge authorized by House Bill 174
is plainly an occupation tax and one which is to be levied
on persons engaged in agricultural pursuits; namely, the pro-
ducer of peanuts at the time he sells his crop, the proposed
legislation violates Section 1 of Article VIII of the Texas
Constitution.
.
Honorable Truett Latimer, page 10 (W-584)
In H. Rouw Co. v. Texas Citrus Commission, supra,
it was held t,hatSection 1 of Article VIII of the Texas
Constitution was not contravened by a statute requiring
the vavment or ?.tax on citrus fruft by all whn q%c:lr
or wlace
in containers and market or process and :ell citrus fruits,
the opirlionof the Coui*L;
on reheariog I'~~cL~II~,
in part, a0
follows:
"In Its motion for rehearing appellee, for
the first time, contends that even if the tax
be held to be an occupation tax, it is valid
within that part of Sec. 1 of Art. VIII of the
State Constitution, which reads as follows:
I* * * except that persons engaged in mechani-
cal and agricultural pursuits shall never be
required to pay an occupation tax; * * *.I
The present tax is not a tax levied upon per-
sons engaged in 'agricultural pursuits' within
the meaning of the above quoted phrase from the
Constitution. As Is said in the amicus curiae
brief supporting appellee's position 'the tax
is levied upon the activity of packing or plac-
ing in containers and marketing or processing
and selling citrus fruit grown in Texas.
. . . The tax is exacted of any person, engaged
in any vocation whatever, who performs these
acts, whether he be commercial packer, gift
fruit shipper, canner of citrus or bottler of
lemon juice, processor of frozen orange juices,
marmalade manufacturer, or whatever."'
In contradistinction to the Texas Citrus Law under
consideration in the Rouw case, supra, the instant bill
taxes only "persons engaged in the production of peanuts
in the State of Texas". It does not tax all who engage
in the activity of selling peanuts, but only the producer
who sells his own peanuts. The tax is not paid until the
time of sale, but it is paid by the producer then and by
no other person. It does not tax "any person engaged in
any vocation whatever who performs the acts", but only the
farmer, and thereby, In our opinion, places an occupation
tax on persons engaged in "agricultural pursuits" within
the purview of the constitutional provision prohibiting
such taxes.
We examine now the effect which the invalidity of
the tax provided by House Bill 174 will have on the re-
mainder of the bill. Consideration will be given by the
: -
<.
Honorable Truett Latlmer, page 11 (~~-584)
courts to a legislative declaration to the effect that an
adjudication of the invalidity of a portion of the act should
not affect any other portion. 39 Tex.Jur, 24, Statutes,Sec.
9. House Bill 174 contains such a declaration in its
"severability clause".
Nevertheless, when the invalid portions of an act
are an integral and necessary part of the act, so as to
preclude a separation leaving a complete, workable and other-
wise valid law capable of being executed in accordance with
legislative Intent the entire act must fall.
and Fuel Co. v. State, 121 Tex. 138, 47 S.W.2d 2 5 1932);
-=P
Taylor v. Taylor Bedding Mfg. Co., 245 S.W.2d 215 (Tex.Civ.
APP. 1948 error ref g v. State, 267 S.W.
2d 423 (T~xr%%%~~. 1954); 39 &e:?&. 22, Statutes, Sec.
9.
Without the portion of the act authorizing the levy
of an "assessment" on producers of peanuts, the main purpose
of House Bill 174 is defeated, it being apparent that the
design of the bill is to raise revenue to finance promotion
of the sale of Texas peanuts. The provisions for "assessment"
are so intimately connected with the remainder of the bill
that they are inseparable. The portion of the bill left
after taking away the invalid part is plainly incomplete and
unworkable. Here the invalidity of a part permeates the
whole, and we must advise you that the entire bill would fol-
low the fate of the unconstitutional provisions authorizing
the levy of a tax.
As the question of constitutionality posed by your
letter is resolved on the above grounds, we deem it unneces-
sary to consider others. Accordingly, we base our opinion
solely on the grounds stated and do not pass on any con-
stitutional issues other than those expressly considered
herein.
SUMMARY
House Bill 174 is unconstitutional
by reason of (1) authorizing the
levying of an occupation tax
without setting apart annually one-
fourth (t) of the revenue derived
..
*.
Honorable Truett Latimer, page 12 (ww-584)
from such tax for the benefit of
the public free schools of Texas
in violation of Section 3 of Article
VII of the Texas Constitution and
(2) authorizing the levying of an
occupation tax on persons engaged in
agricultural pursuits, in violation
of Section 1 of Article VII of the
Texas Constitution.
Very truly yours,
WILL WILSON
Attorney General of Texas
J49vybu
BY
Henry . Braswell
Assistant
HGB:mg
APPROVED:
OPINION COMMITTEE
Geo. P. Blackburn, Chairman
Riley Eugene Fletcher
Charles D. Cabaniss
William R. Hemphill
Tom I. McFarling
REVIEWED FOR THE ATTORNEY GENERAL
By: W. V. Geppert