Honorable Bob Bullock               Opinion No.   JM-566
Comtitrollerof Public Account:s
L.B.J. State Office Buildin!:      Be: Whether interest earned on
Austin, Texas   70774              the bingo tax, the bank franchise
                                   tax, and the mixed beverage tax
                                   collected by the state should be
                                   remitted to the local jurisdiction
                                   for which the taxes were collected

Dear Mr. Bullock:

     In Attorney General Clpinion .JM-539 (19861, we concluded that
local taxing units are entitled to be credited with interest earned by
the deposit of tax monies ,:ollectedby the state on behalf of those
local taxing units pursuant to the Local Sales and Use Tax Act,
article 1066~. V.T.C.S.. and articles 1118x and 1118~. V.T.C.S., which
authorize the creation of cwtropolitan rapid transit authorities and
regional transportation awhorities, respectively. We so concluded
because they constituted trust funds. You now wish to know whether
interest earned by the depo:;itof tax monies collected pursuant to the
bingo tax, the bank franchl,setax, and the mixed beverage tax should
be similarly treated. We answer your question in the negative. We
conclude that interest earned from the deposit of those taxes should
be deposited in the general revenue fund.

     The Bingo Enabling Act was passed pursuant to article III,
section 47. of the Texas {Constitutionand is set forth in article
179d. V.T.C.S. Section 3 OE the act authorizes a commissioners court
of a county that has voted to legalize bingo or in which a justice
precinct has voted to leg;llJze bingo and the governing body of a
municipality that has voted to legalize bingo to impose a two percent
gross receipts tax on the conduct of bingo games. Section 24 provides
that "[tlhe comptroller of public accounts shall perform all functions
incident to the administrat:.on
                              , collection, enforcement, and operation
of any tax imposed under this Act." Section 25 declares that "[a]
license required to file a tax return shall deliver the monthly return
with a remittance of the nc!t amount of the tax due to the office of
the comptroller of public accounts." Section 26(a) provides the
following:




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            Sec. 26. (a) Each jurisdiction's share of all
         gross receipts tacos collected under this Act by
         the comptroller of public accounts shall be trans-
         mitted to the treasurer or the officer of the
         jurisdiction performing the functions of that
         office by the comptroller of public accounts pay-
         able to the jurisdiction periodically as promptly
         as feasible. Trar.smittalsrequired under this Act
         shall be made at least twice in each state fiscal
         year. The funds EO transmitted may be used by the
         jurisdiction for r.ny purpose for which the general
         funds of the jurit,dictionmay be used.

     Section 171.001 of the Tax Code imposes a franchise tax "on each
corporation that does business in this state or that is chartered or
authorized to do business in this state." Section 171.078 of the Tax
Code, which specifically exempted banking corporations from the
franchise tax, was repealed tsyActs 1984, 68th Leg..,2nd C.S., ch. 31,
art. 3, part B, §I, at 212. Article 3, part B, section 1. of the 1984
repealing act provides in pmt:

         It is the intention of the legislature that by
         repealing this section, which provides an exemp-
         tion for state and federal banking corporations,
         all banking corporations in this stats become
         subject to and p,sy the franchise tax imposed by
         Chapter 171, TaK Code, as provided by this
         article.

Section 171.1031 of the Tax Code defines "gross receipts" of a banking
corporation as "interest and dividends received . . . from its
business done in this stat<!.. . ." Section 171.401 of the Tax Code
sets forth the following:

            (a) The revetme from the tax imposed by this
         chapter on corpo.cations'other than banking cor-
         porations shall be deposited to the credit of the
         general revenue fmld.

             (b) The revenue from the tax imposed by this
          chapter on banking corporations shall be deposited
          to the credit of the local government corporate
          banking franchise tax fund as provided by Article
          4366e, Revised Sts.tutes.

     Article 4366e. V.T.C.!!., creates the Local Government Corporate
Banking Franchise Tax Fund and provides the following in pertinent
part:




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Honorable Bob Bullock - Page 3    (J&566)




             (a) The local government corporate banking
          franchise tax fund is established in the state
          treasury. The cosqtroller of public accounts shall
          keep records of the amount of money deposited to
          the credit of th’z fund resulting from franchise
          tax collections from each bank paying the fran-
          chise tax under Chapter 171, Tax Code, for each
          bank franchise tax reporting period. The franchise
          tax collected by the comptroller from each banking
          corporation shall be apportioned through the fund
          established by this:article among the taxing units
          in which the banking corporation’s principal
          office in this state is situated according to the
          percentage relaticm~shipthat the property tax rate
          of each taxing un:.tfor the preceding property tax
          year bears to tt,e total of the property [sic]
          rates imposed for the preceding tax year by all of
          those taxing units.

             .   .   .   .

             (d) The compt.roller shall transmit to each
          taxing unit’s trcasursr, or to the officer per-
          forming the functions of that office, as promptly
          as feasible the taxing unit’s share of banking
          corporation franchise tax collected by the camp-
          troller, together with the prorated share of any
          penalty or interest that may be collected. Before
          transmitting the funds, the comptroller shall
          deduct two percenl:of the amount allocated to each
          taxing unit during the period as a charge by the
          state for its services specified in           this
          section. . . .

             .   .   .   .

             (h) All moner distributed to taxing units
          under this article may be used only by the taxing
          unit and must be used only for public purposes.

     Section 202.02 of the Alcoholic Beverage Code imposes a mixed
beverage tax of 12 percer,t of the gross receipts from the sale,
preparation, or service of mixed beverages. Section 202.04 of the
Alcoholic Beverage Code spel::ifies
                                  that the tax due must be in the form
of a cashier’s check, cert:.fiedcheck, or postal money order payable
to the state of Texas and that the Alcoholic Beverage Commission shall
deposit the revenue in the mixed beverage tax clearance fund. Section
205.02 provides the followi:lg:




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Honorable Bob Bullock - Page:4   (JM-566)




            Text of (a) as amended by Acts 1984, 68th Leg.,
            2nd C.S., p. 35$, ch. 28, art. II, part B, 512

            (a) After alloc:ationof funds to defray admi-
         nistrative expenses as provided in the current
         departmental apprc~priationsact, receipts from the
         sale of tax stamps and funds derived from taxes on
         distilled spirits, wine, beer, and ale and malt
         liquor shall be deposited in the general revenue
         fund. . . .

             .   .   .   .

             (c) Receipts derived from the gross receipts
          tax on mixed beverages imposed by section 202.02
          of this code shall be deposited to the credit of a
          special clearance fund known as the mixed beverage
          tax clearance funi..

Cf. Acts 1984, 68th Leg., 2nd C.S., ch. 31, art. 2. 922, at 211
(differing amendment with dr.plicativelettering).

     Section 205.03 creates the Mixed Beverage Tax Clearance Fund and
provides the following:

            (a) In this section, 'permittee' means a mixed
         beverage permittet,,mixed beverage late hours per-
         mittee, daily temporary mixed beverage permittee,
         private club registration permittee, or a private
         club late hours pc:rmittee.

             (b) Before the,end of the month following each
          calendar quarter, the commission shall submit to
          the comptroller of public accounts a report
          showing the total amount of taxes received during
          the quarter from permittees outside an incor-
          porated city or town within each county and the
          total amount rece:lvedfrom permittees within each
          incorporated city or town in each county.

            (c) As soon as possible after receipt of each
         quarterly report of the commission, the comp-
         troller shall 1sst.eto each county a warrant drawn
         on the mixed beverage tax clearance fund in the
         amount of 12.5 per'centof receipts from permittees
         within the county during the quarter and shall
         issue to each incorporated city or town a warrant
         drawn on that fund in the amount of 12.5 percent
         of receipts from permittees within the incor-
         porated city or t,xm during the quarter, as shown



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     Ronorable Bob Bullock - Pago 5    (JM-566)




               by the commission's report. The remainder of the
               receipts for the quarter shall be transferred to
               its general revenue
                                -- fund. (Emphasis added).
          The relevant statutes are silent as to the disposition of any
     interest earned by the deposit of these funds by the state treasurer.
     Article VIII, section 7, of the Texas Constitution provides the
     following:

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

          Article VIII, sectior. 7 has been construed to require that
     interest on constitutionall:rdedicated funds way be spent only for the
     purposes for which the fund was created; a diversion of such interest
     to other purposes would vio:Late the constitution. Lawson v. Baker,
     220 S.W. 260, 272 (Tex. Civ. App. - Austin 1920, writ ref'd). Con-
     sequently, interest earned on a constitutional fund must be credited
     to that fund, unless the constitution itself otherwise directs.
     Attorney General Opinions .R4-323, .JM-321 (1985); M-468 (1969). The
     interest on state funds dedicated by statute, however, may be legally
     severed and placed in the general fund. See Gulf Insurance Co. v.
     James, 185 S.W.2d 966 (Tel,.1945) (articl~III,      section 7, of the
     Texas Constitution applies only to special funds created by the
     constitution. not bv statute): Attorney General Ouinions .JM-323,
     JM-321 (1985j; MW-338 (1981:);..see also Brazos River Conservation h
     Reclamation District v. McC.caw, 91 S.W.2d 665 (Tex. 1936) (article
     VIII. section 7 does not ;G'ply to general revenue funds). Article
     2543d (since repealed and m-codified as section 3.042(a), 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 a!rticle 4393-1, V.T.C.S., the article that
     sets forth the powers and duties of the state treasurer, provides the
     following:

              Interest received from time deposits of tconey in
              funds and account3 in the charge of the treasurer
              shall be allocated as follows: to each constitu-
              tional fund there shall be credited the pro rata
              portion of the it&rest received due the fund; the
              remainder of thtr interest received, with the
              exception of that portion required by other
              statutes to be ccsdited on a pro rata basis to
,-            protested tax payments, shall be credited to the



                                      p. 2518
    Ronorable Bob Bullock - Pagl?.
                                 6    (JM-566)




             General Revenue Fund. The interest received shall
             be allocated on-7     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 interest on such funds would normally be
    credited to the General Rmrenue Fund. However, if they are trust
    funds, interest would be cmdited to principal.

”        This office previously has determined that the provisions of what
    is now section 3.042(a), mticle 4393-1, V.T.C.S., 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 trust funds becomes part of the principal. See
    Attorney General Opinions JM-306, JM-300 (1985); Mu-82 (1979); H-1040
    (1977); M-468 (1969). Cf. ,Attorney General Opinions MW-338 (1981);
    E-1187 (1978). The issu= then, is whether the funds about which you
    inquire are trust funds, a~ opposed to statutory funds. We conclude
    that they are not trust funds.

         The opinions cited abrre indicate that in order to be charac-
    terized as trust funds, 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 bfs 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 from their investment. Attorney General Opinions MW-481
    (1982); M-468 (1969). It is clear from a reading of the statutes
    quoted above, that the funds about which you inquire do not manifest
    sufficient trust fund characteristics. In no case are the funds to be
    administered by a trustee or trustees or by any public officer "in
    trust;" rather the statute)3are silent or specifically provide that
    the fund "is created in th- state treasury." In each instance, the
    relevant statutes provide that the funds are granted to the state in
    its sovereign capacity by providing that they be placed "in the
    general revenue fund." Alt:h.ough the funds are earmarked for general
    purposes, they are not to be spent or invested for specific, limited
    purposes or for the benefit of a specific group of individuals.

         We conclude that the funds created by the collection of the bingo
    tax, the bank franchise tax, and the mixed beverage tax are statutory
    funds. Accordingly, we con'clude that taxing units on whose behalf
    these taxes are collected are not entitled to be credited with
    interest earned by the depofr!it
                                   of these funds; article 4393-1, section
    3.042(a), V.T.C.S.. requires that such interest be credited to the
    General Revenue Fund.



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Honorable Bob Bullock - Page 7   (m-566)




                              5UMMARY

               Funds createi.by the collection of the bingo
          tax, the bank franchise tax. and the mixed beverage
          tax are statutory' funds. __ Taxing
                                           .
                                              units on whose
                                                        ._.
          behalf these taxeliare collected are not entitled
          to be credited with interest earned by the deposit
          of these funds; article 4393-1, section 3.042(a).
          V.T.C.S., requirerithat such interest be credited
          to the General Revenue Fund.




                                           JIM     MATTOX
                                           Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney Ger.eral

MARY KELLER
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Jim Moellinger
Assistant Attorney General




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