                      The Attorney General of Texas
                                          May 4, 1981
MARK WHITE
Altomey General
                  Honorable Homer C. Poerster               Opinion No.    MU-332
                  Executive Director
                  State Purchasing & General Services       Re: Interpretation    of section 3.28
                    Commission                              of article 601b, V.T.C.S.
                  L.B.J. State Office Building
                  Austin, Texas 78711       _

                  Dear Mr. Foerster:

                        The State Purchasing and General Services Act, article 6Olb, V.T.C.S.,
                  was enacted in 1979. Among other things, it transferred the responsibility
                  for procuring supplies and services for state agencies from the Board of
                  Control to the State Purchasing and General Services Commission. Section
                  3.28 of the act provides that in making purchases the commission shalh

                                 (a) . . . give preference to those produced in Texas
                             or ‘offered by Texas c’itizens, the cost to the state and
                             quality being substantially equaL

                                  (b) If supplies, materials, or equipment produced
                              in Texas or offered        by Texas citizens are not
                              substantially equal in cost and quality, then supplies,
                              materiak, or’ equipment produced in other states. . .          .
                              shall be given preference over foreign-made products,
                              the cost to the state and quality being substantially
                              equaL

                        Prior law imposed a similar duty upon the Board of Control        Article
                  664-2, V.T.C.S., provided that the board shall:

                              . . . give preference to supplies, material or equip
                              ment produced in Texas or offered by Texas citizens,
                              the cost to the state and quality being equaL

                  You state that, whereas artiole 664-2 was relatively straightforward,      the
                  inclusion of the qualifier “substantially” and the addition of paragraph fb)
                  rendered .section 3.28 ambiguous         Accordingly, in September 1980, the
                  commission adopted an emergency rule (and proposed same for adoption as a
                  permanent rule) concerning administration      of the required preference. You
                  have requested our opinion as to whether this rule is consistent with section
                  3.28. The rule provides that:




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                                                                                 .




Honorable Homer C. Foerster     - Page Two    (Mu-332)




              (2) For purpo%s of giving preference to Texas and United
          states products . . the following requirements and definitions
          of terms will be applicable.

                  a. A preference. . . will not apply when the lowest and
                     best bid is under $500.00.

                  b    A bidder entitled to a preference. . . shall mark the
                       appropriate box on the face of the Invitation to Bid.
                       No preference will be applied if it is not claimed in
                       this manner. . . .

                  c. ‘Preference’ shall mean-the right to receive an award
                     for a bid price not to exceed that bid by the vendor
                     who would have received the award had it not been
                     for the existence of the preference.     If the lowest
                     preferenced bid&r refuses to lower his price to that
                     of the lowest acceptable bidder, the opportunity will
                     be given to each of any other ‘preferenced’ bidders in
                     the sequence of their bids In increasIng amounts over
                     the lowest acceptable bid&r. A preference to United
                     States prcducts will be granted only if supplies,
                     materials, or equipment produced in Texas or offered
                     by Texas citizens are not available for preference
                     hereunder.

                  d. ‘Produced in Texas’ shall apply only to those supplies,
                     materiak,  and equipment which are grown or manu-
                     factured in Texas. Manufacture shall not include the
                     work of packaging or repackagIng. . . .

              -   e. (Offered by Texas citiien9         includes offers from
                     individuals,    sole    proprietorships,    prtnerships,
                     corporations, and other recognized forms of business
                     entities in Texas, but does not Include offers from
                     businesses owned or operated by ‘foreign’ corpora-
                     tions, or business entities, or citizens, of other states
                     or countries, unless such businesses own or lease an
                     office .In Texas and have one or more employees in
                     that office.    A Texas citizen must have established
                     legal residence In the state at the time of his offer.
                     Business entities may ako qualify as ‘Texas citizens’
                     for purposes of this test if they are majority owned
                     by a citizen or citizens of this state, or if they are a
                     corporation incorporated under the laws of the State
                     of Texas.

                  f.   ‘Substantially equal’ with reference to ‘cost to the
                       State’ shall mean an amount of money not more than




                                       p. 1074
Honorable Homer C. Foerster     - Page Three    (m-332)




            2.0% over the lowest acceptable       amount   bid in a particular
            transaction

Rule 028.12.OLO55,S T&x. Reg. 3673 0980).

       At the outset, we must consider whether the commission is authorized to adopt
administrative     ~1s to implement section 3.28. That section is an integral part of
article 3 of the act, which sets forth requirements pertaining to purchasing. However,
whereas other articles explicitly authorize the commission to adopt rules to implement
their provisions, m, sections 4.02(b),. S.l!i(e), 6.12, 7.05(c), article 3 provides no such
specific authority.    But that article does contain other provisions which, in our opinion,
implicitly authorize such rules to be promulgated. Section 3.01(a), for example, directs
the commission to “institute and maintain an effective and economical system for
purchasingv’supplies and equipment.        Clearly, if the commission is to carry out its
statutory    mandate to develop and maintain such a system, which must take the
statutory    preference into account, it must be able to adopt rules to clarify the
statutory provisions and requirements       Implied authority to adopt administrative rules
exists when their adoption is necessary to achieve the objectives of the statute. Texas
Liquor Control Board v. Super Savings Stamp Company, 303 S.W. 2d 536 (Texm
       - San Antonio 1957 writ rePd n.r.e.), cited with approval in Gerst v. Oak Cliff
:a?&      & Loan Association, 432 S.W. 2d 702, 706 (Tex. 1968).

       In exercising its-rulemaking authority,. however, the commission “may not act
eontrarv
____~~-.- to
           .- but
              --. onlv
                    ~~~~.consistent
                         ~~~~~~     with. and in furtherance of. the exoressed ststutorv
plQOS2S.” American Liberty Insurance Company v. Ram&; 481 S.W. 2d 793, 796-97
(Tex. 1972). The critical inquiry in determining whether an agency has exceeded its
rulemaking powers is whether the provisions of the particular rule a-rein harmony with
the general objectives of the statute it implements. Gerst v. Oak Cliff Savings & Loan
Association, su ra. Each provision of.this rule must therefore be examined, Texas
State Board o7-E xaminers in Optometry v. Carp, 412 S.W. 2d 307 (Tex. 1967), in order
determine whether it is consistent with section 3.28.

        Section 2(a) of the rule provides that the statutory         preference   shall be
disregarded when the lowest and best bid is under $500. The effect of this rule would
be that a bidder whose bid of less than $500 is deemed lowest and best, but who is not
entitled to the statutory preference, would automatically      receive a contract, even
though the bid and quality of product of a bidder who is entitled to the preference are
substantially equal Such a result is obviously not in harmony with section 3.28, which,
by its terms, applies across the board in all purchasing situations.      Cf. V.T.C.S. art.
6Olb, S3.08.    We therefore conclude that in enacting section 2(a),the commission
exceeded its rulemaking authority.

        On the other hand, we believe that sections 2(b), 2(c). and 2(d) reflect a
permissible exercise of that authority. Section 2(b) is obviously intended to facilitate
the process of evaluating bids and awarding contiacts as required by article 3, and
cannot bs said to be unreasonable prov@ed that bidders are informed, by the bid
invitations or otherwise, of the existence of the statutory preference,  Section 2(c), in
our opinion, defines “preference” in a reasonable manner, particularly in light of the
fact that the act itself does not define that term or otherwise suggest that the
Honorable Homer C. Foerster    - Page Four    (mJ-932)




legislature  intended that it be construed as requiring that a preferred bidder be
awarded a contract solely because he is preferred.    And we have no doubt that the
distinction. ma& in section 2(d) between items grown or manufactured in Texas and
those which are packaged or repackaged here is in harmony with the statute.

        We also conclude that section 2(f) is reasonable.   When the legislature, without
explanation,   changed “equal” to %ubstantially equal,” it introduced an element of
ambiguity     which had not previously existed.        Absent any guidance as to the
significance of this change, the commission, of necessity, developed its own definition
of that phrase. In our opinion, its conclusion that a bid which is not more than 2% over
the lowest acceptable bid is a “substantially equal” bid is not inconsistent with section
3.26.

        We finally consider section 2(e), which construes the phrase “or offered by Texas
citizens.”    It is suggested in an accompanying brief that in enacting this rule, the
commission “added a dimension” to section 3.28 which was not intended by the
legislature, in that the statute requires the commission to look only to where products
are produced in order to determine whether the preference applies in a given situation.
We agree that section 2(e) is inconsistent with section 3.26, but we do not share the
view that a Texas preference cannot exist unless the products in question are produced
in Texas. Section 3.26(a) unequivocally states that materials and equipment which are
“produced in Texas or offered by Texas citizens” (emphasis added) shall be preferred.
We will not depart %om the plain meaning of the statute absent any indication that
such departure is necessary to give effect to the legislature’s intent, -See Brazes River
Authority v. City of Graham, 354 S.W. 2d 99 (Tex. ISSl).

       Under its proposed rule, the commission interprets the term “Texas citizens” to
include partnerships, corporations, and other recognized forms of business entities with
a business presence in the state. It has been said that “citizenn ordinarily means only a
natural person and will not be construed to include a corporation unless the general
purpcee and import of the statute in which the term is found seems to require it. St   -
Louis & S*F.R. Co. v. State, 179 S.W. 342 (Ark. 19151

       A citizen is one who, s a member of a nation or a body politic of the sovereign
state, owes allegiance to and may claim reciprocal protection from its government.
Citizenship is a status or condition and is the result of both act and intent. Ozbolt v.
Lumbermen% Indemnity Exchange, 204 SW. 252 (Tex. Civ. App. - Austin 1916,~
Attorney General Opinion M-702 (1970). See Kay v. Schneider, 221 S.W. 860 (Tex. 1920).
Corporations    and other artificial legal%tities    have no power to freely form the
requisite intent ‘that together with necessary acts results in citizenship.     Unlike a
natural person, a corporation cannot change its domicile at wilk thus, its “intent” is
irrelevant.   Cousins v. Sovereign Camp, W.O.W., 35 S.W. 2d 696,696 (Tex. 1931).

       Although a domestic corporation may nevertheless be considered a “citizen” of
its state of origin for special&urposes, such as federal diversity jurisdiction,  other
business entities have been denied even that claim. Villwe Milk Co. v. Houston Oil
Co. of Texas, 166 S.W. 765 (Tex Civ. App. - Beaumont 1916, no writ). Cf. H. Rouw Co.
v. Railway &p. Agency, 154 S.W. 2d 143 (Tex. Civ. App. - El Paso 1941,writ ref’d). And
although a corporation is generally a “person” within the meaning of the law, “state




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Honorable Homer C. .Foerster    - Page.Five    (m?-332)




citizenship” in Texas is normally a Status occupied only by natural, not artificial,
persons. See Evans v. American Publishing Co., 13 S.W. 2d 356 (Tex. 1929); Attorney
General O*ion      H-461 (1974). See also Bus Corp. Act art. 7.07(A) (“citizen. . . z
corporation”); Alto. Bev. Code aq”Texas          citizen. . . individual,. . . stockholders
of a corporation, or members of a partnership, firm, or association”).            (Emphasis
added). Cf. Cunn inaham v. Republic Ins. Co., 94 S.W. 2d 140 (Tex. 1936), rev’g Republic
Ins. Co. v.unningham,    62 S.W. 2d :-Civ.        App. 7 RI Paso 1933).

        We are aware of nothing which indicates that in enacting the preference law, the
legislature intended to enlarge the generally accepted definition of “citizen.” On the
contrary,   the history of the provision supports the view that of the two Texas
preferences permitted (the first for products “produced in Texas” and the second for
products “offered by Texas citizens”), the first is applicable if the products offered are
produced in Texas, regardless of the “citizenship” or natural or artificial character of
the person or entity bidding; and the second is applicable if the bidder offering them is
a natural person who is a citizen of Texas, regardless of the place where the products
offered are produced.

      The “Texas preferences” are contained in subsection (a) of section 3.26. The
language of the subsection exactly tracks the language of former article 664-2 except
for the addition of the word “substantially” modifying “equaL” Except for that change,
the meaning of the provision presumably remains the same. See Evans v. American
           Co. supra Former article 664~2 was the codified vesn      of Senate Bill 150,
?iF=Y
au ored by enator Lock. Acts 1957,55th Leg., ch. 303, at 736. W,hen Senate Bill No.
150 was originally introduced it created no preference for products “produced in
Texas.” Instead, it directed that state agencies give preference:

            to the person who is a Texas citizen or to the firm, corporation,
            association or business organized in Texas offering the supplies,
            material, merchandise or equipment.    (Emphasis added).

The Committee on State Affairs, however, dropped the emphasized language, so that
when it was reported to the floor of the Senate, the bill was designed to ‘give
preference   only to products “produced or offered by Texas citizens.”     By floor
amendment (proposed by Senator Lock), the Senate inserted the words “in Texas” after
the word “produced”, so that the final measure created a preference for products
produced in Texas as well as one for products offered by Texas citizens.     Senate
Journal, 55th Leg., March 16,1957, at 463.

        The 1957 law, former article 664-2, replaced a prior statute (former article 647,
V.T.C.S.) which had favored “bidders who have an established local businesr” Under
the wording of that statute corporate bidders organized under the laws of Texas and
doing business in the state were held entitled to’a preference.         Attorney General
Opinion G-1676 (1939). The discrimination against foreign corporations was expressly
justified in Attorney General Opinion G-1678 on grounds that:

            [a) corporation is not a ‘citizen’ within the meaning of that
            clause of the Federal Constitution      which declares that the
            citizens of each state shall be entitled to all the privileges and
            immunities of citizens in the several states, or the clause in the
. ,’
       Honorable Homer C. Foetiter      - Page Six    (NW-332)



  .
                    Fourteenth Amendment providing that no state shall make or
                    enforce any law which shall abridge the privileges or immunities
                    of citizerrp of the United States. They are mere creatures of
                    the local law, entitled to recognition in other states and to the
                    enforcement of their contracts therein only on such terms as
                    such states may see fit to impose.

              In ,view of the construction given the term “citizen” in connection with tl
       earlier statute   and the history of the 1957 enactment, it cannot be doubted that tt
       term “citizens” as used in former article 664-2, V.T.C.S., was meant to embrace on:
       natural persons, and not artificial persons or business entities. Although we understar
       the desirability and logic of giving preference to “Texas Corporations” offering good
       the legislative history discussed above compels us to believe that under section 3.26(.
       preference can be given only to natural persons (Texas citizens) offering goods. W
       therefore conclude that in promulgating section 2(e) of its rules, insofar as it permil
       any person or entity other then a natural per&n to obtain a preference on the basis <
       “Texas citizenship,” the commission exceeded its rulemaking powers.

                                             SUMMARY

                        In enacting sections 2(a) and 2(e) of the emergency and
                    proposed Nle implementing        section 3.26 of article 601b,
                    V.T.C.S., the State Purchasing and General Services Commis-
                    sion exceeded its rulemaking authority.    Sgtions 2(b), 2(c), 2(d)
                    and 2(f) reflect a permissible exercise of that authority.

                                                      Very tmly yours,




                                                      Attorney   General of Texas

       JOHN W. FAINTER, JR.
       First Assistant Attorney General

       RICHARD E. GRAY III
       Executive Assistant Attorney General

       Prepared by Jon Bible & Bruce Youngblood
       Assistant Attorneys General

       APPROVED:
       OPINION COMMlTTEE

       Susan L. Garrison, Chairman
       Jon Bible
       Robert W. Gauss
       Rick Gilpin
       BN~X Youngblood
