                             November 30, 1988




    Mr. Perry L. Adkisson                      OpiIliOIl   No.   JM-987
    Chancellor
    The Texas A&M University System            Re:  Applicability of
    College Station, Texas 77843               the limited sales and
                                               use tax to      public
    Honorable Bob Bullock                      entities (RQ-1363 and
    Comptroller of Public Accounts             RQ-1415)
    L.B.J. State Office Building
    Austin, Texas 78774

    Gentlemen:

         This office has received two requests     for opinions
P
    which ask a series of related questions      concerning  the
    q&cability      of certain provisions of the Texas Limited
          , Excise,   and Use Tax Act to public  entities which
    engage in transactions subject to the taxes levied under the
    act. See aenerally Tax Code 55 151.001-151.801.

         The Comptroller of Public Accounts     requests our opinion
    on the following issues:

                (1) Whether   state   agencies,    cities,
            counties, independent school districts, state
            colleges and universities or their auxiliary
            enterprises, and special purpose    districts
            engaged in making retail sales of tangible
            personal property and services    subject   to
            taxation under the Texas Sales Tax Act must
            collect sales tax on those sales?

               (2) If [such entities must collect taxes
            of retail sales,] then must they be issued
            a sales tax permit    [specified in section
            151.204 of the Tax Code]?

               (3) If so, are they subject   to the same
            rules as other taxpayers with regard to:

                 a) purchase of tax permits:
                 b) filing of returns:
Mr. Perry L. Adkisson
Honorable Bob Bullock
Page 2   (JM-987)   .


              c) penalty and interest   on late     filings;
        and
           d) enforcement       procedures    and      other
        matters.

Additionally,  Chancellor Adkisson    asks whether    public
institutions of higher education are entitled to withhold   a
percentage of gross sales and use tax receipts as reimburse-
ment for the cost of collecting    the taxes.   The statute
permits those who collect the tax on behalf of the state to
withhold one-half of one percent of the tax due. Tax Code 5
151.423.

                                 I.

     It is important to note at the outset that these
questions do not concern the taxation   of any public  body.
See, e.u   Attorney General Opinion WW-1502 (1962). Rather,
the issu;; under review concern the applicability of certain
provisions of the Tax Code to public bodies that "sell@1 or
"retail" tangible personal property subject to the sales and
use tax. See, e.a., Tax Code 5 151.052: Part III, below.

     Nor do the questions under     examination  pertain  to
exemptions from the imposition of the sales and use tax for
governmental entities on purchases    of tangible   personal
property for their use. &g Tax Code § 151.309.

     Of course, the application of the provisions of any tax
law, including enforcement provisions~with interest charges
and monetary penalties, to public bodies ma in fact promote
something   like what one court has      identified as   the
"senseless process" of the sovereign taxing itself

        [t]he net result of which would be but to
        take its own money out of one pocket for the
        purpose of putting it into another -- less
        the cost of assessing and collecting the tax.
        . . . accomplish[ing nothing]  but the idle
        expenditure of public funds.

Lower Colorado River Authoritv v. Chemical    Bank and Trust
Co., 190 S.W.Zd 48, 51 (Tex. 1945) (citation omitted).   See
also Attorney General Opinion WW-1502 (1962).

                                II.

     Section 151.051 of the Tax Code specifies that a "tax
is imposed on each sale of a taxable  item in this state."




                                 P. 5042
Mr. Perry L. Adkisson
Honorable Bob Bullock
Page 3   (JM-987)


The tax is collected by those making sales of things     subject
to the tax:

           (a) A seller who makes a sale subject    to
        the sales tax imposed by this chapter    shall
        add the amount of the tax to the sales price,
        and when the amount of the tax is added:

           (1) it becomes a part of the sales price;

           (2) it is a debt of the purchaser to the
               seller until paid: and

           (3) if unpaid, it is recoverable at law in
               the same manner as the original sales
               price.

Tax Code 8 151.052. Additionally, the Tax Code defines         a
lVsellerllor "retailer I0 in relevant part as a

        (a) . . . person engaged in the business   of
        making sales of taxable  items of a kind the
        receipts from the sale of wh~ich are included
        in the measure   of the sales or use tax
        imposed by this chapter.

Tax Code 9 151.008.   11Business11 is defined as "an activity
of or caused by a person for the purpose of a direct        or
indirect gain, benefit, or advantage."    Tax Code 9 151.003.

     It is important to note that the Code Construction   Act
mandates  the inclusion     of llgovernment,l' "governmental
agency," and "governmental   subdivision" within the general
definition of U1personl'as that word is used in the relevant
provisions of the Tax Code. Gov't Code 5 311.005(2).1

     When the legislature intends for governmental  entities
to be treated differently   from other persons in the Tax
Code, it specifically provides for distinctive treatment for



   1. The first act imposing the limited sales and use tax
contained   a definition  of "person" which   included  the
VState, or any agency hereof, or any city, county,  special
district, or other political subdivision of this State to
the extent engaged    in the selling of tangible   personal
property . . . .*I Acts 1961, 57th Leg., 1st C.S., ch. 24,
9 1, at 71.




                              p. 5043
                                                                   .


Wr. Perry L. Adkisson
Honorable Bob Bullock
Page 4   (JM-987)


public entities whose activities otherwise      fit within   the
reach of the statute. See. e.a., Tax Code § 151.3101        (the
sales of amusements "exclusively    provided:   by this   state,
municipality, county, school district, special district,      or
other political    subdivision   of   this   state . .  .I*  are
exempted from the sales and use tax); and Tax Code 5 151.309
(exemption from payment      of the     tax by     governmental
entities).

     This office has noted, for example, that the sales tax
is applied to sales made by the Department      of Highways
operating as a retailer selling tangible personal   property
to purchasers  in the general public.      Attorney  General
Opinion H-303   (1974).    No general    principle  in   the
Constitution or the Tax Code limits the application of the
sales and use tax simply because transactions subject to the
tax are entered into by public entities, or because      the
public body must extract the tax from those purchasers   who
owe it as a part of the purchase price of tangible  personal
property.

     Thus, when a governmental    entity acts as a "retailer"
or "seller," section 151.052 of the Tax Code makes        clear
that the l*sellerlqor "retailer*' is not initially liable   for
the tax: rather, the purchaser    is liable to the seller   for
the tax as '*a part of the sales price."     Accordingly,   the
key operational definitions   in the sales tax law apply to
public bodies that otherwise fit within     their terms.    The
provisions of the law are clear and unambiguous, and call
for no examination   beyond the plain meaning    of the words
used in the statute.   Brazos River Authoritv v. Graham,    354
S.W.2d 99 (Tex. 1961).

                              III.

     The collection of the sales and use tax and the deposit
of the tax receipts with the state depends on the specific
efforts of sellers and retailers mandated by the Tax Code.
Retailers  must register with the comptroller,      and all
sellers must obtain sales tax permits.  Tax Code 55 151.106,
151.201.

     Subchapter I, chapter 151 of the Tax Code specifies the
methods which must be used by retailers and sellers to
report the amount of the taxes they collect.  The subchapter
also specifies the deadlines for making such reports and for
transmitting tax receipts to the comptroller.  See Tax Code
gg 151.401, 151.409.   Additionally,  the code permits   the
seller or retailer collecting the tax to deduct one-half   of
one percent of the amount due for the cost of collecting the




                               P. 5044
          Mr. Perry L. Adkisson
          Honorable Bob Bullock
          Page 5   (JM-987)
F     .

          tax and to qualify for certain discounts for some prepayment
          of the taxes collected.  Tax Code 00 151.423, 151.424.

               Subchapters K and L, chapter 151 of the Tax Code
          specify the procedures   used to collect delinquent    sales
          taxes, mandate penalties to be levied for certain violations
          of the sales tax law, and prohibit certain practices    with
          regard to the collection and payment of the tax.

               The provisions of the Tax Code which place the burden
          of collecting the sales tax on sellers and retailers do not
          distinguish retailers and sellers in the public sector   from
          private retailers and sellers. Again, it appears that when
          the legislature  meant for different    rules to apply to
          governmental entities, it provided so in other definitional
          provisions of the Tax Code.   Sea the discussion at page   5,
          above.

               Thus, absent  specific language creating an exception
          for governmental  entities, all of the provisions     of the
          limited sales, use, and excise tax law apply to governmental
          entities entering into transactions subject to the provi-
          sions of the Tax Code, with the exception discussed in Part
F--
          IV, and subject to the general qualifications     set out in
          Part V.

               Specifically, public institutions   of higher  education
          when they act as l*sellersE' or "retailers** by conducting
          transactions subject to the sales tax, should be treated   by
          the comptroller as any other "seller" or "retailer"   engaged
          in the kinds of transactions subject to the tax. They are
          entitled to all of the benefits    extended to "sellers"  and
          "retailers" in the Tax Code, and subject to all of the
          burdens of the law.     Accordingly, they are entitled     to
          withhold the statutorily   prescribed   amount permitted   to
          sellers and retailers who collect taxes, to reimburse    them
          for the costs of collecting the tax on behalf of the state,
          and to qialify for any bounties provided for the prepayment
          of taxes. Tax Code 55 151.423, 151.424.

               Additionally, the comptroller asks specifically whether
          governmental   entities must purchase     sales tax permits.
          Section 151.202 of the Tax Code provides that a "person
          desiring to be a seller in this state shall file with the
          comptroller an application   for a permit   for each place  of
          business."   See also Tax Code 95 151.201, 151.2021   (governs
          fees to be charged for issuance and renewal of sales tax
          permits).   There is no language in any of the provisions   of
          the sales and use tax law concerning      permits to indicate
          that the legislature    intended for governmental     entities




                                       13.   5045
or. Perry L. Adkisson
Honorable Bob Bullock
Page 6   (JM-987)


conducting business as sellers to be exempt from either   the
permit requirement or the fees to be charged     for new and
renewed permits.  Attorney General Opinion JR-973 (1988).

                                IV.

     Subsequent to the enactment    of  the Tax Code, the
legislature adopted the State Funds Reform Act. Gov't  Code
3s 404.091 - 404.094. The State Funds Reform Act applies to
state agencies, defined as:

         an office, institution,  or other agency  that
         is in the executive branch   of state govern-
         ment, has authority that  is not limited to a
         geographical portion of the state, and was
         created by the constitution or a statute    of
         this state, but does not include an institu-
         tion of higher education as defined by Section
         61.003, Education Code.

Gov't Code § 404.092. The act applies to state      agencies
only "to the extent that they are not otherwise required  to
deposit funds in the treasury."   The act does not apply to
funds. specified in section 404.093 (b) of the Government
Code, none of which are relevant to this inquiry.

        In essential part, the state Funds Reform Act   requires
that:

             (a) Fees, fines, penalties, taxes, charges,
         gifts, donations, and other funds collected or
         received by a state agency under law shall be
         deposited in the treasury     . . . . A deposit
         shall be made at the earliest possible     time
         that the treasury can accept those funds, &&
         not later than the seventh dav after the date
         of receint.

             (b) Money that is required    by this  sub-
          chapter or by another law to be deposited   in
          the treasury  shall be deposited to the credit
          of the general revenue  fund unless the money
          is expressly   required to be deposited     to
          another fund, trust fund, or special account
          not in the general revenue    fund. This  sub-
          section does not affect the authority of the
          comptroller or the treasurer to establish  and
          use accounts necessary  to manage and account
          for state revenues and expenditures. (Emphasis
          added.)



                                p. 5046
    Mr. Perry L. Adkisson
    Honorable Bob Bullock
    Page 7   (JM-987)
P




    Gov't Code 5 404.094.    Sales    tax receipts    collected   by
    sellers and retailers "shall be    delivered to the office    of
    the comptroller.n    Tax Code S   151.409.   At  present,    the
    comptroller's   rules require     taxes collected    by    state
    agencies to be deposited in the   treasury within seven    days.
    Comptroller of Public Accounts,   Revenue Accounting Rule 12.

         This practice of the comptroller is consistent with the
    State Funds Reform Act.     Although the Tax Code specifies
    that sellers and retailers must send sales tax receipts     to
    the comptroller on either a monthly    or a quarterly   basis,
    the comptroller may require that receipts be submitted on a
    different basis,   if he deems that to be necessary        "to
    facilitate  the collection     of taxes    due."   Tax    Code
    55 151.401,   151.405.   Thus, the present practice      which
    requires taxes collected by the state and its agencies to be
    deoosited in the treasury within seven days is authorized by
    the Tax Code.    This practice  is also consistent with the
    provisions of the Government     Code requiring   that taxes
    collected or received by state agencies      must be   in the
    treasury within seven days of receipt.

                                 V.

         The comptroller   also asks whether    the enforcement
    provisions in subchapters K and L, chapter   151 of the Tax
    Code apply to governmental entities,   including the state,
    its agencies,   counties,   cities, and independent   school
    districts.  In particular, the comptroller inquires    about
    the application of provisions levying penalties and interest
    for the late filing of required reports and the late payment
    of taxes to such taxpayers.

         The enforcement  provisions of the Tax Code make no
    distinction between public and private entities subject    to
    the code in any of the sections touching on the enforcement
    of the sales and      use tax, including    the   provisions
    concerning the levying of penalties and interest.

         The Constitution forbids payments  to be made from the
    public treasury except pursuant to a specific appropriation.
    Tex. Const. art. VIII, 5 6. Additionally,     appropriations
    may be made only under the authority of previously    adopted
    legislation.  Tex. Const. art. III, § 44. The state is not
    liable for interest on claims made against it, unless       a
    statute authorizes the interest.    See, e.a., State v. El,
    Paso Natural Gas Comoany, 300 S.W.Zd 170 (Tex. Civ. App.    -
    Austin 1957, no writ).




                                   D. 5047
Mr. Perry L. Adkisson
Honorable Bob Bullock
Page 0   (JM-987)


     The Tax Code requires all of the entities subject     to
its provisions to pay interest on certain tax returns   filed
late: the state is such an entity. The Tax Code also does
not discriminate between public and private entities in the
provisions governing   the imposition of penalties.    There-
fore, the code authorizes the state to pay both the interest
and penalties   which may be levied against it under      the
enforcement provisions of the sales   and use tax law.   This
means that the comptroller may impose penalties and interest
in the appropriate circumstances specified by the Tax Code.
Satisfaction of a levy must await action by the legislature
to aooronriate funds to pay any levies against the state or
one of its arms.     Again, while the imposition   of such a
penalty by the state against     itself may be a pointless
process, it is not forbidden by any provision in the law.
Lower Colorado River Authoritv v. Chemical    Bank and Trust
Co., 190 S.W.2d 48 (Tex. 1945).

     Counties  must adopt annual budgets     which    provide
details of planned expenditures for the county.  See aener-
u    Local Gov't Code, ch. 111.    Expenditures may be made
only "in strict compliance with the budget."       See Local
Gov’t Code 55 111.010, 111.041, and 111.070.     This means
that all payments, including fines and interest due because
of violations of the Tax Code, must be provided for specif-
ically in the budget adopted by the county commissioners.

     A similar pattern  applies both to municipalities   and
school districts.   See Local Gov't Code § 102.009;    Educ.
Code OS 17.29, 17.56, 23.42, and 23.47.

                        SUMMARY

           The Limited Sales and Use Tax Law applies
        fully to the state, including its agencies
        and political    subdivisions,    to    munici-
        palities, and to independent school districts
        entering into transactions   which fit within
        the terms of the Tax Code.       All entities
        subject to the provisions of the sales tax
        law are entitled to any benefits extended .by
        the statute,  including the provision     which
        allows sellers and retailers who collect     the
        tax to withhold a specified percentage of the
        taxes collected   as reimbursement     for the
        costs of collection.  The  State Funds   Reform
        Act, sections 404.091 through 404.094 of the
        Government Code, apply to the handling        of        -.
        sales tax receipts collected by the entities
        subject to the act. Penalties and interest



                                  p. 5048
    Mr. Perry L. Adkisson
    Honorable Bob Bullock
    Page 9   (JM-987)


            levied against public entities   pursuant  to
            the Tax Code may be paid by the entities only
            pursuant to law.

                                         Very



                                         JIM     MATTOX
                                         Attorney General of Texas

    MARY KELLER
    First Assistant Attorney General

    Lou MCCREARY
    Executive Assistant Attorney General

    JUDGE ZOLLIE STEAKLEY
    Special Assistant Attorney General

    RICK GILPIN
    Chairman, Opinion Committee
h
    Prepared by D. R. Bustion, II
    Assistant Attorney General




                                    P. 5049
