   OFFICE
        OFTHEATTORNEY
                    GENERAL.
                          STATE
                              OFTEXAS
   JOHN    CORNYN




                                        December 8, 1999



Mr. Steven G. Moore, C.P.A.                       Opinion No. K-0149
McLennan County Auditor
214 North Fourth Street, Suite 100                Re: Whether interest      earned on motor vehicle
Waco, Texas 76701-1366                            inventory tax escrow     accounts may be used to
                                                  purchase certain items   and is subject to audit by
                                                  the county auditor,      and related questions
                                                  (RQ-0097-JC)

Dear Mr. Moore:

         You ask several questions about interest earned on motor vehicle inventory tax escrow
accounts, money that section 23.122(c) of the Tax Code requires a tax assessor-collector to retain
to use to defray the cost of the motor vehicle inventory tax prepayment procedure. You ask whether
the interest may be used to purchase equipment that would be used for both administration of the
motor inventory tax prepayment procedure and general administration of the tax office. You also
ask about the county auditor’s duties in auditing the interest and whether purchases from the fund
are subject to the County Purchasing Act, TEX. Lot. GOV’T CODE ANN. ch. 262, subch. C (Vernon
 1999). While we conclude that interest may not be used for expenses not related to the
administration of the prepayment procedure, we also emphasize that the determination as to whether
and to what extent a particular purchase is a legitimate cost related to administration of the
prepayment procedure is for the tax assessor-collector to make in the first instance.      We also
conclude that the county auditor’s authority to audit the interest monies includes the authority to
review expenditures from the fund and to make audit reports regarding the interest monies to the
commissioners court. Finally, we conclude that purchases made with the interest monies are not
 subject to competitive bidding under the County Purchasing Act.

         Section 23.122 of the Tax Code requires a motor-vehicle dealer to prepay property taxes
levied against the dealer’s motor-vehicle inventory. TEX. TAX CODE ANN. 5 23.122(b) (Vernon
Supp. 1999). Each month, a motor-vehicle dealer must deposit with the county tax assessor-
collector in the county in which the inventory is located a portion of the property tax the dealer is
expected to owe for the year. Id. The tax assessor-collector must place the prepaid taxes in an
escrow account to the dealer’s (or “owner’s”) credit:

                   (b)     . The money shall be deposited by the collector in or
               otherwise credited by the collector to the owner’s escrow account for
Mr. Steven G. Moore     - Page 2                    (X-0149)




                prepayment of property taxes . . An escrow account required by
                this section is used to pay property taxes levied against the dealer’s
                motor vehicle inventory, and the owner shall fund the escrow account
                as provided by this subsection.

Id. The tax assessor-collector is required to maintain an escrow account for each owner in the county
depository. See id. 5 23.122(c). The tax assessor-collector disburses funds in the escrow account
to “relevant taxing units,” i.e., taxing units “authorized by law to levy property taxes against a
dealer’s motor vehicle inventory,” id. 3 23.122(a)(7), in proportion to the amount of taxes levied,
id. 5 23.122(i). The dealer may not withdraw funds from the escrow account. Id. fj 23.122(d). See
generally Tex. Att’y Gen. LO-98-085, at l-2 (summarizing motor vehicle inventory tax scheme).

       Your inquiry focuses on the interest on the escrow accounts, which subsection (c) of section
23.122 allocates to the tax assessor-collector:

                    (c)        The collector shall retain any interest generated by the
                escrow account to defray the cost ofadministration ofthe prepayment
                procedure established by this section.       Interest generated by an
                escrow account created as provided by this section is the sole
                property of the collector, and that interest may be used by no entity
                other than the collector. Interest generated by an escrow account may
                not be used to reduce or otherwise affect the annual appropriation to
                the collector that would otherwise be made.

Id. 5 23.122(c).      This office has concluded that because interest generated by the motor
vehicle inventory tax escrow account is the “sole property” of and may be used only by the tax
assessor-collector,  it is not subject to the control of the commissioners court. Tex. Att’y Gen. Op.
No. DM-398 (1996) at 2; accord Tex. Att’y Gen. LO-98-085, at 5-6. The tax assessor-collector’s
discretion with respect to the use of the fund is statutorily limited to defraying the costs of
administering the tax prepayment procedure. See TEX.TAX CODEANN. $23.122(c) (Vernon Supp.
 1999). Accordingly, this office has concluded that the interest may not be used for general office
expenses of the tax assessor-collector that are unrelated to the costs of administering the prepayment
program. See Tex. Att’y Gen. Op. No. DM-398 (1996) at 4; accord Tex. Att’y Gen. LO-98-085, at
6. This office has also cautioned, however, that whether aparticularexpenditure       is a legitimate “cost
of administration of the prepayment procedure” and is therefore a permissible use of the interest is
a question of fact. See Tex. Att’y Gen. Op. No. DM-398 (1996) at 3-4. “What constitutes a
legitimate cost of administration of the prepayment program is a matter of fact upon which this
office cannot opine.” Id. at 3; accord Tex. Att’y Gen. LO-98-085, at 6. The tax assessor-collector
must make the initial determination that a particular expenditure is a legitimate cost ofadministration
under section 23.122(c), subject to judicial review. See Tex. Any Gen. Op. No. JC-0135 (1999) at
 2-3.
Mr. Steven G. Moore     - Page 3                  (JC-0149)




         You ask two questions regarding whether the interest may be used to purchase equipment
that would be used for both administration of motor inventory tax prepayment and general
administration of the tax office: “Can the interest    be used to fund the entire purchase price of a
piece of equipment, such as a vehicle or computer which will be utilized 25 percent for the
administration of the prepayment procedure and 75 percent for general administration of the tax
office?” See Letter from Steven G. Moore, C.P.A., McLennan County Auditor, to Office of
Attorney General, at 2 (Aug. 4, 1999) (on file with Opinion Committee) [hereinafter “Request
Letter”]. You also ask if equipment purchased with the interest must “be used in a manner which
defrays only the cost of the prepayment program.” Id. at 3. You ask us to address the second
question if we are not able to answer the first. Assuming that the tax assessor-collector            has
determined that only twenty-five percent ofthe purchase price of an item is a legitimate cost related
to the administration of the prepayment procedure, then we believe that interest monies may be used
to pay only twenty-five percent of the purchase price of the item. To use interest monies to fund the
 entire purchase would run afoul of the section 23.122(c) requirement that the interest be used only
 to “defray the cost of administration of the prepayment procedure.”          TEX. TAX CODE ANN.
 5 23.122(c) (Vernon Supp. 1999). We emphasize, however, that the determination as to whether and
 to what extent a particular purchase is a legitimate cost related to administration under section
 23.122(c) is for the tax assessor-collector to make in the first instance, subject to judicial review.
 We also believe that the proper use of equipment in the tax office is a matter within the discretion
 of the tax assessor-collector.

        Next, we turn to your question about a county auditor’s duty to audit the interest.   You ask:

                         Since the funds       . are solely at the control of the tax
                assessor-collector,  and the commissioners     court has no authority
                whatsoever over the funds, does the County Auditor have a
                responsibility to report questioned expenditures from this fund, and
                if so, to whom does the county auditor issue an audit report?

Request Letter, supra, at 2. A county auditor is authorized and required to audit the motor vehicle
inventory tax escrow accounts, as well as interest earned on the prepaid taxes.

          Section 115.001(l) oftheLoca1 Government Codeprovides acountyauditor with“continua1
access” to accounting books and related materials of any officer. See TEX. Lot. GOV’T CODE ANN.
$ 115.001 (Vernon 1999). Section 115.002(b) requires a county auditor, at least four times each
year, to examine the county tax assessor-collector’s books to verify their correctness. Id. $115.002.
A brief submitted by the Johnson County Tax Assessor-Collector’s        Office suggests that a county
auditor is precluded from auditing the fund because the monies are not county property. See Letter
from Terry W. Bradley, Esq. and Keith Bradley, Esq., to W.E. Carroll, Johnson County Tax
Assessor-Collector     (June 3, 1999) at 6. We note, however, that section 115.0035 of the Local
Government Code requires a county auditor to examine, at least annually, the “accounts” of county
officials. TEX. LOC. Gov’TCODEANN. 5 115.0035(b) (Vernon 1999). “Accounts”means “all public
funds that are subject to the control of any       county    official.” Id. 5 115.0035(a). Thus, the
Mr. Steven G. Moore    - Page 4                  (JC-0149)




county auditor has express statutory authority to examine the correctness ofthe county tax assessor-
collector’s books, whether or not the books relate to county funds. See id.; see also Tex. Att’y Gen.
Op. Nos. JC-0135 (1999) at 3; DM-398 (1996) at 4 (stating that county auditor may audit interest).
This authority includes the authority to review expenditures from the fund. Audit reports should be
submitted to the commissioners court, See TEX. Lot. GOV’T CODEANN. 5 115.0035(c) (Vernon
1999) (“The auditor shall verify the correctness of the accounts and report the findings of the
examination to the commissioners court         .“).

          Finally, you ask whether purchases made with the interest are subject to the County
Purchasing Act, chapter 262, subchapter C ofthe Local Government Code (the “Act”). We conclude
that purchases made by the tax assessor-collector with these monies are not subject to the Act. This
office has equated the interest monies with the district attorney hot-check fund created pursuant to
article 102.007 of the Code of Criminal Procedure, see Tex. Att’y Gen. Op. No. DM-398 (1996) at
 1 (“In our view, these funds are analogous to the ‘hot-check’ fund administered by the district
attorney.“), expenditures from which are, according to that statute, “at the sole discretion of the
attorney and may be used only to detiay the salaries and expenses of the prosecutor’s office.” TEX.
CODEGRIM.PROC.ANN. art. 102.007(f) (Vernon Supp. 1999). Given that article 102.007 vests sole
discretion for expenditures from the fund in the district attorney, this office has held that hot-check
 fund purchases are not subject to competitive bidding under the County Purchasing Act. See Tex.
Any Gen. Op. Nos. JM-967 (1988) at 3; MW-439 (1982) at 8. Because subsection (c) of section
23.122 provides that “[ilnterest generated by an escrow account created as provided by this section
 is the sole property of the collector,” TEX. TAX CODEANN. 5 23.122(c) (Vernon Supp. 1999), and
has been construed by this office to vest sole discretion over interest purchases in the tax assessor-
 collector, see Tex. Att’y Gen. Op. No. DM-398 (1996) at 2, we conclude that purchases made with
 the interest monies are not subject to competitive bidding under the Act.
Mr. Steven G. Moore    - Page 5                  (X-0149)




                                       SUMMARY

                        Interest earned on motor vehicle inventory tax escrow
               accounts may not be used for expenses not related to the
               administration ofthe prepayment procedure. The determination as to
               whether and to what extent a particular purchase is a legitimate cost
               related to administration of the prepayment procedure is for the tax
               assessor-collector to make in the first instance. A county auditor’s
               authority to audit the interest monies includes the authority to review
               expenditures from the fund and to make audit reports regarding the
               interest monies to the commissioners court. Purchases made by a tax
               assessor-collector   with the interest monies are not subject to
               competitive bidding under the County Purchasing Act.




                                              Attorney General of Texas



ANDY TAYLOR
First Assistant Attorney General

CLARK RENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Mary R. Crouter
Assistant Attorney General - Opinion Committee
