                      The Attorney             General of Texas
                                       December      27,    1978         I---‘.’-..I..-,,. ._-. -.-. -.-_ _-__

JOHN L. HILL
Attorney General


                   Honorable Jackie L. Vaughan
                   Executive Director
                   Texas Amusement Machine Commission              Re: Application of Amusement
                   ‘7600 Chevy Chase Drive, Suite 402              Machine Tax in licensing require-
                   Austin, Texas 78711                             ments to machines located on
                                                                   certain military installations.

                   Dear Mr. Vaughan:

                          You have sought an opinion on the authority of the Texas Amusement
                   Machine Commission to regulate and tax the machines on the four federal
                   bases over which Texas and the federal government have concurrent
                   jurisdiction.  You state that the machines are either leased or owned by the
                   nonappropriated   fund instrumentalities, the Army and Air Force Exchange
                   Service.

                         Coin-operated machines are regulated under chapter 13 of Title 122A,
                   Taxation-General, V.T.C.S. Article 13.02 provides:

                                 (1) Every ‘owner’ . . . who owns, controls, possesses,
                              exhibits, displays, or who permits to be exhibited or
                              displayed in this State any ‘coin-operated machine’
                               shall pay, and there is hereby levied on each ‘coin-
                              operated machine’, as defined herein in Article 13.01,
                               except as are exempt herein, an annual occupation tax
                              of $15.00.
                                 (2) Provided that the first money taken from each
                              coin-operated   machine each calendar year shall be
                              paid to the owner to reimburse the payment of that
                              year’s annual occupation tax levied above and those
                              levied by any city or county. No owner shall agree or
                              contract or offer to agree to contract to waive this
                              reimbursement either directly or indirectly. No owner
                              shall agree or contract with a bailee or lessee of a
                              coin-operated   machine to compensate said bailee or
                              lessee in excess of fifty percent (50%) of the gross
                              receipts of such machine after the above reimburse-
                              ment has been made. . . .




                                                P.   5142
Honorable Jackie L. Vaughan        -    Page 2      (H-1307)



There are provisions    for record keeping, licensing,         and registration.   Tax.-Gen.
arts. 13.10, 13.17.

       It is the view of the Department of Justice that these federal instrumental-
ities are constitutionally immune from state taxation and regulation.

       The United States Supreme Court has determined that a state sales tax on
liquor bought with nonappropriated      funds by a post exchange located on a
concurrent jurisdiction   base was unconstitutional.     U.S. v. Tax Comm’n of
Mississippi, 421 U.S. 599 (1975). On this authority it is our opinion that the
provisions of chapter 13 are unenforceable against post exchanges which own coin-
operated machines.     See McCulloch v. Maryland, 4 Wheat. 316 (1819); Johnson v.
Maryland, 254 U.S. 51-20); 32 C.F.R. S 554.6 (1977).

       We turn now to the applicability of chapter 13 to persons who lease machines
to post exchanges.      Generally, the states have authority to tax and otherwise
regulate the conduct of contractors who do business with the federal government.
Paul v. U.S., 371 U.S. 245 (1963); Penn Dairies Inc. v. Milk Control Comm’n, 318 U.S.
-James               v. Dravo Contracting Co.,vee                                Leslie
Miller, Inc. v. Arkansas. 352 U.S. 187 (1956). However, state law must yield to the
extent It confl icts with’federal law. .U.S.~Const. art..6, cl. 2; Paul v. U.S., m;
Leslie Miller, Inc. v. Arkansas, m;     32 C.F.R. S 554.6 (1977).

      Federal regulations    provide:

              Procurement.

               (b) Exchange procurement will be conducted on the basis
            of full and free competition       to the maximum extent
            practicable, and consistent with the immunity of exchanges
            from State regulations and control. Award will be made to
            that responsive and responsible contractor whose offer is
            most advantageous to the exchange, price and other factors
            considered.

32 C.F.R. S 554.9(b) (1977). In that Texas law restricts the lessee to a maximum of
50% of the gross receipts and designates the first $15.00 as reimbursement         it
conflicts with section 554.9(b) and is unenforceable.      See
                                                           -     Standard Oil Co. It.
Johnson, 316 U.S. 481(1942).

        Attorney General Opinion H-110 (1973) in which it was said that your
commission’s jurisdiction   is complete with respect to nonappropriated          fund
activities on property not ceded to the United States is overruled to the extent it is
inconsistent.




                                        P-   5143
Hono<able Jackie L. Vaughan   -       Page 3    (H-1307 )



                                      SUMMARY

          Federal post exchanges are wholly immune from chapter 13,
          Tax on Coin-operated     Machines, Title 122A, Taxation-
          General.

                                               Very truly yours,


                                                     FW
                                               JOHN L. ;IILL
                                               Attorney General of Texas

APPROVED:
                                  8


k&
DAVID M. KENDALL, First Assistant

 m

C. ROBERT HEATH, Chairman’
Opinion Committee

jsn




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