Honorable Robert S. Calvert         Opinion NO. M-361
Comptroller of Public Accounts
Capitol Station                     Re: Whether cafeterias
Austin, Texas                           operated by branch banks
                                        of the Federal Reserve
                                        Bank of Dallas are re-
                                        quired to remit the sales
                                        tax on the basis of the
                                        percentage of gross
                                        receipts fr6m the sale of
Dear Mr. Calvert:                       food to bank employees.
     Your recent request for an opinion    on the captioned
matter reads in part as follows:
          “Branch banks of the Federal Reserve Bank of
     Dallas are located in San Antonio, Houston and
     El Paso. Each operate cafeterias serving food to
     bank employees. The cafeteriascurrently collect
     tax in accordance with the bracket system of the
     Acts fis authorized in Article 20.021(A) of the
     Texas Limited Sales, Excise and Use Tax Act and as
     authorized in Section (K)(2) of Article 1066~ of
     the Local Sales and Use Tax Act,-/
          “The banks remit tax on the cafeteria sales In
     the amount collected from the patrons rather than
     remitting on the basis of a percentage of gross
     receipts as required by the Act.
          ,t     Because of the volume of small sales,
     the caieieiiasdo not collect enough tax through
     the bracket system to pay the’tax due upon their
     gross receipts. Apparently the cafeteriasdo not
     have fifty per cent ,(50$)of their receipts arising
     from sales under the minimum amount upon which tax
     may be collected so as to comply with the special
     reportingmethods allowed by Article 20.05(B) of the
     Act.


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    Hon. Robert S. Calvert, page 2 (~-361)

              "The Federal Reserve Bank has Indicated its
         inability to pay the tax stating that it Is a
         federal instrumentalityand that Congress has not
         authorized payment of this type of tax under
         Section 7 of the Federal Reserve Act. . , .
              "The Comptroller thus asks your opinion as to
         whether the Comptrollercan require payment of
         the sales tax based on the remittance of a percentage
         of gross receipts of the bank cafeteria operations
         of the Federal Reserve Bank of Dallas as described
         above."
         The applicable portions of the Texas Sales Tax Act are
    Article 20.02 and a portion of Article 20.021 (A), Title 122A,
    Taxation-Qeneral,Vernon16 Civil Statutes.
         "Art. 20.02 Imposition of Limited Sales Tax
              "There is hereby imposed a limited sales tax
         at the rate of three per cent (3%) on the receipts
         from the sale at retail of all tangible personal
         property within this State."
         "Art. 20.021 Method of Collection;Bracket System

              "(A) Every retailer shall add the sales tax
         imposed by Article 20.02 of this Chapter to his
         sale price and when added the tax shall constitute
         a part of the price, shall be a debt of the pur-
         chaser to the retailer until paid, and shall be
         recoverableat law in the same manner as the purchase
         price. It is further specified that where tangible
         personal property Is segregated in contemplationof
         transfer of title or possession and is thereafterto
         be transportedby common carrier from the seller to
         the buyer, with the price fixed F.O.B. the seller's
         place,of business, and with transportationcharges
         separately stated, the tax herein imposed shall be
         computed only upon the basis of the charge for the
         tangible personal property itself, exclusive of the
         separately stated and Independentlyfixed transpor-
         tation charges. When the sale price shall involve
         a fraction of a dollar, the tax shall be added to the
         sale price upon the following schedule:


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     lion.Robert S. Calvert, page 3 (M-361)

                   Amount of Sale              Tax
                   $ .01 to $ .16             No Tax
                     .17 to   .4q
                     1% ;oo 1.16
                              .83
                    1.17 to 1.49
                    1.50 to 1.83
          Provided, that for successivebrackets for this
          schedule in this paragraph, the tax shall be
          computed by multiplying three per cent (3s)
          times the amount of the sale. Any fraction of
          one cent   .Ol) which Is less than one half of
          one cent td,005) of tax shall not be collected.
          Any fraction of one dent ($.Ol) of tax equal to
          one half of one cent ($.005 or more shall be
          collected as a whole cent (b .Ol) of tax."
           A Federal Reserve Bank is an operating agency of the
     Federal Government. created to CUDDLY a need of the national
     government. Federal Reserve Bank*bf"Minneapollsv. Register
     of Deeds for belta C      , 264 N **
                                        W bb7, 2tEiMich . 120 (19391;
     ‘1?u .S.C.A., BB 221
          We have not been furnished any facts concerning the
     necessity or business feasibility of the operation of the
     employee cafeterias. Ordinarily If the operation of a
     facility has a natural and reasonable tendency to aid in the
     accomplishmentof the bank's business purposes, especiallyas
     related to Its dealings with its employees, it will be con-
     sidered within the implied or Incidental powers of the bank,
     and the determinationof such matters is largely within the
     discretion of those who manage the bank's affairs. Heinz v.
     National Bank of Commerce, 237 F. 942 (1916); 19 Am.Jur.2d
     308 c       ti     EE 1653 - 1055. Therefore, for purposes
     of dhi?~~&o~~s;e    are assuming that the operation of the
     cafeterias by the bank in question is within the powers of the
     Federal Reserve Bank and in the furtherance of its functions.
          The Texas Sales Tax Act provides for exemptions with
     reference to certain types of property and also with reference
     to property sold to or-consumedby certain exempt entities and
     oraanizations. Article 20.04. Title 122A. Taxation-General.
     V.E.S. But we find no Texas iaw which grants an exemption -
     for sales tax purposes to any vendor, as such. However, there


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Hon. Robert S. Calvert, page 4 (M-361)

is no doubt that Congress can provide statutory immunity from
state taxation for federal instrumentalities. United States
v. City of Detroit, 355 U.S. 466, 2 L.Ed.2d 424, '(8S.Ct. 474
(1956).
     Congress has expressly provided Federal 'ReserveBanks
with an exemption from taxation under Section 7 of the Federal
Reserve Act, which exemption reads as follows:
          "Federal Reserve Banks, including the capital
     stock and surplus therein and the income derived
     therefrom,shall be exempt from federal, state and
     local taxation, except taxes upon real estate."
     12 U.S.C.A., 8 531.
     It clearly follows that the Texas sales tax cannot be
imposed on a Federal Reserve Bank itself. Hence, the ultimate
question for our determinationmay be phrased as follows:
Would a requirement that a Federal Reserve Bank remit sales
taxes over and above those which can be collected from its
customers under the bracket system (Article 20.021 (A)) (i.e.,
a tax based on gross receipts) amount to the imposition of a
tax against the bank? In our opinion, such a requirement
would be tantamount to the imposition of a tax.
     In First Agricultural National Bank of Berkshire County
v. State Tax Commission,       U.S.       20 L.Ed.2d I.138
88 S.Ct. 2173 (1968) a National Bank:     the purchaser 0:
certain tangible perional property. After holding that a
state sales tax could not be imposed upon a National Bank
without express end direct authority from Congress, the court
turned to the issue of whether the Massachusettssales tax
was, in fact, imposed on the purchaser-bank. The Massachusetts
Sales Tax Act with respect to the impositionand collection
of the tax is very similar to the above-quotedprovisions of
the Texas Act, and the MassachusettsSupreme Judicial Court
had held that the incidence of the tax in this case was on the
vendor, not the purchaser (229 N.E.2d 245).. This view was
rejected by the United States Supreme Court. Mr. Justice Black,
speaking for the majority, said: "And essential.ly the question
for us is, on whom does the incidence of the tax fall." He
then cited the case of Kern-,Limerick,Inc. v. Scurlock, 347
U.S. 110, 74 S.Ct. 403, 98 L Ed 546   In Kern-Limer.ickthe
legal incidence of a tax was'held to be dxe.rminedby "who is
responsible . ; . for pa,ymentt!:the state of the exaction."
Ron. Robert S. Calvert, page 5 (M-361)

The Court proceeded to hold that when a sales tax must be
passed on to the purchaser, the legal incidence of the tax
is on the purchaser and that the MassachusettsLegislature
intended that the sales tax in question be passed on to the
purchaser.
     Therefore, as to the remittance of t&es additional to
those collected from the retail purchasers, our inquiry can
be refined to the question, !'Whois responsible . . . for
payment to the state of the exaction?"
     In Calvert v. Canteen Compen 371 S.W.2d 556 (Tex.
Sup. 1963) th S                   ixas held that the sales
tax was on'theesa%ie?&nsaction and if the retailer should
not, under the bracket system, chllect all of the tax from
his customers, then the retailer.mustabsorb the difference.
The court further pointed out that the vendors were required
to absorb the tax not collected from their customers "only
because they have elected to sell items at a retail price
less than the price provided for collectibilityfrom the
consumer." Thus a retailer can always protect himself from
absorbing taxes by the simple expedient of always adjusting
his prices so as to enable him to collect from his customers
all taxes that he will be compelled to remit under the per
cent of total receipts formula. However, this escape mechanism
is irrelevantas to an exempt concern. We fail to perceive
any reason for a Federal Reserve Bank to adjust its prices in
order to escape absorbing taxes when the power of the state to
tax that concern Is absent in the first instance. The contrary
view envisions the bank as responding to the pressure of taxing
power. In the face of the Federal Exemption Statute, such
pressure does not exist.
     In conforming the rationale of First AgriculturalNational
Bank of Berkshire County v. State Tax Commission, supra, to'
this situation, this office is of the opinion that the incidence
is on the bank's customers with respect to the tax which can be
collected by the bank from them under the bracket system, and
that the incidence of any further taxes is on the bank because
as to such additional taxes it, and it alone, "is responsible
. . . for payment to the state of the exaction."

                        StJMXARY
          The only sales taxes which the branch
          banks of the Federal Reserve Bank of Dallas

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Hon. Robert S. Calvert, page 6 (M-361)

         are bound to remit in regard to their
         sales in employee cafeterias is the
         amount of taxes collected from their
         customers in accordancewith the bracket
         system prescribedby Article 20.021 (A),
         Title 122A, Taxation-General,Vernon's
         Civil Statutes and Article 1066c, Section
         2(K)(2), Vernon's Civil Statutes. The
         Federal Reserve Bank is not required to
         remit sales taxes measured by gross re-
         ceipts and not actually collected from
         its customers.
                                   Yours/jery truly,




AW:dc

Prepared by
Alfred Walker
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Taylor, Chairman
George Kelton, Vice-Chairman
James Broadhurst
Harold Kennedy
Bill Allen
Monroe Clayton
W. V. Geppert
Staff Legal Assistant
