                            March 12,

Honorable Robert S. Calvert             Opinion No. (C-&l)
Comptroller of Public Accounts
Capitol Building                        Re:   Whether a bonded supplier
Austin, Texas                                 is liable    to the State
                                              for the collection      and
                                              payment of the tax on
                                              special    fuels sold and
                                              delivered     fn bulk
                                              quantities     to another
                                              supplier who has not
                                              secured and does not
                                              hold a valfd supplier’s
                                              permit for the current
                                              year and related
Dear Mr. Calve&:                              questions,
        You have requested the opinion of this office    as to the tax
liability    of a bonded supplier legally  in possession   of special
fuels who makes bulk sales to unlicensed     suppliers   (who usually
also operate as users),     or who makes bulk sales to unlicensed
dealers and user8 whose purchases are predominantly for off-
highway use* or who makes bulk sales to purchasers for exclusive
non-highway use without securing the signed statement required
in subdivision     (3) of Artfcle 10~06, Vernonss Cfvfl Statutes.
       Article    10.06 makes ft unlawful to make bulk sales to any
person who (1) la not licensed       as a supplier,  or (2) is not
licensed    as a dealer or user of special    fuels,  or (3) does not
furnish a signed statement that none of the special         fuels pur-
chased will be delivered      by him or permftted by him to be
delivered     into the fuel supply tanks of motor vehicles.
      In connection wfth your Pequest, you have submitted a
statement of the general construction      and interpretation   which
you have placed upon the statutes     in admlnfsterfng    the Motor
Fuel and Special Fuels Tax Acts.      Since such administrative
Interpretation    is entitled to great weight, 53 Tex.Jur.2d 259-
264, Set, 177, we quote the following      statement thereof.
Honorable   Robert S. Calvert,      Page 2               Opinion No. (C-401)


                   “The legal Incidence of the tax on motor
            fuel and special fuels is upon the ultimate
            user of the fuels for the propulsion
                                            -      of motor
            vehfcles   upon the highways of Texas.
                  “But since there are millfons    of       highway
            users the Legislature,     wherever it is       possible,
            has imposed the, collection    of the tax       upon the
            vendor who fs usually cdnstftuted     and       licensed
            by law as a bonded fiduclar+y or agent          of the
            State for collection    purposes.
                   “In the case of motor fuel (gasolfne)   95%
            of the fuel consumed in the State is used
            taxable on the highway so the tax collection
            is impbeed on the first    sale by the wholesale
            distributor   and tax refunds are authorized on
            the 52 used off the highways.
                  “But in case of special  fuels (diesel  and
            butanes) the highway use Is Just the reverse.
            Only 5s to 10% of the total c~onsumptlon is used
            taxable on the highways while 90s to 95s is
            used off the highway for non-taxable purposes.
            Hence9 the State could not afford to adopt the
            motor fuel procedure of collecting    the tax on
            the first  sale of all special  fuels sold fn
            the State and then paying back 90% to 95% fn
            refunds to non-highway users.    .
                    “Bat the Legfslature,       after determfnfng
            that most of the special          fuels used taxable
            on the highways was dispensed through retail
            dealer statIons         and storage facflftfes
            maintained by bulk users such as bus and
            truck lines,       devised a plan of collecting
            most of such tax at the wholesale           level by
            suppliers    who ape licensed       and bonded by
            Article    lO.ll(l)     60 make such coPleetfons     ,fOr
            the State and vhf& would eliminate             most of
            the tax ref”rPnds.             .,
                   “TRfa was accomplfehed by setting up in
            one category the dealers and users handling
            taxable fuels mostly who pay taxes to the
            supplIer,   and settfng up in another category
            the dealers and users handPing non-taxable
            fuels mostly tie pay any fncfdental    taxes due
            directly   to the State3 &b follows:
Honorable   Robert S. Calvert,     Page 3              Opinion No. (C-401)


                  I'-l*   Dealers and bulk users whose
            purchases of special     fuels are predominantly
             mostly) for delivery      into motor vehicles
            t for taxable use on the highways) are
            required by Article     10.11(l)    to secure non-
            bonded dealer or non-bonded user permits and
            are required by Article       10.03(3)  to pay the
            tax to the supplier upon delivery        to their
            respective   storages.     If any of such tax
            paid fuel is thereafter      used or sold for use
            off the highway tax refunds may be filed for
            such incidental    diversions D
                  “-2.       Dealers and bulk users whose
            purchases are predominantly        (mostly) for use
            or resale for use non-taxable        off the high-
            way, but with some lesser quantities          to be
            delivered     by the dealer or user into motor
            vehicles    for taxable use, are required by
            Article    lO..ll(l)   to secure bonded dealer
            OF bonded user permits        (to purchase tax
            free from suppliers)       and are required by
            Articles    10.03(k)    and (5) to report and pay
            directly    to the State the tax on any
            deliveries     made into motor vehicles     -
            unless said taxes have been paid to the
            supplier     (as authorized by Article     10.03(3)).
                  “WPth this statutory   arrangement the
            law then specifically   provides in Article
            10,03(3)  that the supplier shall collect     the
            tax on each gallon delivered     to non-bonded
            dealers and users - who are those persons in
            category 1, whose purchases are predominantly
            for delivery  by them taxable into the fuel
            supply tanks of motor vehgcles.
                  “The above is the only provfsfon  in the
            law which speciffcally  states that the
            supplier shall collect  the tax on a delivery.
                  “In the next psragraph, Article       10.03(b)
            and (5) provedes that every dealer and every
            user, respectively,     shall report and pay to
            this State the tax on ,each gallon of special
            fuels delivered     by them into the fuel supply
            tanks of motor vehicles      - unless said tax
            has been uafd to 3 licensed      euDD,lfer.


                                  -1893-
Honorable   Robert   S. Calvert,   Page 4             Opinion No. (C-401)


                    “As this Division has heretofore        con-
            strued the lawp Article      10.03(3),     places a
            mandatory duty upon every supplier- to
            collect    the tax on each gallon of special
            fuels delivered    to dealers or users whose
            purchases are predomPnantly for delivery by
            them into the fuel supply tanks of motor
            vehicles    - and regardless   of whether such
            dealera or users had exercised         thefr duty
            of securing the non-bonded permits that the
            law required them to secure to perform such
            functions .
                   “Conver8ely,   if the supplier made such
            deliveries   to unlicensed    dealers   or users
            whose purchases were predominantly for use
            or resale fOr use non-taxable        off the high-
            way tar which bonded dealer or bonded user
            permits ape required by law, the; supplier
            would not become liable     for the tax on
            such deliveries     (most of which would be
            presumed to be consumed off the highway)
            since Articles    10,03(h) and (5), provide
            that every dealer and every user shall
            remrt yd Da; to this State the Gn
            each gal on o special      fuels delivered    by
            them into the fuel supply tanks of motor
            vehicles   - where such taxes have not been
            paid to a lfcexissd eupplfer,




                   “CUP thought that the Legislature
            Intended to punish such unlawful sales by
            misdemeanor or &atuPtoPy civil penaltfes,
            rather than by making the selling     supplier
            liable   for the tax. thereon, was based on
            the fact that in Ahe usual course of
            operations   by far the greater portion of
            the fUe1 purchased will move ultimately
            into non-taxable    channels off the highway.”
      We are in agreement tith your conclus%on Snsofar as non-
taxable us8 Is concerned for ths reason that no tax ever
accrued absrent such taxable uBie* It is well settled  that the
tax in question is an indirect  or “excise” tax snd that for
any tax to be due the 3ta%es the special   fuels must be used
Honorable   Robert S. Calvert,      Page 5             Opinion No. (C- 401)


 in motor vehicles     operated on the public highways of this
‘State.    State v. City of El Paso, 135 Tex. 359, 143 S.W.2d
 366 (1940).    We do think* however, that the bonded supplier
 would be liable    for any taxes that did actually   accrue by
 virtue of any taxable use as well as subject to the mis-
 ;;m;f?c)r  and civil penalties   imposed by Articles  lo.25 and
    . .
      More specifically     therefore,    our conclusions     are as
follows :
        (1)   Even though there Is no specific         provision   in the
Special Fuels Tax Act which requires a bonded supplier to
collect     the tax on special    fuels sold to an individual
supplier,     the bonded supplier has made an unlawful bulk sale
under Article      10.06.   We hold that the liability         of a bonded
supplier who has made such an unlawful sale to an unlicensed
supplier Is limited to the amount of the tax which accrued
on such portions       of the special   fuels as were actually put
to a taxable use by the unlicensed          supplier’s    permitting
the use of raid fuel8 in motor vehicles           on the highway.
We reiterate      that the bonded supplier In such instances          is
subject to misdemeanor and civil penalties             as imposed by
Articles     10.25 and 10.1%.
       (2)   Where a bonded supplier makea bulk sales and
deliveries     of special  fuels to unlicensed   dealers or users
whose purchases are predominantly for off-highway use,
the bonded supplier has made unlawful bulk sales under
Article    10.06.   The bonded supplier is liable     by reason
of said unlawful eales for the amount of any taxes nhich
did accrue by virtue of taxable use and..fs further subgect
to the misdemeanor and civil penalties        Imposed by Articles
10.25 and 10.18.
                                 .?‘.
       (3)   In those instances in which a bonded supplier makes
bulk sales to purchasers for exclusive        non-highway consumption
without securing the signed statement required by sub-
division    (3) of Article   10.06 that none of the special fuels
purchased will be delivered       by him or permitted by him to be
delivered    into the fuel supply tanks of motor vehicles,
such sales are unlawful.        By virtue of this fact, the bonded
supplier is liable      for such taxes as accrued by virtue of
taxable use of sny portion of aaid fuels on the public highways
of this State,      Again the bonded supplier is subgect to the
;ns~$meanor and civil penalties        imposed by Articles   10.25 and
   0 0



                                    -P895-
  Honorable   Robert S. Calvert,      Page 6              Opinion    No. (C-401)


           Yo have asked that we advise you as to the method of
    determf 2 ing the amount of the bonded supplier’s         tax liability
    in cases of the type heretofore        cp$@dereda     Article    10~16
    provides   that when any supplier,      dealer   or user  falls    to keep
    the records,     iseue the invoices    or file the reports required
    by Chapter 10, there is a prima facie presumption that the
    special   fuels shown by duly verified       audit by the Comptroller,
   +r his authorized representative,         to have been delivered       to
    such supplier,      dealer or user and unaccounted for at each
    place of business or of storage from which special             fuels were
    sold, delivered      or used for any taxable purposes.        The
    Comptroller Is authorized to,,fix the amount of the taxes,
    penalties    and interest    due the State from such records of
    delivery   or from any information      available   to him.     If the
    tax claim so established        is not paid, the claim and any audit
 ~made by the Comptroller or any report filed by the supplier,
  .Xealer or user is admissible         in evidence in any judicial
‘:, proceedings    filed by the Attorney General as prima facie
    evidence of correctness       of s&id claim or audit.      However,
    Article   10.16 further expressly provides “that the prima facie
    presumption of the correctness        of the olaim.may be overcome,
    upon the trial,      by evidence   adduced by said supplier,       dealer or
    user o’
       Since under Article   10.21 the Comptroller is expreesly
 siyen the power and authority to promulgate rules and regulation8
  not inconsistent   with this law”, we thfnk that ff the bonded
 eupplier in the above fnstances     fUrnished the Comptroller with
 acceptable  evidence or proof as to that part of the fuel unlaw-
 rully sold and put to non-highway use, you could allow a credit
 against the tax liability    charged to him, and thus avoid the
 court proceeding   contemplated by Article    1~9.16.
        You have directed   our atten$ion to Opfnion         No. WI-845
 :(l%O)    fn connection  with the special fuels,tax         law as ft
  pertains   to “user permits” 0 The Opinfon states          that “No
  Provision   of the law requires or authorfzes    the       supplier to
                                                                    onerating
                                                                    upplfed)
                                                                    .fnsofar    as
  Opinion No. C-328 held that the tax &u&be collected    by, the
 ‘~supplier even fn cases where the dealers and users were.acting
  in the capacity  of bonded dealers ,wd bonded ~86~8 but had not
  been properly licensed,
  I   ,




Honorable     Robert S. Calvert,     Page 7              Opinion No, (C-401)


          Opinion No. W-845   made the following     ruling:
                     “A special     fuels ‘user’ who is
              laalntaining storage tanks In Texas
              and purchasing epeclal fuels from
              supplLers in bulk quantities        predominantly
              for delivery    into fuel supply tanks of his
              motor vehicles,      and is also operating a
              number of the motor vehicles,        in interstate
              commerce, necessitating        Importation of
              special tie18 In the fuel supply tanks of
              such  vehicles,    is   required to obtain both
              a non-bonded user permit and bonded user
              Import permit. ”
      We quote the following       paragraph    from pages 2 and 3 of
'Opinion WW-845:
                     “A wholesale  supplier may sell only
              to those holding permits as bonded or
              non-bonded uaera or dealers.      He is
              required by Article    10.03(3,) to collect
              the tax on each gallon of special      fuels
              delivered   to non-bonded users.    No pro-
              vision of the law requires or authorizes
              the supplier to collect     the tax from any
              bonded user, or any person operating
              only in the capacity of a bonded user.”
       It is evident that the last sentenoe above quoted was un-
necessary to the holding of the Opinion,       Further, it is in
conflict    uith the first sentence of the above quoted paragraph
and with Article    10.09.  Under the provisions   of Article   10.09,
only a person who has acquired a permft can legally       act in the
capacity of. a bonded user.     Article 10.09 reads as follows:
                    ‘Every person defined herein as a
              supplier,   dealer or user shall secure
              from the Comptroller the kind and class
              of permit required herein to act in such
              capacities   or to perform such f7anctions.”
       We therefore   affirm that Rortion of Opinion No. ~~-845
insofar as It pertains to the user permits           involved.    We are
specifically    not in accord tith its statement as to persons
operating only "In the capacity of" bonded twers.           Opinion No.
C-328 is predicated      upon the proposition    that a taxable use
was made of the special      fuels Involved.     Its statement to the
effect    that the tax must be collected      by the supplier even when

                                    -1897-
                                                                               ,.   .




        Honorable   Robert S. Calve&,        Page 8              Opinion No. (C-401)


      the dealers and users were acting in the capacity of bonded
      dealers and bonded users but had not been properly licensed,
  “I..is consistent with the result reached.  It is therefore
      reaffirmed.

                                     JMXJEARY
                                            ---
                    A bonded supplier        who has made an unlaw-
                    ful     bulk sale to an unlicensed        supplier
                          liable  for the amount of tax which
~,;-’

                     fa
                     accrued on such portions          of the special
                     fuels as were put to a taxable use by
                     the unlicensed      supplier and is subject
                     to misdemeanor and civil penalties.              A
                     bonded supplier who has made unlawful
                     bulk sales and deliveries           of special
                    .fuels to unlicensed        dealers or users
                     whose purchases were predominantly for
                     off-highway     use is liable       for the amount
                     of tax which accrued by virtue of taxable
                     use and Is subgect to misdemeanor and
                     civil penalties.        A bonded supplier who
                     made bulk sales to purchasers for
                     exclusive    non-highway consumption with-
                     out securing the signed statement
                     required by Article        10.06(3)    that none
                     of the special      fuels purchased will be
                     delivered    by him or permitted by him
                     to be delivered      into the fuel supply
                     tanks of motor vehicles         is liable    fop
                     such taxes as accrued by virtue of
                     taxable use and is subQeet to mfs-
                     demeanor and civil penalties.            When
                     any supplier,     dealer OP user fails to
                     keep the records,       invoices     or reports
                     required by the Special Fuels Tax Acts
                     there is a pplma       facie presumption that
                     the special     fuels shown by the Comptroller”s
                     audit to have been delivered           to such
                     supplier,    dealer OP user and unaccounted for
                     at each place of business or storage have
                     been used for taxable purposes.             If the
                     claim so established        is not paid, the prima
                      facie presumption of its correctness            may be
                     overcome in any suit fop the collection
                     thereof by evidence        adduced by the supplier,
                     dealer or user.        The Comptroller has
                     authority to promulgate rules and regulations

                                             =na,%s-
.    .i.




    Honorable   Robert 9. Culvert,      Page     9            Opinion No. (C-401)


                for the enforcement of the Special Fuels
                Tax Law. If the Comptroller is furnished
                with proof as to that part of the fuel
                unlawfully   sold and put to non-highway use,
                the Comptroller may allow a credit
                the tax cl im. Opinions No.
                and C-328  't1964) are reaffirmed.

                                     Yours very truly,
                                     WAQQONEZ?       CARR
                                     Attorney        General of Texas




    MMcQP:dl
    APPROVED
           BY OPIHIONCOMMITTEE
    W. V. Geppert, Chairman
    John Banks
    Jsmes Broadhurst
    SsmKelley
    Grady Chandler
    APPROVED
           FORTHEATTORNETGE%ERAL
    Bg:    Stanton Stone




                                        -1899,
