                            QBfficeof tip JWmet, Q3eneral
                                        Sbtate of Qexae
DAN MORALES                                 July 21.1993
 .,lTORS’EY
         GESERAL

      Honorable Got40 Barrientos              Opinion No. DM-237
      Chairman
      Committee on Nominations                Re: Validity of a state licensing fee assessed on
      Texas State Senate                      certified public accountants who are employed by
      P.O. Box 12068                          the federal government (RQ-485)
      Austin, Texas 78711

      Dear Senator Barrientos:

             You have asked this office to consider whether certified public accountants
      employed by the federal government may validly be subjected to the S200 fee increase
      mandated by House Bill 11 of the First Called Session, of the 72d Legislature.

              Article 10, section 10.06 of House Bill 11 amends the Public Accountancy Act of
       1991. It adds section 9A to read as follows:
                     (b) Jn addition to the fee imposed under Subsection (a) of this
                section, an additional biennial fee of S200 is imposed. . A licensee
                who does not pay the additional biennial fee and all late fees before
                the first Mniwrsary of the due date of the additional biennial fee may
                only receive a renewal license by submitting an application, all
                accrued fees, and the direct administrative costs incurred by the
                board in using the renewal license. The board shall by rule provide
                the information that must be contained in the application. The bwrci
                shall have no author@ to wait fhe collection of aryj2e or per&y.
      Acts 1991, 72d Leg., 1st C.S.. ch. 5. 5 10.06, at 180 (emphasis added).

              You ask whether this fee may properly be levied upon certified public accountants
      who work exclusively for the federal government. You note that diibring views have
      been expressed on this question. It has been suggested, on the one hand, that certified
      public accountants who provide services solely to the federal govemment are exempt from
      this fee. On the other hand, it has been argued that the additional S200 licensing fee
      imposed by 8 9A(b) of the Public Accountancy Act of 1991 is not unconstitutional by
      vittue of its applicability to federal employees. After consideration of the relevant case
      Jaw and statutory provisions, we agree with the latter conclusion.

             ne argument that a state cannot impose a licensing fee on an employee of the
      fedd    government rests upon an antiquated understanding of the doctrine of
      ~t~gov~mtd       tax immunity. a doctrine whose origins are to be found in h4cCulloch v.



                                               p. 1224
 Honorable &umalo Barrientos - Page 2        (DM-237)




Mmylmd,4Wheat.316(1819).       JnMcCulkxh,ChiefJusticebkshaJJoxrhmmdata~
kvied dkdy by the State of hkyland on the Bank of the United States. The basis for
the decision was the Supremacy Clause of the United States Constitution. As Justice
 White summa&d the A4cCtdhch argumem in United Stafes v. Cwnty of Fhmo, 429
 U.S. 452 (1977):

           An Act of Congress had created the bank in order to cany out
           kmtions of the National Government enumerated in the United
           States Constitution. The Court noted that the power to tax the bank
           “by the States may be exercised so as to destroy it,’ 4 Wheat, at 427,
           4L.Ed.579,md~~u~ythatthepowerto~ifadmitted.
           could be exercised so as eEectively to repeal the Act of Congress
           which created the Bank.
Fnsno. 429 U.S. at 458.

         McCulbxh establishes dedrly the propositiOn that states may not impose a tax
direcdyonthefixieralgovemm       ad, and more genedy may not impose Yaxes the legal
incidence of which &Us on the Federal government.” Id. at 459. McCuIluch was at OIIC
time more broadly read to forbid taxation on those who cormacted with the federal
govaunent, its agents or instntmentalities, if such taxation might inctwuethecostof
doing bush= for the federal government. See, eg., Lkbbins v. Ccnnm’rsof Eric Cwqy,
16 Pet. 435. 10 L. Ed. 1022 (1842) (state tax on income of federal employee
unwnstitutional); Panhandle Oil Co. v. Miss&&pi a rel. Ahox, 277 U.S. 218 (1928)
(sales tax imposed on one whn sold to federal govemment lmcxmsiDJtional). under such
an expansive reading ofMc&lloch, it might well be the case that an occupation tax of the
sort imposed by the 1991 amendment to the Public AccountMcy Act would be
unwnstitutional as applied to a federal employee.

         However, the modem trend in intergov emmental tax immnity law, which began
with the Stone Court and has continued to the present day, is to find far fewer kinds of
transactions immune on constitutional grounds from taxation. Jn Jumes v. Dmvo
Contrclcriing Co., 302 U.S. 134 (1937). a Pennsylvania corporation which had a federal
contract for lochs and dams on the Kanawha and Ohio rivers brought suit to enjoin
collection of a West Viginia state gross receipts tax on the contract. The cou* by a five-
to-four vote, rejected the corporation’s argument:

               We hold that the West Viginia tax so far as it is laid upon the
          gross receipts of respondent derived from its activities within the
          borders of the state does not interfere in any substantial way with tbe
          petformance of federal fimctions, and is a valid exaction.

Jmnes, 302 U.S. at 161.
       Justice Roberts, in dissent, averred that the decision “overrule[dI, sub sihtio, a
century of precedents.’ 302 U.S. at 161. This claim has proven to be aceurate. Jn 1939,
in Graves v. New Yark ex rd. O‘Keefe, 306 U. S. 466. the court expkitly overruled

                                          p. 1225
Honorable Gonzalo Banientos - Page 3              (DM-237)




Dobbins ud its progeny. It rejected the view .tht             a tm cm income i legally or
economidly       a tax on its m”      306 U.S. at 480, and noted that
              the only possible basis for implying a constitutional immunhy 6om
              state income tax of the salary of an employee of the national
              government or of a governmental agency is that the economic burden
              of the tax is in some way passed on so as to impose a burden on the
              national government tantamount to an interference by one
              government with the other in the performance of its Smctions.

Graves,306 U.S. at 4813.




                   Somuchoftbeburdmofanoa-diocriminrtorygeneraltaxupon
              theincomesofemployeesofagovanmart,           stateornationa&asmay
              be passed on economicagy to that govemm ent,throughtheeffectof
              thtwonthepricelmloflaboror~,isbutthtnormal
              incident of the orgakation      within the aante territory of two
              governments, each possesing the taxing power. The. burden, ao far
              roitCMbeMidtoacistortoiffe*thcgowrnmentinmyindiredor
              incidental way, is one which the Constitution presupposes, and hence
              it cannot rightly be deemed to be within an implied restriction upon
              thetaxingpowaofthc~tionalandrtategovaMlauswhichtbe
              Constitution has expressly granted to one and hss contirmed to the
              other. The immunity is not one to be implied f+om the ConstiMio~
              becauseifllloweditwouldimposetoaninadmkiieextenta
              resbictiononthetaxingpowerwhichtheConstitutionba.srefaMd
              to the State govemmem.

Id. at 487.

        The result of such cases as James and Graves, as well as such later decisions as,
e.g., Ci@ of Detroit v. Murrq Corp.. 355 U.S. 489 (1958); United Slrrresv. Civ of
Detroit, 355 U.S. 466 (1958); United $ates v. Towmhip of Muskegon, 355 U.S. 484
(‘E?); Vn!ted States v. Cwnv of Fresno, 429 U.S. 452 (1977); United States v. New
Mexico, 455 U.S. 720 (1982); and South CaroIina v. Baker, 485 U.S. 505 (1988) is both
to simplify and to narrow the doctrine of intergovemmental tax immunity.

        The most succinct statement of modem tax hmmmity doctrine with respect to
federal employees or’contractors is provided by the court in Fremw:
                   The rule to be derived from the Court’s more recent decisions,
              then, is that the economic burden on a federal function of a state tax
              imposed on those who deal with the Federal Govermnent does not


                                             p.    1226
~lIorable~nzaloBanientos         - Page 4     (DM-237)




           ratderthetaxunconsthutionalsolongasthetaxisimposedequally
           on the 0th sitnil& situated wnstituents of the State.
429 U.S. at 4634.

        UnderrF~~lnalysiqtwoqueotio~mustbersktdaboutraatetsxthatis
levelled on a federal employee. Piit. does the legal, as distinct from the economic. impact
of the levy fall upon the United States? Second. does the tax dkkinate       between federal
and state employees to the dettiment of the federal employees2

       TbelcgalimpactofthclldditionalfeesleviedbyHwseBillll          fallsuponcuti6ed
pub&c rccountants, and not upon their unployers. The fee is levied directly on the
acamWta.      Audit&,       the sole maining question is whether this fee impem&iily
dl.emhues    fqlinst federal employees.

         Werhould~notethrtrblanlr*cranptiwroldyof~~l~~~
 would, in all probabii,   be such an impemissiile diachidon.       In bvts v. Midrgurr
Deft of rhr 7kusmy. 489 U.S. 803 (1989). the United States Supreme Court held that
 the State of hGhigan could not exempt fiom taxation the rekment benefits of state
 employees, when the benefits of federal employees were subject to the tax. The decision
was based on the Public Salary Tax Act of 1939.4 U.S.C. 5 111. which the court viewed
as “cadging]      the result in Gmves and fbreclosrmg) the possibii       that subsequent
judicial reconsiderrttion of that case might reestablish the broader intapretation of the
immunity dootrhe.” Dank, 489 U.S. at 812. The court read the act as “coaaensivc with
the prohibition against dismimina tory taxes embodied in the modern wnstiMional
doctrine of intergo vernmentaltax itmnunity.”Id. at 813.

         In~,,thecourtfwnd~thertate’sacanptionofitsntiredanploye+sfroma
general tax impo@ inter alia, on retired federal anploy#q               violated the anti-
discrimhmtion principle of the Public Salary Tax Act of 1939 and of intergovernmental tax
immunity doctrine. However, the Public Accountancy Act does not discriminate in this
fashion.

        By its terms, the additiotud fee amessed by article IO, section 10.06 of House Bill
11 is of general application. The fee is assessed on all certified public accountants licensed
to practice in Texas. The legislation is, there&ore, plainly constitutional on its face

         You express some concun, however, as to whether the statute is be-ing
constitutionally applied. It is your understanding that “CPA’s working for state agencies
arc not required to pay this fee to the Board of Public Accountancy. It is simply
‘understood’ that their fees have been paid by their respective agencies although no money
actually exchatiges hands.’ On the other hand it has been suggested to us that
~CCOLUI~M~S    employed by state agencies first pay the fees, and are then upon application
reimbursed by their employers.



                                           p. 1227
Honorable GonzaJo Barrientos - Page 5        (DM-237)




        While the question of how the statute is being applied may be of constitutional
moment in this regard, this office does not ordinarily make factual determinations of the
sort that would be necessary here in ttie opinions process. Accordingly, we camtot speak
to this particular question. We therefore conclude only that the S200 fee required of
accountants by the Public Accountancy Act of 1991 is not facially unwnstitutionaJ.

        Accordingly, since the legal incidence of the 5200 fee increase in certified public
accountants’ fees falls on the accountants, and since federal and state accountants are
similarly treated with respect to the fee, we find that neither the Public Salary Tax Act nor
the doctrine of intergovernmental tax immunity require federally-employed accountants to
be exempted from paying the fee.

                                   SUMMARY

               The 5200 fee increase mandated by the Public Accountancy Act
           of 1991 is not facially unwnstitutional.




                                                      DAN      MORALES
                                                      Attorney General of Texas

WJLL PRYOR
Fbst Assistant Attorney General

MARYKELLER
Deputy Attorney General for Ligation

RBNBA HICKS
State Solicitor

MADELEINB B. JOHNSON
Chair, Opinion Committee

Prepared by James Tourtelott
Assistant Attorney General




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