Case Information
*1 of Texas The Attorney General August 19, 1986 JIM MATTOX
Attorney General Honorable Bob Bul1oc.k Opinion No. JM-539
Supreme Court Building Comptroller of Public Accounts P. 0. Box 12549 Austin. TX. 7971% 2549 L.B.J. Building Re: Whether interest should be 512/47~~2501 Austin. Texas 78774 paid on taxes collected by the Telex 9101874-1397 Comptroller on behalf local Telecopier 512/475.0266 . jurisdictions 714 Jackson, Suite 700 Dear Mr. Bullock: Dallas, TX. 75202-450s 214/742-9944
You inform us that you have received numerous inquiries from city
and county officials regarding whether interest should be paid on 4924 Alberta Ave., Suite 160 El Paso, TX. 79905.2793 note taxes on these that heretofom collected funds between by your office OII behalf no interest the date on which your office has been paid to local local taxing units. collects taxing units YOU taxes and the datf: on which such funds are disbursed to the r taxing units. Accordingly you ask us four questions: Texas, Suite 700 Houston, TX. 77002~3111 1. Must interest earned on all taxes collected on 7131223-5888 behalf of' local jurisdictions be remitted to the jurisdictions for which the taxes were collected? 606 Broadway, Suite 312 Lubbock, TX. 79401-3479 2. If the answer to question (1) is "yesrn should 8061747-5238 the Statf: Treasurer calculate interest based upon the rate earned by the State Treasury while 4302 N. Tenth, Suite B they [sic] held the funds? McAllen. TX. 79501-1685 5121692-4547 3. If is payable on such amounts, should earned in previous periods be remitted 200 Main Plaza, Suite 400 the local jurisdictions? San Antonio. TX. 782052797 512/225.4191 4. If the answer to question (3) “yes,” how
far back must calculations be made and remitted? An Equal OppOrtUnitYl Affirmative Action Employer
We do not understmd you to ask whether the state is entitled on taxes by local taxing units on behalf state and deposited in their accounts prior to their remittance state. See, m, Tax Code, 55152.001 et seq. The Local Sales and Use Tax Act, V.T.C.S.. article 1066c, permits a city, by a major:ity vote of the qualified voters of the city voting - Page! 2 (X3-539) at an election held for thm.t purpose, to adopt a local sales and use tax. Section 5(a) the act provides in pertinent part I, . . . the comptroller sha:.3. perform all functions incident administration, collection, enforcement, and operation tax. . . .” Section 7.A of the act provides the following:
Any local sales and use tax collected by the Comptroller under this Act on behalf of any city shall be depositlzd with the State Treasurer & trust and shall be kept in a separate suspense account for each mch city. (Emphasis added).
Section 8(a) of the act setli forth the following in pertinent part:
‘Each city’s share of all local sales and use tax collected under ti:Ls Act by the Comptroller shall be transmitted the Treasurer or the officer performing fractions of such office of such city the Conptroller payable city periodically as smromptly as feasible. Transmit- tals required unlier this Act shall be made at least twice in eac:h state fiscal year. The funds so transmitted m&y be used by the city for any purpose for “hid. funds of the city -, may be used. Befo.ce transmitting such funds, Comptroller shall deduct two percent (2%) of the sum collected from each such city during such period as a charge by the State of Texas for its services specified in this Act, and the amounts so deducted, subject ‘to the provisions of Section 7B of this Act, shal:. be deposited by the Comptroller in the State Trealrury to the credit of the General Revenue Fund of the State.
Section 9 of this act provides that “[mloney under this [a]ct the use and b’znefit of the cities of the state; but no city may pledge anticipate’3 from this’ source to secure payment of bonds or oth#!r: indebtedness.” The act contains no provision specifically detailing the proper disposition
accruing to the accounts of the cities imposing the tax.
The comptroller also has responsibility under V.T.C.S. articles 1118x and 1118~. which aut’vlrlze the creation of metropolitan rapid transit authorities and regional transportation authorities, respectively. Each act pe:mlits authorities created pursuant to the act levy sales and use taxes. Such taxes are to be administered and collected by the comptroller. V.T.C.S. arts. 1118x.
§llB; 1118y, §16. Under both acts, the provisions the Limited Sales, Excise and Use Tax, V.T.C.S. art. 1066c, are applicable
P. - PaSe 3 (JM-539) V.T.C.S. arts. 1118x, §llB(c)(3); 1118y,
collection tax. It is the generated by the deposit of these 516(f) (2) Cc).
taxes with which you are ccncerned. 7, of the Texas Constitution provides Article VIII, section follo"ing:
The Legislature shall not have power to borrow, or in any manner divert from its purpose, any special fund that may, cr ought to, come into the Trea- sury; and shall make it penal for any person or persons to borrow, withhold or in any manner to divert from its purpose.any special fund, or any part thereof.
Article VIII, section 7, has been construed to require that on constitutionally dedicated funds may be spent only for the purposes for which the fund was created; a diversion of such interest to other purposes would v::olate the constitution. Lawson v. Baker, 220 S.W. 260, (Tex. Civ. App. - Austin 1920, writ ref'd). Consequently, earned on a constitutional fund must be constitution itself otherwise credited that fund, unless directs. Attorney General Opinions JM-323, JM-321 (1985); M-468 (1969). Then interest on E,tate funds dedicated by statute, however, See Gulf may be legally severed ar.d placed fund. -- Insurance Co. v. James, 185 S.W.Zd 966 (Tex. 1945) (article VIII, 7, of the Texas Constitution applies only to special section created by constitution, not by statute); Attorney General Opinions JM-323, JM-321 (17135); MW-338 (1981); see also Brazos River Conservation & Reclamation-District v. M&raw, 91 S.W.2d 665 (Tex.
1936) (article VIII, section 7, does not apply to general Article 2543d (since repealed and m-codified es section funds). article 4393-l) effects such a severance
3.042(a) of V.T.C.S., on statutory funds as a general rule. Section 3.042(a) ;.rticle 4393-1, V.T.C.S., the article sets forth the powers and duties of the state treasurer, provides following:
Interest receivei. fro" time deposits of money funds and accouni:s in the charge of the treasurer shall be allocated es follows: to each constitu- tional fund there shall be credited the pro rata portion of the interest received due the fund; remainder th; received, with exceotion tha.t vortion required other statutes to be credited on a pro rata basis protested tax payments. shall be credited General Revenue Fund. The interest received shall -- ,-
, (.Jki-539) be allocated on a monthly basis. (Emphasis added).
The funds about which you inquire are not constitutionally dedicated funds; rather, they are statutory funds. Consequently, pursuant to section 3.042(a), the in,:erest on such funds would normally be credited to the General Rerenue Fund. However, the rule with regard to the disposition earned by the deposit of trust funds different.
This office previously 'has determined that the provisions of whet is now section 3.042(a). V.T.C.S., art. 4393-1. do not apply to earned on trust funds that are not the property of the state and that the state treasurer holds as trustee out of the state treasury. Opinions issued by this office consistently have maintained that on such trusj: funds becomes part of the principal end, consequently, part fund that generated the interest. See Attorney General Opinions JM-306, .Jk-300 (1985); MW-82 (1979); H-1040 (1977); M-468 (1969). Cf. Attorney General Opinions MW-338 (1981); H-1187 (1978). The issur'then, is whether the funds about which you inquire are trust funds, as opposed to statutory funds. We conclude that they are trust funds.
The opinions cited above ,indicate that in order be characterized as trust fur&s, funds in question should reflect, among other things, (1) that they are administered by a trustee or trustees, (2) that the funds neither are granted to the state its sovereign capacity nor collected for the general operation of state government, and (3) that :they are to be spent and invested for specific, limited purposes and for the benefit of a specific group of individuals. Being in the nature of a trust, such funds are entitled retain the proceeds :irom their investment. Attorney General Opinions MW-481 (1982); M-468 (1969). It is clear from a reading V.T.C.S., articles 1066~. 1118x. and 1118~ that the funds about which you inquire are trust fund:; and are entitled to be credited with accrued earned bI' their deposit. Under each statute, comptroller acts as trustee on behalf the various taxing units imposing taxes. The taxes are not granted the state nor for operation state. Each statute specifies the purposes for which such taxes may be spent, with each taxing unit receiving the amount of taxes that each imposes.
Your remaining questions concern the proper method of crediting the various earned in previous years. We decline to give advice as to the specific accounting methods or time intervals to be used calculatirg past interest. The answers these questions depends upon ini'ormation not provided by your request -- s, the terms, duration, and types of deposits, applicable rates of interest. etc. We can sta,te as a general matter, however, -,
P. 2483 (JM-539) funds have exhibited the aforementioned trust fund characteristics since their creation. Con:iequently, the funds are entitled to credit for depository from the various dates of their inception.
Before the funds may be credited with this interest, however, certain limitations on the use of treasury funds must be considered.
You first asked whett:er earned by the state on taxes collected on behalf of local taxing units must be "remitted" to the taxing units for which thmz taxes were collected. The word "remit" means "to transmit or send, especially to a distance, as money in payment of a demand, account, draft, etc." Nicoletti v. Bank of Los Banos, 214 P. 51, 52 (Cal, 1923), 27 A.L.R. 1479 (1923); Katcher v.
American Express Cc., 109 ,4. 741, 742 (1920); First National Bank v.
People's Bank, 140 S.E. 705 (N.C. 1927); Hollowell V. Life Insurance Company of Virginia, 35 S.E. 616, 617 (N.C. 1900). We understand your first question, then, 'mmprise two parts: first, whether local jurisdictions are entitled to interest earned by the state on taxes on behalf jurisdictions; and, second, if the answer is "yes ," whether the stats treasurer must then disburse or transmit such funds to the respecttire taxing units. We answer the first part first question in the affirmative; the second part, in the negative.
Article VIII, sectior. 6, of the Texas Constitution prohibits withdrawal funds from state treasury in the absence legislative appropriation. The Texas Supreme Court has held that funds erroneously deposited in the treasury are nevertheless subject this constitutional lirlitation and may not be removed from treasury without legislative action. Manion v. Lockhart. 114 S.W.2d 216, (Tex. 1938). Accordingly, legislature must make a specific appropriation befm,re any erroneously deposited in fund may be remitted to the cities or authorities.
We note that the disuetion that the legislature may exercise in this area is broad. For ertample, rather than remit such the taxing unit, legis:lature, if it so chose, could require statute that' all such be retained the General Revenue fund, transfered to another fund, or directed to be expended for some other purpose. In Gulf 1n;urance Co. v. James, 185 S.W.2d 966 (Tex.
1945). the Texas Supreme ?ourt upheld constitutionality of a statute which served to transfer from ststutory "special funds" General Revenue Fund portions deemed surplus created from taxes paid into the Motor Vehicle Division Fund and the Fire Insurance Division Fund. The Court declared:
We agree with the holding the Court of Civil Appeals' ths: Legislature has right transfer the a&e on hand these special to the Gengral Revenue Fund. In so doing *6 , - Page: 6 the Legislature dms not violate the provisions of Article VIII, section 7, of the Texas Constituticn. . . . The state could have required the funds ccllectzd for the purposes indicated be paid directly to the General Revenue Fund in the first instance. . . . If it had done so, then certainly the exxss, if any, would have been The available for uce for general purposes. propriety and fairness of an enactment authoris- the use of the unexpended balances in these funds for general purp,%es present legislative rather than judicial corgideraticns. Consequently, state now has the :cight, if the Legislature deems it wise to pass suitable laws authorizing it, these special use the balance!; general purposes. (Emphasis added).
185 S.W.2d 966, 971.
Indeed, even in the case of a statutory trust fund, the Texas Supreme Court has ruled tha:, so long as no vested right is impaired, an amendment that serves t,c alter or reduce a benefit heretofore granted by statute is permissible. In the leading case of City of 101 S.W.2d 1009 (Tex. 1937), the Texas Supreme Dallas v. Tramnell, Court specifically upheld the constitutionality of a statute, effect of which was to reduce the.pension benefits of a pensioner.
The court stated (and restated and restated again) the issue thus:
As we view 1:he matter, true question involved is this: Does employee, after retirement, have a vested right to participate the pension fund to the extent of the full amount does he have a vested retirement; is; right future installments which cannot be affected subsequent legislation tending diminish the amcuut of such installments? Putting the matter in somewhat different language, we may properly inquire if the right which the employee has to participate in the pension fund, acquired by virtue of his contract, imposes upon the city and the Legislature the state (the source the city's power and authority in a matter of this kind) the inviolal~le duty of maintaining a pension fund of such prcportions as will guarantee right to defendant in error and others having equal rights with him to participate full extent the monthly amounts previously awarded them at time right to participate In other words, the Legislature accrued? (.D+539) without constitul:icnal power to repeal laws upon which the pension system of the City Dallas is based, or to modify their provisions in such way as to tiiminish the pensions payable to those who have become qualified to receive them so long as any one who has been granted a pension shall live?
101 S.W.2d 1009, 1011.
The court concluded right a pensioner to receive monthly
payments from the pension fund after retirement from service, or aEter his right to participate fund has accrued, is predicated upon anticipated continuance of existing laws, and is subordinate the right the Legislature or diminish abolish the per.sicn system, accrued benefits of pensioners thereunder, undoubtedly the scund rule to be adopted.
The Court then declared th,lt a right, to be within the protection the constitution, must be a .vested right or something more than a mere expectancy based upon an anticipated continuance of an existing law; this instance, the pensioners' rights were mere "expectancies." See also Woods v. Reillv. 218 S.W.Zd 437 101 S.W.2d 1009, 1014-16. --- (Tex. 1949); Board of Manaf;ers of the Harris County Hospital District v. Pension Board of the Pension System the City of Houston, S.W.2d 33 (Tex. 1970); De& v. City of San Antonio, 443 S.W.2d 590 --- it ref'd): Attcrnev General Letter (Tex. Civ. APP. - Waco 15,69, wr , Advisory No. 5. (1973).
SUMMARY Interest earnai on all taxes on behalf Iaxing units must be credited ur,its. those taxing previously Any deposited in the general fund of the state treasury must receive specific legislative appro- priation before riuch interest can be remitted the various taxing units.
JIM MATTOX Attorney General of Texas *8 (al-539) JACK HIGHTOWER
First Assistant Attorney General
MARY KELLER
Executive Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Jim Mcellinger
Assistant Attorney General