Untitled Texas Attorney General Opinion ( 2016 )

KEN PAXTON
ATTORNEY GENERAL OF TEXAS
May 9, 2016
The Honorable J.D. Lambright Opinion No. KP-0084
Montgomery County Attorney
501 North Thompson, Suite 300 Re: Questions related to an emergency
Conroe, Texas 77301 services district's sales and use tax election that
failed to exclude territory where the sales tax
was already capped at two percent
(RQ-0070-KP)
Dear Mr. Lambright:
On behalf of the Montgomery County Emergency Services District #7 ("ESD #7"), you
ask several questions about a recent sales tax election. 1 You explain ·that the Board of the
Montgomery County Emergency Services District # 11 ("ESD # 11 ") called for an election on
May 9, 2015, to consider the adoption of a local sales and use tax in the amount of one-half percent.
See Request Letter at 1. You state that in accordance with Health and Safety Code subsection
775.075l(c-l), the election order excluded the cities of Splendora and Patton Village where the
sales and use tax was already capped at two percent. See id. You tell us that ESD #11 failed to
recognize that additional territory should have been excluded from the territory described jn the
election order due to the two percent sales and use tax rate cap. See id. at 1-2 (stating that the East
Montgomery County Improvement District ("EMCID"), Economic Development Zone No. 4
("EDZ #4"), was also located in ESD #11 territory and had a sales and use tax that, when combined
with another improvement district, resulted in a two percent tax rate). Thus, the voters' passage of
the ESD #11 tax proposition resulted in a small portion of territory that overlapped with EDZ #4
territory that, when combined, caused the tax rate to exceed the local two percent cap. See id.
You also explain that, concurrently with the sales tax election, the voters of ESD #7 and
ESD #11 voted to consolidate the two districts with the consolidated district retaining the name of
ESD #7. See id. at 2. You indicate that the new consolidated ESD #7 notified the Comptroller of
the results of the tax election and was told that the Comptroller "would be unable to implement
the sales tax increase for the entire territory because of the EDZ #4 local sales tax." Id. You state
1
See Letter from Honorable J.D. Lambright, Montgomery Cty. Att'y, to Honorable Ken Paxton, Tex. Att'y
Gen. at 1, 3 (Nov. 9, 2015), https://www.texasattomeygeneral.gov/opinion/requests-for-opinion-rqs ("Request
Letter").
The Honorable J.D. Lambright - Page 2 (KP-0084)
that the EMCID Board offered to pass a resolution supporting the tax increase and to take legal
steps necessary to ensure application of the sales and use tax. See id. You tell us that the
Comptroller's Office has expressed the opinion that no action by the
EMCID board relating to the EDZ #4 sales tax, even if applied
retroactively, would contradict the ... Comptroller's opinion that
the ESD # 11 election included a territory that exceeded the
statutorily capped 2% and therefore the sales and use tax cannot be
instituted anywhere within the district.
Id. Finally, you inform us that the EDZ #4 "currently has no organizations or businesses within
its boundaries that are registered, collecting, or submitting sales tax revenue." Id.
In this context you ask our opinion as to the following:
1) Absent any participation by the EM CID board to withdraw its
right to local sales and use tax collections in the EDZ #4 that was
capped at 2%, may the ESD #7 impose, and should the Texas
Comptroller recognize, the additional 1/2% sales tax in all areas
where the EDZ #4 sales tax does not overlap;
2) Are there any mechanisms that would permit the EMCID to
retroactively withdraw its right to sales and use tax collections
in the EDZ #4 ensuring no part of the district exceeds the 2%
cap, thereby allowing the Texas Comptroller to recognize the
new 1/2% sales tax; and
3) Since the EDZ #4 currently has no organizations or businesses
within its boundaries that are registered, collecting, or
submitting sales tax revenue to the Texas Comptroller, are there
any other avenues statutorily available to retroactively exclude
EDZ #4 from the election held May 9, 2015?
Id. at3.
Health and Safety Code section 775.0751 governs an emergency services district's
imposition of a sales and use tax. See TEX. HEALTH & SAFETY CODE § 775.0751(a)-(d). It
authorizes an emergency services district to, after an election, "adopt a sales and use tax" at
specified rates. Id. § 775.0751(a); see id. § 775.075l(b) (providing that chapter 323 of the Tax
Code applies to the "application, collection, and administration of the tax imposed" under section
775.0751); see also TEX. TAX CODE§§ 323.001-.510. Section 775.0751 expressly precludes an
emergency services district from adopting a tax or an increase of the tax rate "if as a result of the
adoption of the tax or the tax increase the combined rate of all sales and use taxes imposed by the
district and other political subdivisions of this state having territory in the district would exceed
two percent at any location in the district." TEX. HEALTH & SAFETY CODE§ 775.0751 (c) (emphasis
The Honorable J.D. Lambright - Page 3 (KP-0084)
added). The sole exception to the limitation in subsection 775.0751(c) is where, among other
things, the board
excludes from the election and the applicability of any proposed
sales and use tax any territory in the district where the sales and use
tax is then at two percent[.]
Id. § 775.0751(c-1)(1). Yet, you tell us that the territory in which the ESD #11 tax election was
conducted included, albeit in error, territory that resulted in a combined sales and use tax rate in
excess of the two percent statutory cap. Request Letter at 2; see also Request Letter, Exhibit A
(attaching election order excluding only the City of Splendora and the City of Patton Village) (on
file with the Op. Comm.); see also TEX. HEALTH & SAFETY CODE § 775.0751(c-l) (requiring
exclusion of "any" territory where rate would exceed the cap). Once the election has been
conducted, no mechanism exists in subsections 775.0751(c) or (c-1) to exclude the territory in
which the rate is excessive.
Under Tax Code chapter 323, the Comptroller "shall administer, collect and enforce any
tax imposed" under chapter 323. TEX. TAX CODE§§ 323.301 (granting authority over sales and
use taxes imposed by a county), 323.lOl(f) (providing that chapter 323 governs the "application,
collection, and administration of a sales and use tax imposed under Chapter ... 775, Health and
Safety Code"). This is likely a mandatory duty. See TEX. Gov'T CODE § 311.016(2) ("'Shall'
imposes a duty."). Yet, nothing in chapter 323 or chapter 775 authorizes adjusting, retroactively
or otherwise, the boundaries of a territory voting for a tax increase as set out in an entity's election
order. See generally City of McAllen v. Garza, 869 S.W.2d 558, 560 (Tex. App.-Corpus Christi
1993, pet. denied) (recognizing that the "election process commences upon the adoption of an
order calling an election"). And the Comptroller is without express authority in either chapter to
selectively collect the sales and use tax. Thus, a court would likely conclude that the Comptroller
is not authorized to recognize the tax increase in only the portion of the territory of the ESD #7
that does not overlap with the EDZ #4.
We are unaware of any statutory provision that would allow the EM CID to unilaterally and
retroactively withdraw its right to collect sales and use tax in the EDZ #4. Subchapter D, chapter
3846, of the Special District and Local Laws Code governs the EMCID's imposition of a sales and
use tax. See TEX. SPEC. DIST. CODE§§ 3846.151-.164; see also id. § 3846.154 (providing that
Tax Code chapter 323 in most instances governs the application, collection, and administration of
the tax). Section 3846.155 authorizes the adjustment of sales and use tax rates as between the
EMCID and a municipality or political subdivision located in the EMCID's boundaries to ensure
the tax rate does not exceed two percent, but the automatic adjustment of a rate is triggered only
where the excessive combined rate is "a result of the imposition or increase in a sales and use tax
by the [EMCID]." Id. § 3846.155(d). Given that express language, subsection 3846.155(d) cannot
be construed to trigger a rate adjustment upon the increase in a sales and use tax by a political
entity other than the EMCID. See Leland v. Brandal, 257 S.W.3d 204, 206 (Tex. 2008)
(recognizing that courts look to a statute's plain language assuming that the Legislature knows
how to say what it means). Similarly, section 3846.156 authorizes the EMC ID to abolish the sales
and use tax without an election by order of its board, but it does not authorize the EM CID to do so
in only a portion of its territory. See TEX. SPEC. DIST. CODE§ 3846.156(a) (stating that the "board
The Honorable J.D~ Lambright - Page 4 (KP-0084)
... may abolish the local sales and use tax rate" (emphasis added)); see also id. § 3846.156(b)
(limiting authority to abolish the tax "while any district debt or contractual obligation remains
outstanding if any sales and use tax revenue is pledged to secure payment of the outstanding debt
or obligation"). Nor does section 3846.156 operate retroactively. See TEX. TAX CODE§ 323.102
(providing for prospective effective dates for the imposition of sales and use taxes). The EMCID
is also authorized to change its sales and use tax rate at an election under section 3846.152. See
TEX. SPEC. DIST. CODE § 3846.152(a). Accordingly, the EMCID may unilaterally and
prospectively abolish its sales and use tax rate throughout the entire district, or it may hold an
election to put the question of the abolishment of the tax or the reduction of the tax rate to the
voters. We find no statutory mechanism by which the EMCID may retroactively reduce its right
to sales and use tax collections in only the EDZ #4 portion of its territory.
You do not provide specific information about the EDZ #4 sales and use tax, but we
presume the rate was established by the voters in an election prior to the May 2015 election. See
id. § 3846.264(a) (requiring election for the imposition of a sales and use tax in the development
zone). Subchapter F of chapter 3846 governs economic development zones created by the
EMCID. See id. §§ 3846.251-.265. The subchapter provides that an economic development zone
created by the EMCID is a separate body with its own authority to impose a sales and use tax in
its territory. See id. § 3846.252; see id. § 3846.264(a)-(g). Subsection 3846.264(±) provides that
[i]f a political subdivision ... imposes a sales and use tax in the
development zone, the sales and use tax authorized by this section
is reduced as of the date the development zone authorized the sales
and use tax so that the combined total of all local sales and use taxes
imposed in the development zone does not exceed two percent.
Id. § 3846.264(±) (emphasis added). The plain language provides for the automatic reduction of
an economic development zone sales and use tax rate upon a political subdivision's "imposition"
of a sales and use tax within the development zone territory. By its plain language, the provision
applies to a political subdivision's initial imposition of a sales and use tax and not for subsequent
tax rate increases. See Leland, 257 S.W.3d at 206; cf TEX. SPEC. DIST. CODE § 3846.155(d)
(authorizing rate adjustment in the event of an "imposition or increase" of another tax rate). As it
was the ESD #11 's tax increase that caused a rate that, when combined with the EDZ #4 rate,
exceeds the statutory minimum, we cannot conclude that this provision operates to provide the
EDZ #4 a mechanism by which to adjust the rate in its territory. And we find no other mechanism
in subchapter F authorizing the EDZ #4 to exclude itself from the ESD #11 territory included
within the 2015 election despite the fact that no organizations or businesses are collecting and
submitting sales tax revenue to the Comptroller. See generally TEX. SPEC. DIST. CODE
§§ 3846.251-.265. The EDZ #4 could hold a future election to put the question of the repeal of
the sales and use tax to its voters. See id. § 3846.264(a).
The Honorable J.D. Lambright - Page 5 (KP-0084)
SUMMARY
No relevant statutory provision authorizes the Montgomery
County Emergency Services District #7, the East Montgomery
County Improvement District, or the Economic Development Zone
#4 to retroactively exclude from the May 2015 election territory
with a tax rate that, when combined with the increased tax rate from
the election, exceeds the two percent statutory cap on sales and use
tax rates. The Texas ,Comptroller is without authority to selectively
collect the sales tax in only the territory in which the combined sales
tax rate does not exceed the cap.
Any of the districts are authorized to conduct a future
election to, upon approval of its voters, abolish the sales and use tax
or change the rate of a sales and use tax.
Very truly yours,
KEN PAXTON
Attorney General of Texas
JEFFREY C. MATEER
First Assistant Attorney General
BRANTLEY STARR
Deputy Attorney General for Legal Counsel
VIRGINIA K. HOELSCHER
Chair, Opinion Committee
CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee