Untitled Texas Attorney General Opinion ( 1969 )

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.
- 1780-
. r
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:
-1781-
,.
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
-1782-
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
- 1781..
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