Untitled Texas Attorney General Opinion

OFFlCE OF THE ATTORNEY GENERllL STATE OF TEYhS

JOHN CORNYN

August 11,1999

William R. Archer III, M.D. Opinion No. JC-0093
Commissioner of Health
Texas Department of Health Re: Constitutionality of section 501.024 of the
1100 W. 49th Street Health and Safety Code, which requires manufacturers
Austin, Texas 78756-3 199 and distributors of hazardous substances to register
annually with the Texas Department of Health and pay
a fee of $150.00 (RQ-1221)

Dear Dr. Archer:

You have requested our opinion regarding the constitutionality of section 501.024 of the
Texas Health and Safety Code, which requires manufacturers and distributors of hazardous
substances to register annually with the Texas Department of Health and pay a fee of $150. We
conclude that this provision is neither preempted by federal law nor contravenes the Commerce
Clause of the United States Constitution.

Section 501.024 of the Health and Safety Code provides, in relevant part:

(a) A person who manufactures or repacks a hazardous substance
that is distributed in this state or who distributes a hazardous
substance in this state shall have on tile with the department a
registration statement as provided by this section.

(b) The board by rule shall prescribe the contents of the
registration statement.

(c) The person must tile the registration statement with the
department before:

(1) beginning business in this state as a manufacturer,
repacker, or distributor of a hazardous substance; and

(2) not later than September 1 of each year after the initial
tiling.
William R. Archer III, M.D. - Page 2 (JC-0093)

(d) The initial registration statement and each annual registration
statement must be accompanied by a fee of $150.

The Toy Manufacturers of America (“TMA”), an organization of manufacturers of small balls,
balloons, marbles, and other toys and games that contain small parts, contends that section 501.024
contravenes the Federal Constitution in two respects: 1) it is preempted by federal statute,
specifically 15 U.S.C. 5 1261, et seq., and thus invalid under the Supremacy Clause; and 2) it is
inconsistent with the Commerce Clause. We shall address these arguments in turn.

The Federal Hazardous Substances Act (“FHSA”), 15 U.S.C. $5 1261 - 1277 (1995), was
initially enacted in 1960 and has been extensively amended. See Federal Hazardous Substances Act
of 1960, Pub. L. No. 86-613, 74 Stat. 372 (1960). It provides in detail for the regulation of
“hazardous substances” by the Federal Consumer Product Safety Commissionwith particular regard
to labeling. The term “hazardous substance” is defined to include, inter alia,

Any toy or other article intended for use by children which the
Commission by regulation determines, in accordance with section
1262(e) of this title, presents an electrical, mechanical, or thermal
hazard.

15 USC. § 1261(f)(l)@) (1995) (emphasis added). Ontheotherhand, the Child Safety Protective
Act (“CSPA”), id. $1278, was enacted only in 1994, as another amendment to the FHSA. See Child
Safety Protective Act of 1994, Pub. L. No. 103-267,108 Stat. 722 (1994). The CSPA is addressed,
not to children’s toys or games that present an “electrical, mechanical, or thermal hazard,” but to
those that pose a “choking hazard.” It imposes extensive labeling requirements for toys or games
that constitute or contain small parts, balloons, small balls, or marbles, including labels warning that
certain items are “not for children under 3 years.”

The Texas Hazardous Substances Act (“THSA”), chapter 501 of the Health and Safety Code,
was first enacted in 1971. Act of May 27, 1971, 62d Leg., R.S., ch. 1033, 1971 Tex. Gen. Laws
3372. It is clearly derived from the FHSA, and it defines “hazardous substance” with regard to toys
in language virtually identical to that of the federal statute:

a toy or other article, other than clothing, that is intended for use by
a child and that presents an electrical, mechanical, or thermal hazard.

TEX. HEALTH & SAFETY CODE ANN. 5 501.002(a)(2) (Vernon 1992). Texas has not, however,
adopted a statute in any way equivalent to the CSPA. Thus, the registration and fee requirements
of section 501.02&the subject of your inquiry--are applicable only to manufacturers and
distributors of toys that pose electrical, mechanical, or thermal problems.

Article VI of the United States Constitution provides that the laws of the United States “shall
be the supreme Law of the Land any Thing in the Constitution or Laws of any State to the
William R. Archer III, M.D. - Page 3 (JC-0093)

Contrary notwithstanding.” U.S. CONST. art. VI, cl. 2. As the Supreme Court said in Cipollone Y.
Liggett Group, 505 U.S. 504 (1992), since the 1819 decision inM’Culloch v. Maryland, 17 U.S. 316
(1819), “it has been settled that state law that conflicts with federal law is ‘without effect.“’
Cipollone, 505 U.S. at 516. Since, however, “the historic police powers ofthe States [are] not to be
superseded by . . Federal Act unless that [is] the clear and manifest purpose of Congress,”
preemption analysis begins with a determination of congressional intent. Id. As the Texas Supreme
Court said in HyundaiMotor Co. v. Alvarado, 974 S.W.2d 1 (Tex. 1998):

A state law is preempted and “without effect” if it conflicts with
federal law. A federal law may expressly preempt state law.
Additionally, preemption may be implied if the scope of the statute
indicates that Congress intended federal law to occupy the field
exclusively or when state law actually conflicts with federal law. A
state law presents an actual conflict with federal law when “it is
impossible for a private party to comply with both state and federal
requirements” or where state law “stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of
Congress.”

Hyundai, 974 S.W.2d at 4 (citations omitted); see also Tex. Att’y Gen. Op. Nos. JC-0052 (1999);
JC-0007 (1999).

A letter submitted by the TMA contends that section 501.024 is preempted by both the CSPA
and the FHSA. With respect to the former, it is clear that no preemption exists, because there is no
preempting Texas statute. The THSA and the CSPA, as we have noted, impose entirely different
labeling requirements. Texas has no statute requiring labeling of toys that present a “choking
hazard.” With regard to such items, federal law prevails in this state without challenge.

As to the FHSA, we must consider three kinds of preemption: (1) express; (2) conflict; and
(3) occupation of the field. In enacting that statute, Congress specifically addressed the matter of
preemption. The statutory notes accompanying the 1976 amendments to the FHSA provide:

(b)(l)(A) Except as provided in paragraphs (2) and (3), if a
hazardous substance or its packaging is subject to a cautionary
labeling requirement under section 2(p) or 3(b) [subset. 2(p) of this
section or section 1262(b) of this title] designed to protect against a
risk of illness or injury associated with the substance, no State or
political subdivision of a State may establish or continue in effect a
cautionary labeling requirement applicable to such substance or
packaging and designed to protect against the same risk of illness or
injury unless such cautionary labeling requirement is identical to the
labeling requirement under section 2(p) or 3(b) [subset. (p) of this
section or section 1262(b) of this title].
William R. Archer III, M.D. - Page 4 (X-0093)

(B) Except as provided in paragraphs (2), (3), and (4), if under
regulations of the Commission promulgated under or for the
enforcement of section2(q) [subset. (q) ofthis section] a requirement
is established to protect against a risk of illness or injury associated
with a hazardous substance, no State or political subdivision of a
State may establish or continue in effect a requirement applicable to
such substance and designed to protect against the same risk of
illness or injury unless such requirement is identical to the
requirement established under such regulations.

See Federal Hazardous Substances Act Amendments of 1976,§ 17(a), Pub. L. No. 94-284,90 Stat.
510 (statutory note addressing Effect Upon Federal and State Law) (emphasis added). Paragraph
(b)(l)(A) preempts only “cautionary labeling requirements,” which section 50 1.024 clearly does not.
The TMA argues that the registration and fee are requirements applicable to a hazardous substance
and designed to protect against the same risk of illness or injury, and thus, that section 501.024 is
preempted under paragraph (b)(l)(B). But paragraph (b)(l)(B) applies only to “regulations of the
Commission promulgated under 2(q) [subset. (q) of this section].”

Subsection (q) relates to “banned hazardous substances,” which it defines as

(A) any toy, or other article intended for use by children, which is
a hazardous substance, or which bears or contains a hazardous
substance in such manner as to be susceptible of access by a child to
whom such toy or other article is entrusted; or (B) any hazardous
substance intended, or packaged in a form suitable, for use in the
household, which the Commission by regulation classifies as a
“banned hazardous substance” on the basis of a finding that,
notwithstanding such cautionary labeling as is or may be required
under this chapter for that substance, the degree or nature of the
hazard involved in the presence or use of such substance in
households is such that the objective of the protection of the public
health and safety can be adequately served only by keeping such
substance, when so intended or packaged, out of the channels of
interstate commerce.

15 U.S.C. $1261(q) (1995). It is obvious that, if a hazardous substance is “banned” under section
1261, subsection (q), it cannot be deemed “a hazardous substance that is distributed in this state,”
and consequently, it is not a substance for which registration and payment of the fee is required.

Thus, federal law does not expressZy preempt the registration and fee requirement of section
501.024 of the Health and Safety Code. Neither is conflict preemption present: it is possible to fully
comply with both federal and state law by, on the one hand, observing the federal labeling
requirements and, on the other, registering in Texas and paying the annual fee. Finally, the very
William R. Archer III, M.D. - Page 5 (JC-0093)

language of the federal statute indicates that Congress contemplated that states could legislate in this
area, provided they complied with the mandated restrictions. Accordingly, it cannot plausibly be
maintained that “Congress intended federal law to occupy the field.”

A 1995 letter prepared by the Assistant General Counsel for Regulatory Affairs ofthe United
States Consumer Product Safety Commission specifically considered whether section 501.024 of
the Texas Health and Safety Code was preempted by the FHSA, and concluded that no preemption
exists:

We do not believe that these [registration] requirements would
be considered “cautionary labeling requirements” under the FHSA
preemption provision. The Texas law requires one to file
a registration statement for a hazardous substance and to pay a
fee. It does not require any registration information on the product’s
label. Nor does it appear that the registration requirement would
be preempted by section 18(b)(l)(B) of the FHSA. Section 2(q)
authorizes the Commission to ban or otherwise restrict a hazardous
substance. In contrast, the Texas law’s registration provision seems
to be an administrative mechanism to provide the state with
information about firms manufacturing or distributing hazardous
substances in the state and to charge a fee. The registration provision
does not prescribe restrictions necessary to ensure the safety of a
hazardous substance, as does section 2(q) of the FHSA. Based on the
limited information you have provided, we do not believe that this
registration requirement would address “the same risk” as any
particular regulation under section 2(q).

Letter from Stephen Lemberg, Asst. Gen. Counsel for Regulatory Affairs, U.S. Consumer Product
Safety Comm’n, to H. Allen Irish, Gov’t Affairs Counsel, Nat’1 Paint & Coatings Ass’n 2, 3
(Sept. 15, 1995) (on file with Opinion Committee). An agency’s interpretation of a statute it is
charged with implementing is entitled to considerable deference, provided it is reasonable and does
not clearly conflict with the statute. Chemical Manufacturers Ass ‘n v. Natural Resources Defense
Council, Inc., 470 U.S. 116,150 (1985). In our opinion, this letter fully supports our conclusion that
section 501.024 is neither expressly preempted by federal law nor an obstacle to enforcement of the
federal statute. We conclude that section 501.024 is not preempted by the FHSA.

The TMA also suggests that the fee requirement of section 501.024 contravenes the
Commerce Clause of the Federal Constitution. As the Supreme Court has frequently observed, the
language of the Commerce Clause “contain[s] a further, negative command, known as the dormant
Commerce Clause, prohibiting certain state taxation even when Congress has failed to legislate on
thesubject.” Oklahoma Tax Comm ‘n v. JeffersonLines,Znc., 514U.S. 175,179 (1995). Lump SUITI
annual fees imposed by a state have been described by the Supreme Court as “flat taxes.” American
Trucking Ass’n, Inc. Y. Scheiner, 483 U.S. 266, 271 (1987). The Court has held that a state tax
William R. Archer III, M.D. - Page 6 (X-0093)

imposed on interstate commerce must, in order to be valid, pass a four-part test: the tax must be (1)
applied to an activity with a substantial nexus to the taxing state; (2) fairly apportioned; (3)
nondiscriminatory against interstate commerce; and (4) fairly related to the services provided by the
state. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). In Scheiner, the Supreme Court
invalidated an annual “axle tax” imposed by the State of Pennsylvania on interstate trucks that used
its highways.

Not all state taxes on interstate commerce, however, are subject to the test of Brady. The
Supreme Court has drawn a distinction between “user fees” and general revenue taxes. “‘User fees’
are taxes or other fees collected by the state as reimbursement for use of state-owned or state-
provided facilities or services.” Centerfor Auto Safety v. Athey, 37 F.3d 139, 142 (4th Cir. 1994).
Because user fees “are purportedly assessed to reimburse the State for costs incurred in providing
specific quantifiable services,” they are not true revenue measures and the considerations
applicable to ordinary tax measures do not apply.” Id. at 142 (citing Commonwealth Edison Co. v.
Montana, 453 U.S. 609,621 n.12 (1981)).

In Athey, the Court of Appeals for the Fourth Circuit considered a challenge to a fee imposed
by the State of Maryland on charitable organizations that solicited in the state. Relying on the
Supreme Court’s decision in Evansville-Vanderburgh Airport Auth. Dist. v. Delta Airlines, 405 U.S.
707, 717-20 (1972), the Fourth Circuit said that, in order to pass constitutional muster under the
Commerce Clause, a “user fee must (1) reflect a fair, if imperfect, approximation of the cost of
using state facilities for the taxpayer’s benefit, (2) not discriminate against interstate commerce, and
(3) not be excessive in relation to the costs incurred by the taxing authorities.” Athey, 37 F.3d at
142. The court upheld the user fee on all three criteria. As to the first and third, “the Commerce
Clause does not require that user fees be precisely correlated to actual use that a party makes of
government services,” but only that the “fee be based on a ‘fair approximation of the costs of
benefits supplied.“’ Id. at 143. The court found that the purpose ofthe user fee was to monitor and
administer charitable organizations. “[Clharities seeking to solicit in Maryland use the state’s
apparatus for regulating charities, and, as a result, derive a benefit, namely the privilege of soliciting
in Maryland where donor confidence is enhanced owing to the state’s regulation of charities.” Id.
at 143-44 (footnotes omitted). As to the second factor, the fee doesn’t discriminate against out-of-
state charities because all charities are required to pay the fee if they operate in Maryland. Id. at 143.

In our opinion, the registration and fee requirement of section 501.024 bears a closer
resemblance to the kind of “user fee” considered in Athey than to the Pennsylvania axle tax struck
down by the Supreme Court in Scheiner. As in Athey, a single fee is imposed only once per year per
business entity (charity/toy manufacturer-distributor) rather than on every instrumentality of that
entity (truck-axle/toy). As a result, the annual fee in both Maryland and Texas is modest compared
to that assessed in Pennsylvania. Thus, we apply the “user fee” criteria to section 501.024.

Just asthecharities in Maryland receive a benefit from state law, manufacturers ofpotentially
hazardous toys likewise derive a benefit from the THSA. The Texas Board of Health is required to
enact rules, TEX. HEALTH & SAFETYCODE ANN. 5 501.025 (Vernon 1992), to regulate hazardous
William R. Archer III, M.D. - Page 7 (JC-0093)

toys in various ways such as determining flammability, id. 5 501.021, and designating certain items
as “banned hazardous substances,” id. 5 501.022. In addition, the Texas Department of Health is
required to implement labeling standards, id. $ 501.023; conduct examinations and investigations,
id. 5 501.031; inspect and copy records of manufacturers and distributors, id. 5 501.032; and seize
and dispose of banned or misbranded hazardous substances, id. 5 501.033. As did the charitable
organizations in Athey, toy manufacturers and distributors in Texas are accorded the privilege of
doing business with consumer confidence enhanced by virtue of the state’s regulation of hazardous
toys. We think it is likely that such a plenitude of services is more than sufficient to offset a fee of
$150 per year. Although resolution of this matter ultimately requires a factual determination that
we cannot make in the opinion process, we believe that the Texas Board of Health may make such
a finding. Likewise, section 501.024 does not discriminate against interstate commerce. It is
applicable equally to anyone who distributes in Texas and to any manufacturer or repacker whose
product is distributed in Texas. We conclude that, under the “user fee” test, section 501.024 of the
Texas Health and Safety Code does not offend the Commerce Clause of the United States
Constitution.
William R. Archer III, M.D. - Page 8 (JC-0093)

SUMMARY

Section 501.024 of the Texas Health and Safety Code, which
requires persons who distribute hazardous substances in Texas, and
manufacturers and repackers whose hazardous substances are
distributed in Texas, to register annually with the Texas Department
of Health and pay a fee of $150.00, is neither preempted by federal
law nor violative of the Commerce Clause of the United States
Constitution.

JO L N CO>NYN
Attorney General of Texas

ANDY TAYLOR
First Assistant Attorney General

CLARK RENT ERVIN
Deputy Attorney General - General Counsel

ELIZABETH ROBINSON
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General - Opinion Committee