January 9, 1989
Honorable Bob Bullock Opinion NO. JM-1003
Comptroller of Public
Accounts Re: Whether foreign-produced or
L.B.J. State Office Bldg. foreign-acquired alcohol guali-
Austin, Texas 78774 fies for a credit claimed by a
distributor on a gasoline/
alcohol mixture under section
153.123 of the Tax Code and re-
lated questions (RQ-1509)
Dear Mr. Bullock:
Chapter 153 of the Tax Code governs state taxes on
motor fuels; subchapter B of chapter 153 sets forth the
provisions regarding the tax on gasoline. Section 153.123
of the code confers a tax credit on distributors of certain
gasoline/alcohol mixtures, as defined in the section, and
contains a reciprocity provision, which denies the tax
credit to distributors of gasoline/alcohol mixtures contain-
ing alcohol fermented or distilled in states not conferring
equivalent tax benefits to distributors whose mixtures
contain Texas-produced alcohol.
First, you ask about the proper construction of section
153.123, specifically whether your long-standing construc-
tion of subsection (b) is correct, which denies the credit
to distributors of gasoline/alcohol mixtures whose alcohol
is fermented or distilled in foreign countries. Second, you
ask whether the reciprocity provision set out in subsection
(b)(4) of the section is constitutional under the rule of
the recent United States Supreme Court decision, New Eneroy
co. of Indiana v. Limbach. Tax Comm'r of Ohio, 108 S.Ct.
1803 (1988) [hereinafter New Enercy].
We conclude that a court addressing this issue would
follow the rule in New Energy and would hold that the
reciprocity provision set forth in subsection (b) (4) of
section 153.123 violates the interstate~commerce clause of
the United States Constitution, Because of our answer to
your second question, we need not address your first
question.
p. 5151
Honorable Bob Bullock - Page 2 (JM-1003)
Subsection (a) of section 153.123 of the Tax Code
permits the granting of a tax credit to distributors of
every gasoline and alcohol.mixture that meets the specifica-
;$s of subsection (e), except as provided in subsection
. Subsection (b)(4) sets forth a reciprocity clause,
limiting the-grant of such tax credits to distributors of a
mixture containing alcohol fermented or distilled "in
another state" that itself provides an equivalent tax
benefit for mixtures containing alcohol fermented or
distilled in Texas. Subsection (b)(4) of section 153.123 of
the Tax Code provides the following:
(4) Except as provided in this subdivi-
sion, no mixture that contains alcohol that
was mented or distilled In another state
is eligible for a credit on its first sale or
use in the state. If the comptroller
certifies that mother state provides an
exemption from that state's taxes applicable
to gasoline or a credit or refund for taxes
collected or an amount in lieu of taxes
collected on a mixture of gasoline and
alcohol, and if the other state's exemotion.
credit. or refund allowance applies to a
mixture that includes alcohol fermented or
distilled in Texas, and if the alcohol
nted r dista.J.led in the other state
meets th: specifications provided
Subdivisions (l), (2), and (3) of Subsecti%
(e) of this section, then the specifications
for the mixture for which credits shall be
made shall include . . . alcohol fermented
and distilled in the other stat or in T x
and the other state . However,eif a mix:uZZ
of alcohol ferm nt d or istilled in another
state and gas%iEe guzlifies under this
subsection for a credit, the amount of the
credit under this section for the mixture may
not exceed the amount of the exemption,
credit, or refund (stated in or converted to
cents for each gallon of the mixture) pro-
vided bv the state
. . in which the al ho1 was
Permented or distilled. (Bmphasis Ezded.)
You ask:
Does Texas Tax Code Section 153.123(b)(4)
violate the Commerce Clause of the
Constitution of the United States?
p. 5152
Honorable Bob Bullock - Page 3 (JM-10.03)
We answer your question in the affirmative.
This year, in a case involving a state ethanol tax
credit statute containing a reciprocity provision
substantively identical to that contained in subsection
153.123 (b)(4) of the Tax Code, the United States Supreme
Court held that an Ohio ethanol tax credit provision
violated the interstate commerce clause of the United States
Constitution and was therefore unconstitutional.
In B&$ Energy, the following reciprocity provision,
which was set forth in an Ohio tax statute conferring tax
benefits in certain circumstances, was challenged:
The qualified fuel otherwise eligible for
the qualified fuel credit shall not contain
ethanol produced outside Ohio unless the tax
commissioner determines that the fuel claimed
to be eligible for credit contains ethanol
produced in a state that also grants an
exemption, credit or refund from such state's
motor vehicle fuel excise tax or sales tax
for similar fuel containing ethanol produced
in Ohio; provided however, that such credit
shall not exceed the amount of the credit
allowable for qualified fuel containing
ethanol produced in Ohio.
OHIO REV. CODE ANN. 5 5735.145(B) (1987).
The Court concluded that the Ohio statute violated the
interstate commerce clause of the U.S. Constitution:
It has long been accepted that the
Commerce Clause not only grants Congress the
authority to regulate commerce among the
States, but also directly limits the power of
the States to discriminate against interstate
commerce. This V~egative~~ aspect of the
t;z;~e Clause prohibits economic protec-
-- that is, regulatory measures
designed to benefit in-state economic inter-
ests by burdening out-of-state competitors.
Thus, state statutes that clearly discrimin-
ate against interstate commerce are routinely
struck down, unless the discrimination is
demonstrably justified by a valid factor
unrelated economic protectionism.
(Citations om&ed.)
-
p. 5153
Honorable Bob Bullock - Page 4 (JM-1003)
New Energy suora at 1807. The court concluded that there
was no such valid factor in this instance:
Our cases leave open the possibility that
a State may validate a statute that discrim-
inates against interstate commerce by showing
that it advances a legitimate local purpose
that cannot be adequately served by reason-
able nondiscriminatory alternatives. This is
perhaps just another way of saying that what
may appear to be a "discriminatoryw provision
in the constitutionally prohibited sense --
that is, a protectionist enactment -- may on
closer analysis not be so. However it be
put, the standards for such justification are
high.1
Id. at 1810. The United States Supreme Court decision in
New Enerov was both anticipated, see. e a. er
publisher Indus.. Inc., 457, So.Zd 1374 (Fla: 1684v Arch&
Daniels Mid1 nd Co. v. State ex rel. Al&& 315 N.W.2d 597
(Minn. 1982): and, of course, has been followed. Se , a
Russell Stewart Oil Co. v. State of Illinois, 529 N.i.2: 48;
(Ill. 1988).
We conclude that, on the basis of New Em, a court
presented with the issue would conclude that the Texas
reciprocity provision of subsection (b)(4) of section
153.123 of the Tax Code unconstitutionally violates the
interstate commerce clause of the United States Constitu-
tion. Because of a 1983 amendment including a specific
non-severability provision which has the effect of
invalidating the entire statute if any part thereof is
declared unconstitutional,2 we need not address your first
question.
1. The Court relied upon two fairly recent cases as
precedent: Philadelwhia v. New Jersev, 437 U.S. 617, 624
(1978) (w[W]here simple economic protectionism is effected
by state legislation, a virtually per se rule of invalidity
has been erected.") and Hushes v. Oklah ma 441 U.S. 322,
337 (1979)("[F]acial .discrimination by itzeli may be a fatal
defect [and] [a]t a minimum . . . invokes the strictest
scrutiny.lO)
2. Subsection (b)(5) of section 153.123 declares:
(Footnote Continued)
p. 5154
Honorable Bob Bullock - Page 5 (JM-1003)
SUMMARY
Under the rule set out in pew Enerov Co.
Qf Ind. v. L&p&&, 108 S.Ct. 1803 (1988), we
conclude that a court would hold that the tax
credit reciprocity provision set forth in
subsection (b)(4) of section 153.123, Tax
Code, violates the interstate commerce clause
of the United States Constitution and is
unconstitutional.
(Footnote Continued)
The provisions of Section 153.123, Tax
Code, are not severable. If any portion of
Section 153.123, Tax Code, is held to be
unlawful or unconstitutional, the entire
section shall have no force and effect.
Acts 1983, 68th Leg., ch. 287, S 1, at 1425. A close
reading of the statutory supplement to Volume 2 of the Tax
Code published by West Publishing Company would lead one to
assume that subsection (b)(5) was impliedly repealed by the
1987 amendments to the section. However, such was not the
case. The specific nonseverability provision in section
153.123 was included as subdivision (5) of subsection (b) in
1983. Acts 1983~, 68th Leg., ch. 287, § 1, at 1428.
Subsection (b) was next amended in 1987, when Senate Bill
No. 522 amended subdivisions (1) through (4) of that
subsection. However, subdivision (5) was not amended: it
remains unchanged from its original enactment. Acts 1987,
70th Leg., ch. 552, 5 2, at 2216. If the language
introducing the 1987 amendatory provisions had read:
I'Subsection (b), Section 153.123, Tax Code, as amended, is
amended to read . . .,'Iwe would agree with the editors of
West Publishing Company that the 1987 amendment to
subsection (b) effectively replaced the entire subsection.
Instead, the language reads: %ubdivisions (l), (2), (3),
and (4), Subsection (b), Section 153.123, Tax Code, as
amended, are amended to read . . . .'I We have found nothing
in the .legislative history of the 1987 amendment indicating
that the legislature intended to repeal subdivision (5) of
subsection (b).
p. 5155
,
Honorable Bob Bullock - Page 6 (JM-1003)
JIM MATTOX
Attorney General of Texas
MARY KELLER
First Assistant Attorney General
Lou MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Jim Moellinger
Assistant Attorney General
p. 5156