Untitled Texas Attorney General Opinion

              THE             ATTOR-VEY        GENERAL
                                  OF   TEXAS

                                  February16, 1988



     Honorable Gary Garrison                         Opinion.No. (.I+857)
     Ector County Attorney
     Room 218, Courthouse                            Re:   Whether  a taxing
     Odessa, Texas   79761                           unit that contracts with
                                                     a private  attorney pur-
     Honorable Billy Ray Stubblefield                suant to section 6.30 of
     Williamson County Attorney                      the Tax Code may impose
     P. 0. Drawer 1139                               the additional   penalty
     Georgetown, Texas   78627                       of 15 percent authorized
                                                     by section 33.07 of the
                                                     Tax Code in an instance
                                                     in which    the section
                                                     6.30 contract provides
                                                     that the delinquent tax
                                                     attorney will be com-
                                                     pensated by a percentage
,-                                                   of less than 15 percent
                                                     (RQ-984)

     Gentlemen:

           You request an opinion on the authorized expenditure
     of penalties   imposed pursuant to section    33.07 of the
     Tax Code, which permits taxing units to provide that
     delinquent ad valorem taxes incur "an additional penalty
     to defray costs of collection" if the taxing unit has
     contracted with an attorney under section 6.30 of the Tax
     Code.    See aenerally Attorney    General Opinion   JM-285
     (1984) (discussing circumstances under which section 33.07
     penalty may be applied to delinquent taxes). Section 6.30
     of the Tax Code provides in part:

                (a) The county attorney or, if there  is
            no county attorney, the district    attorney
            shall represent  the county to enforce the
            collection   of delinquent   taxes if    the
            commissioners court does not contract with a
            private attorney as provided by Subsection
            (c) of this section.

                  .   .   .   .




                                          p. 4145
Honorable Gary Garrison
Honorable Billy Ray Stubblefield
Page 2   (JM-857



           (c) The governing body of a taxing unit
       may contract with any competent attorney   to
       represent the unit to enforce the collection
       of delinquent   taxes. The attornev's    com-
       pensation is set in the contract. but the
       total amount of ComDensation    Drovided  may
       not exceed 20 Dercent of the amount of
       delinouent  tax,    Denaltv.   and   interest
       collected.   (Emphasis added.)

Tax Code 56.30; see also Attorney General  Opinion JM-135
(1984) (neither county attorney   nor city attorney   may
enter into a contract pursuant to section 6.30(c)  of the
Tax Code).

     Section 33.01 of the Tax Code establishes the penalty
and interest imposed on delinquent taxes.     Section 33.07
of the Tax Code authorizes the additional       penalty  as
follows:

           (a) A taxing unit or appraisal  district
       may provide, in the manner required by law
       for official action by the body, that taxes
       that remain delinquent on July 1 of the year
       in which they become delinquent    incur an
I      additional  Denaltv to    defrav costs    of
       collection    if the unit or district     or
       another unit that collects taxes    for the
       unit has contracted with an attorney    pur-
       suant to Section 6.30 of this code.      The
       amount of the Denaltv mav not exceed       15
       percent of the amount of taxes, Denaltv, and
       interest due.

          .   .   .   .

           (c) If a penalty is imposed pursuant  to
       this section, a taxing unit may not recover
       attorneyIs  fees in    a suit to     collect
       delinquent taxes subject to the penalty.
       (Emphasis added.)

Tax Code 533.07.

     Mr. Stubblefield informs us that some attorneys who
have applied to collect delinquent    taxes for Williamson
County have proposed  that the county   impose the full 15
percent penalty under section 33.07 of the Tax Code, but
compensate them only at the rate of 12.5 percent, with the
county retaining 2.5 percent to defray    its own costs of



                          p.   4146
Honorable Gary Garrison
Honorable Billy Ray Stubblefield
Page 3 m-857)




collecting the delinquent taxes. You both ask whether the
penalty imposed and collected  under section 33.07 may be
used to defray the taxing unit's costs of collecting
delinquent taxes, or whether the penalty may only be used
to compensate   the attorney who contracts     to collect
delinquent taxes pursuant to section 6.30 of the Tax Code.
The answer to your question depends on whether    "costs of
collection" in section 33.07 refers only to the cost of
contracting with an attorney pursuant to section 33.07, or
whether it includes costs incurred by the county.

     Before addressing your specific question, we point
out that the 15 percent     figure represents the maximum
penalty that may be imposed by a taxing unit.     A taxing
unit may impose a section 33.07 penalty      of a lesser
percentage.   In addition, the taxing unit may change the
amount of penalty from year to year, if it does so "in the
manner  required by law for official       action by the
body. . . ." Tax Code 533.07(a). Thus, by referring in
this draft to the "15 percent penalty," we do not intend
to negate the taxing unit's power to set an amount less
than 15 percent and to change the amount of penalty from
year to year.

     Turning to your question, we will first examine
former statutory provisions,   to establish some of the
circumstances under which section 33.07 of the Tax Code
was enacted.   See Gov't Code 5311.023 (construction of
statutes in a code). The provisions you inquire about are
found in the Property Tax Code, which was adopted in 1979
and codified as Title I of the Tax Code.    Tax Code 31.01;
B   Acts 1979, 66th Leg., ch. 841.       Section 33.07 was
added to the Property Tax Code in 1981, in a bill which
adopted a series of amendments to the Property Tax Code.
u   H.B. No. 30, Acts 1981, 67th Leg., 1st C.S., ch. 13,
at 168.

     Before the Property Tax Code was adopted,      former
article 7335, V.T.C.S., authorized the commissioners court
to contract with a private attorney

       to enforce or assist in the enforcement   or
       the collection   of any delinquent     State
       and county taxes for a percent     on    the
       taxes, penalty   and   interest    actually
       collected. . . .

Acts 1923, 38th Leg., 2d C.S., ch. 13, at 37; Acts 1923,
38th Leg., 3d C.S., ch. 21, at 182. Former article 7335a,
V.T.C.S., provided that the compensation under a contract




                          p. 4147
Honorable Gary Garrison
Ro;zr;blT$-F5;fr Ray Stubblefield




to collect delinquent taxes could not be more than 15 per-
cent of the amount collected.       Acts 1930, 41st Leg., 4th
C.S., ch. 8, at 9.        These provisions    also applied   to
school districts.      Bell v. Mansfield Indenendent     School
District, 129 S.W.2d 629      (Tex. 1939). Articles    7335 and
7335a,     V.T.C.S.,   were    revised   and    recodified   as
subsections 6.30(c) through 6.30(e) of the Tax Code, and
the total compensation payable      to the attorney   under the
contract was increased, so that it now "may not exceed 20
percent of the amount of delinquent          tax, penalty,  and
interest collected."      Under   former law, there was no
requirement that the compensation be paid from delinquent
tax COlleCtiOnS.     Morrison v. Lane, 157 S.W.2d 466 (Tex.
Civ. APP. - Beaumont         1941, no writ);     see aenerallv
Attorney General Opinion WW-217 (1980). The county had to
provide      in its   budget   for the    contract   attorney's
compensation.     Morrison v. Lane, sunra.

     Fifteen percent of the amount collected   constituted
an absolute limit on the amount that could be paid to an
attorney under contract pursuant to former articles 7335
and 7335a, V.T.C.S.     Attorney  General Opinion    O-4004
(1941) concluded  that the attorney contracting    with a
school district could not make claims in excess of the 15
percent limit to pay for stationery,    stamps, and other
similar items used in collecting   delinquent taxes.    The
opinion stated as follows:

          It is manifest   that unless the school
       district pays for the stationery,   stamps,
       etc., the tax attorney must provide    such
       items. It is also manifest     that if the
       tax attorney  receives  15% of the amount
       collected  plus a payment    for the above
       mentioned items he will receive more than
       15% of the amount collected,    the maximum
       amount allowed by law.

Attorney General Opinion O-4004       (1941).

     Thus, at the time section   33.07 of the Tax Code was
adopted, no particular source of funds was designated to
pay the private attorney's compensation under section 6.30
of the Tax      Code.  The   legislature   was,   moreover,
presumably aware that compensation for the attorney might
include payment   for his expenditures for supplies     and
other items which could not strictly speaking be described
as attorney  fees. See Attorney     General Opinion  O-4004
(1941).




                            p. 4148
     Honorable Gary Garrison
     Honorable Billy Ray Stubblefield
     Page 5 (JM-857)




          Section 33.07 of the Tax Code provides for
 -          an additional nenaltv to defrav costs of
            collection    if the unit or district   or
            another unit that collects taxes for the
            unit has     contracted with      attorney
            pursuant   to Section 6.30 ofanthis  code.
            (Emphasis added.)

     Tax Code 933.07(a).   This penalty provides funds to pay
     some or all of the attorney's compensation under a section
     6.30 contract.  The additional penalty may be imposed upon
     a delinquent taxpayer  only if the taxes are going to be
     collected by a private attorney pursuant to section 6.30
     of the code. This condition for imposing the additional
     penalty suggests that funds realized    from collecting  it
     must be applied to payment of the attorney's compensation.

          This reading of section 33.07(a) is supported by sub-
     section (c) of that statute, which provides as follows:

               If a penalty is imposed pursuant to this
            section, a taxing unit may not recover
P           attorneyIs  fees in    a suit to     collect
            delinquent taxes subject to the penalty.

     Tax Code, 533.07(c). The section 33.07 penalty may be
     seen as a substitute for court-ordered attorney fees, with
     the advantage that the taxing unit determines   the amount
     of penalty up to the 15 percent maximum,     and that the
     penalty can be collected even if the case does not go to
     court.   See.    a    Tax Code 533.48(a)(4)    (reasonable
     attorney's feeseappkoved by the court).

          Section 33.48 of the Tax Code provides for the costs
     and expenses that a taxing unit may recover in a suit to
     collect a delinquent tax:

              (a) In addition to other costs authorized
           by law, a taxing unit is entitled to recover
           the following costs and expenses in a suit to
           collect a delinquent tax:

                 (1) all usual court costs,      including
              the cost of serving process:

                 (2)   expenses of foreclosure sale:

                 (3) reasonable expenses,    subject   to
.-
              approval by the court, that are incurred by




                             p. 4149
Honorable Gary Garrison
Honorable Billy Ray Stubblefield
Page 6   (m-857)



          the taxing unit in determining the name,
          identity, and location of necessary parties
          and    '    procuring    necessary    legal
          descrittions of the property on which a
          delinquent tax is due; and

             (4) reasonable attOrnSV*S  fSSS  aDDrOVed
          bv the court and not exceedina 15 nercent
          of the total amount of taxes. nenalties,
          and interest adiudaed due the unit.

           .   .   .   .


         (cl  Fees collected for attorneys   and other
      officials are fees of office, extent   that fees
      for contract attornevs  reoresentina   a taxinq
      unit that is joined or intervenes      shall be
      aonlied toward the     comoensation    due   the
      attornev under    the   contract.      (Emphasis
      added.)

Tax Code 533.48. The attorney's fees authorized     by sub-
section (a)(4) of section 33.48 may not be recovered      if
the taxing unit imposes a penalty      pursuant to section
33.07 of the code.     Subsection   (c) of section    33.48
provides that fees for contract attorneys shall be applied
toward the contractual compensation    rather than supple-
menting it. See aenerally Attorney General Opinion ME-67
(1979) (contract entered  into under   former article   7335
and 7335a, V.T.C.S., does not permit contract attorney to
receive attorney fees in connection with motion to compel
answers to interrogatories).   The provisions of section
33.48 support the view that there is an equivalence       of
purpose between the section 33.07 penalty,    court-ordered
attorney fees, and compensation   payable to the private
attorney under a section 6.30 contract.

     There is support in the legislative       history  of
section 33.07 that the penalty it authorizes     is to be
allocated only to the compensation payable to an attorney
under a section 6.30 contract.   The fiscal note to House
Bill No. 30 of the 67th Legislature, First Called Session,
stated as follows:

         Some increase in revenue to taxing units
         would result from the increase in penalty
         and interest rates on delinquent taxes and
         from allowing the taxing unit to impose
         additional penalty on delinquent taxes of up
         to 15% for attorney's fees, if delinquent on




                           p. 4150
Honorable Gary Garrison
Honorable Billy Ray Stubblefield
Page 7 (m-857)




       July 1 and if the unit has contracted with a
       delinquent tax attorney.

Fiscal Note on file in Legislative Reference Library for
H.B. No. 30, 67th Leg., 1st C.S. (July 17, 1981). This
document refers to the section 33.07 penalty as being
imposed "for attorney's fees," thus supporting the view
that the penalty   is applied solely to compensate   the
contracting attorney.

     A Texas court, in considering whether taxpayers could
bring a class action to recover section 33.07 penalties
which they had paid, repeatedly   referred to the section
33.07 penalties  as "attorney fees," and "attorney      fee
charges." See Salvaaaio v. Houston      Indenendent  School
District, 709 S.W.2d 306 (Tex. App. - Houston [14th Dist.]
1986, writ dism'd).  For example, the court in Salvaaaio
characterized the penalty as *'§33.07 attorney  fee charges
imposed to cover the collection of the delinquent taxes."
709 S.W.2d at 308.     The court thus assumed     that the
penalty was allocated to the contract attorney's costs of
collection.  Even though the court was not addressing the
issue before us, its assumption    as to the use of the
section 33.07 penalties demonstrates the reasonableness of
construing "costs of collection"  to refer to the cost of
having a private attorney collect delinquent taxes.

     We conclude that the penalty   imposed and collected
under section 33.07 of the Tax Code may not be spent to
defray costs of collection    incurred by a taxing unit
itself. The penalty payments must go to compensating the
attorney with whom the taxing unit has contracted      to
collect its delinquent  taxes. The taxing unit need not
impose the full 15 percent penalty      authorized.  That
figure is a maximum, and the statute does not compel a
taxing unit to pay an attorney more than his services are
worth.  In drafting the contract, the taxing unit has the
opportunity to include specific terms on the "costs of
collection" which the attorney will absorb.

     If a taxing unit does not contract with an attorney
under section 6.30 of the Tax Code, the delinquent taxes
are collected by the attorney who ordinarily    represents
it, and the taxing unit has to pay for all costs of tax
collection.  Section 33.07 of the code permits the taxing
unit to shift to the delinquent     taxpayer the cost of
compensating the outside attorney with whom it contracts.
We have found no evidence that the legislature        also
intended the delinquent   taxpayer to absorb the taxing
unit's collection  costs over and above the attorneyrs




                          p. 4151
Honorable Gary Garrison
Honorable Billy Ray Stubblefield
Page 8 (Jk-857)




compensation under a section 6.30 contract.        Statutes
imposing penalties are to be strictly construed.   Hatch v.
Davis, 621 S.W.2d 443 (Tex. App. - Corpus Christi     1981,
writ ref'd n.r.e.); w    Attorney  General Opinion   JM-285
(1984) (discussing applicabilty of section 33.07 penalty).
Accordingly, we advise you that the penalty imposed and
collected under section 33.07 of the Tax Code may not be
used to defray the taxing units' costs of collecting
delinquent taxes.

                       SUMMARY

            Pursuant to section 33.07 of the Tax
       Code, a taxing unit that has contracted with
       an attorney to collect delinquent      taxes
       under section 6.30 of the Tax Code is
       authorized to impose a penalty not to exceed
       15 percent against delinquent taxpayers   to
       cover the attorney's     compensation.   The
       taxing unit may not apply any part of the
       penalties collected under section 33.07 to
       any additional costs of collection which  it
       incurs but must use all of the assessed
       penalties solely to compensate the attorney              ?
       with whom it contracted.




                                    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 Susan L. Garrison
Assistant Attorney General




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