The Attormy General of Texas
JIM MAlTOX C,ctober 4, 1984
Attorney General
Supreme Court Bulldin Honorable Bob Bul:lf,ck Opinion NO. ~~-207
P. 0. Box 12549 Comptroller of PuMic Accounts
Aus!in,TX. 7571% 2545 LB.7 State Office :3uilding Re: Whether section 151.311
5121475-2501 Austin, Texas 7i3.174 of the Tax Code unconstitu-
Telex 9101874.1287
Telecopier 51214750266
tionally discriminates against
the federal government
714 Jackson. Suite 700 Dear Mr. Bullock:
Dallas. TX. 752024M6
214/742-0944
Chapter 151 oE the Tax Code imposes limited sales, excise and use
taxes on businesses which operate within this state and engage in
4824 Alberta Ave.. Suite 180 certain specified activities. Subchapter H of chapter 151 sets forth
El Paso, TX. 79305.2793 specific exemptions to the imposition of such a tax. One such
915153534a4 exemption, set forth in section 151.311, removes from the ambit of the
tax tangible personal property purchased by a contractor and used for
1001 Texas. Suite 700 the improvement c’f realty belonging to entities which themselves are
“ouston.TX. 77CQ2C3111 exempt from the inposition of the tax. Legislation enacted during the
713/2235895 recent special aculsion amended section 151.311 to remove the United
States, its ager:cies. and its instrumentalities from the list of
organizations receiving the section 151.311 exemption. Accordingly.
808 Broadway, Suite 312
LubbOEk. TX. 794013479 you ask us the following tvo questions:
808/747-5238
I he:r,eby request your opinion on whether the
recent anendment to section 151.311, V.T.C.S., the
4339 N. Tenth. Suite B
McAllen. TX. 78501.lB95
Tax Code, discriminates unconstitutionally against
5121882.4547 the Un:lzed States, its agencies and instrumen-
talities. If you conclude that it does not, I
hereby request your further opinion on whether the
200 Main Plaza, Suite 400
amendment unconstitutionally discriminates betveen
Ssn Antonio, TX. 782052797
51212254191
contractors who improve realty for the federal
government under lump sum contracts and those who
do so under separated contracts.
An Equal OppOrtUnitYI
Affirmative Action Employer We answer both your questions in the negative. Section 151.311, as
amended, does not impermissibly discriminate against either the United
States, its agencies. and its instrumentalities or between contractors
who improve realty for the federal government under “lump sum”
contracts and those who do so under “separated” contracts.
Section 151.311 of the Tax Code now provides the following:
p. 930
Honorable Bob Rullock - Page! 2 (JM-207)
Sec. 151.311. PROPERTYUSEDFOR IMPROVEMRNT OF
REALTY OF AN IGMPT ORGANIZATION. Tangible
personal property Purchased by a contractor for
use in the perfo:naance of a contract for the
improvementof recif.ty for an organization exempted
from the taxes imposed by this chapter by Section
151.309(4) or (5) L>r Section 151.310 of this code
is exempted from 1:he taxes imposed by this chapter
to the extent 01’ the value of the tangible
personal property used or consumed or both in the
performance of the! contract. 0hnphasis added).
Acts 1983, 68th Leg., 2nd C.S., ch. 31. art. XII, 51, at 551. The
second portion of the underscored language was added by the amendment.
Section 151.309 of the Tax Code sets forth the following:
1151.309. Govt!rnmental Entities
A taxable item sold, leased, or rented to, or
stored. used, or c:onsumed by, any of the following
governmental entitles is exempted from the taxes
imposed by this chapter:
(1) the United !Itates;
(2) an uninco~:porated instrumentality of the
United States;
(31 a corporation that is an agency or
instrumentality of the United States and is wholly
owned by the United States or by another
corporation wholllr owned by the United States;
(4) this state; or
(5) a county, city, special district, or other
political subdivis:.on of this state.
Section 151.310 of the Tax Code acts to exempt religious, educational,
and public service organizat:.ons as defined therein.
Prior to its amendment, section 151.311 exempted from the
impoeition of the tax tangible personal property used by a contractor
for the improvement of realty belonging to all organizations listed as
exempt in section 151.309. With the amendment to section 151.311. the
only contractors of governmental entities so exempted are those which
contract with the state a:?,! all its political subdivisions. Con-
tractors of the United States, its agencies, and its instrumentalities
are no longer exempted.
.
Bonorable Bob Bullock - Paglr 3 (JM-207)
your first concern is l:hat the statute as amended impermissibly
discriminates against the federal government and its instrumentalities
and thereby violates the Ur;ited States Constitution. Section 151.311
does not affect the tratl:.tional immunity from taxation afforded
political entities and impose a tax directly on political entities;
all that is involved is the tax on tangible personal property used by
a contractor to improve rei.1, property. The federal government is not
being singled out for the imposition of the tax; it is simply being
treated in the same way thz.t, entities in the private sector similarly
situated are treated. The amendment then does not impose a new tax on
the federal government. It serves merely to remove the federal
government from its heretcfore favored status. The significance of
these two aspects of the tz.), will be readily apparent when two recent
United States Supreme Court decisions are analyzed.
It has long been held that a state may not impose a tax directly
upon the United States or any of its instrumentalities. Mayo v.
United States, 319 U.S. 441 (1943). Such immunity from taxation is
grounded in the Supremacy Clause of the United States Constitution,
article VI, clause 2. --
McCulloch v. Maryland, 4 Wheat. 316 (1819). No
such direct tax is imposed here.
A corollary to this principle is that
a tax may be InvLid even though it, does not fall
directly on the lnited States if it operates so as
to discriminate against the Government or those
with whom it deals. (Emphasis added).
United States V. Detroit, 355 U.S. 466. 473 (1958); see also Memphis
Bank 6 Trust Co. v. Garner,
~~~~~- 459 U.S. 392 (1983). A tax-is not invalid
on the basis of pr:ohit 1ted discrimination simply because its
imposition has an effect urcn the United States or because the federal
government shoulders the en,:ire burden of the economic levy. Alabama
v. King & Boozer. 314 U.S. 1 (1941). Specifically,
state taxes on :)ntractors [performing work for
the federal gclvernment] are constitutionally
invalid if they t,iscriminate against the Federal
Government. or substantially interfere with its
activities.
United States v. New Mexicc!, 455 U.S. 720, 735 n.11 (1982). Moreover,
the economic burc:en on a federal function of A
state tax imposed on those who deal with the
Federal Governm,r,lt does not render the tax
unconstitutional so long as the tax is imposed
e
Bonorable Bob Bullock - Pae;e 4 (a-207)
equally on th! other similarly situated
constituent8 of tbe State.
United States v. County