.- ‘
September 25, 1973
The Honorable Ivan WiDiams Opinion No. H-110
Executive Director
Texas Amusement Machine Commission Re: The applicability of regu-
P. 0. Box 13226 Capitol Station latory Article 13.02 to
Austin, Texas 78711 coin-operated machines
on U.S. military installa-
Dear Mr. Williams: tions in Texas
On behalf of the Texas Amusement Machine Commission you have
requested the opinion of this office about the application of Article 13.02(2).
V.T.C.S., in connection with a controversy involving the Army and Air
Force Exchange Service. Your letter expl .@s:
\
1
“The Texas Vending Commission was created
by Senate Bill 268, [Acts 1971, 62nd Leg., R.S.,
p. 1942, ch. 5871 . . . . Section 2 of S.B. 268
transfers to the Texas Vending Commission [subse-
quently renamed the Texas Amusement Machine
Commission, Acts 1973, 63rd Leg., R.S., p. 362,
ch. 1591 all of the functions previously exercised by
the State Comptroller under Chapter 13, [V. T. C. S. 1,
Taxation-General, as amended.
“Subsection 2, Article 13.02, [V. T. C.S.],
Taxation-General provides in part as follows:
‘No owner shal:l agree or contract with a bailee
or lessee of a coin-operated machine to compen-
sate said bailee or lessee in excess of fifty per-
cent (50%) of the gross receipt of such machine
after the above reimbursement has been made.
In addition to all other penalties provided by law,
the [Texas Amusement Machine Commission]
p. 528
The Honorable Ivan Williams, page 2 (H-110)
. . shall revoke any License held under
.
Article 13.17 by any person who violates
this subsection. ’
“This specifi.c statutory provision has been
declared valid by the court [Thompson
489 S.W. 2d 95 (Tex. 197311.
“The Unitt:d States A,rmy and Air Force
Exchange Service has taken the posi.ti,on that the
subject st:atutory p:roti.sfon may not be enforced
by this Commissi,on agaj,nst the Army and Air
Force Exchange Service. ‘(
You note:
!I
. . . the Army and Air Force Exchange Service
purchases goods and servi.ces from !non-appropria-
ted fun.ds’ and . . . the Army and ASP Force Exchange
Service is a c’LviPian rather than a military operation
of the Department of Defense. ”
You then asks:
'I1
. Whetherr the provisions of SubsectLon 2,
A’rtlcl,e 1 ,3. 02, [‘V. T. C.S. 1, Taxation-General may
be enforced by this commission against a Kcensee-
owner under thi,s act who contracts with a U.S.
military post exchange, U.S. mi.litary ser,uice club
or some othe:r lessee of coin-operated mac,hines
when the lessee is physi.cally l,ocated on lands [over]
which the State of Texas [has] ceded exclusive juris-
dict!on to the UnZ”:ed States, reserving only jurisdic-
tion to execute judicial process there?
“2What would be your answer to question No. 1
.
if such lessee was physically loc:ated on laods not ceded
or ceded onl,y in part by the State of Texas to the United
States?
p. 529
The Honorable Ivan Williams, page 3 (H-110)
“3. Would the fact that some lessees of coin-
operated machines which are physically located on
U.S. military installations contract to purchase goods
and services from ‘appropriated funds’ while others
do so from ‘non-appropriated funds’ have any effect
on your answer? ”
Your questions are broader than your premise, since the term
“lessee” used in your first question applies to persons or entities other
than the Army and Air Force Exchange Service, but we will answer in
the broader context. The questions involve two different clauses of the
federal Constitution.
Article 1, 5 8, Clause 17 of the Constitution of the United States
reads, in part:
“The Congress shall have power. . . to
exercise exclusive Legislation in all Cases what-
soever . . . over all Places purchased by the
Consent of the Legislature of the State in which the
Same shall be, for the Erection of Forts, Magazines,
Arsenals, Dock-Yards, and other needful Buildings
. . . . I,
Article 6, cl,. 2, the so-called Supremacy Clause, provides:
“This Constitution, and the Laws of the
United States which sha,Ll be made in Pursuance
thereof: and all Treaties made, or which shall be
made, under the Authority of the United States,
shall be the supreme Law of the Land; and the
Judges in every State shal.1 be bound thereby, any
Thing in the Consti,tution or Laws of any State to
the Contrary notwithstanding. ”
\
Our system is one of dual sovereignty. Though the federal government
may acquire land within a State by purchase or condemnati.on without the con-
sent of the State, in the absence of such consent, the United States does not
become an exclusive sovereign as authorized by A,rticle 1, $ 8, cl. 17, and its
p. 5,30
The Honorable Ivan Williams, page 4 (H-110)
possession is regarded as that of an ordinary proprietor. Any ‘!consent”
given by a State may be conditioned upon its retention of jurisdiction over
the land consistent with the federa. use, but when consent has been given,
if a portion of the State’s jurisdiction is not expressly retained (or to the
extent that it is not retained), the jurisdiction of the federal government
becomes “exclusive” if the federal government assents to the transfer of
the jurisdiction. If the State’s legislative jurisdiction is not retained,
subsequent laws of the State have no force in a federal enclave. However,
state laws applicable at the time of transfer remain in effect, until abrogated,
to assure that no area is left without a developed system for private rights.
Paul v. United States, 371 U.S. 245 (1963). See Adams v. Calvert, 396
S. W. 2d 948 (Tex. 1965).
In ceded areas where only the jurisdiction to execute judicial process
has been reserved, the applicability of Article 13.02, Taxation General,
‘V. T. C. S., to private persons depends upon whether the basic provisions
of that law were in force at the time the land was ceded, and whether it
has been abrogated by federal law. We are aware of no federal legislation
or policy which abrogates such laws as they might apply to private persons
in such circumstances.
However, U.S. Military Post Exchanges and U.S. Military Service
Clubs operated by the Army and Air Force Exchange are not purely private
personages. The Exchange Service evolved from the original “sutler”
system of provisioning armi.es. Its establishment has never rested on
statutory law, but, rather, on General Orders of the War Department and,
now, Regulations issued by authority of the Secretary of Defense. See 8
JAG L. Rev. 19, Scolnick and Packer, Evolution of the Army and Air Force
Exchange Service (1966).
Post Exchanges and Service Clubs are instrumentalities of the federal
government, though some might classify them as “civilian” rather than
“military, ” and thou.gh they are operated exclusively with “non-appropriated”
funds. Standard Oil Co. v. JohnsoriL 316 U.S. 481 (1942). Compare Paul v.
United States, su.pra. And see United States v. State Tax Commi.ssion of Miss-
is sippi. , U.S. --.-9 37 L.jEd Ld 1 (1973).
p. 531
The Honorable Ivan Williams, page 5 (H-110)
Paul v. United States was decided January 14, 1963. It involved
the right of the State of California to enforce minimum wholesale price
regulations with respect to milk sold at three U.S. military installations
in California and used for three different purposes; for strictly military
consumption, for resale at federal commissaries, and for consumption
or resale at various military clubs and post exchanges. Milk for the
first two uses was paid for with appropriated funds while that to be used
or resold at the clubs and exchanges was not.
The Supreme Court held that, as to milk paid for with appropriated
funds (and without regard to “jurisdiction” questions), the federal policy
set by 10 U.S.C. § 2301, et seq., and the Armed Services Procurement
Regulations promulgated pursuant thereto, required competitive bidding.
Milk purchased for military consumption and for resale at federal com-
missaries was purchased with appropriated funds. The Supreme Court
held, therefore, that the Regulations promulgated pursuant to the statutes
were to be given the force of law and took precedence over any contrary
state laws.
But milk purchased for consumption or resale at the various military
clubs and post exchanges was purchased with non-appropriated funds. The
Court, through Justice Douglas, observed that “[t]here is no. . . conflicting
federal policy concerning purchases and sales from non-appropriated funds”
and concluded that California’s current price controls over milk were appli-
cable.to such sales, provided the basic State law authorizing such control
had been in effect since the times of the various acquisitions of ceded areas.
In other words, exchanges and clubs using non-appropriated funds
were to be considered subject to the State law to the same extent as private
persons in the same circumstances would be subject to it.
Subsequent to the decision in Paul v. United States, new regulations
applicable to the Army and Air Force Exchange Service have been promul-
gated, stating that the A & A F E S is immune from direct State taxation and
from State regulatory laws, such as licensing and price control, statutes,
whose application wou1.d result in interference with the performance by the
A & A F E S of its assigned Federal functions. (32 C. F. R., 5 554.6). And
p. 532
The Honorable Ivan Williams, page 6 (H-110)
see 32 C. F. R., § 554.9, purporting to require full competition in procure-
ment “consistent with the immunity of exchanges from State regulations and
control, ”
The above A & A F E S Regulations have no statutory basis other than
that contained in 10 USC 3012 (g) conferring upon the Secretary of the Army
power to “prescribe regulations to carry out his functions, powers and
duties. . . .”
In Paul v. United States, the Supreme Court specifically noted that the
provisions of 10 USC 2301 et seq., relating to Defense Department procure-
ment and which authorized the adoption of Regulations making State price
controls inapplicable, were themselves applicable only to purchases made
with appropriated funds: it found no existing federal policy of immunity for
the Exchange Service against the enforcement of State price controls where
only non-appropriated funds were concerned. We have found no later-
enacted federal statutes applicable to the Army and Air Force Exchange
Service which would change that policy.
Congress authorized immunization from State price controls for
purchases made under the authority of the Department of Defense only as
respects purchases made with appropriated funds. The express appl,ication
of those statutes only to payments made from appropriated funds impliedly
excludes from their policy operation those payments made from non-appro-
priated funds. The Secretary of the Army was without the power or autho-
rity to extend that immunization policy beyond the limits set by Congress,
and we think the above A & A F E S Regulations attempting to do so are
nullities in that respect. See Hirshberg v. Cooke, 336 U.S. 210 (1949).
In Penn Dairies v. Mil,k Control Commission, 318 U.S. 261 (1943) the
Supreme Court, after considering another “milk” price control case under
statutory and administrative provisions antecedent to (but different from)
those concerned in Paul v. United States, said (at p, 621):
1,. . . [T]hose burdens [state taxation and regu-
lation], save as Congress may act to remove them, are
to be regarded as the normal incidents of the operation
p. 533
. 0
The Honorable Ivan Williams, page 7 (H-11Q)
within the same territory of a dual system of
government, and. . . no immunity of the national
government from such burdens is to be implied
from the Constitution. . . .
“Even in the case of agencies created or
appointed to do the government’s work we have
been slow to infer an immunity which Congress
has not granted and which Congressional policy
does not require. ”
Also see Polar Ices Cream & Creamery Co. v. Andrews, 375 U.S. 361
(1964). Compare United States v. Georgia Public Service Commission,
371 U.S. 285 (1963), and Public Utilities Commission of the State of
California v. United States, 355 U.S. 534 (1958).
We conclude that the more recent A & A F E S Regulations attempting
to extend the immunity from State regulations are ineffective to give immu-
nity to non-appropriated fund activities and that contracts made by the Army
and Air Force Exchange Service with such funds are subject to the provisions
of Article 13.02 (2); Taxation General, V. T. C. S., in the same manner as
contracts of a private individual or corporation. As to ceded areas, immu-
nity will depend upon the cession agreement, the statute’s u existence
prior thereto, and federal abrogations thereof.
Adams v. Calvert, 396 S. W. 2d 948 (Tex. 1965). involved the right of
the State to tax the interests of a private individual in coin-operated machines
located at Fort Hood. The taxes were levied under Article 13.02. The
Supreme Court said:
“It thus appears that at the time the Fort Hood
lands were acquired by the United States there were
both federal and state limitations on the authority of
the Governor of Texas to reserve jurisdiction to the
State over the lands. By the federal law the Governor
could reserve a:l,l juri.sdiction over the lands consistent
with the federaxses, but no more, and by Artic1.e 5427
p. 534
.
The Honorable Ivan Williams, page 8 (H-110)
the Governor was required to reserve only juris-
diction to execute state judicial process anywhere
on the lands. There is no sound reason for saying
that the authority conferred on the Governor by
Art. 5247 to cede exclusive jurisdiction does not
include authority to cede a lesser jurisdiction. We
hold, therefore, that in the area between the maxi-
mum permitted by federal law and the minimum
required by Article 5247, the extent of juris~diction
reserved to the State over lands acquired by the
United States with the consent given in Article 5242
is, in the absence of other limitations, a matter for
negotiation by the Governor and is settled and con-
,cluded by his deed of cession. . . . ” (396 S. W. 2d
at 950).
Your first question assumes that as to the lands involved the State
has”ceded exclusive jurisdiction to the United States, reserving only
jurisdiction to execute judicial process there. ‘I Our answer to your first
question, therefore, is that, absent a reservation of jurisdiction over
matters not in conflict with federal jurisdiction, the State has no power
and the price control aspects of Subsection 2, Article 13.02, Taxation-
General, V. T. C. S., may not be enforced on such a post.
Your second question asks whether our answer would be different
if the lessee was physically located on lands not ceded or ceded only in
part by the State of Texas to the United States. If the lands were not
ceded at all, our answer would be that the State would have the same rights
as to the lessee as it would have to any other lessee. If they were ceded in
part only, the jurisdiction of the State would have to depend upon the cession
agreement in each case; thus, we cannot give an unequivocal answer.
The answer to your third question would be that as to machines or
services purchased with appropriated funds, the State price control regu-
lations would conflict with the Federal. Procurement Act and the Federal
statute would prevail,. As, to those purchased with “non-appropriated funds, ”
the answer cou1.d differ depending upon whether the machines were located
p. 535
.I .
. . ,.
The Honorable Ivan Williams, page 9 (H-110)
on or off ceded property and, if on ceded property, the terms of the
cession agreement would c,ontrol.
SUMMARY
Jurisdiction of the Texas Amusement Machine
Commission over coin-operated machines located
upon Federal bases wil11 depend upon the following
principles: (1) If acquired with appropriated funds,
state regulation is totally ineffective; (2) Lf acquired
with non-appropriated funds and located on ceded land,
the extent of the State’s jurisdiction will depend upon
the terms of the cession agreement and the State :law
in existence at the time of cession; and (3) If located
on :land which has not been ceded to the United States
and acquired with non-appropriated funds, the juris-
diction of the Commission will be complete,
c86HN L. HILL
Attorney General of Texas
APPRC&‘ED:
Q
‘j
LARRY \F. YOR First As &ant
u~-_~~~
DAVID M. KE:NDALL,
Opinion Commj,tt.ee
Chairman,
po 536