Can a Texas regional transportation authority charge different sales tax rates in different subregions?

TX AG Opinion GA-0653: Can a transit authority tax subregions at different rates?

Plain-English summary

A state senator asked whether the Texas Constitution's equal-and-uniform taxation requirement is satisfied when a Regional Transportation Authority (RTA) collects its sales and use tax at a uniform, voter-approved rate within one subregion but at different rates in different subregions, where each subregion receives a different level of service matched to its tax. The question assumed a municipality could create its own subregion to participate in an RTA.

The opinion first walked through how RTAs are organized under chapter 452 of the Transportation Code. An RTA can be initiated from the subregions of a metropolitan area, and its territory includes the county of the principal municipality plus units of election that approve it at a confirmation election. The opinion corrected the senator's assumption: while a contiguous municipality may create its own separate subregional authority, chapter 452 does not let any municipality create its own subregion to participate in an existing RTA, and it does not equate a municipality with a subregion. An RTA may collect a transit sales and use tax, capped so the combined local rate does not exceed two percent at any location, and chapter 452 expressly authorizes the RTA's governing body to direct the comptroller to collect the tax at different rates in different subregions. That authorization is what raised the constitutional question.

On the constitution, article VIII, section 1(a) says taxation must be equal and uniform. Texas courts have long recognized that absolute equality is an unattainable ideal the constitution does not require. The provision permits reasonable classification of persons and property and is satisfied when a classification is not unreasonable, arbitrary, or capricious and operates equally on everyone within the class. A tax classification carries a presumption of validity, and a challenger bears the burden of showing there was no reasonable basis for it.

Applying these principles, the opinion explained that a tax falling equally and uniformly within a single taxing entity's territory is not constitutionally infirm, and overlapping entities each taxing within their own territory is fine so long as each entity's tax is equal and uniform within itself. So an RTA with one subregion taxing uniformly within it presents no problem, and different municipalities within an RTA charging different municipal rates, each uniform within its own borders, is also permitted. For the senator's actual question, an RTA of more than one subregion charging different rates by subregion, the opinion concluded that if the rate is uniform within each subregion, a court could find the tax falls equally within each subregion; the remaining question would be whether the different treatment between subregions is reasonable. The difference need not be large, and a court might find geographic and demographic differences, or differences in transit service levels, to be a reasonable justification. The opinion noted no existing RTA had more than one subregion, so it could advise only generally, concluding that such different rates could be upheld if the tax is uniform within each subregion and the differences rest on reasonable, non-arbitrary distinctions.

Currency note

This opinion was issued in 2008. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Transportation Code chapter 452 and the Tax Code rate provisions may have changed since 2008. Confirm current law before relying on this analysis.

Who this opinion affected (as of 2008)

Regional Transportation Authorities: The opinion told them a multi-subregion RTA could charge different sales-tax rates by subregion and likely survive an equal-and-uniform challenge if each rate was uniform within its subregion and the differences were reasonable.

Municipalities considering RTA participation: The opinion clarified that a municipality could not create its own subregion to join an RTA; chapter 452 does not equate a municipality with a subregion, though a qualifying contiguous municipality could form its own separate subregional authority.

Taxpayers and businesses within RTA territory: The opinion meant they could face different transit-tax rates across subregions, and overlapping municipal and RTA taxes, without an automatic equal-and-uniform violation.

Common questions

Can an RTA tax one subregion at a different rate than another?
Potentially yes. The opinion concluded chapter 452 authorizes different rates by subregion, and that could be upheld under article VIII, section 1(a) if the tax is uniform within each subregion and the differences are reasonable.

Doesn't "equal and uniform" mean everyone pays the same rate?
No. The opinion explained the constitution allows reasonable classifications and requires only that everyone within the same class be taxed alike; absolute equality is not required.

Can a city create its own subregion to join an RTA?
No. The opinion concluded chapter 452 does not let a municipality create its own subregion or equate a municipality with a subregion, though a qualifying contiguous municipality may form a separate subregional authority.

What kinds of differences between subregions might justify different rates?
The opinion suggested geographic and demographic differences, or differences in the level of transit service provided, could be reasonable justifications a court might accept.

Background and statutory framework

Article VIII, section 1(a) of the Texas Constitution requires that taxation be equal and uniform, but absolute equality is not required; reasonable classifications are allowed, and the provision is satisfied when a classification is not unreasonable, arbitrary, or capricious and operates equally on persons or property within the class (Tex. Const. art. VIII, § 1(a); Rosenburg v. Weekes, 4 S.W. 899, 901 (Tex. 1887); Whelan v. State, 282 S.W.2d 378, 380 (Tex. 1955); Tarrant Appraisal Dist. v. Colonial Country Club, 767 S.W.2d 230, 234 (Tex. App.-Fort Worth 1989, writ denied); Norris v. City of Waco, 57 Tex. 635, 641 (1882); Smith v. Davis, 426 S.W.2d 827, 833-34 (Tex. 1968); Rylander v. B & A Mktg. Co., 997 S.W.2d 326, 333 (Tex. App.-Austin 1999, no pet.); Sharp v. Caterpillar, Inc., 932 S.W.2d 230, 240 (Tex. App.-Austin 1996, writ denied); Hurt v. Cooper, 110 S.W.2d 896, 901 (Tex. 1937)). A tax classification carries a presumption of validity, and a challenger bears the burden of showing no reasonable basis exists (Smith, 426 S.W.2d at 831; Rylander, 997 S.W.2d at 333; Tex. Nat'l Guard Armory Bd. v. McCraw, 126 S.W.2d 627, 634 (Tex. 1939)). Chapter 452 of the Transportation Code governs RTAs, defining subregions and units of election, providing that an RTA may consist of one or more subregions, and authorizing a transit sales and use tax subject to a two-percent combined-rate cap, with authority to collect the tax at different rates in different subregions (Tex. Transp. Code Ann. ch. 452; §§ 452.001(1)(B), (3), (7), (12), (14), 452.056(a)(1), 452.401(a)-(b), 452.403(a)-(c), 452.406(a), 452.701(a), (c), (d), 452.704(a), 452.716(a), 452.717(a) (Vernon 2007); § 452.6025(d) (Vernon Supp. 2007); Tex. Tax Code Ann. §§ 151.051, 321.101, 321.103(a) (Vernon 2008)). Overlapping taxing entities each taxing uniformly within their own territory do not violate the equal-and-uniform requirement (City of Pelly v. Harris County Water Control & Imp. Dist. No. 7, 198 S.W.2d 450, 454 (Tex. 1946); Kuhlmann v. Drainage Dist. No. 12 of Harris County, 51 S.W.2d 784, 788 (Tex. Civ. App.-Galveston 1932, writ ref'd)). A reasonable difference, even a small one, can justify a classification (Fairmont Dallas Rests., Inc. v. McBeath, 618 S.W.2d 931, 933 (Tex. Civ. App.-Waco 1981, no writ); Bullock v. ABC Interstate Theaters, Inc., 557 S.W.2d 337, 341 (Tex. Civ. App.-Austin 1977, writ ref'd n.r.e.); Dancetown, U.S.A., Inc. v. State, 439 S.W.2d 333, 336-37 (Tex. 1969); Wheeler v. City of Brownsville, 220 S.W.2d 457, 461 (Tex. 1949)).

Citations

Statutes:

• Tex. Const. art. VIII, § 1(a)
• Tex. Transp. Code Ann. ch. 452; §§ 452.001(1)(B), (3), (7), (12), (14), 452.056(a)(1), 452.401(a)-(b), 452.403(a)-(c), 452.406(a), 452.701(a), (c), (d), 452.704(a), 452.716(a), 452.717(a), 452.6025(d) (Vernon 2007 & Supp. 2007)
• Tex. Tax Code Ann. §§ 151.051, 321.101, 321.103(a) (Vernon 2008)

Cases:

• Rosenburg v. Weekes, 4 S.W. 899, 901 (Tex. 1887)
• Whelan v. State, 282 S.W.2d 378, 380 (Tex. 1955)
• Tarrant Appraisal Dist. v. Colonial Country Club, 767 S.W.2d 230, 234 (Tex. App.-Fort Worth 1989, writ denied)
• Norris v. City of Waco, 57 Tex. 635, 641 (1882)
• Smith v. Davis, 426 S.W.2d 827, 831, 833-34 (Tex. 1968)
• Rylander v. B & A Mktg. Co., 997 S.W.2d 326, 333 (Tex. App.-Austin 1999, no pet.)
• Sharp v. Caterpillar, Inc., 932 S.W.2d 230, 240 (Tex. App.-Austin 1996, writ denied)
• Hurt v. Cooper, 110 S.W.2d 896, 901, 904 (Tex. 1937)
• Tex. Nat'l Guard Armory Bd. v. McCraw, 126 S.W.2d 627, 634 (Tex. 1939)
• City of Pelly v. Harris County Water Control & Imp. Dist. No. 7, 198 S.W.2d 450, 454 (Tex. 1946)
• Kuhlmann v. Drainage Dist. No. 12 of Harris County, 51 S.W.2d 784, 788 (Tex. Civ. App.-Galveston 1932, writ ref'd)
• Fairmont Dallas Rests., Inc. v. McBeath, 618 S.W.2d 931, 933 (Tex. Civ. App.-Waco 1981, no writ)
• Bullock v. ABC Interstate Theaters, Inc., 557 S.W.2d 337, 341 (Tex. Civ. App.-Austin 1977, writ ref'd n.r.e.)
• Dancetown, U.S.A., Inc. v. State, 439 S.W.2d 333, 336-37 (Tex. 1969)
• Wheeler v. City of Brownsville, 220 S.W.2d 457, 461 (Tex. 1949)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0653
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2008/ga0653.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain - the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS

GREG ABBOTT

August 14, 2008

The Honorable Florence Shapiro
Chair, Committee on Education
Texas State Senate
Post Office Box 12068
Austin, Texas 78711-2068

Opinion No. GA-0653

Re: Validity of collecting a Regional Transportation Authority's sales and use tax at different levels in separate subregions (RQ-0677-GA)

Dear Senator Shapiro:

You inquire about the imposition of a Regional Transportation Authority's ("RTA") "sales and use tax at different levels in separate Subregions within the authority." You specifically ask about the satisfaction of the constitution's equal and uniform taxation requirement if the sales and use tax "is collected at a uniform voter-approved rate within a Subregion of an RTA but at different rates in different Subregions, all of which receive different approved levels of service that take into account their disparate tax levels[.]" Request Letter, supra note 1, at 2; see also TEX. CONST. art. VIII, § 1 (equal and uniform provision). Though your question expressly inquires about subregions, it appears to be premised on an assumption that any municipality may create its own subregion through which to participate in an RTA. See Request Letter, supra note 1, at 2 (stating that "[s]eemingly, ... a municipality ... could form a Subregion to participate in an RTA ... [,]" and "within an RTA various municipalities could participate at separate levels of service at different tax rates").

Because of that assumption, it is helpful to have an understanding of the geography of RTAs before addressing your question. RTAs are governed by chapter 452, Transportation Code. See generally TEX. TRANSP. CODE ANN. ch. 452 (Vernon 2007 & Supp. 2007) (titled "Regional Transportation Authorities"). Chapter 452 authorizes an RTA to be initiated from "each subregion of a metropolitan area," or from only one subregion. Id. § 452.701(a) (Vernon 2007); see id. §§ 452.701(c) (providing that if "one subregion establishes an authority, the remaining subregion may establish a separate subregional authority"), 452.001(1)(B) (defining "authority" to include "an authority ... consisting of one subregion"). For its purposes, chapter 452 defines "subregion" as "a principal municipality, the county of the principal municipality, and any municipality or unit of election included in the boundaries of a subregion by the creating entity ... and confirmed at an election." Id. § 452.001(12) (emphasis added). Separately, the territory of a proposed RTA includes all of the territory in the "county of the principal municipality" and "each unit of election that has the majority of its population in [that] county." Id. § 452.704(a)(1)-(2). Upon the results of the confirmation election, the RTA is authorized in the whole of the county territory and the units of election in which voters approve the RTA. See id. § 452.717(a); see also id. § 452.716(a) (requiring that the confirmation election be conducted "so that the votes are separately tabulated and canvassed in each participating unit of election"). Thus, the territory of an RTA will necessarily include and overlap with the territory of a county and participating municipalities. At the same time, the territory of the RTA itself could consist of one or more subregions. While chapter 452 authorizes a "contiguous municipality" to create its own RTA, it does not authorize any municipality to create its own subregion that may then participate in an RTA. Chapter 452 does not equate a municipality with a subregion.

RTAs are created to "provide public and complementary transportation services in the area." Id. § 452.701(a); see id. § 452.056(a)(1) (authorizing authority to operate and maintain a public transportation system). Toward that purpose, an RTA is authorized to collect a transit sales and use tax. See id. § 452.401(a) (authorizing executive committee to impose a sales and use tax for the authority at specified rates). The imposition of the sales and use tax must be approved at an election. See id. § 452.401(b). The rate may not exceed a rate that "when combined with the rates of all sales and use taxes imposed by other political subdivisions ... having territory in the [RTA] exceeds two percent in any location in the [RTA]." Id. § 452.403(a); see also id. § 452.401(a) (authorizing rate of between one-quarter of one percent to one percent); TEX. TAX CODE ANN. §§ 151.051 (Vernon 2008) (imposing state sales and use tax at six and one quarter percent), 321.101 (authorizing municipal sales and use tax), 321.103(a) (authorizing municipal sales and use tax "at the rate of one percent"). Chapter 452 contains specific provisions to accommodate the two percent maximum when a municipality that itself imposes a special sales and use tax joins the RTA. TEX. TRANSP. CODE ANN. § 452.403(b)-(c) (Vernon 2007); see id. § 452.6025(d) (Vernon Supp. 2007) (providing that an election in municipality to confirm addition of municipality to RTA is "to be treated for all purposes as an election to reduce the rate of the municipality's special sales and use tax ... to the highest rate that will not impair the imposition of the [RTA's] sales and use tax"). Chapter 452 also authorizes the governing body of the RTA to "direct the comptroller to collect the [RTA's] sales and use tax at different rates in different subregions of the [RTA]." Id. § 452.406(a). It is this potential difference in tax rates that gives rise to your question under article VIII, section 1(a). See Request Letter, supra note 1, at 2 (asking whether "the constitution's 'equal and uniform' requirement [is] satisfied if the transit sales and use tax is collected at a uniform voter-approved rate within a Subregion of an RTA but at different rates in different Subregions").

Article VIII, section 1(a) provides that "[t]axation shall be equal and uniform." TEX. CONST. art. VIII, § 1(a). Texas courts have long recognized that absolute equality and uniformity in taxation is an unattainable ideal and not required by the constitution. Rosenburg v. Weekes, 4 S.W. 899, 901 (Tex. 1887); Whelan v. State, 282 S.W.2d 378, 380 (Tex. 1955); Tarrant Appraisal Dist. v. Colonial Country Club, 767 S.W.2d 230, 234 (Tex. App.-Fort Worth 1989, writ denied). The Texas Supreme Court has stated:

Taxes are said, within the meaning of the constitution, to be 'equal and uniform,' when no person nor class of persons in the taxing district, whether a state, county, or other municipal corporation, is taxed at a different rate than are other persons in the same district upon the same value or the same thing, and where the objects of taxation are the same by whomsoever owned, or whatever they be.

Norris v. City of Waco, 57 Tex. 635, 641, 1882 WL 9558, at *5 (1882). The equal and uniform requirement "does not prevent the reasonable classification of persons and property for taxation." Tarrant Appraisal Dist., 767 S.W.2d at 234. The equal and uniform mandate requires only that all persons falling within the same class be taxed alike. Smith v. Davis, 426 S.W.2d 827, 833-34 (Tex. 1968); Rylander v. B & A Mktg. Co., 997 S.W.2d 326, 333 (Tex. App.-Austin 1999, no pet.); Sharp v. Caterpillar, Inc., 932 S.W.2d 230, 240 (Tex. App.-Austin 1996, writ denied) (citing Hurt v. Cooper, 110 S.W.2d 896, 901 (Tex. 1937)). Thus, article VIII, section 1(a) is satisfied when the tax classification is not unreasonable, arbitrary, or capricious and when it operates equally on persons or property within the class. See Tarrant Appraisal Dist., 767 S.W.2d at 234.

Moreover, a court in considering whether a particular tax classification conforms to article VIII, section 1(a) would begin with a presumption of validity. See Smith, 426 S.W.2d at 831. Under such a presumption, a party mounting a challenge under article VIII, section 1(a) would bear the burden of demonstrating there was no reasonable basis for the classification. See Rylander, 997 S.W.2d at 333. A "mere difference of opinion, where reasonable minds could differ, is not a sufficient basis for striking down legislation as arbitrary or unreasonable." Smith, 426 S.W.2d at 831. Courts entertain the "'strong presumption that a Legislature understands and correctly appreciates the needs of its own people, that its laws are directed to problems made manifest by experience, and that its discriminations are based upon adequate grounds.'" Id. (quoting Tex. Nat'l Guard Armory Bd. v. McCraw, 126 S.W.2d 627, 634 (Tex. 1939) (citations omitted)).

Under article VIII, section 1(a), a tax imposed by a taxing entity within its territory that equally and uniformly operates on all property or persons in the taxing entity is not constitutionally infirm. See Norris, 1882 WL 9558, at *5. ("Taxes are said ... to be 'equal and uniform,' when no person nor class of persons in the taxing district ... is taxed at a different rate ...."); Smith, 426 S.W.2d at 834 (agreeing with trial court's finding and stating that assessment of property "was uniform and equal with respect to other property in Bexar County and in proportion to the value of the property assessed. Thus the assessments are equal and uniform within the meaning of the constitution."). Situations involving two taxing entities that have overlapping territory and that each impose a tax within its respective territory so that persons and property within both taxing entities pay taxes to each entity similarly do not violate article VIII, section 1(a) so long as each entity's tax is equal and uniform within the entity. See City of Pelly v. Harris County Water Control & Imp. Dist. No. 7, 198 S.W.2d 450, 454 (Tex. 1946) (upholding under article VIII, section 1(a) taxation of property by city and special district); Kuhlmann v. Drainage Dist. No. 12 of Harris County, 51 S.W.2d 784, 788 (Tex. Civ. App.-Galveston 1932, writ ref'd) (upholding taxation of property by city and by drainage district under article VIII, section 1(a)). Applying these legal principles, then, an RTA consisting of only one subregion that imposes a sales and use tax equally and uniformly within that subregion does not present an article VIII, section 1(a) problem. And a situation involving different municipalities within an RTA in which each municipality imposes its own sales and use tax at a different rate from other municipalities in the RTA, but equally and uniformly within its municipal territory, is also not prohibited by article VIII, section 1(a). Thus, to the extent you are concerned about different municipalities within an RTA having different municipal sales and use tax rates, or about the overlap between the RTA's sales and use tax rate with a municipality's sales and use tax rate, these differences are not prohibited by article VIII, section 1(a).

The express question you present involves an RTA that consists of more than one subregion and that imposes a sales and use tax at different rates in the different subregions. See Request Letter, supra note 1, at 2. However, you do not provide information about a particular RTA nor are we aware of any existing RTA that consists of more than one subregion. See supra pp. 3-4 (describing origin of chapter 452 to accommodate the Dallas/Fort Worth metropolitan area); see also DART Brief, supra note 3, at 4 (stating that DART is a "regional transportation authority comprised of one subregion"). Thus, we can advise you only generally about such a hypothetical RTA.

As noted above, under article VIII, section 1(a), courts allow tax classifications that are reasonable and impose obligations that fall equally upon members of a class. See supra pp. 3-4. If, as you suggest, the tax rate within each subregion operates equally within the subregion, we believe a court could find the tax for each subregion falls equally upon the persons and property of that subregion. See Request Letter, supra note 1, at 2 (inquiring about a sales and use tax "collected at a uniform voter-approved rate within a Subregion"). Such a finding would leave a reviewing court with the remaining determination about the reasonableness of the classification-here the different tax treatment based on different subregions.

The difference need not be significant. See Fairmont Dallas Rests., Inc. v. McBeath, 618 S.W.2d 931, 933 (Tex. Civ. App.-Waco 1981, no writ) ("The difference between the subjects taxed need not be great, and if any reasonable distinction can be found, the duty of the court is to sustain the classification embodied in the law.") (citing Hurt v. Cooper, 110 S.W.2d 896, 904 (Tex. 1937) (stating: "It would not be argued that the Legislature is without power to levy a tax upon dry goods merchants without at the same time levying a like tax upon grocery merchants. The fact that the merchants not taxed, or those exempted from the tax, sell a different kind of goods from those which are taxed, is an all-sufficient justification of the classification or exemption.")); Bullock v. ABC Interstate Theaters, Inc., 557 S.W.2d 337, 341 (Tex. Civ. App.-Austin 1977, writ ref'd n.r.e.) ("The courts will not strike down the tax statute where there is a real difference to justify the separate treatment adopted by the Legislature."). For instance, a court might consider whether geographic and demographic differences between subregions provide reasonable justification for different tax rates. A court might also consider whether differences in transportation services provided to the different subregions suffice as reasoned justification to authorize different tax rates. See Dancetown, U.S.A., Inc. v. State, 439 S.W.2d 333, 336-37 (Tex. 1969) (determining that differences in commodities sold or services rendered were proper basis for classification). See generally Norris, 1882 WL 9558, at *5 (stating that "equal and uniform" language does not mean that the "pecuniary benefit to be derived by every person who pays taxes shall be equal"); Wheeler v. City of Brownsville, 220 S.W.2d 457, 461 (Tex. 1949) (recognizing that "some persons will derive greater pecuniary benefit from the expenditure of money for ... public purposes than will others").

Thus, under article VIII, section 1(a), upon a determination that the tax is uniform within each subregion and that the different tax rates in the subregions are based on reasonable and nonarbitrary distinctions, a court could well uphold a difference in tax rates between the subregions.

SUMMARY

Texas Constitution, Article VIII, section 1(a) requires that all taxation be equal and uniform. Article VIII, section 1(a) authorizes the classification of persons and property for taxation when the tax classification is not unreasonable, arbitrary, or capricious and when the tax operates equally on all persons or property within the class.

Chapter 452 of the Transportation Code authorizes a Regional Transportation Authority ("RTA") consisting of more than one subregion to collect a sales and use tax at different rates in the different subregions. For any RTA organized under chapter 452 that has more than one subregion and that collects the sales and use tax at different rates from the different subregions, the difference in tax rates could be upheld under article VIII, section 1(a) if the tax falls equally on people and property within each subregion and the different tax treatment by each subregion is reasonable.

Very truly yours,

KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Charlotte M. Harper
Assistant Attorney General, Opinion Committee