Can a Texas state agency accept a supplier rebate on the price of goods it buys?

Texas AG Opinion JM-982: Can the State Accept Rebates on What It Buys?

Plain-English summary

When the state buys in bulk, suppliers sometimes offer a rebate, a chunk of the purchase price paid back to the buyer, to win the contract. The Texas Department of Health had accepted bids offering rebates on infant formula purchased for the WIC program, which helps low-income mothers and young children. A state senator worried this might run afoul of an old and unusually specific part of the Texas Constitution, article XVI, section 25, which flatly forbids certain "drawbacks and rebatements" on goods in commerce and tells the Legislature to punish anyone who pays or receives them.

The Attorney General gave the Department a clean bill of health, for a structural reason. Some constitutional provisions are "self-executing," meaning they work on their own the moment they are adopted, without any statute to back them up. Others are not: they announce a policy and direct the Legislature to carry it out, but they do nothing by themselves until the Legislature passes an implementing law. A Texas court had already decided that article XVI, section 25 falls into the second category. It is not self-executing; it needs legislation to have teeth.

So the real question became whether any statute implementing that provision actually bans the state from taking rebates. The senator pointed to the Texas Free Enterprise and Antitrust Act of 1983, which does make certain conditioned rebates unlawful. But the Attorney General looked at the legislative history and concluded that Act was not written to implement the constitutional rebate clause. It was modeled on federal antitrust law, and its rebate provision tracks a federal statute, not article XVI, section 25. The provisions in Texas law that actually descend from the constitutional clause deal with rebates by railroads, transportation companies, and utilities, not with a state agency's grocery-style purchasing.

There is a side point the senator raised: the Antitrust Act defines "person" to exclude the State of Texas and its agencies, so he asked whether the Legislature can exempt a state agency from a constitutional command. The Attorney General did not have to answer that. Because the Legislature can promote the anti-rebate policy without leaning on article XVI, section 25 at all, and because that Act was not the implementing legislation anyway, the exemption question never became necessary. The bottom line: no statute implementing article XVI, section 25 forbids the state from accepting rebates on goods and equipment it buys, so the infant-formula rebates for WIC did not violate the Constitution.

Currency note

This opinion was issued in 1988. 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.

The Business and Commerce Code antitrust provisions and the older V.T.C.S. transportation and utility articles discussed here have been amended and in places recodified since 1988, and state purchasing law has its own separate framework today. The structural holding, that article XVI, section 25 is not self-executing and depends on implementing legislation, reflects the case law as it stood, but anyone evaluating a state rebate or purchasing question now should consult the current Business and Commerce Code, current state procurement statutes, and current case law rather than the article and section numbers used here.

Who this opinion affected (as of 1988)

The Texas Department of Health and its WIC program: The opinion confirmed that accepting bids offering rebates on infant formula did not violate article XVI, section 25 of the Constitution.

State purchasing agencies generally: The opinion established that no statute implementing the constitutional rebate clause bars the state from accepting rebates on goods and equipment it buys.

Suppliers bidding on state contracts: The opinion left the door open to offering price rebates in bids for state purchases without running into the constitutional prohibition.

Common questions

Does the Texas Constitution stop the state from taking a rebate on purchases?
Not by itself. In this opinion the Attorney General concluded article XVI, section 25 is not self-executing, so it requires implementing legislation, and no such statute prohibits the state from accepting rebates on goods and equipment.

What does "not self-executing" mean?
It means the constitutional provision announces a rule but does not enforce itself; it depends on the Legislature passing a law to carry it out. Until then, the provision alone does not prohibit the conduct.

Didn't the Texas antitrust law ban certain rebates?
Yes, but the Attorney General concluded the Texas Free Enterprise and Antitrust Act of 1983 was patterned on federal antitrust law, not enacted to implement article XVI, section 25, so it was not the implementing legislation for that constitutional clause.

Was the WIC infant-formula rebate program legal?
Yes. The opinion concluded the Department of Health's acceptance of bids offering rebates on the purchase price of infant formula for the WIC program did not violate article XVI, section 25 of the Texas Constitution.

Background and statutory framework

Article XVI, section 25 of the Texas Constitution forever prohibits all drawbacks and rebatement of insurance, freight, transportation, carriage, wharfage, storage, compressing, baling, repairing, or any other kind of labor or service of or to any cotton, grain, or other produce or article of commerce in the state, paid or allowed or contracted for, to any common carrier, shipper, merchant, commission merchant, factor, agent, or middleman not the true and absolute owner thereof, and makes it the Legislature's duty to pass effective laws punishing those who pay, receive, or contract for the same. By its terms the provision reaches only rebatements to a person or entity "not the true and absolute owner" of the goods or services, so it does not prohibit rebates on the state's ordinary purchases; but the opinion did not rest on that point.

The inquiry raised two issues: whether article XVI, section 25 alone bars the state from accepting rebates (that is, whether it is self-executing), and if not, whether any implementing law prohibits the state from accepting rebates. A constitutional provision is self-executing when it supplies a rule sufficient to protect the right given or enforce the duty imposed. Mitchell County v. City National Bank of Paducah, 43 S.W. 880, 883-884 (Tex. 1898); Attorney General Opinions WW-245; V-748 (1948). It is self-executing to the extent that anything done in violation of it is void and that those engaging in the proscribed conduct do so knowing they commit a prohibited act for which they might incur penalties if the Legislature discharges its duty and prescribes them. Attorney General Opinion V-748 (1948), quoting Hemphill v. Watson, 60 Tex. 679 (Tex. 1884).

In Continental Fire & Casualty Insurance Corp. v. American Mfg. Co., 206 S.W.2d 669 (Tex. Civ. App. - Fort Worth 1947, no writ), the court concluded that article XVI, section 25 is not self-executing but requires legislative enactments to accomplish its purposes. The only other reported case involving the provision concerned a livestock-hauling contract the Railroad Commission found gave illegal freight-rate rebates to a livestock broker. Cox Feedlots, Inc. v. Hope, 498 S.W.2d 436 (Tex. Civ. App. - San Antonio 1973, writ ref'd n.r.e.). The parties conceded the contract provided for illegal rebates, and in a footnote the court cited article XVI, section 25 along with several statutes, including article 4013, V.T.C.S. Cox Feedlots, 498 S.W.2d at 438, n.1. Article 4013 (with articles 4013a and 6559i-4 providing substantially the same for railroad companies) bars corporations, companies, or persons mentioned in article 4005 (railway, transportation, telephone, and telegraph companies and their agents) from giving special rates, rebates, drawbacks, or other devices in the transportation of passengers, property, or messages. Cox Feedlots is thus consistent with Continental Fire & Casualty: article XVI, section 25 alone does not prohibit rebates but must be implemented by legislation.

No statute expressly prohibits the state from accepting rebates on the purchase price of goods and equipment. The senator suggested article XVI, section 25 is implemented by the Texas Free Enterprise and Antitrust Act of 1983 (Business and Commerce Code sections 15.01 through 15.40). Section 15.05(c) makes it unlawful to give discounts or rebates on the condition that the purchaser not deal in a competitor's goods where the effect may be to substantially lessen competition, and section 15.03(c) provides that "person" does not include the State of Texas, its departments, and its administrative agencies. Reviewing the legislative history, the Attorney General concluded section 15.05(c) is not the implementation of article XVI, section 25. Before 1983, chapter 15 prohibited monopolies, trusts, and conspiracies in restraint of trade (former section 15.04, repealed by Acts 1983, 68th Leg., ch. 519) and did not expressly ban rebates; the 1983 rewrite aimed to update Texas antitrust law by patterning it after federal antitrust law (Bill Analysis, Tex. S.B. 397, 68th Leg., 1983), and section 15.05(c) is patterned closely on 15 U.S.C. section 14, with no mention of article XVI, section 25. Although both serve the same public purpose, there was no evidence section 15.05(c) was intended as the implementing legislation; the more likely candidates are V.T.C.S. articles 4013, 4013a, and 6559i-4.

Because courts liberally construe constitutional provisions directing legislative action to carry out their purposes (Texas National Guard Armory Board v. McCraw, 126 S.W.2d 627 (Tex. 1939)), the Legislature may enact legislation promoting the policy of article XVI, section 25 without drawing on that provision's authority (see Braden, The Constitution of the State of Texas: An Annotated and Comparative Analysis 756 (1977); Annot., 41 A.L.R. 4th 675, section 2[a]). The opinion therefore did not consider whether the Legislature attempted to exempt state agencies from compliance with article XVI, section 25. Because the provision is not self-executing, the Antitrust Act does not implement it, and no implementing statute prohibits the offer or acceptance of rebates on the price of goods and equipment purchased by the state, the Department of Health's acceptance of the infant-formula rebate bids for the WIC program does not violate article XVI, section 25.

Citations

Statutory and constitutional authority:

• Texas Constitution art. XVI, § 25 (prohibition on drawbacks and rebatements; legislative duty to punish)
• Business and Commerce Code §§ 15.01-15.40 (Texas Free Enterprise and Antitrust Act of 1983)
• Business and Commerce Code § 15.03(c) ("person" excludes the State and its agencies)
• Business and Commerce Code § 15.05(c) (unlawful conditioned rebates that lessen competition)
• Article 4013, V.T.C.S. (rebates by transportation and communication companies)
• Article 4013a, V.T.C.S. (substantially the same for railroad companies)
• Article 6559i-4, V.T.C.S. (substantially the same for railroad companies)
• 15 U.S.C. § 14 (federal antitrust provision on which section 15.05(c) is patterned)

Cases:

• Mitchell County v. City National Bank of Paducah, 43 S.W. 880 (Tex. 1898)
• Hemphill v. Watson, 60 Tex. 679 (Tex. 1884)
• Continental Fire & Casualty Insurance Corp. v. American Mfg. Co., 206 S.W.2d 669 (Tex. Civ. App. - Fort Worth 1947, no writ)
• Cox Feedlots, Inc. v. Hope, 498 S.W.2d 436 (Tex. Civ. App. - San Antonio 1973, writ ref'd n.r.e.)
• Texas National Guard Armory Board v. McCraw, 126 S.W.2d 627 (Tex. 1939)

Related opinions:

• Attorney General Opinion WW-245
• Attorney General Opinion V-748 (1948)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-982
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0982.pdf

Original opinion text

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

November 18, 1988

Honorable Roy Blake
Chairman
Administration Committee
Texas State Senate
P. O. Box 12068
Austin, Texas 78711

Opinion No. JM-982

Re: Whether a proposed rule of the Texas Department of Health to accept a rebate for infant formula from a designated "primary supplier" violates article XVI, section 25, of the Texas Constitution (RQ-1396)

Dear Senator Blake:

You request our opinion on issues arising from a proposal that bidders on state contracts for goods and equipment be required to offer in their bids rebates to the state on the purchase price of the goods or equipment. Your inquiry is prompted by the Department of Health's recent acceptance of bids offering rebates on the purchase price of infant formula under the state's Women, Infants and Children (WIC) program. You are concerned that such a bidding requirement may violate article XVI, section 25, of the Texas Constitution.

Article XVI, section 25, provides the following:

That all drawbacks and rebatement of insurance, freight, transportation, carriage, wharfage, storage, compressing, baling, repairing, or for any other kind of labor or service of, or to any cotton, grain, or any other produce or article of commerce in this State, paid or allowed or contracted for, to any common carrier, shipper, merchant, commission merchant, factor, agent, or middleman of any kind, not the true and absolute owner thereof, are forever prohibited, and it shall be the duty of the Legislature to pass effective laws punishing all persons in this State who pay, receive or contract for, or respecting the same.

It should be noted at the outset that this provision by its terms only prohibits rebatements or drawbacks to any person or entity that is "not the true and absolute owner" of the goods or services for which the rebatements or drawbacks are given. It does not, therefore, prohibit the giving of rebates on ordinary purchases of goods and equipment by the state. Regardless, however, of whether the transaction about which you inquire is the kind of rebate which is described in article XVI, section 25, we need not address that issue here.

Your inquiry raises two basic issues: (1) whether article XVI, section 25, alone bars the state from accepting rebates in the circumstances you describe, i.e., whether it is self-executing; and (2) if it is not self-executing, whether any provision of law implementing article XVI, section 25, prohibits the state from accepting rebates.

A constitutional provision is said to be self-executing when it supplies a rule sufficient to protect the right given or permit enforcement of the duty imposed. Mitchell County v. City National Bank of Paducah, 43 S.W. 880, 883-884 (Tex. 1898); Attorney General Opinion Nos. WW-245; V-748 (1948). It is self-executing to the extent that anything done in violation of it is void and that parties engaging in the proscribed conduct do so with the knowledge that they are committing a prohibited act for which they might incur penalties if the legislature should discharge its duty and prescribe them. Attorney General Opinion V-748 (1948), quoting Hemphill v. Watson, 60 Tex. 679 (Tex. 1884).

In Continental Fire & Casualty Insurance Corp. v. American Mfg. Co., 206 S.W.2d 669 (Tex. Civ. App. - Fort Worth 1947, no writ), the court concluded that article XVI, section 25, of the Texas Constitution is not self-executing but requires legislative enactments to accomplish its purposes. The only other reported case involving this provision of the constitution concerned a contract for hauling livestock which the Railroad Commission determined gave illegal rebates of freight rates to a livestock broker. Cox Feedlots, Inc. v. Hope, 498 S.W.2d 436 (Tex. Civ. App. - San Antonio 1973, writ ref'd n.r.e.). The parties conceded at trial that the contract provided for illegal rebates. In a footnote, the court cited article XVI, section 25, along with several statutes as authority on this issue. Cox Feedlots, 498 S.W.2d at 438, n.1. One of the statutes cited, article 4013, V.T.C.S., provides the following in pertinent part:

No corporation, company or person mentioned in [article 4005 -- railway companies, chartered transportation companies, telephone and telegraph companies, and their officers, agents, and employees] shall directly or indirectly, by any special rate, rebate, drawback, or other device, demand, exchange, collect or receive from any person . . . a greater or less or different compensation for any service rendered or to be rendered, in the transportation of passengers, properties or messages, than it or he charges, demands, collects or receives from any other . . . person . . . doing business in this State for a like service under substantially similar circumstances and conditions except as is provided in this title, nor shall grant any free transportation or franking privilege to any corporation or person except as provided in this title.

See also V.T.C.S. arts. 4013a; 6559i-4 (providing substantially the same with respect to railroad companies). The Cox Feedlots case is thus consistent with the holding in Continental Fire & Casualty that article XVI, section 25, alone does not prohibit rebates, but must be implemented by legislation.

With this in mind, it should be noted that no statute expressly prohibits the state from accepting rebates on the purchase price of goods and equipment. In your letter to this office, however, you suggest that article XVI, section 25, is implemented by the Texas Free Enterprise and Antitrust Act of 1983, sections 15.01 through 15.40 of the Business and Commerce Code. Two provisions in particular draw your concern. Section 15.05(c) of the code makes it unlawful for any person to give discounts or rebates on the purchase price of any goods on the condition that the purchaser not use or deal in the goods of a competitor where the effect may be to substantially lessen competition in any line of trade or commerce. Section 15.03(c) provides that the term "person" "does not include the State of Texas, its departments, and its administrative agencies." You therefore ask whether the legislature may statutorily exempt a state agency from compliance with a constitutional provision, presumably article XVI, section 25.

Based upon our review of the legislative history of the Texas Free Enterprise and Antitrust Act, we do not believe that section 15.05(c) is the legislative implementation of article XVI, section 25. Prior to 1983, chapter 15 of the Business and Commerce Code prohibited monopolies, trusts, and conspiracies in restraint of trade. See Bus. & Comm. Code § 15.04 (repealed by Acts 1983, 68th Leg., ch. 519, at 3014). The chapter did not expressly ban rebates. In 1983, the legislature enacted the current version of chapter 15. Acts 1983, supra. The bill analysis to the legislation making the changes in chapter 15 states that the purpose of the bill was to update Texas antitrust laws by patterning them after federal antitrust laws. Bill Analysis, Tex. S.B. 397, 68th Leg., 1983. Section 15.05(c) is patterned closely after 15 U.S.C. section 14. No mention is made of article XVI, section 25 in the bill analysis. While there is no doubt that both provisions serve the same public purpose, we find no evidence that section 15.05(c) of the Business and Commerce Code was intended to be the implementing legislation for article XVI, section 25, of the constitution. The more likely candidates for that distinction are V.T.C.S. articles 4013, 4013a, and 6559i-4, quoted and described above.

Furthermore, because the courts liberally construe constitutional provisions directing the legislature's action in order to carry out the purposes for which such provisions were adopted, Texas National Guard Armory Board v. McCraw, 126 S.W.2d 627 (Tex. 1939), we believe the legislature may enact legislation that promotes the policy of article XVI, section 25, without drawing on the authority of that constitutional provision. See generally Braden, The Constitution of the State of Texas: An Annotated and Comparative Analysis 756 (1977) (concluding that the legislature needs no special constitutional authorization to regulate unjust price discrimination); Annot., Validity, construction, and application of state statute forbidding unfair trade practice or competition by discriminatory allowance of rebates, commissions, discounts, or the like, 41 A.L.R. 4th 675, § 2[a] (state statutes forbidding secret rebates generally held to be within police power of state). Therefore, we need not consider whether the legislature has in this instance attempted to exempt state agencies from compliance with article XVI, section 25.

To summarize, article XVI, section 25, of the Texas Constitution is not self-executing, but requires implementing legislation. The Texas Free Enterprise and Antitrust Act of 1983, sections 15.01 through 15.40 of the Texas Business and Commerce Code, does not implement article XVI, section 25, of the constitution, and no statute implementing that provision prohibits the offer or acceptance of rebates on the price of goods and equipment purchased by the state. The Department of Health's acceptance of bids offering rebates on the purchase price of infant formula for the Women, Infants, and Children program therefore does not violate article XVI, section 25, of the Texas Constitution.

SUMMARY

Article XVI, section 25, of the Texas Constitution is not self-executing, but requires implementing legislation. The Texas Free Enterprise and Antitrust Act of 1983, sections 15.01 through 15.40 of the Texas Business and Commerce Code, does not implement article XVI, section 25. No statute implementing that provision prohibits the offer or acceptance of rebates on the price of goods and equipment purchased by the state. The Department of Health's acceptance of bids offering rebates on the purchase price of infant formula for the Women, Infants, and Children program therefore does not violate article XVI, section 25, of the Texas Constitution.

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 Steve Aragon
Assistant Attorney General