Is school bus fuel tax-free in Texas if a private contractor runs the buses?

Plain-English summary

Texas charges a tax on the first sale or use of gasoline, but it exempts fuel sold "to a public school district in this state for its exclusive use." Many districts do not run their own buses; they hire a private company to do it. A House committee chairman asked the Attorney General a practical question: if the district buys the gasoline itself and gives it to the contractor to run the district's buses, does that fuel still get the exemption?

The Attorney General said yes. An older opinion had drawn a line: fuel a district (or its agent) buys for the district's exclusive use is exempt, but fuel the contractor buys is not. That older opinion never addressed the in-between case here, where the district does the buying and then supplies the contractor. The new question was whether district-bought fuel that a contractor burns counts as being for the district's "exclusive use."

The Comptroller of Public Accounts, the agency that runs this tax, had already answered that by rule. Its regulation defines a district's "exclusive use" to include fuel the district buys and uses only in vehicles either owned and operated by the district, or dedicated to the sole purpose of providing transportation for the district under a contract between the district and the vehicle's owner. So contractor-owned buses are covered, as long as the district bought the fuel and the fuel is used only for the district's transportation.

The Attorney General deferred to that regulation. Courts follow an agency's reading of a statute it administers unless there are clear and compelling reasons it is wrong, and here the reading fit the purpose of the exemption, which the Legislature added in 1989 to help school districts offset their transportation costs. The bottom line: the exemption reaches gasoline a district buys directly and a contractor uses only to provide the district's bus service.

Currency note

This opinion was issued in 1993. 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 gasoline-tax statutes and the Comptroller's rule cited here have been amended since 1993, and the Administrative Procedure and Texas Register Act (then V.T.C.S. article 6252-13a) was recodified into the Government Code, so confirm current law before relying on anything described here.

Background and statutory framework

Representative Ben Campbell asked about the state tax "on the first sale or use of gasoline in this state" (Tax Code section 153.101(a)), which exempts fuel sold "to a public school district in this state for its exclusive use" (id. section 153.104(7)). The question was whether a school district that contracts with a private transportation company for school bus service may avoid the gasoline tax by directly purchasing the fuel used in the private buses.

The gap left by the earlier opinion. In AG Opinion JM-1158 (1990), the office had construed section 153.104(7) to mean that gasoline purchased by a school district, or by the agent of a school district, for the district's exclusive use is exempt, while gasoline purchased by an independent contractor that performs services for a district is not. That opinion did not reach the situation where the district purchases the gasoline and provides it to a contractor who uses it in performing services for the district. That situation is literally a sale "to a public school district," but the question was whether it is also a sale "for [the] exclusive use" of the district.

The Comptroller's definition. The Comptroller of Public Accounts had adopted a regulation defining "exclusive use": fuel purchased by a school district and used only in motor vehicles or other equipment "(A) owned and operated by the district; or (B) dedicated for the exclusive and sole purpose of providing transportation services for the school district by means of a contract between the school district and the owner or operator of the motor vehicles." 34 T.A.C. section 3.173(14). The definition thus includes gasoline used in vehicles owned and operated by independent contractors, so long as the gasoline is purchased by the district and used only to provide transportation services for the district. The Comptroller adopted the amendment under authority delegated by Tax Code section 111.002, proposing it at 16 Tex. Reg. 5720 (1991) and finalizing it at id. 6756, in accordance with the Administrative Procedure and Texas Register Act, V.T.C.S. article 6252-13a.

Deference to the agency. The Comptroller's construction was reasonably consistent with the statute's purpose. Subsection (7) was added by a House floor amendment to Senate Bill 417 in the 71st Legislature (H.J. of Tex., 71st Leg., at 2422 (1989)), and its sponsor, Representative Culberson, described its purpose as helping school districts offset the costs of transportation under S.B. 417. A court would defer to the Comptroller's reading absent clear and compelling reasons that it is erroneous: "Construction of a statute by the agency charged with its execution and administration is authoritative and should be followed by the courts unless there are clear and compelling reasons that such construction is erroneous." Bateman v. Rice, 653 S.W.2d 951, 952 (Tex. App.-Amarillo 1983, writ ref'd n.r.e.). The AG concluded the school-district exemption applies to gasoline purchased directly by a district and used by independent contractors solely to provide transportation services to the district.

Common questions

Can a Texas school district buy tax-free gasoline for buses a private company runs?
Yes, under this opinion, as long as the district itself buys the fuel and the fuel is used only to provide the district's transportation. The Tax Code exempts fuel sold to a district for its exclusive use, and the Comptroller's rule reads that to cover contractor-operated buses fueled with district-purchased gas.

What if the contractor buys the gasoline instead?
Then the exemption does not apply. The earlier opinion (JM-1158) held that fuel purchased by an independent contractor performing services for a district is not exempt. The exemption turns on the district being the purchaser.

What does "exclusive use" mean here?
By the Comptroller's regulation, it means district-purchased fuel used only in vehicles the district owns and operates, or in vehicles dedicated solely to providing the district's transportation under a contract between the district and the vehicle's owner or operator.

Why did the Attorney General follow the Comptroller's rule?
Because courts treat an administering agency's construction of a statute as authoritative unless there are clear and compelling reasons it is wrong, and the rule fit the exemption's purpose of helping districts offset transportation costs.

Citations

• Tax Code § 153.101(a) (tax on first sale or use of gasoline); § 153.104(7) (exemption for fuel sold to a public school district for its exclusive use); § 111.002 (Comptroller rulemaking authority)
• 34 T.A.C. § 3.173(14) (Comptroller definition of "exclusive use")
• V.T.C.S. art. 6252-13a (Administrative Procedure and Texas Register Act)
• Senate Bill 417, 71st Legislature (1989) (subsection (7) added by House floor amendment)
• Bateman v. Rice, 653 S.W.2d 951 (Tex. App.-Amarillo 1983, writ ref'd n.r.e.)
• Attorney General Opinion JM-1158 (1990)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0216
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1993/dm0216.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the garbled case name was verified against the official reporter. The RQ number on the Re line was illegible in the scan and is omitted. The linked PDF is authoritative.

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

April 26, 1993

Honorable Ben Campbell
Chairman
Committee on County Affairs
Texas House of Representatives
P.O. Box 2910
Austin, Texas 78768-2910

Opinion No. DM-216

Re: Whether a school district's purchases of gasoline for use by an independent contractor in the provision of transportation services for the school district are exempt from the gasoline tax

Dear Representative Campbell:

You have requested our opinion regarding the state tax "on the first sale or use of gasoline in this state." Tax Code § 153.101(a). The tax law provides an exemption from the taxation for fuel sold "to a public school district in this state for its exclusive use." Id. § 153.104(7). You ask whether a Texas school district that contracts with a private transportation company to provide school bus service may avoid the state gasoline tax by directly purchasing the fuel to be used in the private buses in the provision of such service.

In Attorney General Opinion No. JM-1158 (1990), this office construed the statutory exception from taxation contained in section 153.104(7) to mean

that gasoline purchased by a school district or by the agent of a school district for the exclusive use of a school district will be exempt from the reach of the tax. Gasoline purchased by an independent contractor that performs services for a school district, however, will not be exempt from the reach of the tax.

Id. at 1-2. We did not reach in that opinion the situation in which the school district purchases gasoline and provides it to an independent contractor who uses the gasoline in the performance of services for the school district. Such a situation would literally be a sale "to a public school district in this state," Tax Code § 153.104(7); but would it be a sale "for [the] exclusive use," id., of the school district?

The Comptroller of Public Accounts has adopted the following regulation defining "exclusive use" as that phrase is used in subsection (7):

Definition. The term "exclusive use" by a school district means fuel purchased by a school district and used only in motor vehicles or other equipment:

(A) owned and operated by the district; or

(B) dedicated for the exclusive and sole purpose of providing transportation services for the school district by means of a contract between the school district and the owner or operator of the motor vehicles.

34 T.A.C. § 3.173(14). The comptroller's definition includes gasoline used in vehicles owned and operated by independent contractors so long as the gasoline (1) is purchased by the school district and (2) is used only for providing transportation services for the school district.

The comptroller adopted the above-quoted amendment to section 3.173 of the Texas Administrative Code pursuant to authority delegated by the legislature in section 111.002 of the Tax Code. The comptroller proposed the amendment, 16 Tex. Reg. 5720 (1991), and made it final, id. at 6756, in accordance with the Administrative Procedure and Texas Register Act, V.T.C.S. art. 6252-13a. The comptroller thus promulgated the regulation in the proper manner.

The comptroller's construction of "exclusive use" is reasonably consistent with the purpose of the statute. Subsection (7) was added in a House floor amendment to Senate Bill 417 in the 71st Legislature. H.J. of Tex., 71st Leg., at 2422 (1989). In proposing the amendment, Representative Culberson stated its purpose to be to "help school districts offset the costs of transportation under [S.B. 417]." Debate on S.B. 417 on the Floor of the House of Representatives, 71st Leg. (May 25, 1989) (tape recording available from House Committee Coordinator).

We believe that a court would defer to the comptroller's construction because there are no "clear and compelling reasons" to conclude that the administrative construction is erroneous. "Construction of a statute by the agency charged with the execution and administration thereof is authoritative and should be followed by the courts unless there are clear and compelling reasons that such construction is erroneous." Bateman v. Rice, 653 S.W.2d 951, 952 (Tex. App.-Amarillo 1983, writ ref'd n.r.e.).

We conclude that the school district exemption from the gasoline tax applies to gasoline purchased directly by a school district and used by independent contractors solely for the provision of transportation services to the district.

SUMMARY

The school district exemption from the gasoline tax, Tax Code section 153.104(7), applies to gasoline purchased directly by a school district and used by independent contractors solely for the provision of transportation services to the district.

DAN MORALES
Attorney General of Texas

WILL PRYOR
First Assistant Attorney General

MARY KELLER
Deputy Attorney General for Litigation

RENEA HICKS
State Solicitor

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by James B. Pinson
Assistant Attorney General