Can a Texas city use sales-tax money to pay for a homestead exemption instead of lowering the property tax rate?

Plain-English summary

The City of Cedar Hill was trying to lower the tax pressure on its homeowners and asked, through Representative Tom Craddick, whether it could route a local sales-tax to that purpose. Texas lets certain cities adopt an "additional" local sales and use tax under Tax Code section 321.101(b), but the Legislature attached a string: the money from that particular tax has to go first toward cutting the city's property tax rate. The city wanted to use it instead to pay for a homestead exemption, which shaves a slice off the appraised value of people's homes.

The Attorney General said the two are not interchangeable. A homestead exemption helps residential property owners, but it does not reduce the property tax rate, and it does nothing for owners of business or other non-residential property. Because the statute ties this sales-tax revenue specifically to a rate reduction, the city could not redirect it into a homestead exemption.

The opinion then worked through four more questions about Cedar Hill's tax planning. A city eligible under both of the economic-development provisions in article 5190.6 (sections 4A and 4B) could adopt both taxes in the same election, as long as it stayed within the overall rate cap. But it could not staple a section 4B proposal together with a combined section 4A/321.101(b) proposal and run them as one ballot question, because the statute spells out the exact wording for the combined tax and leaves no room to add anything else. A section 4B tax had to be set at one-half of one percent, not lower, because the Legislature had updated the sister provisions in 1991 to allow smaller increments but never updated section 4B. Finally, the AG noted that calling an advisory-board member a "city officer" in the city's own charter does not automatically make that person a public officer under state law; that label depends on whether the person actually wields independent governmental authority, which has to be judged case by case.

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 municipal sales-tax provisions of Tax Code chapter 321 and the economic-development corporation law (then V.T.C.S. article 5190.6, since recodified into the Local Government Code) have been amended and reorganized many times since 1993, so confirm current law before relying on anything described here.

Background and statutory framework

At the time of the opinion, Texas municipal sales taxes ran on two tracks relevant to Cedar Hill's questions.

The first was the "additional" municipal sales and use tax in Tax Code section 321.101(b), which qualifying cities could adopt by majority vote. The Legislature dedicated that revenue: section 321.404(a) required the adoption ballot to state that the tax "will be used to reduce the property tax rate," and sections 321.506, 321.507, 26.04(c), and 26.041(d) governed how the funds (and any excess) had to be handled. Section 11.13 of the Tax Code, separately, authorized governing bodies to grant homestead exemptions by exempting a percentage of a residence homestead's appraised value from taxation.

The second track was the economic-development sales tax under V.T.C.S. article 5190.6. Section 4A and section 4B each let an "eligible city" adopt a sales and use tax to fund a development corporation, with their own rate rules. The 1991 Legislature (Acts 1991, 72d Leg., ch. 184, §§ 1, 4) amended section 4A and Tax Code section 321.101(b) to permit rates in increments below one-half of one percent, but it left section 4B's one-half-percent requirement (subsection (e)) in place. Section 4A(p) set out the precise ballot language for adopting a combined section 4A and section 321.101(b) tax.

Citations

• Tax Code § 321.101(b), § 321.103(b), § 321.404(a), § 321.506, § 321.507 (additional municipal sales and use tax and use of its revenue)
• Tax Code § 26.04(c), § 26.041(d) (property tax rate provisions cross-referenced by the sales-tax statute)
• Tax Code § 11.13 (residence homestead exemption)
• V.T.C.S. art. 5190.6, § 4A and § 4B (economic-development sales and use taxes), including § 4A(p)'s prescribed ballot language and § 4B(e)'s rate requirement
• Acts 1991, 72d Leg., ch. 184, §§ 1, 4 (1991 amendments allowing sub-one-half-percent rates under § 4A and § 321.101(b))
• Wright v. Board of Trustees of Tatum Independent School District, 520 S.W.2d 787, 792 (Tex. Civ. App.-Tyler 1975, writ dism'd w.o.j.) (a tax-election statute's prescribed ballot form must be strictly followed)
• Aldine Independent School District v. Standley, 280 S.W.2d 578 (Tex. 1955) (defining a public officer as one on whom a sovereign function is conferred, largely independent of others' control)

Common questions

Could the city use its additional sales-tax money to pay for a homestead exemption?
No. The Attorney General concluded that revenue from an additional sales and use tax under section 321.101(b) had to be used first to reduce the property tax rate. A homestead exemption does not reduce that rate, so the tax could not finance one.

Why did the AG treat a homestead exemption differently from a rate cut?
Because they reach different taxpayers. A homestead exemption lowers the burden only on residential property by exempting part of a home's appraised value, while leaving non-residential property untouched. The statute tied the sales-tax revenue specifically to the property tax rate, which affects all property.

Could the city adopt both the section 4A and section 4B economic-development sales taxes?
The opinion found nothing in article 5190.6 stopping an eligible city from adopting both in the same election, provided it qualified under both provisions and the combined rate stayed within the statutory limits.

Could those tax proposals be combined into one ballot question?
No. Section 4A(p) prescribed the exact ballot language for a combined section 4A and section 321.101(b) tax and did not authorize adding other language, so a section 4B proposal could not be joined to it as a single proposition. The opinion cited the Wright decision for the rule that the prescribed form of a tax-election question must be strictly followed.

Did a city charter's label of "officer" make an advisory-board member a public officer?
Not by itself. The AG explained that under state law a public officer is someone on whom a sovereign governmental function is conferred, largely independent of others' control. Someone serving in a purely advisory role does not exercise that kind of independent authority, so whether a given advisory-board member is an officer for purposes of section 4B(c) had to be decided case by case.

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/dan-morales/dm-0218
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1993/dm0218.pdf

Original opinion text

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

Office of the Attorney General
State of Texas

DAN MORALES
ATTORNEY GENERAL

April 26, 1993

Honorable Tom Craddick
Chairman
Committee on Public Health
Texas House of Representatives
P.O. Box 2910
Austin, Texas 78768-2910

Opinion No. DM-218

Re: Whether an additional sales and use tax under section 321.101(b) of the Tax Code may be used to finance a homestead exemption, whether an eligible city may simultaneously adopt sales and use taxes under both sections 4A and 4B of V.T.C.S. article 5190.6, and related questions (RQ-466)

Dear Representative Craddick:

On behalf of the city of Cedar Hill (the "city"), you have asked several questions about sales and use taxes. First, you ask whether an additional sales and use tax under section 321.101(b) of the Tax Code may be used to finance a homestead exemption instead of reducing the property tax rate.

Section 321.101(b) provides that certain municipalities "may, by a majority vote of the qualified voters . . . adopt an additional sales and use tax for the benefit of the municipality in accordance with this chapter . . . ." The legislature has expressly prescribed the use of revenue collected under section 321.101(b). Revenues from an additional sales and use tax under this chapter must first be used to reduce the property tax rate. See Tax Code § 321.404(a) (requiring that a ballot in an election to adopt an additional sales and use tax specify that the tax will "be used to reduce the property tax rate"); see also id. § 321.507 (citing Tax Code §§ 26.04(c) and 26.041(d), and providing that excess funds must be deposited in an "excess sales tax revenue fund" and a "municipal sales tax debt service fund," which may only be expended for limited purposes); § 321.506 (governing the use of any remaining funds).

When a governing body adopts a homestead exemption, it exempts from current taxation a percentage of the appraised value of residence homesteads. See Tax Code § 11.13. A homestead exemption does not reduce the property tax rate. The memorandum submitted with your request suggests that this distinction is immaterial because the purpose of the additional sales and use tax under section 321.101(b) is to reduce the tax burden on property owners. It contends that cities should have the authority to determine how to achieve that end, including adopting a homestead exemption in lieu of reducing the property tax rate. We disagree.

While a homestead exemption reduces the tax burden on residential property by exempting a portion of the appraised value of residences from taxation, it does not reduce the tax burden on non-residential property. See id. The legislature has specifically provided that the purpose of the additional sales and use tax under section 321.101(b) is to reduce the property tax rate, and has set forth a number of provisions which explicitly govern the use of these revenues. See Tax Code, § 321.404(a); see also id. §§ 26.04(c), 26.041(d), 321.506, and 321.507. None of these provisions permits a city to use an additional sales and use tax to reduce the tax burden of residential property while not reducing the tax burden of non-residential property. Because a homestead exemption does not reduce the property tax rate as required by these provisions, we conclude that a municipality is not authorized to use an additional sales and use tax under section 321.101(b) of the Tax Code to finance a homestead exemption.

Second, you explain that in addition to adopting a one-half cent sales and use tax under section 4B of article 5190.6, V.T.C.S., effective July 1, 1993, the city would also like to adopt a combined one-half cent sales and use tax under section 4A of that article and section 321.101(b) of the Tax Code, effective October 1, 1993, for an overall one cent sales tax. The city would hold the election to adopt a sales and use tax under each of these provisions on the same day. You ask if the city is authorized to do so. Section 4A and section 4B separately authorize an "eligible city" to adopt a sales and use tax. Assuming that a city is eligible under both provisions, we see nothing in article 5190.6 that would suggest that the city may not simultaneously adopt sales and use taxes under both section 4A and section 4B.

You point out that subsection (f) of section 4B provides that "[a]fter the effective date of the taxes imposed under this section, the adoption of a sales and use tax or the . . . ."

In a related question, you ask whether a proposal to adopt a sales and use tax under section 4B of article 5190.6, on the one hand, and a combined sales and use tax under section 4A of that article and section 321.101(b) of the Tax Code, on the other, may appear on a ballot as a single ballot proposition. Section 4A(p) authorizes a city to impose a sales and use tax under that section and to impose an additional sales and use tax under section 321.101(b) of the Tax Code "at the same time and on the same ballot." See also V.T.C.S. art. 5190.6, § 4A(e). It is clear from the ballot language set forth in section 4A(p) that the two taxes appear on the ballot in the same proposition. Section 4A(p) provides in pertinent part:

The city must follow, in relation to the imposition . . . of the additional sales and use tax imposed under Section 321.101(b), Tax Code, the procedures of that chapter, except that in an election to impose . . . the tax under this section and the additional sales and use tax the ballot shall be printed to provide for voting for or against the proposition: "The adoption of a sales and use tax within the city for the promotion and development of new and expanded business enterprises at the rate of . . . and the adoption of an additional sales and use tax within the city at the rate of . . . to be used to reduce the property tax rate" . . . .

The foregoing provision sets forth the language which must be used in a ballot proposition on the adoption of a combined sales and use tax under section 4A and section 321.101(b). It does not authorize the city to include any other language in the ballot proposition. Therefore, we conclude that the city is not authorized to join a proposal to adopt a combined sales and use tax under section 4A and section 321.101(b) and a proposal to adopt a sales and use tax under section 4B on the ballot as a single ballot proposition. See Wright v. Board of Trustees of Tatum Indep. Sch. Dist., 520 S.W.2d 787, 792 (Tex. Civ. App.-Tyler 1975, writ dism'd w.o.j.) ("When a statute which authorizes a special election for the imposition of a tax prescribes the form in which the question shall be submitted to the popular vote, the statute shall be strictly complied with.").

You also ask whether an eligible city may adopt a sales and use tax at a rate less than one-half of one percent under section 4B, article 5190.6. Subsection (e) of section 4B provides that "[i]f the eligible city adopts the tax to be imposed on the receipts from the sale at retail of taxable items within the eligible city it shall be at a rate equal to one-half of one percent . . . ." Section 4A of article 5190.6 and section 321.101(b) of the Tax Code authorize the adoption of a sales and use tax at a rate of one-eighth, one-fourth, three-eighths, or one-half of one percent. See V.T.C.S. art. 5190.6, § 4A(d), (m), (p); Tax Code §§ 321.101(b), 321.103(b). Prior to 1991, both section 4A and section 321.101(b) provided only for a one-half of one percent tax rate. In 1991, however, the Seventy-second Legislature amended these provisions to allow for rates under one-half of one percent. Acts 1991, 72d Leg., ch. 184, §§ 1, 4. Significantly, the legislature has not similarly amended section 4B to provide for tax rates under one-half of one percent. Accordingly, we conclude that section 4B does not authorize an eligible city to adopt a sales and use tax at a rate less than one-half of one percent.

Finally, you ask whether members of a city's municipal advisory boards are city officers for purposes of article 5190.6, section 4B(c). Subsection (c) provides that the board of a corporation established under section 4B consists of seven directors, and that "[a]t least four directors must be persons who are not members of the governing body of the eligible city, and the remaining three directors shall be persons who are not employees, officers, or members of the governing body of the eligible city." You state that you understand that many cities include advisory board members as "officers" for various purposes in their city charters and codes. The fact that an advisory board member is defined as a city officer in a city code or charter, however, does not necessarily make him or her an officer for purposes of state law in general or article 5190.6 in particular. Under Texas law, a public officer generally must be appointed and may be removed only in accordance with the applicable provisions of law. Aldine Indep. School Dist. v. Standley, 280 S.W.2d 578 (Tex. 1955). In addition, a public officer is someone upon whom some sovereign function of the government is conferred for the benefit of the public, largely independent of the control of others. Id. at 583. An individual who serves in a merely advisory capacity does not exercise sovereign powers independent of the control of others and is therefore not an officer. The determination whether members of a particular municipal advisory board are officers depends upon the foregoing factors and must be made on a case-by-case basis.

SUMMARY

A city is not authorized to use an additional sales and use tax under section 321.101(b) of the Tax Code to finance a homestead exemption.

A city that adopts a one-half cent sales and use tax under section 4B of article 5190.6, V.T.C.S., may also adopt in the same election a combined one-half cent sales and use tax under section 4A of that article and section 321.101(b) of the Tax Code, assuming that the city is eligible to adopt a sales and use tax under these provisions and the overall sales and use tax rate would not exceed statutory limits. A city is not authorized to join a proposal to adopt a sales and use tax under section 4B, and a combined sales and use tax under section 4A and section 321.101(b), on the ballot as a single ballot proposition. A city is not authorized to adopt a sales and use tax under section 4B at a rate less than one-half of one percent.

The fact that a municipal advisory board member is defined as a city officer in a city code or charter does not necessarily make him or her an officer for purposes of state law in general or article 5190.6 in particular. The determination whether members of a particular municipal advisory board are city officers must be made on a case-by-case basis.

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