Does a private bus company that hauls students for a school district get the same gas-tax exemption the school district gets?

Texas AG Opinion JM-1158: Does the School-District Fuel Tax Exemption Cover a Bus Contractor?

Plain-English summary

Speaker Gib Lewis asked the Attorney General about a fuel-tax exemption the 1989 legislature had just added to the Tax Code, effective September 1, 1991: gasoline sold to a public school district for its exclusive use would be exempt from the state's motor fuels tax. The question was whether that exemption would also reach gasoline purchased by a private transportation company under contract to provide a school district's bus service, on the theory that the fuel would still be used exclusively for the district's transportation needs.

The Attorney General said no. The new school-district exemption uses language almost identical to an older exemption, on the books since 1941, for gasoline sold to the federal government for its exclusive use. Every prior attorney general opinion construing that federal exemption had held that it reaches the federal government and its agents, but not independent contractors who have merely entered into contracts to perform services for the federal government, distinguishing an agent (someone under the government's direct control) from an independent contractor (who performs a contracted task with its own means and methods, citing Carruth v. Valley Ready-Mix Concrete Co.). Because the school-district exemption uses the same "exclusive use" language, the opinion concluded a court would likely read it the same way: gasoline bought directly by a school district (or its agent) for the district's exclusive use is exempt, but gasoline bought by an independent contractor that has merely contracted to provide transportation services to the district is not, even if every gallon goes toward running the district's buses.

Currency note

This opinion was issued in 1990, construing a statutory exemption that was not yet even in effect (it took effect September 1, 1991). 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.

Who this opinion affected (as of 1990)

School districts contracting out bus service: The opinion meant that switching from district-owned buses to a contracted transportation company would not carry the new motor fuels tax exemption over to the contractor's fuel purchases, a cost difference relevant to structuring or bidding such contracts.

Private student-transportation contractors: The opinion confirmed these companies would remain subject to the motor fuels tax on gasoline used to run their buses, regardless of the exclusive nature of their school contracts.

Legislators and the comptroller's office: The opinion supplied the interpretive baseline (the federal-exemption case law) for how the new school-district exemption's "exclusive use" language would be read once it took effect.

Common questions

Is gasoline a school district buys directly for its own buses exempt from the Texas motor fuels tax?
Yes, under the exemption discussed in this opinion (Tax Code section 153.104(7), effective September 1, 1991), gasoline sold to a public school district for its exclusive use is exempt.

What if the school district hires a private company to run its buses instead of doing it in-house?
According to this opinion, gasoline the private contractor buys to perform that contract is not exempt, even if it is used exclusively to transport that district's students, because the contractor is an independent contractor rather than the district or the district's agent.

Why does the opinion treat a contractor differently from an agent of the school district?
The opinion explained that decades of attorney general opinions construing the nearly identical federal-government fuel exemption drew that same line, based on how much control the government (or here, the school district) exercises over how the work gets done, quoting Carruth v. Valley Ready-Mix Concrete Co. for the general test distinguishing an independent contractor from an agent.

Does it matter that the fuel is used one hundred percent for school transportation?
No, according to the opinion. The exclusivity of the use did not change the analysis; what mattered was who bought the fuel, the school district itself or its agent, versus an independent contractor performing services under contract.

Background and statutory framework

Chapter 153 of the Tax Code imposes a motor fuels tax on the first sale or use of gasoline in Texas (Tax Code § 153.101). Senate Bill 417 (Acts 1989, 71st Leg., ch. 813, § 6.16) amended section 153.104 to add, effective September 1, 1991, a new exemption for gasoline "sold to a public school district in this state for its exclusive use." That language closely tracks an existing exemption, in the same section, for gasoline "sold to the federal government for its exclusive use," an exemption that traces back to the original 1941 enactment of the state's motor fuels tax (Acts 1941, 47th Leg., ch. 184, art. XVII, § 2) and has been carried through every later codification.

The opinion reviewed the long run of attorney general opinions construing the federal-government exemption, all of which held it reaches the federal government and its agents but not independent contractors who have entered into contracts to perform services for the federal government (citing Attorney General Opinions C-694 (1966), WW-1502 (1962), and earlier wartime-era opinions). The leading illustration cited was Attorney General Opinion V-1492 (1952), which held the fuel tax could be imposed on a company operating a synthetic rubber plant under contract with a federal Reconstruction Finance Corporation agency, because the company was an independent contractor, not an agent sharing the government's tax immunity; that opinion quoted Carruth v. Valley Ready-Mix Concrete Co., 221 S.W.2d 584 (Tex. Civ. App.-Eastland 1949, writ ref'd), for the general rule that an independent contractor and an agent are distinguished chiefly by how much control the principal exercises over how the work gets done.

Applying that same interpretive framework to the new, nearly identically worded school-district exemption, the opinion concluded a court would likely hold that gasoline bought by a school district or its agent for the district's exclusive use is exempt, but gasoline bought by an independent contractor providing transportation services to the district under contract is not exempt, even when every gallon purchased goes toward performing that contract.

Citations

Statutes:

• Tex. Tax Code §§ 153.101, 153.104
• Senate Bill 417, Acts 1989, 71st Leg., ch. 813 (amending Tax Code §§ 153.104, 153.119, 153.203, 153.222, 153.3021 and Education Code § 21.181(b))

Cases:

• Carruth v. Valley Ready-Mix Concrete Co., 221 S.W.2d 584 (Tex. Civ. App.-Eastland 1949, writ ref'd)

Related opinions (Texas Attorney General):

• V-1492 (1952); C-694 (1966); WW-1502 (1962); V-583 (1948); O-6964 (1946); O-5569 (1943); O-5309A (1944); O-5214 (1943); O-4731 (1942); O-4689 (1942); O-4389 (1942)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1158
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1158.pdf

Original opinion text

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

April 18, 1990

Honorable Gibson D. (Gib) Lewis
Speaker
Texas House of Representatives
P. O. Box 2910
Austin, Texas 78769

Opinion No. JM-1158

Re: Whether the purchase of fuel by a company that provides transportation services for a school district is exempt from taxation (RQ-1807)

Dear Speaker Lewis:

You ask about the proper construction of amended section 153.104 of the Tax Code, which exempts public school districts from the state's motor fuels tax, effective September 1, 1991. S.B. 417, Acts 1989, 71st Leg., ch. 813, § 6.16, at 3720 [hereinafter Senate Bill 417].[1] Specifically, you ask whether the tax exemption would apply to a purchase of motor fuel by a private transportation company if that fuel were used exclusively for the public school transportation services that that company has contracted to provide to a school district. You do not specify precisely what sort of contractual relationship is involved, nor do you include a copy of any actual contract.

On the basis of attorney general opinions issued previously that construe a very similar exemption from the gasoline tax for the federal government on gasoline used exclusively by it, we conclude 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.

Chapter 153 of the Tax Code imposes a motor fuels tax on the first sale or use of motor fuels in this state. Subchapter B of chapter 153 governs the first sale or use of gasoline.[2] Section 153.104 sets forth exceptions to the reach of the tax and will provide the following, effective September 1, 1991:

The tax imposed by this subchapter does not apply to gasoline:

(1) brought into this state in the fuel tank of a vehicle with a capacity of less than 60 gallons when the tank is connected to the carburetor or fuel injection system of the power plant providing the propulsion of the vehicle;

(2) delivered by a permitted distributor to a common or contract carrier, oceangoing vessel (including ship, tanker, or boat), or a barge for export from this state if the gasoline is moved forthwith outside the state;

(3) sold by a permitted distributor to another permitted distributor;

(4) sold to the federal government for its exclusive use;

(5) delivered by a permitted distributor into a storage facility of a permitted aviation fuel dealer from which gasoline will be delivered solely into the fuel supply tanks of aircraft or aircraft servicing equipment;

(6) sold by one aviation fuel dealer to another aviation fuel dealer who will deliver the aviation fuel exclusively into the fuel supply tanks of aircraft or aircraft servicing equipment; or

(7) sold to a public school district in this state for its exclusive use. (Emphasis added.)[3]

It is suggested that the exemption should be construed to reach, not just the sale of gasoline to a school district, but also the sale of gasoline to a transportation company when the fuel so purchased will be used exclusively to provide transportation services to a school district. It is argued that the evident intention of the legislature in enacting the exemption is the reduction of school districts' transportation costs and that construing the exemption to reach such gasoline purchasers will effectuate that purpose. Based upon previously issued attorney general opinions that construe an exemption provision substantially similar to subsection (7), we do not agree that subsection (7) should be so construed.

The state tax on the first sale or use of motor fuels was enacted originally in 1941 and contained an exemption from the tax for gasoline sold to the federal government for its exclusive use. Acts 1941, 47th Leg., ch. 184, art. XVII, § 2, at 304. The exemption was retained in subsequent codifications of the statute. See V.T.C.S. Tax.-Gen. arts. 9.01-9.27, 10.01-10.25 (1960). Every attorney general opinion that has considered the question has construed this exemption to reach the federal government and its agents, but not to reach independent contractors who had entered into contracts to perform services for the federal government. See, e.g., Attorney General Opinions C-694 (1966); WW-1502 (1962); V-583 (1948).

For example, in Attorney General Opinion V-1492 (1952), this office concluded that the motor fuels tax may be imposed upon a purchaser of gasoline that was deemed an independent contractor of the Reconstruction Finance Corporation, an administrative agency of the federal government. The independent contractor, United States Rubber Company, entered into a contract with the Reconstruction Finance Corporation for the lease and operation of a synthetic rubber plant owned by the company. The opinion discussed and reaffirmed earlier opinions that concluded that agents of the federal government shared in the federal government's immunity from taxation, but that independent contractors who entered into contracts with the federal government for the performance of services are not so immune. Quoting from Carruth v. Valley Ready-Mix Concrete Co., 221 S.W.2d 584, 592 (Tex. Civ. App.-Eastland 1949, writ ref'd), the opinion declared:

An independent contractor and an agent are not always easy to distinguish, and there is no uniform criterion by which they may be differentiated. Generally, however, the relations are distinguished by the extent of the control which the employer exercises over the employee in the manner in which he performs his work.

Attorney General Opinion V-1492, supra, at 9-10; see also Attorney General Opinions O-6964 (1946); O-5569 (1943); O-5309A (1944) (overruling Attorney General Opinion O-5309 and reaffirming Attorney General Opinion O-4389); O-5214 (1943); O-4731, O-4689, O-4389 (1942).

The language of subsection (7) of section 153.104, which exempts from the motor fuels tax gasoline sold to a school district for its exclusive use, is substantially identical to that of subsection (4), which exempts gasoline sold to the federal government for its exclusive use. We conclude that a court construing subsection (7) probably would construe the exemption in the same fashion as the previously-cited attorney general opinions have construed subsection (4), and hold that gasoline purchased by a public school district or its agent for the exclusive use of the district will be exempt from the state's motor fuels tax on gasoline. Gasoline purchased by an independent contractor that has entered into a contract with a public school district to perform services, however, is not so exempt, even in an instance in which the gasoline so purchased will be used exclusively to perform the contracted services.

SUMMARY

Gasoline purchased by a public school district or its agent for the exclusive use of the district will be exempt from the state's first sale or use tax on motor fuels that is imposed by chapter 153 of the Tax Code. Gasoline purchased by an independent contractor that has entered into a contract with a public school district to perform services, however, will not be exempt, even in an instance in which the gasoline so purchased will be used exclusively to perform the contracted services.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

Footnotes

1. Sections 6.12 through 6.17 of Senate Bill 417 amend sections 153.104, 153.119, 153.203, 153.222, 153.3021 of the Tax Code and subsection (b) of section 21.181 of the Education Code. Section 7.01 of Senate Bill 417 sets forth the effective date provisions of the bill and provides in relevant part: "Sections 6.12 through 6.17 take effect September 1, 1991."

2. Section 153.101 of the Tax Code imposes the gasoline tax and provides: (a) A tax is imposed on the first sale or use of gasoline in this state. (b) If the tax imposed by this section is not paid at the time of the first sale or use, the comptroller may assess all applicable tax, penalty, and interest against any person buying the fuel for further resale. Thus, if the first sale or use of gasoline escapes taxation, the comptroller may impose the tax on a subsequent purchaser.

3. Senate Bill 417 contains two versions of section 153.104, one that is in effect from the effective date of the bill until September 1, 1991, and another that goes into effect on September 1, 1991. The two versions are identical except that the version that goes into effect on September 1, 1991, contains subsection (7), the subsection you inquire about.