Can a Texas county tax office keep a 'tax clearance' account to cover taxpayers who underpay their property taxes with other taxpayers' overpayments?

Texas AG Opinion JM-536: Tax Clearance Account

Plain-English summary

The Ector County attorney asked the Attorney General whether the county's tax assessor-collector could keep a "tax clearance" account. The idea was to deposit excess property tax payments into a single account, and then, when another taxpayer's payment came up short by a small amount (say $2), pull money from the account to cover the difference rather than send out refund and shortage notices for trivial sums. The county attorney noted several counties did this for convenience, and that a property tax refund is not legally required until a taxpayer actually asks for one. He also asked whether creating the account needed commissioners court approval. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

The AG concluded flatly that no such account may be set up. The problem is that using one taxpayer's overpayment to satisfy another taxpayer's underpayment effectively forgives the debt of the person who paid too little. Two provisions of the Texas Constitution forbid that. Article VIII, section 10 says the Legislature has no power to release inhabitants or property from paying taxes levied for state or county purposes (except by a two-thirds vote in case of great public calamity), and article III, section 55 bars the Legislature from releasing or extinguishing debts owed to the state, a county, or a subdivision (except delinquent taxes at least ten years overdue). While penalty and interest on delinquent taxes can be waived if the law allows it, the taxes themselves, current or delinquent, cannot be. Since the Legislature itself cannot authorize forgiving the shortfall, neither the commissioners court nor the tax assessor-collector can do it. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

The AG added that even if a county set up the account purely for accounting efficiency, without meaning to forgive anyone's tax, it would still be improper, because accepting a payment smaller than the tax imposed is allowed only two ways. The Tax Code lets a taxpayer split the bill (section 31.03: half by December 1, the rest by July 1, with no penalty or interest) and lets a taxpayer take a discount for paying early (section 31.05). No other provision permits accepting less than the full amount imposed. Because the account was invalid, the AG did not answer the second question about who would have to approve it. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

Currency note

This opinion was issued in 1986. The Property Tax Code provisions it cites (sections 31.03 and 31.05) have been amended since, and later statutes and opinions may bear on how counties handle small overpayments and underpayments. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule or citation mentioned here.

Common questions

Can a county tax office just keep small overpayments to cover small shortfalls and skip the paperwork?

No. The AG concluded that pooling excess payments to cover other taxpayers' shortages would waive or release the debts of the taxpayers who underpaid, which the Texas Constitution forbids. A county cannot do administratively what the Legislature is itself barred from authorizing. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

Which constitutional provisions block this?

Article VIII, section 10 and article III, section 55 of the Texas Constitution. The first says the Legislature has no power to release inhabitants or property from paying state or county taxes (except by a two-thirds vote in a great public calamity), and the second bars releasing or extinguishing debts owed to the state or a subdivision (except taxes delinquent at least ten years). Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

Is there any legal way to accept a payment that is a little short?

Only the two the Tax Code spells out. The AG explained that a tender of less than the amount imposed can be accepted only through a split payment under section 31.03 (half by December 1, the rest by July 1, without penalty or interest) or an early-payment discount under section 31.05. No other provision allows it. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

Can the penalty and interest on late taxes be waived even though the tax cannot?

Sometimes. The AG noted that penalty and interest owed on delinquent taxes may be waived if the law so provides, but the taxes themselves, whether current or delinquent, clearly may not be. That distinction is why a shortfall on the tax itself cannot be papered over with someone else's overpayment. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

Background and statutory framework

The request grew out of a practical collection headache: small overages and shortages generate refund and collection work that can cost more than the amounts involved. The county attorney reported that several counties handled this with a "tax clearance" account, setting a floor (for example $10) below which a refund went out only on request, and accepting payments short by up to a set amount (for example $2) while making up the difference from the pooled account. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

The AG measured the practice against the constitutional ban on forgiving taxes. Article VIII, section 10 and article III, section 55 prohibit the Legislature from releasing tax obligations or debts owed to a county, and the courts have enforced that line: penalty and interest on delinquent taxes may be waived where the law allows (Jones v. Williams), but the taxes themselves may not be released (Smith v. State; State v. Pioneer Oil & Refining Co.). Because covering one taxpayer's shortfall with another's overpayment releases the shortfall, and because the Legislature could not authorize that, no county officer can either. The AG then closed the "efficiency only" escape hatch by pointing to the exclusive statutory ways to accept less than the full tax: the split-payment option (Tax Code section 31.03) and the early-payment discount (Tax Code section 31.05). Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

Citations and references

The opinion cited the following authorities. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

Constitutional and statutory provisions:

• Tex. Const. art. VIII, § 10 (release from payment of taxes)
• Tex. Const. art. III, § 55 (release or extinguishment of debts owed to the state or a subdivision)
• Tex. Tax Code § 31.03 (split payment of taxes)
• Tex. Tax Code § 31.05 (discounts for early payment)

Cases:

• Jones v. Williams, 45 S.W.2d 130 (Tex. 1931)
• Smith v. State, 420 S.W.2d 204 (Tex. Civ. App. - Austin 1967), aff'd, 434 S.W.2d 342 (Tex. 1968)
• State v. Pioneer Oil & Refining Co., 292 S.W. 869 (Tex. 1927)

The opinion also cited Attorney General Opinion JM-311 (1985), which appears in the reproduced text below.

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0536
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0536.pdf

Original opinion text

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

The Attorney General of Texas

August 21, 1986

JIM MATTOX
Attorney General

Honorable Gary Garrison
Ector County Attorney
Courthouse, Room 203
Odessa, Texas 79761

Opinion No. JM-536

Re: Validity of a "tax clearance" account for excess property tax payments

Dear Mr. Garrison:

You ask us the following questions:

Are there any legal objections to the Tax Assessor-Collector of Ector County, Texas, having a "tax clearance" account into which are deposited excess property tax payments and from which are withdrawn amounts necessary to make up property tax payments which are short? If there are no legal objections, does the Tax Assessor-Collector have the authority to create such an account or does this require approval from anyone -- such as the Ector County Commissioners Court?

By your use of the phrase "tax clearance" account and the authorities which you cite in the brief accompanying your request, we understand you to ask whether such an account may be established that would serve to satisfy, from the overpayments of taxpayers, the tax liabilities of those taxpayers who fail to tender sufficient payment. We conclude that no such account may be established. Because we do so, we need not answer your second question.

You have provided us with the following information relevant to your request:

The "tax clearance" account concept is used by four counties' tax officials whom I contacted. They said that it is justified by convenience, the money and effort spent to return overage/shortage checks, and revenue lost from not immediately depositing tax payments into the county treasury. The amount of excess might be noted for audit and accounting purposes. Each county set a monetary limit, such as $10.00, below which a refund would be sent only upon taxpayer request. Apparently, under the Property Tax Code, a refund of excess payment is not required unless and until a taxpayer requests it. The excess amount would be deposited into the tax clearance account. Tax payments which are "short" by no more than a set amount, such as $2.00, are accepted. The shortage is noted for auditing and accounting purposes. Money is transferred from the tax clearance account to make up the shortage.

Article VIII, section 10, of the Texas Constitution provides the following:

§10. Release from payment of taxes

Sec. 10. The Legislature shall have no power to release the inhabitants of, or property in, any county, city or town from the payment of taxes levied for State or county purposes, unless in case of great public calamity in any such county, city or town, when such release may be made by a vote of two-thirds of each House of the Legislature.

Article III, section 55, of the Texas Constitution provides the following:

§55. Release or extinguishment of indebtedness to state, county, subdivision or municipal corporation

Sec. 55. The Legislature shall have no power to release or extinguish, or to authorize the releasing or extinguishing, in whole or in part, the indebtedness, liability or obligation of any corporation or individual, to this State or to any county or defined subdivision thereof, or other municipal corporation therein, except delinquent taxes which have been due for a period of at least ten years.

While penalty and interest owed on delinquent taxes may be waived if it is so provided by law, Jones v. Williams, 45 S.W.2d 130 (Tex. 1931); Attorney General Opinion JM-311 (1985), taxes themselves, whether current or delinquent, clearly may not be. Smith v. State, 420 S.W.2d 204 (Tex. Civ. App. - Austin 1967), aff'd, 434 S.W.2d 342 (Tex. 1968); State v. Pioneer Oil & Refining Co., 292 S.W. 869 (Tex. 1927). By utilizing any excess tax monies paid to the taxing units to offset the shortage of those who fail to tender the full amount, the tax assessor-collector would be impermissibly waiving or releasing the debts owed by those who failed to tender the sufficient amount. The legislature is clearly prohibited from authorizing such a practice by article III, section 55, and article VIII, section 10, of the Texas Constitution. Since the legislature may not authorize the practice, it follows that neither the commissioners court nor the tax assessor-collector may do so.

Even if the practice about which you inquire were established only for purposes of more efficient accounting, i.e., if no attempt were made to release or extinguish the tax liabilities of those taxpayers who tendered an insufficient amount, the practice would still be statutorily impermissible. In your letter, you state that tenders of payment which are less than the amount imposed by, for example, $2.00 are accepted. There are only two means by which a tender of less than the amount imposed may be accepted. First, section 31.03 of the Tax Code authorizes a split payment whereby a taxpayer who tenders one-half of the taxes owed by December 1 may tender the remaining half by July 1 with no accrual of penalty or interest. Second, section 31.05 of the Tax Code authorizes discounts of certain specified percentages for payments tendered before January. There is no other provision which permits acceptance of any amount tendered that is less than the amount of taxes imposed.

Accordingly, we conclude that the county tax assessor-collector may not establish a "tax clearance" account in which excess property tax payments may be deposited and then withdrawn to offset those property tax payments which are less than the amount imposed.

SUMMARY

A county tax assessor-collector may not establish a "tax clearance" account in which excess property tax payments may be deposited and then withdrawn to offset those property tax payments which are less than the amount imposed.

JIM MATTOX
Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney General

MARY KELLER
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Jim Moellinger
Assistant Attorney General