Can Texas charge lawyers a special occupation tax that exempts older attorneys and those who no longer practice?

Texas AG Opinion JM-913: Is the Occupation Tax on Attorneys Constitutional?

Plain-English summary

In the late 1980s Texas needed revenue, and the legislature added a temporary occupation tax on lawyers, in effect from the start of 1988 through the spring of 1990. The tax was not flat across every license holder. It exempted attorneys who were 70 or older and attorneys who had gone on inactive status, and it charged a reduced, prorated amount to anyone who got licensed or came back to active practice partway through the tax year. A county attorney asked the Attorney General whether all of that was constitutional, since the Texas Constitution says occupation taxes have to be "equal and uniform" within a class.

The answer was yes. The "equal and uniform" rule does not force the legislature to tax every member of a broad profession identically. It has long been settled that the legislature can sort the people subject to an occupation tax into classes and tax the classes differently, as long as there is some rational basis for the lines it draws. Courts do not second-guess those choices unless a classification is clearly arbitrary, with no real difference to justify treating one group differently from another. The person challenging the tax carries the burden of showing there is no reasonable basis, and here no such showing was made.

Walking through the three features, each held up. Lawyers on inactive status cannot practice law in Texas at all, so they are not even part of the occupation the tax reaches; leaving them out is not discrimination within the taxed group, it is simply recognizing they are outside it. The exemption for lawyers over 70 rests on the reasonable assumption that, more often than not, attorneys past that age are no longer in active practice, so they are not in the same working circumstances as lawyers still building careers. And the proration rule just draws a sensible line in time: someone who can practice the whole tax year pays the full amount, while someone who only becomes eligible during the year pays for the months they are actually licensed. None of these is arbitrary, so the tax was constitutional.

Currency note

This opinion was issued in 1988. Later statutes, court decisions, and 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 mentioned here.

The tax this opinion addresses was temporary by its own terms and expired on May 31, 1990, so it is no longer collected. The page is useful today mainly for the durable constitutional principle it applies: under article VIII, section 2 of the Texas Constitution, the legislature has broad discretion to classify the subjects of an occupation tax, and such a classification survives an "equal and uniform" challenge whenever it rests on a rational basis rather than arbitrary line-drawing. Anyone researching a current occupation-tax question should confirm the present statutes and the latest case law rather than relying on the expired Tax Code provisions cited here.

Who this opinion affected (as of 1988)

Practicing attorneys: The opinion confirmed the temporary tax they owed was valid, and that the exemptions and proration were not grounds to escape it.

Older and inactive lawyers: It confirmed the exemptions for attorneys 70 and older and those on inactive status would stand.

Tax administrators and county attorneys: It gave them a clear answer that the tax could be enforced without a serious constitutional cloud over it.

Common questions

Doesn't "equal and uniform" mean everyone in a profession pays the same?
No. It means the tax must be equal and uniform within a class the legislature reasonably defines. The legislature can create classes and tax them differently as long as the lines have a rational basis.

Why were lawyers over 70 exempted?
Because it is reasonable to assume that attorneys past 70, more often than not, are no longer actively practicing, so they are not in the same occupational situation as lawyers still in full practice.

Why weren't inactive lawyers taxed?
Because they cannot practice law in Texas at all. They are outside the occupation the tax applies to, so exempting them is not unequal treatment within the taxed group.

Who decides whether a tax classification is fair?
Primarily the legislature. A court steps in only when a classification is clearly arbitrary, with no reasonable basis and no real difference to justify the separate treatment.

Background and statutory framework

The 70th Legislature enacted a temporary occupation tax on attorneys effective January 1, 1988 through May 31, 1990 (Acts 1987, 70th Leg., 2d C.S., ch. 5, art. IX, § 12, at 35; Tax Code sections 191.141 through 191.145). The tax applied to persons licensed to practice law in Texas (Tax Code section 191.141) but did not apply to an attorney who is 70 or older or one who has assumed inactive status under the rules governing attorney licensing (Tax Code section 191.144). The Tax Code also prorated the tax where a person is licensed, or resumes active status, after the beginning of the tax year (Tax Code section 191.143(b)).

The question was whether these provisions violated article VIII, section 2 of the Texas Constitution, which requires occupation taxes to be equal and uniform upon the same class of subjects within the taxing authority's limits. The courts have long held the constitution permits the legislature to levy occupation taxes based on classification schemes it establishes, so long as the legislation is not discriminatory between the same class; if there is a rational basis for the classification, the uniformity command is satisfied. The propriety of the classification is primarily within the legislature's discretion, and courts interfere only when it clearly appears there is no reasonable basis (Hurt v. Coover, 110 S.W.2d 896, 901 (Tex. 1937); see also Bullock v. ABC Interstate Theatres, Inc., 557 S.W.2d 337 (Tex. Civ. App. - Austin 1977, writ ref'd n.r.e.), cert. denied, 439 U.S. 894 (1978); Bank of Texas v. Childs, 615 S.W.2d 810, 815 (Tex. Civ. App. - Dallas 1981, writ ref'd n.r.e.), reversed sub nom. American Bank and Trust Co. v. Dallas County, 463 U.S. 855, reh'g denied, 463 U.S. 1250 (1983)). A tax classification also does not offend the Fourteenth Amendment's equal protection clause if it is founded on a reasonable distinction or difference in state policy (Kahn v. Shevin, 416 U.S. 351, 355 (1974)).

The Texas Supreme Court has treated the rule as beyond serious dispute (Texas Co. v. Stephens, 103 S.W. 481, 482, 485 (Tex. 1907)), explaining that the very language of the constitution implies power to classify the subjects of occupation taxes and only requires the tax to be equal and uniform upon the same class, so persons pursuing the same occupation may be divided into classes and taxed by different standards where there are reasonable grounds. Applying that framework, an occupation tax on amusement enterprises that varied the rate by type of amusement was upheld because the classes differed in their methods, places of operation, and the nature of the entertainment offered, and the challenger had not shown there was no real difference to justify the separate treatment (Dancetown, U.S.A., Inc. v. State, 439 S.W.2d 333, 337 (Tex. 1969); see also Fairmont Dallas Restaurants, Inc. v. McBeath, 618 S.W.2d 931 (Tex. Civ. App. - Waco 1981, no writ)).

Here the challenger suggested no reason the classifications were unreasonable, and rational explanations could be presumed (State v. Pioneer Oil and Refining Co., 292 S.W. 869 (Tex. Comm'n App. 1927, judgment adopt'd)). Inactive-status lawyers cannot engage in any activity constituting the occupation of an attorney (Gov't Code sections 81.052-81.053), so they are not even within the occupation group taxed. It is not irrational to assume that lawyers over 70, more often than not, do not actively practice, so they are not in the same occupational circumstances as lawyers whose careers are still in full blossom (cf. Massachusetts Board of Retirement v. Murgia, 427 U.S. 307 (1976) (classification distinguishing the elderly for conferring benefits and burdens has a rational basis under equal protection)). Finally, the proration provision draws a rational temporal distinction between taxpayers who practice for an entire tax year and those who may not lawfully practice at the year's start but become eligible during it. The classifications are therefore not arbitrary or unrelated to the actual division of lawyers into those who carry on the occupation and those who do not (State v. Humble Pipe Line Co., 247 S.W. 1082 (Tex. 1923)), and the statute is constitutional.

Citations

Statutory and constitutional authority:

• Tex. Const. article VIII, section 2 (occupation taxes equal and uniform)
• Tax Code sections 191.141-191.145 (temporary attorney occupation tax); section 191.143(b) (proration); section 191.144 (exemptions)
• Gov't Code sections 81.052-81.053 (active/inactive attorney status)
• U.S. Const. amendment XIV (equal protection)
• Acts 1987, 70th Leg., 2d C.S., ch. 5, art. IX, section 12, at 35

Cases:

• Texas Co. v. Stephens, 103 S.W. 481 (Tex. 1907) (Texas Supreme Court; legislature may classify occupation-tax subjects)
• Hurt v. Coover, 110 S.W.2d 896 (Tex. 1937) (Texas Supreme Court; rational-basis review of tax classifications)
• Dancetown, U.S.A., Inc. v. State, 439 S.W.2d 333 (Tex. 1969) (Texas Supreme Court; graduated amusement tax upheld)
• Bullock v. ABC Interstate Theatres, Inc., 557 S.W.2d 337 (Tex. Civ. App. - Austin 1977, writ ref'd n.r.e.), cert. denied, 439 U.S. 894 (1978) (Texas Court of Civil Appeals)
• Bank of Texas v. Childs, 615 S.W.2d 810 (Tex. Civ. App. - Dallas 1981, writ ref'd n.r.e.), reversed sub nom. American Bank and Trust Co. v. Dallas County, 463 U.S. 855 (1983) (Texas Court of Civil Appeals; later reversed by the U.S. Supreme Court on other grounds)
• Kahn v. Shevin, 416 U.S. 351 (1974); Massachusetts Board of Retirement v. Murgia, 427 U.S. 307 (1976) (U.S. Supreme Court; equal-protection rational basis)
• State v. Pioneer Oil and Refining Co., 292 S.W. 869 (Tex. Comm'n App. 1927, judgment adopt'd); State v. Humble Pipe Line Co., 247 S.W. 1082 (Tex. 1923) (Texas courts)

Prior Attorney General materials referenced: JM-399 (1985); C-46 (1963).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-913
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0913.pdf

Original opinion text

Best-effort transcription from a scanned PDF (pdftotext -layout). Minor OCR errors remain (for example, "S.W.Zd" for "S.W.2d", garbled case names corrected here against the reporters: Fairmont Dallas Restaurants v. McBeath, State v. Humble Pipe Line Co., Massachusetts Board of Retirement v. Murgia); the linked PDF is authoritative.

THE ATTORNEY GENERAL OF TEXAS

June 2, 1988

Honorable Toby C. Wilkinson
Hunt County Attorney
P. O. Box 1097
Greenville, Texas 75401

Opinion No. JM-913

Re: Constitutionality of temporary occupation tax on attorneys (RQ-1347)

Dear Mr. Wilkinson:

You ask whether a temporary occupation tax imposed on attorneys is constitutional. We conclude that it is.

The 70th Legislature enacted a temporary occupation tax on attorneys to be applied from January 1, 1988, until May 31, 1990. Acts 1987, 70th Leg., 2d C.S., ch. 5, art. IX, § 12 at 35; Tax Code, §§ 191.141 - 191.145. The tax is applicable to persons licensed to practice law in Texas, Tax Code, § 191.141, but it does not apply to:

(1) an attorney who is 70 years of age or older; or

(2) an attorney who has assumed inactive status under rules governing the licensing of attorneys.

Tax Code, § 191.144. Additionally, the Tax Code provides for the proration of the tax due in certain cases:

If a person is licensed to practice law after the beginning of the tax year [June 1 of one year through May 31 of the following year] or resumes active status to practice law after the beginning of the tax year, the person being licensed or resuming active status shall pay the tax imposed by this subchapter in proportion to the number of months for which he will be licensed during that tax year. If a person is licensed after the beginning of a calendar month, the month in which he is licensed shall count as a month for purposes of payment of taxes. . . .

Tax Code, § 191.143(b).[1]

You ask whether these provisions violate the requirement in article VIII, section 2, of the Texas Constitution that occupation taxes be "equal and uniform upon the same class of subjects within the limits of the authority levying the tax. . . ."

The courts have long concluded that the constitution permits the legislature to levy occupation taxes based on classification schemes established by that body, so long as the legislation is not discriminatory between the same or like classes. In other words, if there is a rational basis for the classification scheme selected by the legislature, the constitutional command that occupation taxes be uniform will be satisfied. The propriety of classification schemes selected is

primarily within the discretion of the Legislature; and . . . courts can interfere only when it is made clearly to appear that there is no reasonable basis for the attempted classification. If there is a reasonable basis or, to express it differently, it cannot be said that the Legislature acted arbitrarily, the courts will not interfere.

Hurt v. Coover, 110 S.W.2d 896, 901 (Tex. 1937). See also Bullock v. ABC Interstate Theatres, Inc., 557 S.W.2d 337 (Tex. Civ. App. - Austin 1977, writ ref'd n.r.e.), cert. denied, 439 U.S. 894 (1978), and Bank of Texas v. Childs, 615 S.W.2d 810, 815 (Tex. Civ. App. - Dallas 1981, writ ref'd n.r.e.), reversed sub nom. American Bank and Trust Co. v. Dallas County, 463 U.S. 855, reh'g denied, 463 U.S. 1250 (1983).[2]

In Attorney General Opinion C-46 (1963), it was held that:

The mere fact that discrimination is made in classifications for occupation taxes proves nothing against classification which is not on its face an arbitrary, unreasonable or unreal one.

The Texas Supreme Court has noted that this rule "has been stated so often as to render unnecessary any further discussion of it." Texas Co. v. Stephens, 103 S.W. 481, 482 (Tex. 1907). See also 54 Tex. Jur. 2d, Taxation, at section 29. The Texas Supreme Court has written:

The very language of the Constitution of the state implies power in the Legislature to classify the subjects of occupation taxes and only requires that the tax shall be equal and uniform upon the same class. Persons who, in the most general sense, may be regarded as pursuing the same occupation . . . may thus be divided into classes, and the classes may be taxed in different amounts and according to different standards. Merchants may be divided into wholesalers and retailers, and, if there be reasonable grounds, these may be further divided according to the particular classes of business in which they may engage. The considerations upon which such classifications shall be based are primarily within the discretion of the Legislature. The courts . . . can only interfere when it is [clear] that an attempted classification has no reasonable basis in the nature of the businesses classified, and that the law operates unequally upon subjects between which there is no real difference to justify the separate treatment of them undertaken by the Legislature. . . . (Emphasis added.)

Texas Co. v. Stephens, 103 S.W. 481, 485 (Tex. 1907). See also Dancetown, U.S.A., Inc. v. State, 439 S.W.2d 333 (Tex. 1969) and Fairmont Dallas Restaurants, Inc. v. McBeath, 618 S.W.2d 931 (Tex. Civ. App. - Waco 1981, no writ).

In Dancetown, supra, a taxpayer complained about a classification scheme in an occupation tax levied on certain amusement enterprises. The rate of tax differed based on the sort of amusement furnished. The taxpayer argued that an "amusement" is an "amusement," and that there was no rational basis for varying the rate of tax by classifying, for example, the amusement provided by operas differently from that obtained from dance halls or animal contests. The court, after citing the language in Texas Co. v. Stephens, noted that:

The members of each class into which the amusement business is now divided obviously differ from the members of every other class in their methods and places of operation and in the nature of the entertainment generally offered. Each class seems to embrace every enterprise that should reasonably be included in the same category. Since appellants have not demonstrated by proof or otherwise that 'there is no real difference to justify the separate treatment undertaken by the Legislature,' we cannot say on the present record that the classification is so arbitrary and unreasonable as to render the statutes unconstitutional.

439 S.W.2d 333, 337 (quoting Texas Co. v. Stephens, 103 S.W. 481, 485).

You have not suggested any reason why the classifications chosen by the legislature in this statute might be unreasonable, and we believe that rational explanations for the choices made by the legislature can be presumed. We conclude that a court would find that the legislature has divided the broad categories of lawyers into reasonably drawn classifications which distinguish between persons who do not in fact pursue the occupation of an attorney and those who do. See, e.g., State v. Pioneer Oil and Refining Co., 292 S.W. 869 (Tex. Comm'n App. 1927, judgment adopt'd).

Thus, a rational basis can be perceived for the classification schemes selected by the legislature here. First, lawyers who are in an inactive status under the statute governing the status of attorneys cannot engage in any activities in Texas which will constitute the occupation of being an attorney at law. Gov't Code, §§ 81.052-81.053. Thus, they are not even within the occupation group to which the tax applies, absent any question about classifications of that group. Second, it is not irrational to assume that lawyers over the age of 70, more often than not, do not actively engage in the practice of law, and it is reasonable to assume that in the main, attorneys in that classification are not in the same occupational circumstances as lawyers whose careers are still in full blossom. Texas Co. v. Stephens, supra; see also Kahn v. Shevin, 416 U.S. 351 (1974). Compare Massachusetts Board of Retirement v. Murgia, 427 U.S. 307 (1976) (legislative classification distinguishing the elderly from the non-elderly population for the purpose of conferring benefits and burdens has a rational basis and thus is permissible under the equal protection clause of the Constitution). Finally, the proration provision merely makes a rational temporal distinction between taxpayers who practice the occupation subject to the tax for an entire tax year (lawyers on active status under the statute governing the practice of law, see Government Code §§ 81.052-81.053) and taxpayers who may not lawfully practice the occupation at the beginning of the tax year, but who become eligible to carry on the occupation during the year.

Thus, the classifications cannot be said to be arbitrary, or without relation to the actual division of lawyers into those who carry on the occupation of attorney in Texas, and those who do not. State v. Humble Pipe Line Co., 247 S.W. 1082 (Tex. 1923). Accordingly, the statute under consideration here is constitutional.

SUMMARY

A classification scheme specified by the legislature, levying a temporary occupation tax on attorneys according to section 191 of the Tax Code, does not violate the "equal and uniform" rule of article VIII, section 2 of the Texas Constitution unless the classes devised by the legislature clearly appear to be arbitrary and unreasonable.

Very truly yours,

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 Don Bustion
Assistant Attorney General

[1] The legislature may provide for the pro rata payment of taxes. See generally Attorney General Opinion JM-399 (1985).

[2] A classification scheme employed by a state in a tax law will not offend the equal protection clause of the Fourteenth Amendment to the United States Constitution if it is founded on a reasonable distinction or difference in state policy. Kahn v. Shevin, 416 U.S. 351, 355 (1974).