Who owns the interest an appraisal district earns while holding a county's tax money?

Plain-English summary

The Hood County Attorney asked the AG three questions about money an appraisal district handles for the county. Since 1985, Hood County had contracted with its local appraisal district, under Tax Code section 6.24, to collect the county's property taxes. Under that contract, the appraisal district deposited the collected taxes with the county at least twice a month, and between deposits it held the taxes in an interest-bearing account and kept the interest. The contract said nothing about who owns that interest, and the county could find no statute directing how the interest should be distributed. So the county attorney asked who owns the interest, whether the appraisal district must account for and remit past interest, and whether the tax assessor-collector is personally liable for funds the appraisal district holds.

The AG concluded the interest belongs to the county. Taxes a county collects are normally deposited in the county depository, and the Local Government Code provides that interest accruing on money in a county fund is for the county's benefit. That tracks the common-law rule that interest follows the principal: interest is an increment that accrues to the fund earning it. The fact that the appraisal district collects the taxes on the county's behalf, so the money may temporarily sit elsewhere before reaching the county depository, does not change the character of the interest as belonging to the county. So the interest on county taxes the appraisal district collects belongs to the county and must generally be remitted to it.

On the second question, the AG explained that how past interest is accounted for and remitted may depend on the interlocal contract. An interlocal contract must state the purpose, terms, rights, and duties of the parties, and payment for services must come from current revenues and fairly compensate the performing party. The AG noted that a prior opinion allowed such a contract to fold certain fees a taxing unit would otherwise be entitled to into the appraisal district's compensation, if clearly expressed. By the same logic, a commissioners court would have discretion to designate the interest on collected taxes as part or all of the appraisal district's compensation under the contract. So accounting for and remitting funds from a particular tax year would depend at least in part on the contract terms in place at the time.

On the third question, about personal liability, the AG pointed out that the Tax Code shields a tax assessor-collector from personal liability for loss of public funds in the custody of the assessor-collector's office when a declaratory judgment establishes the loss was not from negligence or misconduct, but that protection is keyed to funds in the assessor-collector's custody, which is not where the funds are when collection duties have been transferred to the appraisal district. The Local Government Code also relieves the assessor-collector once tax funds are deposited in the county depository, but the dispute here is about the interest, a separate item of money. The AG had previously declined to speculate on an assessor-collector's liability for losses while functions are transferred to an appraisal district, and it again concluded that personal liability is a fact question it could not resolve, so it refrained from answering that question.

Currency note

This opinion was issued in 2016. 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 Tax Code, Local Government Code, and Interlocal Cooperation Act provisions cited here may have been amended since 2016, so confirm the current statutes before relying on these specifics.

What the opinion meant for those who asked

The county attorney and Hood County (as the opinion described it): The opinion told the county that the interest the appraisal district earned on county taxes belongs to the county and must generally be remitted, while explaining that how past interest is accounted for and remitted depends in part on the interlocal contract, which the commissioners court can use to designate the interest as part of the district's compensation.

Appraisal districts collecting taxes under a section 6.24(b) contract (as the opinion described it): The opinion described the interest on collected county taxes as the county's, subject to the contract terms, and noted a commissioners court could agree by contract to let the district keep the interest as compensation if that was clearly expressed.

County tax assessor-collectors (as the opinion described it): The opinion declined to decide whether an assessor-collector is personally liable for funds the appraisal district holds, describing that as a fact question, while noting the statutory protections are tied to funds in the assessor-collector's own custody or once deposited in the county depository.

Common questions

Who owns the interest an appraisal district earns holding a county's tax money?
The county, under this opinion. The AG applied the rule that interest follows the principal and the Local Government Code rule that interest on county money is for the county's benefit, so the interest must generally be remitted to the county.

Does the appraisal district have to pay back past interest it kept?
The AG said the interest belongs to the county, but how past interest is accounted for and remitted depends in part on the terms of the interlocal contract in place for the relevant tax years.

Can the county let the appraisal district keep the interest?
Under the opinion, a commissioners court has discretion to designate the interest as part or all of the appraisal district's compensation in the interlocal contract, if that is clearly expressed.

Is the tax assessor-collector personally liable for money the appraisal district holds?
The AG declined to answer, calling it a fact question dependent on circumstances that cannot be resolved in the opinion process.

Background and statutory framework

Tax Code section 6.24(b) lets a commissioners court, with the county tax assessor-collector's approval, contract under the Interlocal Cooperation Act with the appraisal district to perform the county's tax assessment or collection duties (Tex. Tax Code § 6.24(b); Tex. Gov't Code §§ 791.001-.036). Taxes a county collects are normally deposited in the county depository, with the assessor-collector directed to deposit collected taxes promptly and at least monthly (Tex. Loc. Gov't Code § 116.113(b); Tex. Tax Code § 31.10(c)). Interest accruing on money in a county fund is for the county's benefit (Tex. Loc. Gov't Code § 113.021(c)), consistent with the common-law rule that interest follows the principal (Sellers v. Harris Cty., 483 S.W.2d 242, 243 (Tex. 1972); City of Pearland v. Reliant Energy Entex, 62 S.W.3d 253, 256 (Tex. App.-Houston [14th Dist.] 2001, pet. denied)).

An interlocal contract must state the purpose, terms, rights, and duties of the parties, be authorized by each party's governing body, and provide that payments for services come from current revenues in an amount that fairly compensates the performing party (Tex. Gov't Code § 791.011(d), (e)). A prior opinion concluded that such a contract may, if clearly expressed, include certain fees a taxing unit would otherwise be entitled to as part of the appraisal district's compensation, supporting the conclusion that a commissioners court may designate the interest as compensation. Written reports accounting for collected taxes are generally submitted to the governing body monthly and annually (Tex. Tax Code § 31.10(a)-(b)).

The Tax Code shields a tax assessor-collector from personal liability for loss of public funds in the custody of the assessor-collector's office when a declaratory judgment establishes the loss was not from negligence or misconduct, but that protection is keyed to funds in the assessor-collector's custody, not funds held by the appraisal district after collection duties are transferred under section 6.24(b) (Tex. Tax Code § 6.275). The Local Government Code relieves the assessor-collector and any surety once tax funds are deposited in the county depository, but the dispute here concerns interest, a separate item of money (Tex. Loc. Gov't Code § 113.006). Whether the assessor-collector could be held personally liable for funds held by the appraisal district is a fact question the AG declined to resolve.

Citations

Statutory provisions:

• Tex. Tax Code § 6.24(b) (contract with appraisal district for collection)
• Tex. Tax Code § 31.10(a)-(c) (deposit and reporting of collected taxes)
• Tex. Tax Code § 6.275 (assessor-collector liability shield)
• Tex. Loc. Gov't Code § 116.113(b) (deposit of taxes in county depository)
• Tex. Loc. Gov't Code § 113.021(c) (interest for the county's benefit)
• Tex. Loc. Gov't Code § 113.006 (assessor-collector relieved after deposit)
• Tex. Gov't Code §§ 791.001-.036 (Interlocal Cooperation Act)
• Tex. Gov't Code § 791.011(d), (e) (required interlocal contract terms)

Cases:

• Sellers v. Harris Cty., 483 S.W.2d 242 (Tex. 1972)
• City of Pearland v. Reliant Energy Entex, 62 S.W.3d 253 (Tex. App.-Houston [14th Dist.] 2001, pet. denied)

Texas Attorney General opinions:

• Tex. Att'y Gen. Op. Nos. GA-0030 (2003), KP-0020 (2015); Tex. Att'y Gen. LO-97-041, LO-92-22

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0092
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2016/kp0092.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

May 27, 2016

The Honorable Lori J. Kaspar Opinion No. KP-0092
Hood County Attorney
1200 West Pearl Street Re: Ownership of interest earned on county
Granbury, Texas 76048 taxes held by the appraisal district (RQ-0080-KP)

Dear Ms. Kaspar:

     You ask three questions "concerning interest earned by the appraisal district on county tax money and the liability of the tax assessor-collector for that money." [1] You tell us that "Hood County has contracted with the local appraisal district to collect property taxes since 1985" pursuant to Tax Code section 6.24. Request Letter at 1. That provision allows a commissioners court, with the approval of the county tax assessor-collector, to "contract as provided by the Interlocal Cooperation Act with the ... appraisal district for ... the district to perform duties relating to the assessment or collection of taxes for the county." TEX. TAX CODE § 6.24(b); see also TEX. GOV'T CODE §§ 791.001-.036 (Interlocal Cooperation Act). You explain that "[u]nder the terms of the current contract, the appraisal district deposits the taxes with the county at least two times per month." Request Letter at 1. You also state that "[b]etween deposits, the appraisal district holds the taxes in an interest-bearing account" and that "[t]he appraisal district keeps the interest earned on the taxes." Id. You tell us, however, that the contract does not address ownership of the interest. Brief at 1. You explain that the county "can find no laws dictating the distribution of interest earned on county tax money." Request Letter at 1. With that background, you ask the following questions:

             (1) Does the interest earned on county taxes held by the appraisal district belong to the county, the tax assessor-collector, or the appraisal district?

             (2) If the interest money belongs to either the county or the county tax assessor-collector, must the appraisal district account for and remit all of the past interest it has collected on county taxes?

             (3) When a county contracts with an appraisal district to collect its taxes and the appraisal district holds those taxes for a period of time before depositing the funds with the county, is the tax assessor-collector personally liable for funds being held by the appraisal district?

Id.

    Taxes collected on behalf of the county by the tax assessor-collector are normally deposited in the county depository. See TEX. LOC. GOV'T CODE § 116.113(b) (directing the assessor-collector to "immediately deposit" collected taxes in the county depository); TEX. TAX CODE § 31.10(c) (providing generally that the collector for a taxing unit shall deposit collected taxes into the unit's depository "at least monthly"). With regard to funds belonging to a county that are placed in the county depository, generally "[t]he interest accruing on the money in the fund is for the benefit of the county." TEX. LOC. GOV'T CODE § 113.021(c). The fact that the appraisal district is collecting the taxes on behalf of the tax assessor-collector, raising the possibility that collected taxes may temporarily reside elsewhere pending deposit in the county depository, does not change the character of the interest as belonging to the county. This comports with the general rule under common law that interest follows principal. See Sellers v. Harris Cty., 483 S.W.2d 242, 243 (Tex. 1972) (stating that "interest ... is an increment that accrues" to the principal fund earning it); City of Pearland v. Reliant Energy Entex, 62 S.W.3d 253, 256 (Tex. App.-Houston [14th Dist.] 2001, pet. denied) ("It is well settled in Texas that interest follows principal." (internal quotation marks omitted)). Thus, the interest on county taxes collected by the appraisal district belongs to the county and, as such, must generally be remitted to the county.

     Yet, the remittance of the past interest collected on county taxes may depend on how the parties have articulated their respective responsibilities in the interlocal contract. [2] See TEX. GOV'T CODE § 791.011(d)(2) (stating that "[a]n interlocal contract must ... state the purpose, terms, rights, and duties of the contracting parties"). For example, in an interlocal contract, payments for services or functions rendered must come from current revenues and "must be in an amount that fairly compensates the performing party." Id. § 791.011(d)(3), (e); see also Tex. Att'y Gen. Op. No. GA-0030 (2003) at 2 ("When an appraisal district assesses or collects taxes for a taxing unit, it will be fully compensated under the contract by the taxing unit for which it performs the work."). This office has previously concluded that such an arrangement between a taxing unit and an appraisal district for the collection of taxes may, if clearly expressed, include certain fees to which the taxing unit would otherwise be entitled as part of the appraisal district's compensation. Tex. Att'y Gen. LO-97-041, at 3-4. Similarly, a commissioners court would have discretion to designate the interest on the collected taxes as part or all of the compensation to be paid to the appraisal district for its performance under the interlocal contract. See TEX. GOV'T CODE § 791.011(d)(1) (an interlocal contract "must ... be authorized by the governing body of each party to the contract"). Thus, the accounting and remittance of funds belonging to the county from a particular tax year would depend at least in part on the terms of any interlocal contract then in place.

    You assert that the tax assessor-collector remains personally liable for any funds held by the appraisal district until they are deposited in the county treasury. Brief at 7-8. Under the Tax Code, a tax assessor-collector "is not personally liable for the loss of public funds in the custody of the assessor-collector or the assessor-collector's office" if there is a declaratory judgment that the loss was due to something other than the assessor-collector's negligence or misconduct. TEX. TAX CODE § 6.275. But the law applies to funds "in the custody of" the tax assessor-collector's office, which is not where the funds are held when assessment and collection duties are transferred to the appraisal district pursuant to subsection 6.24(b). Id.; see also id. § 6.24(b). The Local Government Code provides that once "funds collected from taxes" are deposited in the county depository, a county tax assessor-collector and any surety on his or her bond are "relieved of responsibility" for the funds' safekeeping. TEX. LOC. GOV'T CODE § 113.006. But here, the controversy is not about the "funds collected from taxes"; it is about the interest earned on those taxes, which is a separate item of money.

    This office has previously declined to speculate on whether a tax assessor-collector whose functions had been transferred to an appraisal district under section 6.24(b) could be held personally liable for the loss of public funds if the appraisal district was negligent or engaged in misconduct. See Tex. Att'y Gen. LO-92-22, at 2 ("Whether the tax assessor could ever be held liable for actions of the appraisal district could depend on the factual circumstances of the particular events which give rise to potential liability and possibly on the terms of the contract as well."). Likewise here, the personal liability of the tax assessor-collector for funds held in the custody of the appraisal district is ultimately a question of fact, dependent on various factors that cannot be ascertained in the opinion process of this office. See Tex. Att'y Gen. Op. No. KP-0020 (2015) at 2. Thus, we refrain from answering your last question.

                                  SUMMARY

          Interest earned on county taxes collected by an appraisal district pursuant to a contract under subsection 6.24(b) of the Tax Code belongs to the county and, as such, must generally be remitted to the county.

          The accounting and remittance of funds belonging to the county from a particular tax year would depend at least in part on the terms of any contract entered into pursuant to subsection 6.24(b) then in place.

          The personal liability of the tax assessor-collector for funds held in the custody of the appraisal district is ultimately a question of fact, dependent on various factors that cannot be ascertained in the opinion process of this office.

                                         Very truly yours,

                                         KEN PAXTON
                                         Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

BECKY P. CASARES
Assistant Attorney General, Opinion Committee