Is a Texas county school equalization tax an unconstitutional state property tax?

Plain-English summary

Micheal Jimerson, the Rusk County and district attorney, asked the AG whether the Rusk County school district tax runs afoul of article VIII, section 1-e of the Texas Constitution, which bars state ad valorem (property) taxes. His concern was that the Rusk County School Board, which performs no educational duties, levies a tax whose proceeds are distributed to school districts based on student attendance, and some of those districts cross county lines so the money effectively subsidizes another county's school rates. He argued this looked just like the county education districts the Texas Supreme Court declared unconstitutional in 1992 in the Carrollton-Farmers Branch Independent School District v. Edgewood Independent School District decision, known as Edgewood III.

The AG's answer hinged on identifying what actually made the Edgewood III tax unconstitutional. There, the Legislature created county education districts that employed no teachers and educated no children; their only job was to levy a property tax to even out funding disparities. The Legislature required the tax, effectively set the rate, and directed how the proceeds were distributed. The Court said that when the State mandates a tax, sets the rate, and prescribes the distribution, the tax is a state tax, calling the districts "mere puppets" with the State "pulling all the strings." The constitutional line, in other words, is about state control and the absence of meaningful local discretion, not about whether the taxing body teaches children and not about whether money crosses a county line.

Applying that standard, the AG looked at the Rusk County tax, a local county equalization tax governed by former chapter 18 of the Education Code (repealed in 1995 but still operative for districts that were operating under it on May 1, 1995). Chapter 18 sets a maximum rate but does not fix the actual rate; it leaves the rate to the managing trustees of the countywide school district. Imposing the tax is itself discretionary. While the Legislature did establish a formula for distributing the proceeds, the overall scheme leaves the board real discretion over whether to levy the tax and at what rate. The AG concluded that, to the extent chapter 18 gives the board meaningful discretion to levy, set the rate, and provide for disbursement, a court would likely find the county equalization tax does not violate article VIII, section 1-e. The AG added that some might reasonably question the wisdom of layering a county equalization tax on top of district taxes, but that is a policy question, not a constitutional defect.

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. This opinion turned on a repealed statute (former chapter 18 of the Education Code) with continued application only for certain districts, and on school-finance case law that continues to develop, so confirm the current law and the specific district's status before relying on anything here.

What the opinion meant for those who asked

The requesting county and district attorney (as the opinion described it): The opinion answered that the Rusk County equalization tax is likely not an unconstitutional state ad valorem tax. It corrected the framing of the question, explaining that neither the absence of educational duties nor the cross-county use of proceeds was the constitutional standard from Edgewood III, and that the real test is whether the State so controls the tax that the local board lacks meaningful discretion.

The county school board operating the tax (as the opinion described it): The opinion described former chapter 18 as leaving the board meaningful discretion: the decision to impose the tax is discretionary, and the managing trustees set the actual rate within a statutory maximum. On that basis the opinion concluded a court would likely uphold the tax against an article VIII, section 1-e challenge, while noting the distribution formula is fixed by statute.

County taxpayers (as the opinion described it): The opinion treated the tax as likely constitutional, while acknowledging that reasonable people might question the policy of imposing a county equalization tax in addition to district taxes. It framed that as a question of wisdom for the political process, not a basis to strike the tax down.

Common questions

Is a Texas county school equalization tax an illegal "state tax"?
As the opinion read the law, probably not. The AG concluded that a county equalization tax under former chapter 18 of the Education Code likely does not violate the constitutional ban on state ad valorem taxes, because the local board retains meaningful discretion over whether to levy the tax and at what rate.

Why was the Edgewood III tax unconstitutional but this one probably is not?
The opinion explained that the Edgewood III county education districts were required to levy the tax, had the rate effectively set for them, and had the distribution prescribed by the State, leaving them no meaningful discretion. The county equalization tax, by contrast, is discretionary to impose and leaves rate-setting to the local trustees within a maximum.

Does it matter that the school board doesn't actually teach anyone?
No, under the opinion. The AG was explicit that performing educational duties versus only taxing functions is not the standard for an article VIII, section 1-e violation. The standard is the degree of State control over the levy, assessment, and disbursement of the tax.

Does it matter that the money helps schools in a neighboring county?
The opinion said the cross-county use of proceeds was not the constitutional infirmity in Edgewood III, and chapter 18 itself contemplates county-line districts receiving an apportionment. So the cross-county element did not, by itself, make the tax unconstitutional.

Background and statutory framework

Article VIII, section 1-e of the Texas Constitution provides that no State ad valorem taxes shall be levied upon any property within the State (Tex. Const. art. VIII, § 1-e). In Carrollton-Farmers Branch Independent School District v. Edgewood Independent School District (Edgewood III), the Texas Supreme Court held that ad valorem taxation by county education districts, which employed no teachers, provided no classrooms, and educated no children, violated that provision because the Legislature required the tax, effectively set the rate, and prescribed the distribution; the Court held that an ad valorem tax is a state tax when the State so completely controls the levy, assessment, and disbursement of revenue that the authority employed is without meaningful discretion (Carrollton-Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489, 498, 500-02 (Tex. 1992)). The county education districts had been created after the Court's earlier decision invalidating the prior school finance system (Edgewood Indep. Sch. Dist. v. Kirby, 804 S.W.2d 491 (Tex. 1991)).

The Rusk County tax is a local county equalization tax governed by former chapter 18 of the Education Code, which authorized a countywide equalization tax for the maintenance of public schools and validated actions previously taken to establish such funds (Tex. Educ. Code, tit. 2, app. §§ 18.01, 18.02(a)). Chapter 18 was repealed in 1995, but a school district or county system operating under it on May 1, 1995, may continue to operate under the chapter as it existed on that date (Tex. Educ. Code § 11.301). Chapter 18 set a maximum rate but left the actual rate to the managing trustees, made imposition of the tax discretionary, and established a distribution formula based on average daily attendance, with county-line districts eligible for a per-capita apportionment (Tex. Educ. Code, tit. 2, app. §§ 18.03(b), 18.12(a), 18.14(a)-(c), 18.25(a)). The voters of Rusk County approved the tax at an election in 1940.

Citations

Constitutional and statutory provisions:

• Tex. Const. art. VIII, § 1-e (no state ad valorem taxes)
• Tex. Const. art. VII, § 3 (school-district ad valorem tax must be approved by voters)
• Tex. Educ. Code, tit. 2, app. §§ 18.01, 18.02(a), 18.03(b), 18.12(a), 18.14(a)-(c), 18.25(a) (former chapter 18, county equalization tax)
• Tex. Educ. Code § 11.301 (continued application of repealed chapters)

Cases:

• Carrollton-Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489 (Tex. 1992)
• Edgewood Indep. Sch. Dist. v. Kirby, 804 S.W.2d 491 (Tex. 1991)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0101
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2016/kp0101.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

July 6, 2016

The Honorable Micheal E. Jimerson Opinion No. KP-0101
Rusk County and District Attorney
115 North Main Street, Suite 302 Re: Whether the Rusk County school district
Henderson, Texas 75652 tax violates article VIII, section 1-e of the
Texas Constitution (RQ-0090-KP)

Dear Mr. Jimerson:

     You ask whether it is problematic under article VIII, section 1-e that tax proceeds are being used to support an independent school district that serves students in a neighboring county. [1] You tell us that the Rusk County School Board ("school board"), like the county education districts considered in the Carrollton-Farmers Branch Independent School District v. Edgewood Independent School District opinion, performs no educational duties. See Request Letter at 1; see also Carrollton-Farmers Branch Indep. Sch. Dist. v. Edgewood Indep. Sch. Dist., 826 S.W.2d 489, 498 (Tex. 1992) (Edgewood III). You suggest that because "there are school districts that cross county lines, resulting in the tax being used to subsidize another county's rates[,] there is no distinction to a Rusk County citizen between this system and the system [p]ronounced [u]nconstitutional by the Texas Supreme Court." Request Letter at 1. You inform us the tax was approved by the voters at an election in 1940. See id. You also inform us that the school board's distribution of the tax proceeds to the school districts in Rusk County is determined by student attendance at each school. See id. You state that some of the school districts "overlap with other counties and serve students from both counties," and that the funds are not limited to only the county from which they were collected. See id. 1-2. You liken the school board to a county education district that the Texas Supreme Court held unconstitutional in 1992 in its Edgewood III opinion. See id. at 1.

     In Edgewood III, the Texas Supreme Court considered a challenge to the State's school financing system under several provisions of the Texas Constitution. See Edgewood III, 826 S.W.2d at 493. One provision, article VIII, section 1-e, provides that "[n]o State ad valorem taxes shall be levied upon any property within this State." TEX. CONST. art. VIII, § 1-e. At issue in Edgewood III was ad valorem taxation by county education districts. See Edgewood III, 826 S.W.2d at 498. The Legislature created county education districts in response to the Texas Supreme Court's holding the prior system of school financing unconstitutional. See id.; see also Edgewood Indep. Sch. Dist. v. Kirby, 804 S.W.2d 491 (Tex. 1991) ("Edgewood II"). These county education districts had no educational duties. Edgewood III, 826 S.W.2d at 498 ("They employ no teachers, provide no classrooms, and educate no children."). Instead, they were created to "ameliorate disparities among school districts due to local property wealth." Id. Their function was to levy an ad valorem tax to supplement the local funding required under the school financing system. See id. Not only did the Legislature require that the county education district levy an ad valorem tax, it also effectively established the tax rate. See id. at 498, 500. Similarly, the Legislature directed the distribution of the tax proceeds. See id. at 498-99. These facts led the Court to state that "[i]f the State mandates that a tax be levied, sets the rate, and prescribes the distribution of the proceeds, the tax is a state tax." Id. at 500. Thus, the Court said of article VIII, section 1-e that "[a]n ad valorem tax is a state tax when it is imposed directly by the State or when the State so completely controls the levy, assessment, and disbursement of revenue, either directly or indirectly, that the authority employed is without meaningful discretion." Id. at 501-02 (stating that county education districts "are mere puppets; the State is pulling all the strings"); see also id. at 503-07 (concluding the tax, imposed without an election, also violated Texas Constitution article VII, section 3, which requires an ad valorem tax imposed by a school district to be approved by the electorate).

    The tax you describe is a local county equalization tax governed by former chapter 18 of the Texas Education Code, not a statewide tax. [2] See generally Request Letter at 1-2 (including former chapter 18 of the Education Code as an attachment to the Request Letter). Chapter 18 authorizes the creation and levy of a "countywide equalization tax for the maintenance of the public schools." TEX. EDUC. CODE, tit. 2, app. § 18.01; see also id., tit. 2, app. § 18.02(a) (validating "[a]ll actions heretofore taken in establishing in any county a countywide equalization fund"). Chapter 18 was repealed in 1995, but a school district or county system operating thereunder on May 1, 1995, "may continue to operate under the applicable chapter as that chapter existed on that date." TEX. EDUC. CODE § 11.301; see also id., tit. 2, app. §§ 18.01-.30. In chapter 18, the Legislature established a maximum rate for a countywide equalization tax. See id., tit. 2, app. § 18.12(a). The Legislature also provided for the distribution of the proceeds of the equalization tax. See id., tit. 2, app. § 18.14(a)-(c) (requiring that funds shall be distributed to the school districts of the county "on the basis of the average daily attendance" and providing that a "county-line district shall be eligible to receive its per capita apportionment based upon the number of scholastic pupils residing in the county of the equalization district").

    The use of tax proceeds for the support of a school district that overlaps into another county was not the constitutional infirmity of county education districts in Edgewood III. See generally Edgewood III, 826 S.W.2d at 500-14 (discussing constitutional challenges). Moreover, under Edgewood III, the performance of educational duties versus taxing functions is not the standard by which to find a violation of article VIII, section 1-e. See id. Rather, the standard for article VIII, section 1-e is whether the State so controls the levy, assessment, and disbursement of revenue that the tax is essentially directed by the State such that the taxing entity has no meaningful discretion with respect to the tax. See id. at 502. Certainly, under former chapter 18, the Legislature established the formula for the use of the tax proceeds for the school districts of the county and thus could be seen as directing the disbursement of the funds. See TEX. EDUC. CODE, tit. 2, app. § 18.14. Yet, the imposition of a county equalization tax is discretionary. See id., tit. 2, app. § 18.03(b) (providing that countywide school district "may ... exercise in and for the ... county ... the tax power conferred" by the Texas Constitution (emphasis added)). And though former chapter 18 sets a maximum tax rate, it does not affirmatively establish the actual rate to be imposed. Instead, it gives discretion to the managing trustees of the countywide school district to determine the tax rate. See id., tit. 2, app. § 18.25(a). It is not apparent that the Legislature controls a county equalization tax to the same extent it controlled the county education district tax in Edgewood III. Some may validly question the wisdom of imposing a county equalization tax in addition to those imposed by a school district. However, to the extent chapter 18 provides the school board with meaningful discretion to levy, set the rate, and provide for the disbursement of the equalization tax, a court is likely to determine that the county equalization tax does not violate article VIII, section 1-e of the Texas Constitution.

[1] See Letter from Honorable Micheal E. Jimerson, Rusk Cty. & Dist. Att'y, to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (Jan. 7, 2016), https://www.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[2] See Act of June 2, 1969, 61st Leg., R.S., ch. 889, §§ 18.01-.30, 1969 Tex. Gen. Laws 2735, 2848-56, repealed by Act of May 27, 1995, 74th Leg., R.S., ch. 260, § 58, 1995 Tex. Gen. Laws 2207, 2498, reprinted in TEX. EDUC. CODE, tit. 2, app. (Title 2-Appendix-Former Chapters with Continued Application).

                                 SUMMARY

                   In Carrollton-Farmers Branch Independent School District
          v. Edgewood Independent School District, the Texas Supreme Court
          determined that an ad valorem tax imposed by county education
          districts was unconstitutional under article VIII, section 1-e of the
          Texas Constitution because the levy, assessment, and disbursement
          of revenue was so directed by the State that the tax amounted to a
          state ad valorem tax. A county equalization tax under former chapter
          18 of the Education Code appears to provide a county school board
          operating thereunder meaningful discretion with regard to the tax
          such that a court could determine that the tax is not similarly
          constitutionally infirm under article VIII, section 1-e.

                                        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

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee