Did FDIC or RTC involvement make separately organized operating properties exempt from Texas sales and hotel occupancy taxes?

Plain-English summary

The Comptroller's General Counsel addressed operating properties that had passed into FDIC or Resolution Trust Corporation possession after failed Texas banks or savings and loans were taken over.

The letter acknowledged federal constitutional immunity when a tax falls directly on the United States or an agency or instrumentality so closely connected that it cannot realistically be treated as separate. It concluded, however, that the builder, apartment-management company, motel, and apartment complex at issue were separate private legal entities, not federal instrumentalities. They remained liable for Texas taxes on continuing operations just as before FDIC or RTC involvement.

For the motel, hotel occupancy tax fell on the person paying for the room. The owner or operator collected and remitted it, so the letter found no federal-government burden that would create immunity. An attached August 15 response likewise said the RTC's income exemption under Section 219 of the Financial Institutions Reform Act did not apply to tax collected from hotel occupants.

For sales tax, the operating companies remained responsible for collecting tax on taxable sales and paying tax on taxable goods and services they bought and used. The General Counsel asked the FDIC and RTC to identify any facts or legal authority that made the four properties different from the many other properties they controlled.

What this means for you

Federal receivership or ownership involvement did not by itself convert a separate operating company into a federally immune instrumentality. The legal incidence of each tax and the identity of the actual taxpayer remained central.

Common questions

Were the operating properties treated as federal instrumentalities? No.

Did the motel stop collecting hotel occupancy tax? No; the tax was imposed on room occupants and collected by the operator.

Did FDIC or RTC involvement erase sales-tax duties? No, not for the separate operating companies described.

Citations and references

• U.S. Constitution, Article VI, clause 2 — Supremacy Clause
• United States v. New Mexico, 455 U.S. 720 (1982)
• Mayo v. United States, 319 U.S. 441 (1943)
• Washington v. United States, 460 U.S. 536 (1983)
• California State Board of Equalization v. Sierra Summit, Inc., 109 S. Ct. 2228 (1989)
• 28 U.S.C. § 960
• Texas Tax Code Chapter 156 and § 156.051(a) — hotel occupancy tax
• Financial Institutions Reform Act of 1989 § 219

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9009L1067C04

Original ruling text

September 18, 1990

Regional Tax Accountant
Resolution Trust Corporation
1910 Pacific Avenue, Suite 1800
Dallas, Texas 75201

Regional Tax Accountant
Federal Deposit Insurance Corporation
1910 Pacific Avenue Suite 1800
Dallas, Texas 75261

Gentlemen:

This is to follow-up on a conversation with **, Senior Accountant,
RTC, about Texas state taxes on operating properties which passed into RTC or
FDIC possession because they were partly or wholly owned by failed Texas
banking or savings and loan institutions taken over by the RTC or FDIC.

There must be hundreds of such properties. However, there seem to be only a
handful that the FDIC/RTC are claiming which are exempt from Texas taxes:
COMPANY A (a CITY B builder), MANAGEMENT COMPANY G. (an CITY C apartment
management company), COMPANY D (an CITY C motel), and an unidentified CITY B
apartment complex in which the failed savings and loan institution was a joint
venture partner. Correspondence related to these properties is attached.

The Comptroller is well aware of the constitutional immunity of the United
States and its instrumentalities from state taxation. See United States v. New
Mexico, 455 U.S. 720; 102 S.Ct. 1373; and 71 L.Ed.2d 580, 591, 592 (1982), as
follows:

The one constant here, of course, is simple enough to express: a State may not,
consistent with the Supremacy Clause, U.S. Const., Art. VI, cl. 2, lay a tax
"directly upon the United States." Mayo v. United States, 319 U.S. 441, 447; 87
L.Ed. 1504; 63 S.Ct. 1137; 147 ALR 761 (1943) ...

But the limits on the immunity doctrine are, for present purposes, as
significant as the rules itself. Thus, immunity may not be conferred simply
because the tax has an effect on the United States, or even because the Federal
Government shoulders the entire economic burden of the levy.... Indeed,
immunity cannot be conferred simply because the tax is paid with Government
funds; ...

What the Court's cases leave room for, then, is the conclusion that tax
immunity is appropriate in only one circumstance: when the levy falls on the
United States itself, or on any agency or instrumentality so closely connected
to the Government that the two cannot realistically be viewed as separate
entities ...

See similarly, Washington v. United States, 460 U.S. 536, 103 S.Ct. 1344, 75 L.
Ed.2d 264 (1983), holding that imposition of state sales tax on federal
contractors did not violate the supremacy clause of the United States
Constitution and California State Board of Equalization v. Sierra Summit, Inc.,
109 S.Ct. 2228, 104 L.Ed.2d 910 (1989), holding that the imposition of state
use tax on federal bankruptcy sale was not prohibited either by the
intergovernmental immunity tax doctrine or by 28 U.S.C., 960.

Here, the tax is not imposed directly upon the Federal Government or upon one
of its instrumentalities. Instead, COMPANY A, MANAGEMENT COMPANY G, COMPANY D,
and the unidentified CITY B apartment complex are not agencies or
instrumentalities of the federal government, but separate legal entities;
private properties liable for Texas state taxes on continuing operations in the
same manner as they were before any FDIC or RTC involvement in their ownership.

For COMPANY D, the tax at issue is the hotel occupancy tax. Texas law require
the hotel to collect this tax from the occupants and pass it through the state.
No part of tax burden is borne by the government, and I have seen no
explanation of how collection responsibility amounts to a tax on the federal
government.

The other exemptions claims involve the sales tax. To the extent the companies
involved are selling taxable items, the issue is their responsibility to
collect and remit the proper tax, in much the same way as the hotel tax. To the
extent they are buying and using taxable goods and services, the issue is why
such separate legal entities should escape paying the same taxes as the
apartment complex or other business down the street when they buy the same
items.

The fact that the Comptroller has only received assertions that no Texas state
tax is due on operations of four of the possibly hundreds of properties that
the FDIC and RTC have taken over, leads us to believe that the position taken
on these particular properties may be out of step with the position taken by
the FDIC and RTC on most other similar properties. Otherwise, we feel that we
would be receiving claims of exemptions on more than just these four
properties.

Please tell us where the FDIC and RTC stand on this issue and if these four
properties are somehow different from all others which you have taken over.

If convenient, I would appreciate copies of any opinions of counsel or
citations to legal authorities you may be relying on so that we may understand
the basis of your conclusions. I would like to see our departments cooperating
instead of clashing on matters of this nature. Please let me hear from you.

Sincerely,

LARRY J. CRADDOCK
General Counsel

cc: **, RTC
**, RTC
**, RTC
**, FDIC
**, FDIC
**, COMPANY E
**, MANAGEMENT COMPANY G
**, MANAGEMENT COMPANY F
**, City of CITY C
**, City of CITY C

August 15, 1990

Dear **:

This will respond to your letter of August 7, 1990 to Burrell Lankford.

The hotel occupancy tax is imposed and collected pursuant to Chapter 156 of the
Texas Tax Code. Section 156-.051(a) imposes the tax ". . . on a person who, . .
. pays for the use or possession or for the right to the use or possession of a
room or space in a hotel."

In other words, the incidence of the tax falls on the party paying for the use
of the hotel room - not on the owner or operator of the hotel. The only initial
responsibility of the owner or operator is to collect the tax and remit same to
the Comptroller. (Of course, the owner/operator could become liable for taxes
required to be collected, but which are not remitted to the Comptroller.)

Since the Resolution Trust Company is, according to its letter to you, the
owner of COMPANY D, and is not the person paying for the use of hotel space at
that location, the exemption granted RTCs income under Section 219 of the
Financial Institutions Reform

Act of 1989 appears inapplicable. This is so because the hotel occupancy tax
collected by RTC is not a tax on RTCs income, but is merely being collected by
RTC as it becomes due from those paying for hotel space at COMPANY D.

Please feel free to call me if you have any questions or would like to discuss
this matter further.

Sincerely,

Arthur F. (Tres) Loion
Assistant General Counsel

August 7, 1990

Mr. Burrell Lankford
Comptroller of Public Accounts
Taxability Section, Legal Services
P.O. Box 13528 Capitol Station
Austin, Texas 78711

Dear Mr. Lankford:

Enclosed is a letter and a copy of alleged Federal legislation pertaining to
Hotel/Motel tax payments from an insolvent savings & loan. The CITY C received
this information on August 7th and it is the first claim of this type the City
has received. What is your opinion on this matter? We would appreciate any
information from your office on this matter and information regarding
properties in the CITY C area which are now in control of the RTC. Please
phone me at **.

Sincerely,

Economic Analysts Budget Office
Financial Services Department

cc: **
Director Financial Services

FDIC
Federal Deposit Insurance Corporation
P.O. Box 1336
Burnsville, MN 55337
(612) 894-0800

DATE: July 31, 1990

TO: **

SUBJECT: COMPANY D
First Federal S & L #**

Dear Cashier:

On June 15, 1990 the Office of Thrift Supervision declared First Federal
Savings & Loan to be insolvent and declared the Resolution Trust Corporation as
receiver of that institution and its properties.

Attached is a copy o4 the Texas Hotel Occupancy Tax Report with an amount due
of $**. Also attached is a check for $**.

The check amount is for the portion of taxes related to rental income obtained
prior to the institution closing date. The difference of $** is
related to the taxes due on the post-closing rental income (2.5/3 *
$**).

The RTC as receiver for COMPANY D is not required to pay the post-closing
amount as it is exempt from taxation on income as per section 219 of the
"Financial Institutions Reform Act of 1989". I have attached a copy of this
section for your information.

Should you have any questions regarding this matter please call me at
1-800-338-8098 or write to:

RTC
% ** - Tax specialist
P.O. Box 1336
Burnsville, MN 55337

Very Truly Yours,

Tax Specialist

cc: Tax File