Texas Attorney General Opinion: DM-382 Page: 4 of 15
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The Honorable Tim Curry - Page 4
"prohibits the State doing indirectly what Section 49 prohibits it doing directly, i.e.
becoming indebted as a guarantor or surety for another's debt." 2 TEXAS LEGISLATIVE
COUNCIL, CONSTITUTIONAL REVISION: A STUDY OF THE TEXAS CONSTITUTION WiTH
RECOMMENDED CHANGES 260. Also, section 51 of article m generally forbids the
legislature or any governmental agency authorized by the legislature "to grant or authorize
the making of any grant of public moneys to any individual, association of individuals,
municipal or other corporations whatsoever." The Texas Legislative Council stated in its
1960 report that section 51 was intended to supplement the
general prohibition against expenditure of public money for other
than public purposes as expressed in Section 3 of Article 8 and the
first sentence of Section 6 of Article 16. And, in a somewhat more
general way, this section complements the prohibitions expressed in
Section 3 of Article 11 prohibiting donations to the capital of any
private corporation or association.
Id. at 263-64 (footnotes omitted2).
There is no controlling precedent on the question of what exactly is a "loan of
credit" under the constitution, but there is one Texas decision that appears to be premised
on the assumption that an extension of credit is a loan of credit. The decision of the court
of civil appeals in McCarty v. James, 453 S.W.2d 220 (Tex. Civ. App.-Austin 1970, writ
refd n.r.e.), appears to assume that a sale of cigarette tax stamps to a distributor for
payment due fifteen days after receipt of the stamps would constitute a lending of the
State's credit under article m, section 50, if the distributor were liable for the tax. The
court avoided the constitutional problem, however, by interpreting the cigarette tax statute
at issue as creating a tax obligation that arose only at the time of the first retail sale of the
cigarettes and as imposing the tax only upon the first purchaser rather than upon the
distributor, who had only a duty to make an "advance payment" of the tax. Id. at 224,
226. Insofar as the cigarettes might be sold before the fifteen-day deadline for payment by
the distributor, the court approved of the distributor's payment after the time of the first
sale on the ground that the statute provided for an adequate bond to cover the amount of
such deferred payment. Id. at 224. Finally, the court recognized a rule of administrative
necessity as justifying a reasonable time for a taxpayer to pay taxes: "Regardless of when
tax liability arises or when taxes become due and payable a reasonable time usually and
probably of necessity, is given the taxpayer for making payment. The Legislature is the
sole arbiter of the time to be allowed." Id. If an extension of credit by the State is a loan
of the State's credit, the court did not acknowledge the apparent conflict between this rule
of administrative necessity and the constitutional prohibition.
2The omitted footnotes quote section 3 of article VIII ("Taxes shall be levied and collected by
general laws and for public purposes only") and part of section 6 of article XVI ("No appropriation for
private or individual purposes shall be made.. .").p. 2088
(DM-382)
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Texas. Attorney-General's Office. Texas Attorney General Opinion: DM-382, text, April 4, 1996; (https://texashistory.unt.edu/ark:/67531/metapth274191/m1/4/: accessed April 19, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.