Texas Boll Weevil Eradication Foundation, Inc. v. Lewellen

GONZALEZ, Justice,

joined by BAKER, Justice, and in Parts I, II, and III by HECHT, Justice, concurring in part and dissenting in part, and concurring in the judgment.

Persons engaged in mechanical and agricultural pursuits shall never be required to pay an occupation tax.

Tex. Const, art. VIII, § 1(c).

With the exception of Part II, I join the Court’s opinion. The Court concludes that subchapter 74D of the Texas Agriculture Code (the Boll Weevil Eradication Foundation Act) does not violate the above-quoted provision by imposing an occupation tax on agricultural pursuits. The propriety of this conclusion depends on whether the assessments the Act authorizes are truly regulatory fees or are instead taxes. Rather than serving a clear regulatory purpose, the assessments fit this Court’s definition of “taxes,” which is “burdens or charges imposed by the legislative power of the State to raise *476 money for public purposes.” Friedman v. American Sur. Co. of New York, 137 Tex. 149 , 151 S.W.2d 570, 577 (1941); see County of Harris v. Shepperd, 156 Tex. 18 , 291 S.W.2d 721, 723 (1956). Moreover, under this Court’s decisions in H. Rouw Co. v. Texas Citrus Commission, 151 Tex. 182 , 247 S.W.2d 231 (1952), and Conlen Grain & Mercantile, Inc. v. Texas Grain Sorghum Producers Board, 519 S.W.2d 620 (Tex.1975), the assessments are prohibited occupation taxes, not regulatory fees.

I

If the Boll Weevil Eradication Foundation’s assessments are an occupation tax on cotton growers, the assessments violate the Texas Constitution. See Tex. Const, art. VIII, § 1(e). Having recognized the difficulty in distinguishing between regulatory measures and tax measures, however, we have articulated a more specific test:

[W]hen, from a consideration of the statute as a whole, the primary purpose of the fees provided therein is the raising of revenue, then such fees are in fact occupation taxes.... On the other hand, if its primary purpose appears to be that of regulation, then the fees levied are ... not taxes.

Rouw, 247 S.W.2d at 234 . Although the Court acknowledges and attempts to apply this standard, it nevertheless holds that the assessments imposed by the Foundation are not occupation taxes, but are regulatory fees designed to meet the costs of a program undertaken pursuant to the State’s authority to protect the public health, safety, and welfare. 952 S.W.2d 463 . I disagree.

The Court concludes that, because “eradication of the boll weevil is a proper subject for regulation by the State pursuant to its police power” and “the Foundation’s assessments are levied in an amount needed to fund the eradication programs, and are used for that purpose,” the assessments are regulatory fees. 952 S.W.2d at 462. Unquestionably, conducting a boll weevil eradication program is within the Legislature’s police power, and Foundation assessments are spent almost entirely on eradication efforts. But expenditure of assessments for a police-power purpose does not necessarily render the assessments a regulatory fee. The Court effectively holds that any charge assessed and spent for a proper police purpose is a fee, not a tax. This result is contrary to Rouw and Conten. Guided by these decisions, one can reach no reasonable conclusion other than the assessments are prohibited occupation taxes on agricultural pursuits.

In Rouw, we considered whether assessments levied to fund the Texas Citrus Commission and its programs were a regulatory fee or an occupation tax. The Texas Citrus Commission was authorized to levy assessments upon all citrus fruit grown in Texas. The proceeds were then earmarked for

education and research for the purpose of increasing knowledge with respect to Texas citrus fruits and by-products, and protecting Texas citrus fruits from, pests and diseases and of finding new uses for Texas citrus fruits and by-products and of improving the quality and yield of such fruit and by-products.

Rouw, 247 S.W.2d at 232 (emphasis added). While we noted that the purposes of the statute were laudable, we held that the assessments were an occupation tax because the statute’s primary purpose was not to regulate the citrus industry under the police power, but to raise revenue “in excess of the amount needed for regulation of the industry.” Id. at 234 .

Similarly, in Conten, we considered whether assessments levied by the Texas Grain Sorghum Producers Board constituted an occupation tax. The Board was to expend the assessments for the purposes of “developing, carrying out, and participating in programs of research, disease and insect control, predator control, education, and promotion, designed to encourage the production, marketing, and use of the commodity.” Conlen, 519 S.W.2d at 621-622 (emphasis added). Despite the fact that producers could obtain a refund of any assessment paid, we still held, relying on our decision in Rouw, that the assessments were occupation taxes. Id. at 623-24 .

The stated purpose of the Boll Weevil Eradication Foundation Act is

*477 to develop, carry out, and participate in programs of research such as disease and insect control; marketing to show low risk of pests in interstate and intrastate movement of cotton commodities; promotion of pest-free cotton commodities which increase market demand; and education of cotton raisers, cotton users, regulators, policymakers, and the general public on the effect of pests on cotton, its utility, its marketing, its yield, and its promotion....

Tex. AgRIC. Code § 74.101(a)(2) (emphasis added). Rouw and Conlen stand for the proposition that assessments made to increase the production and use of a particular crop, as is the case here, are not the type of “regulation” that legitimately supports a regulatory fee. If this purpose is a valid exercise of the police power, then Rouw and Conlen hold that assessments can be imposed and dedicated to a valid police-power purpose and still not be regulatory fees. Under the reasoning of these decisions, the issue in this case is not whether the Legislature’s purpose was a valid exercise of its police power, but whether the assessment in furtherance of that purpose was a tax or a regulatory fee. Moreover, the assessments are to be made in an amount sufficient to “finance programs of marketing, promotion, research, and education calculated to increase the production and use of cotton.” Id. § 74.113(a). No meaningful distinction exists between this statutory language and the statutory language describing the purposes of the assessments we held unconstitutional in Rouw and Conlen.

In both Rouw and Conlen, the statutes allowed expenditures for insect and pest control. This Court held, without examining the way the assessments were spent, that the assessments were occupation taxes. It was not necessary for us to review the allocation of the expenditures because all the proposed uses, including any expenditures for insect and pest control, were designed to increase production and use of the respective crops. Expenditures to increase production and crop use are simply not the type of “regulation” that legitimately supports a regulatory fee. By holding otherwise, without an adequate or convincing explanation, the Court errs.

Furthermore, in its analysis, the Court overlooks a critical distinction between a regulatory fee and an occupation tax. A regulatory fee also must bear a reasonable relationship to the statute’s legitimate regulatory object. City of Fort Worth v. Gulf Ref. Co., 125 Tex. 512 , 83 S.W.2d 610, 618 (1935); see City of Houston v. Harris County Outdoor Adver. Ass’n, 879 S.W.2d 322, 326-327 (Tex.App.—Houston [14th Dist.] 1994, writ denied), ce rt. denied, — U.S. -, 116 S.Ct. 85 , 133 L.Ed.2d 42 (1995). Although one of the stated purposes of the legislation is statewide boll weevil eradication, in my view, the assessments are not reasonably related to this purpose.

The assessments are not regulatory fees in any true sense because they are not mandatory. Passage of zone-specific referenda, not boll weevil infestation, triggers the assessments and eradication programs. The Foundation has held referenda in only five of the nine zones originally proposed, and eradication or suppression programs are currently active in only three zones. Of the 254 counties in Texas, only about 86 have participated, are now participating, or are presently scheduled to participate in an eradication or suppression program. In the remaining 168 counties, cotton growers are not subject to any of the Act’s provisions, including assessments, and are not required to participate in the program, regardless of the presence of boll weevils or the extent of any infestation. Statewide boll weevil eradication simply cannot be accomplished unless all areas of infestation are included in the program. The fact that the occurrence of eradication efforts hinges upon a vote by cotton growers, rather than on a finding of boll weevil infestation, belies the argument that this Act is regulatory in nature.

A truly regulatory measure designed to eradicate the boll weevil would operate in all areas of the State infested with boll weevils. The Legislature proclaimed the boll weevil to be a statewide nuisance that presents an economic threat to the cotton industry of the entire State. Tex. AgRIC. Code §§ 74.001, 74.101(a). Although the Legislature also proclaimed eradication of the boll weevil to *478 be a public necessity, id. § 74.001, it derailed the declared objective by delegating to local growers the right to determine, on bases wholly unrelated to the need for eradication, whether they would participate in the program. The decision to permit growers to opt for or against eradication bears no rational relationship to the Act’s regulatory purpose, and in fact contradicts that purpose. By delegating this “necessary” police-power measure and making participation in the program contingent on voter approval, the Legislature effectively nullified the Act’s stated objective.

The burden of regulation under the Act falls on many cotton growers whose crops are not infested and does not fall on many cotton growers whose crops are infested. Once the assessment is approved by referendum, growers who fail to timely file acreage reports and pay their assessments are subject to a wide array of penalty and collection measures. See Tex. AgRic. Code § 74.115. These measures include not just monetary sanctions, but in fact allow the Agriculture Commission to file liens on cotton crops and to plow up and destroy cotton crops based on Foundation recommendations. See id. Cotton that has been planted in an established eradication zone and for which assessments have not been paid is labeled a public nuisance subject to the Act’s penalties, even in the total absence of boll weevil infestation. See id. On the other hand, a grower with cotton that is infested with boll weevils, but located in an area in which no referendum has passed, is not required to participate in an eradication program and is not subject to any of the Act’s enforcement mechanisms. Perhaps in response to this inequitable burden, cotton growers in established zones have petitioned for referenda to cancel the Foundation’s eradication programs. Growers in the Lower Rio Grande Valley Eradication Zone, for example, succeeded in their efforts to cancel their eradication program after the Foundation’s efforts led to a disastrous crop in that zone in 1995. The Act is unconstitutional, however, not because it has failed to achieve its stated purpose, but because it does not “regulate” in any meaningful sense. For these reasons, I conclude that the Act does not have a regulatory purpose. I therefore would hold that the assessments violate article VHI, section 1(c) of the Texas Constitution.

II

I also do not agree, as urged by an amicus curiae, that the assessments are validated by article XVI, section 68 of the Texas Constitution. Article XVI, section 68 provides:

The legislature may provide for the advancement of food and fiber in this state by providing representative associations of agricultural producers with authority to collect such refundable assessments on their product sales as may be approved by referenda of producers. All revenue collected shall be used solely to finance programs of marketing, promotion, research, and education relating to that commodity.

Tex. Const. art. XVI, § 68 (emphasis added). Under Conlen, assessments used to finance marketing, promotion, research, and education programs are occupation taxes. The purpose of article XVI, section 68 is to create an exception to the constitutional prohibition against occupation taxes on agricultural pursuits when refundable assessments on product sales are used to finance marketing, promotion, research, and education programs.

However, under the clear language of this provision, such assessments are valid only if they are refundable and are based on product sales. The Foundation’s assessments are neither. In fact, the Foundation hás admitted that a grower cannot obtain a refund of the assessments he has paid. While any funds remaining after the Foundation has been dissolved will be returned to the growers on a pro rata basis, this does not make the assessments refundable. The grower cannot receive a refund on his pro rata share of the assessments that the Foundation expended, and there is no guarantee that the Foundation will have remaining funds upon dissolution. In fact, at the present time, the Foundation is several million dollars in debt. Furthermore, the assessments are not based on product sales, but are based on the acreage planted by the grower. Accordingly, *479 article XVI, section 68 does not validate the assessments under the Act.

Ill

I concur in the Court’s judgment. However, for the above-stated reasons, I would hold that the assessments levied by the Foundation are unconstitutional occupation taxes on agricultural pursuits.