Official Opinion 2010-1

You have requested my opinion on the proper disposition of certain unidentifiable sales tax proceeds collected by the Commissioner of Revenue while his authority to distribute them under O.C.G.A. § 48‑8‑67 was in a temporary period of statutory sunset.   The ultimate question here is whether unidentifiable local sales tax proceeds should be retained by the State or distributed to local governments for which the taxes were authorized and collected.

When collecting and disbursing sales taxes centrally for state and local governments,[1] the Department of Revenue sometimes has insufficient information from returns, even after follow-up inquiries, to attribute the proceeds to particular local jurisdictions.[2]   The proceeds in question are a subset of these “unidentifiable proceeds.”  There is a statutory procedure to allocate unidentifiable proceeds pro rata according to distributions of identifiable proceeds, O.C.G.A. § 48‑8‑67, enacted in 1998.[3]   However, O.C.G.A. § 48‑8‑67 from its beginning has contained a “sunset clause,” O.C.G.A. § 48‑8‑67(h).[4]   Commencing April 12, 2005,[5] the sunset clause read as follows:  “The authority of the commissioner to make distributions pursuant to this Code section shall cease on December 31, 2007, unless such authority is extended by a subsequent general Act of the General Assembly.”  A subsequent act, effective May 5, 2009, replaced “2007” with “2011.”[6]   The extending act made no other change in the sunset clause or in the Code section as a whole.  In particular, the amendment made no express provision for the “gap period” from December 31, 2007, through May 4, 2009, when authority under the Code section had “ceased.”  Your request concerns the unidentifiable proceeds of this gap period:  Does O.C.G.A. § 48‑8‑67, as “extended” May 5, 2009, apply to the unidentified proceeds held and collected during the gap period (“gap proceeds”), and, if not, what law does govern their disposition? 

Further Background: Administration of Sales Tax Proceeds

The Constitution empowers the General Assembly “by general law [to] provide for the regulation and management of the finance and fiscal administration of the state.”   Ga. Const. art. III, sec. IX, par, II(c).  In an exercise of that power, the General Assembly has provided in O.C.G.A. § 48‑2‑17:

Except as otherwise provided by law, all taxes, penalties, interest, and other moneys collected or received by the [State Revenue Commissioner], the department, or any unit, officer, or employee of the department pursuant to this title or any other revenue or licensing law shall be paid to the Office of Treasury and Fiscal Services and deposited within 45 days of such collection or receipt. 

My office has been advised that the Revenue Department daily remits all sales tax proceeds to the Office of Treasury and Fiscal Services (OTFS).  Among its functions, OTFS manages cash resources of the State and certain cash resources of local governments and other public bodies, including custodial accounts.[7]   On administrative instructions from the Department of Revenue and local governments, OTFS disburses identified local sales tax proceeds to the jurisdictions of their collection, either by crediting accounts in the local government investment pool (LGIP) or by withdrawing funds for direct payments to the local jurisdictions.  With regard to unidentifiable funds, during periods of time when the Department of Revenue has had authority under O.C.G.A. § 48‑8‑67 to make pro rata disbursements of unidentifiable funds, the Department and OTFS have proceeded in a similar manner by administrative correspondence but in distinct transactions and less often.[8] 

The disbursements to local governments have been accomplished administratively on the basis of correspondence among the Department of Revenue, OTFS, and local sales tax recipients.  There have been no corresponding appropriations in the general appropriations Act or any special appropriations, and the funds have not been disbursed pursuant to the warrant process used for drawing down appropriations because these processes have been considered inapplicable by administrators.   See Undercofler v. Eastern Air Lines, 221 Ga. 824, 832 (1966) (“Also of significance is the contemporaneous administrative construction given the Act, and the legislative acquiescence in that construction for a long period of time.”)  In a corresponding way, when state administrators calculate the amount of state general funds available for appropriation, an amount for undisbursed local sales taxes, including an estimate of unidentifiable local tax funds, is “backed out” of calculations of state surplus and carried as a state liability on its financial statements.[9]   In other words, the funds which are the subject of your request have never been treated as state funds, and their allocation to local governments would not reduce funds reported as available for appropriations in an already tight revenue situation.

O.C.G.A. § 48‑8‑67

Code section 48‑8‑67 was enacted in 1998 in response to a large backlog in unidentifiable proceeds.[10]   It creates the following general procedure unchanged since original enactment:

When a dealer makes a return with insufficient information to identify proceeds as being attributable to … a particular special district or particular county, the [State Revenue Commissioner] shall make reasonable efforts to obtain the information needed to make a distribution of those proceeds. When the information cannot be obtained, [e]ach authorized recipient's pro rata share … shall be the same as that authorized recipient's pro rata share of the identifiable proceeds for the same collection period. 

O.C.G.A. § 48‑8‑67(b).[11] 

These general instructions were made initially applicable to the existing backlog by subsection (c):  “The initial allocation of such unidentifiable proceeds shall be distributed in the manner consistent with subsection (b) … before July 1, 1998, and such allocation shall include … unidentifiable proceeds … collected subsequent to June 30, 1997, and prior to April 1, 1998….”  Additional conditions were imposed with this initial allocation, in subsection (f), providing that acceptance of the initial allocation barred “any challenges to this Code section” and that acceptance constituted an “accord and satisfaction” regarding the backlog.[12] 

General instructions for subsequent disbursements continue in subsection (d):

Following the initial allocation under subsection (c) of this Code section, allocations of unidentifiable proceeds shall be made by the commissioner according to a schedule provided for by rules and regulations of the commissioner but in no event less often than twice per year. Any such subsequent distribution of unidentified proceeds to an authorized recipient shall be made separate and distinct from the regular distribution of identifiable proceeds to such authorized recipient. 

Without regard to the sunset clause, the language of O.C.G.A. § 48‑8‑67 is straightforward.  “Following the initial allocation under subsection (c),” the State Revenue Commissioner “shall” continue making allocations of unidentifiable proceeds under subsections (b) and (d) at least twice a year according to a schedule adopted by rule.[13]   (That is, when the Commissioner’s “authority” is in force under O.C.G.A. § 48‑8‑67, the provisions are mandatory.)  Taking into account the sunset clause in subsection (h), the Commissioner is still directed to make allocations under subsections (b) and (c) until his “authority [under them] shall cease … unless … extended….”  When the authority to act under O.C.G.A. § 48‑8‑67 is extended after a gap period, it is still a natural reading to apply the Code section to the unidentifiable proceeds of the gap because the proceeds “follow[]” the “initial allocation” and are the kind of proceeds the Code section is intended to address. 

Though straightforward, this interpretation is not without difficulty.   It shows how O.C.G.A. § 48‑8‑67 can be applied to the unidentified proceeds of the gap period by its plain language and in light of its history as a response to the problem of unidentifiable proceeds.  However, neither the Code section, nor specifically its sunset clause or subsection (d), nor the statutory extensions of the sunset clause expressly provide what is to be done in regard to gap periods.  The issue of extensions following periods of ceased authority must further be considered in light of legislative history and the rules for determining when laws apply to events of the past, the ultimate goal being to ascertain legislative intent. 

First of Three Gap Periods

There have been three gap periods in regard to O.C.G.A. § 48‑8‑67, two in addition to the one under review.  The first arose with the original bill.  In 1998, after providing for methodology in subsection (b), the Code section applied that methodology by subsection (c) to “proceeds that have been collected subsequent to June 30, 1997, and prior to April 1, 1998.”  This express retroactive application of the Code section to the antecedent backlog was held constitutional as remedial legislation in DeKalb County v. State.[14]   However, in an aspect of the situation not discussed in the DeKalbCounty case, the General Assembly passed the bill on March 16, 1998, but did not send the bill to the Governor until after adjournment on March 19, and the bill became law under its terms upon approval by the Governor on April 6, 1998.[15]   When the General Assembly passed the bill it could not have known whether the law would be in force by April 1, 1998.  Since the bill was not transmitted during the session, under the Constitution it could have become law as late as 40 days after adjournment.[16]   Whether unidentifiable proceeds arose in the actual gap period, April 1 through April 5, 1998, the possibility existed upon passage that they might arise during a gap period ending as late as April 28, depending upon approval.  This invites the question, what did the General Assembly intend should such a gap occur? 

The General Assembly could have intended that subsections (b), (c), and (f) would apply to the initial disbursement of the stated backlog period, “subsequent to June 30, 1997, and prior to April 1, 1998,” and subsections (b) and (d) would apply only to unidentifiable proceeds collected from the date of approval.  That would mean that the Code section would not apply to the gap between the backlog period and approval date.  This interpretation, first, is inconsistent with subsection (d), which by plain language covers unidentifiable proceeds following the initial allocation.[17]   Second, the Supreme Court has held that prior to enactment of O.C.G.A. § 48‑8‑67 “there was no statutory directive regarding the disbursement of unidentifiable proceeds, [and] the Commissioner was left to his discretion in dealing with them.”  DeKalbCounty v. State, 270 Ga. 776, 778 (1999).  It is illogical to attribute to the General Assembly an intent to provide for unidentifiable proceeds of the backlog period by means of the Code section and also the unidentifiable proceeds commencing with its approval, while leaving unidentifiable proceeds of the gap between these periods subject to the very state of the law the General Assembly was remediating.  The proceeds were essentially backlog proceeds not considered necessary to be subject to the conditions of subsection (f).  The better interpretation is that subsection (d) made the proceeds of the “approval gap” subject to the Code section.[18]   The question then becomes, should the same logic apply to the two gap periods which came later and involved the sunset clause?

Second and Third Gap Periods:

Sunset Extensions following Sunset

Except for typographical corrections,[19] the only changes to O.C.G.A. § 48‑8‑67 have been to extend it by changing the year in its sunset clause, subsection (h).  Under its legislative history, the clause has read as follows:  “The authority of the commissioner to make distributions pursuant to this Code section shall cease… on December 31, 2000 2005 2007 2011, unless such authority is extended by a subsequent general Act of the General Assembly.”[20]   The extension from 2005 to 2007 was enacted before the 2005 sunset occurred and therefore did not involve a gap period.[21]   The extensions from 2000 to 2005 and from 2007 to 2011 both were enacted after the sunset had occurred and followed gap periods.[22]   Neither the Code section, the sunset clause, nor the statutory extensions address in specific terms gap periods like those after 2000 and 2007.  While it may still appear illogical that the General Assembly meant to leave a hiatus unaffected by remedial measures it has just extended, and also that the General Assembly would intend a different result for the second two gaps from what it intended for the first, there is the difference that the first gap did not involve a sunset. 

As opposed to the documented reason for enacting the pro rata allocation procedures,[23] there is no reported explanation known to us for the inclusion of the sunset clause or its extensions.  The legislative history does indicate that the sunset clause has been a matter of some interest.[24]   The very existence of a sunset clause implies that the problem is perceived as temporary or that the solution is perceived as temporary, perhaps from being unsatisfactory or in the hope of a better solution, and the sunset forces the reevaluation.  Perhaps pro rata allocations came into the law under a perceived merit of fairness and approximation or compromise, but the political community at large had doubts or certain jurisdictions felt other methods would serve them more accurately.  When DeKalb County litigated with the State over retrospective use of pro rata estimates in the initial allocation provisions of O.C.G.A. § 48‑8‑67, the Georgia Supreme Court took note that DeKalb County was not the only jurisdiction with a stake in the matter: “[T]he backlog of unidentifiable proceeds also included other local option sales taxes imposed by other jurisdictions.”  DeKalbCounty v. State, 270 Ga. 776, 777 (1999).  In apparent response to such concerns, O.C.G.A. § 48‑8‑67 requires in subsection (d) that “distribution of unidentified proceeds … be made separate and distinct from the regular distribution of identifiable proceeds” for each recipient, and further makes a point of transparency in subsection (e) by providing that “[i]nformation regarding proceeds distributed … pursuant to this Code section shall be identified by the commissioner, and … made available upon request.”  Related to these concerns, the apparent purpose of the sunset clause is to force affirmative legislative reconsideration and action to continue or change the statutory remedy of O.C.G.A. § 48‑8‑67.

Consistent with a purpose of continuity unless there is a change in legislative provisions, the Code section’s internal provision for authorization to cease also has internal provision for the authorization to be extended.  The built-in provision for “extend[ing]” the authority implies a belief that the pro rata allocations may continue to be better than alternatives, whether the alternatives be simply the status of the law without the Code section or some other solution.  In this light, the built-in extension language is evidence of greater intent for continuity than a simple provision for a date of repeal or expiration.  In its language, “[t]he authority … to make distributions pursuant to this Code section shall cease,” the sunset clause places the Code section into a dormant posture (authority under the Code section has “ceased”) but also invites extension by simple revival of authority as opposed to requiring reenactment following repeal.  The meanings of the words “cease” and “extend,” and their conjunctive use, support a revival of authority which reaches back.[25] 

Status during and after a Gap

During a cessation of authority, the language of the sunset clause only blocks distributions pursuant to the Code section, suggesting that dispositions of unidentifiable proceeds not made “pursuant to this Code section”[26] are allowed if otherwise authorized.  In DeKalb County v. State, the Georgia Supreme Court addressed this issue by implication:   “Since there was no statutory directive regarding the disbursement of unidentifiable proceeds, the Commissioner was left to his discretion in dealing with them.” DeKalbCounty v. Georgia, 270 Ga. 776, 778 (1999).   The Court was referring to the status of the law prior to enactment of O.C.G.A. § 48‑8‑67.  Except for O.C.G.A. § 48‑8‑67, the relevant law then in effect has not changed.  Since all activities of public officers must be authorized by law,[27] and no other provisions appear pertinent, the Court necessarily referred to the general discretion the Commissioner has to administer the various sales tax laws, power which has since remained unchanged.[28] 

Two points are relevant here.  First, in regard to each of the gap periods, the power to provide for disposition of unidentifiable proceeds by discretionary rulemaking has not been exercised.[29]   On the basis of interviews and pertinent law, it appears that unidentifiable proceeds of the most recent gap have simply accumulated and that unidentifiable proceeds of prior gaps, if any, were processed pursuant to O.C.G.A. § 48‑8‑67 after sunset extensions.[30]   Second, in exercising administrative discretion and rulemaking, the Commissioner is necessarily confined to boundaries of the sales tax statutes themselves and their constitutional bases,[31] as well as the rule that his discretion must be reasonable, not arbitrary.  See Strickland v. DouglasCounty, 246 Ga. 640, 640-643 (1980); see also Matheson v. DeKalbCounty, 257 Ga. 48, 50 (1987).  The local sales tax statutes and the constitutional sources of authority for them expressly provide that they exist to raise revenue for local governments.[32]   Under these general parameters, any disposition of unidentifiable sales tax proceeds under discretionary authority must necessarily take into account the various possibilities of their constitutional and statutory origins and purposes, as does O.C.G.A. § 48‑8‑67. 

When there has been no administrative disposition during a gap and the General Assembly has then extended O.C.G.A. § 48‑8‑67, it is once again more logical to believe that the General Assembly intends to restore continuity through the gap period (the Commissioner and the legislature having each determined that the remedy of O.C.G.A. § 48‑8‑67 remains the best acceptable solution).  Without express language to the contrary, it is illogical that the General Assembly, in extending the Code section, has intended for the Commissioner to continue to be responsible for devising a remedy for three gap periods, each of which is bracketed by periods of time when the statutory remedy is in force.   “The construction [of statutes] must square with common sense and sound reasoning.”  Blalock v. State, 166 Ga. 465, 470 (1928); accord, State v. Mulkey, 252 Ga. 201, 204 (1984); see also DeKalbCounty v. State, 270 Ga. 776, 779 (1999) (“It is not logical that DeKalbCounty has a vested right in tax proceeds that were not identifiable as belonging to it.”)  The conclusion that the Code section applies to the gap periods preceding extensions is supported by similar reasoning and results in similar problems of statutory interpretation in the opinions and the cases.[33]   It is supported by the presumption that remedial laws apply to pending matters of procedure.[34] 

Status as “Treasury” Funds Vel Non

Because the issue has been suggested, I have considered whether the unidentified sales proceeds for the gap period have been placed into the “treasury” and, therefore, under the Constitution they cannot be withdrawn except by appropriation.  The Constitution does state that “[n]o money shall be drawn from the treasury except by appropriation made by law.”  Ga. Const., art. III, sec. IX, par. I.  However, it further states: “Except as otherwise provided in this Constitution,[35] all revenue collected from taxes, fees, and assessments for state purposes, as authorized by revenue measures enacted by the General Assembly, shall be paid into the general fund of the state treasury.”[36]   The revenue in issue is collected in part for local government purposes pursuant to constitutional and statutory authority, and that part is outside the express scope of this mandate by its emphasized phrase. 

The previously described statutory provisions and administrative practices are consistent with this interpretation.  The disbursements by the Office of Treasury and Fiscal Services, pursuant to administrative instructions of the Department of Revenue, of identified and pro rated sales tax proceeds without an appropriation, and the recognition of a liability for undisbursed local sales taxes in calculating state surplus, are consistent with the view that the deposits of sales tax proceeds with OTFS are custodial and not a recognition or assertion of state ownership.  Cf. Youngblood v. State, 259 Ga. 864, 865 (1990) (“The hotel/motel tax is not a state tax as the Act does not require the municipalities or special districts to levy the tax nor are the revenues paid into the state general fund.”).  While sales tax proceeds centrally collected are transferred to OTFS as required by O.C.G.A. § 48‑2‑17, and initially credited to the account that holds state‑owned general funds, they are held there custodially pending identification or pro rata distribution for both state and local governments, under both state revenue measures and local revenue measures.[37]   Indeed, if the deposits with OTFS made unidentifiable proceeds part of the state-owned treasury requiring appropriation for removal, it would be hard to distinguish identifiable proceeds which are treated in the same manner.[38] 

Also consistently, the General Assembly, in providing for the central administration of sales taxes collected for both state and local governments,[39] has laid out in specific terms the extent to which the State and dealers may keep the proceeds collected for local governments.  Both the State and dealers are to be paid for their costs in collecting and disbursing the local taxes.[40]   Also, the State is to have priority in the application of proceeds:  “[A]ll moneys collected from each taxpayer by the commissioner shall be applied first to such taxpayer's liability for taxes owed the state.”[41]   That is, to the extent that a return is sufficiently complete to identify the amount in sales and services subject to the state tax, the associated proceeds must first be applied to amount owed the State.  Under the rule that express provision for one thing implies the exclusion of another,[42] the Revenue Code otherwise limits the State’s interest in unidentifiable proceeds to that of the other recipients under O.C.G.A. § 45‑8‑67[43]and would similarly limit the State’s interest in the absence of the Code section or during a period of ceased authority under the Code section.  

Conclusion

For the foregoing reasons it is my official opinion that when the General Assembly extends a sunset date in subsection (h) of Code section 48‑8‑67 in the manner of 2009 Ga. Laws 723, the extended authority to process unidentifiable sales tax proceeds pursuant to the Code section applies to undisbursed, unidentifiable proceeds of a preceding period of time, which began with the earlier sunset date and ended with its extension (the “gap period”).

Prepared by:

JOHN B. BALLARD, JR.

Counsel for Fiscal Policy