TML has learned that the Texas Department of Transportation (TxDOT) has threatened to solve a highway funding/utility relocation dispute with one small Texas city by asking the comptroller’s office to withhold sales taxes due the city in an amount equal to the disputed amount under the highway project.

As authority for this proposed action, TxDOT has cited a state statute, Government Code Section 403.055, which permits the comptroller to withhold payment of warrants due to persons who are indebted to the state. TxDOT has cited no authority for the proposition that this section was ever meant to apply to the distribution of sales taxes levied by a city. In fact, case law makes clear that local sales taxes established by citizen election create a “contract with the voters” that cannot be abrogated by state action. See San Saba County v. McCraw, 108 S.W.2d 200, 203 (Tex. 1937). Further, it is questionable whether a good-faith dispute between a political subdivision and the state’s highway department constitutes a “debt” under the statute, especially when not reduced to judgment by a court.

Any city that has similarly been told by TxDOT that the city’s sales taxes may be imperiled by not accepting TxDOT’s conclusions in a disputed highway or right-of-way project should contact Bennett Sandlin at TML, at (512) 231-7400 or bennett@tml.org.

TML member cities may use the material herein for any purpose.
No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the
Texas Municipal League.

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