Opinion
NO. 03-18-00790-CV
08-13-2020
Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and Ken Paxton, Attorney General of the State of Texas, Appellants v. El Paso Electric Company, Appellee
FROM THE 353RD DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-GN-17-006837 , THE HONORABLE JAN SOIFER, JUDGE PRESIDING DISSENTING OPINION
In this appeal following a bench trial, the Court vacates the trial court's judgment in favor of El Paso Electric Company (EPE) and dismisses EPE's suit for refund of taxes paid on transactions associated with electric meters and meter components ("meters"), agreeing with appellants that EPE "did not timely raise its claim for the [manufacturing] exemption for telemetry units related to step-down transformers in the administrative proceedings." See Tex. Tax Code § 151.318(a)(4) (exempting property used in manufacturing including "telemetry units that are related to the step-down transformers" from taxes imposed by chapter).
In my view, the Court's decision creates a jurisdictional hurdle that is contrary to the plain language of the relevant statutory provisions—Texas Tax Code sections 112.151 and 111.104(c)(2)—and to this Court's precedent that EPE in its suit for tax refund needed only to state its claim as to the transactions concerning the meters "in such a way as to put the comptroller on notice of the legal basis of the claim." See, e.g., Hegar v. Ryan, LLC, No. 03-13-00400-CV, 2015 Tex. App. LEXIS 5096, at *25-28 (Tex. App.—Austin May 20, 2015, no pet.) (mem. op.) (interpreting phrase "fully and in detail" used in section 111.104(c)(2) to mean "stated in such a way as to put the comptroller on notice of the legal basis of the claim"); see also Tex. Tax Code §§ 111.104(c)(2) (requiring claim for refund to "state fully and in detail each reason or ground on which the claim is founded"), 112.151 (authorizing taxpayer suit for refund if, among other requirements, taxpayer has "filed a tax refund claim under Section 111.104").
I conclude that EPE satisfied the jurisdictional prerequisites for bringing its suit for tax refund and that the trial court did not err when it denied appellants' plea to the jurisdiction prior to trial. Because the Court concludes otherwise and does not address the substance of the parties' dispute, I respectfully dissent. As described more fully below, EPE put the Comptroller on notice of the legal basis of its claims concerning the meters by quoting the relevant section 151.318(a)(4) in its statements of grounds, submitting schedules with its refund claims specifically identifying the transactions concerning meters as exempt under the manufacturing exemption, and citing section 151.318 and the relevant Comptroller rule in the transactions' line items. And all evidence in the record demonstrates that the Comptroller was on notice of EPE's legal claim during the administrative proceedings. That is enough.
Background
Relevant to this appeal, EPE sought a tax refund on the transactions associated with meters based on the manufacturing exemption because the meters are "telemetry units that are related to the step-down transformers." See Tex. Tax Code § 151.318(a)(4). Relying on a Comptroller rule that sets the deadline for amending statements of grounds, the administrative law judge (ALJ) in his proposal for decision (PFD) sustained staff's objection to EPE's stated ground that the meters were exempt based on the manufacturing exemption. See 34 Tex. Admin. Code § 1.11 (Comptroller of Public Accounts, Statement of Grounds; Preliminary Conference) (setting out content of statement of grounds and deadline for amending statement of grounds). The ALJ agreed with staff that this ground was "not timely raised" under the Comptroller rule and excluded it from consideration in the contested case hearing, which decision the Comptroller adopted. EPE challenged this ruling in its motion for rehearing, but the Comptroller denied EPE's motion. EPE thereafter filed its suit seeking refunds for taxes paid on the transactions associated with meters.
Although a prior Comptroller rule applies here, I cite the current rule for convenience. Its requirements are substantially the same and do not impact my analysis.
Prior to the bench trial, the trial court considered and denied appellants' plea to the jurisdiction that challenged the trial court's jurisdiction over EPE's refund claims. In their plea, appellants asserted that EPE waived the opportunity to raise the manufacturing exemption with respect to the meters because it failed to comply with the procedural requirements of section 111.104(c) and the Comptroller rule that set the deadline for EPE to amend its statements of grounds. See Tex. Tax Code § 111.104(c)(2) (requiring claim for refund to "state fully and in detail each reason or ground on which the claim is founded"); 34 Tex. Admin. Code § 1.11.
EPE filed a response to the plea, and both parties presented jurisdictional evidence. The evidence included EPE's initial claims for refunds, statements of grounds with supporting schedules from the administrative proceedings, an affidavit by EPE's designated tax representative, and filings during the administrative proceedings, including the PFD and EPE's motion for rehearing. In his affidavit, the tax representative averred that "[o]n the schedules submitted with the refund claim[s], meters were listed as exempt manufacturing equipment." The representative similarly averred as to the schedules that were provided with the statements of grounds as follows: "On these schedules, the reason for the refund for meters and related items was both 'mfg. equip.—100% exempt' and cited the primary tax references 'TTC 151.318; TAC 3.300.'" See Tex. Tax Code § 151.318; 4 Tex. Admin. Code § 3.300 (Comptroller of Public Accounts, Manufacturing; Custom Manufacturing; Fabricating; Processing). The representative also averred about EPE's claim for refund based on the manufacturing exemption during the administrative proceedings, including that "[t]he manufacturing exemption was claimed with respect to the meters from the initial request for refund hearing and no additional transactions were added during the refund hearing procedure or SOAH matter that were not included in the requests for refund hearing" and that, during the administrative proceedings, EPE "removed other remaining transactions related to the meters on the schedules exchanged with the Comptroller but did not ever remove the meters themselves from its manufacturing exemption claim."
EPE also asserted the ground for refund that the meters were purchases for resale but that ground is not at issue in this appeal. See Tex. Tax Code §§ 151.006 (defining "sale for resale"), .302 (exempting "sale for resale of a taxable item").
Consistent with the representative's affidavit, the statements of grounds refer to the manufacturing exemption among the stated grounds for EPE's claims for refund and quoted section 151.318, including subsection (a)(4). The schedules also identify specific transactions involving "meters" by line items that include detailed information about the particular transaction including dates, invoice numbers, and amounts and specifically refer to the manufacturing exemption—such as by listing "mfg. equip.—100% exempt"—and section 151.318, as well as applicable Comptroller rules. In the PFD, the ALJ found: "Most of the meter purchases at issue were made from Itron Electricity Metering, Inc. (Itron). The primary two models that were purchased were the Centron and Sentinel." The line items on the schedules identifying the specific transactions involving Centron and Sentinel consistently refer to the manufacturing exemption and section 151.318 as a stated ground for seeking a refund.
As to the detailed information provided on the schedules, EPE's "Accounts Payable Invoices" schedules identified specific transactions by line item, and each line item provided the vendor, invoice date, invoice number, description, applicable Tax Code provision(s) and Comptroller rule(s), amount of taxes paid, amount of refund requested, and the reason or ground for the request. Similarly, EPE's "Inventory Issuances" schedules identified specific transactions by line item, and each line item provided the item number, transaction date, item description, the applicable provision(s) of the Tax Code and Comptroller rules, amount of cost, taxes paid, and amount of refund requested. Another schedule provided by EPE during the administrative proceedings identified specific transactions by line item, and each line item provided an image link, vendor number, vendor name, invoice date, issue, description, reason for refund request with reference to applicable Tax Code provision(s) and Comptroller rules, account description, workorder, work order description, charging cost description, project number, amount of taxes paid, and amount of refund requested.
The trial court held the bench trial after denying appellants' plea to the jurisdiction. The evidence at trial primarily concerned whether customer meters, substation meters, and "collars" were "related to" step-down transformers to qualify for the exemption, and counsel for appellants in his closing statement acknowledged that the evidence showed that the substation meters were telemetry units that were exempt under the manufacturing exemption. In its findings of fact and conclusions of law, the trial court concluded that "EPE's purchase and use of customer meters and substation meters are exempt from Texas sales tax under Tex. Tax Code § 151.318(a)(4) as 'telemetry units that are related to . . . step-down transformer[s].'"
Counsel stated: "First of all, with regard to the substation meters, the testimony has been that the substation meters are dedicated to the step-down transformers and they telecommunicate the metrics of the transformers. So the State will acknowledge that those things are telemetry units related to step-down transformers."
On appeal, appellants do not dispute that: (i) EPE's statements of grounds and schedules specifically identified the transactions concerning the meters for which it was seeking a refund based on the manufacturing exemption and referenced section 151.318 as to those transactions; (ii) the trial court's finding that the meters were "telemetry units" for purposes of the manufacturing exemption; or (iii) EPE's compliance with section 111.105(d) by filing a motion for rehearing raising the manufacturing exemption as a ground for seeking a tax refund as to the transactions concerning the meters. See Tex. Tax Code § 111.105(d) (stating that motion for rehearing on tax refund claim "must be written and assert each specific ground of error").
Analysis
"Reproduc[ing]" appellants' "offer[ of] 'a typical line item' from [EPE's] schedules" "followed by eight other representative line items," the Court concludes: "Nothing in these line items reasonably makes it any clearer to the Comptroller that [EPE] is claiming a refund for telemetry units related to step-down transformers." The Court also concludes that EPE's citation and quotation of section 151.318(a)(4) in its statements of grounds "without more" was inadequate because it "does not even put the Comptroller on notice of what category of telemetry units is the subject of a refund claim." Based on these conclusions, the Court ultimately concludes that EPE's statements of grounds and supporting schedules "were not specific enough" as to the "claimed legal basis" to comply with section 111.104(c)(2) and invoke the trial court's jurisdiction. See id. § 111.104(c)(2). The Court interprets the specificity requirements of section 111.104(c)(2) to have required EPE in its claims for refund expressly to have included the phrase "telemetry unit related to step-down transformers" with a reference to section 151.318(a)(4) as to the transactions concerning the meters. The Court appears to agree with appellants' argument that "the Court should find that [EPE]'s failure to comply with [its procedural rule] deadline was a failure to comply with the 'fully and in detail' requirement of Tax Code section 111.104." But this conflates the requirements under the Comptroller's procedural rule with the Tax Code's jurisdictional requirements for bringing a tax refund suit and would require the Court to impose jurisdictional requirements that are not in the statute. See, e.g., Ryan, 2015 Tex. App. LEXIS 5096, at *35 (concluding in context of rule challenge that rules were invalid that imposed "'additional burdens, conditions, or restrictions in excess of or inconsistent with' subsection 111.104(c) and the overall statutory scheme" (citation omitted)). It is the Legislature, not the Comptroller, that determines the trial court's jurisdiction over taxpayer refund suits.
The Court also states that EPE "does not put forth any other clarifying information from the schedules." But the record includes the PFD, the affidavit of EPE's representative, and testimony and exhibits from trial that provided additional identifying information about the transactions concerning the meters that are line items on the schedules.
The Court quotes the ALJ's reasoning in his PFD as support for the Court's conclusion that he "agreed" with appellants that EPE did not comply with section 111.104(c)(2) of the Tax Code. The ALJ, however, cited the Comptroller's procedural rule—not section 111.104(c)(2) of the Tax Code—as the basis for his decision that EPE's ground "was not timely raised" that the meters were exempt under the manufacturing exemption.
In its analysis of whether EPE met the requirements of section 111.104(c)(2), the Court applies an incorrect standard of review in the procedural posture of an appeal from a final judgment. In this context, the Court should consider the parties' evidence to the extent necessary to resolve the jurisdictional facts, taking as true all evidence favorable to EPE and indulging every reasonable inference and resolving any doubts in its favor. See City of New Braunfels v. Carowest Land, Ltd., 549 S.W.3d 163, 169 (Tex. App.—Austin 2017, pet. filed) (describing standard of review when party challenges trial court's jurisdiction in appeal from final judgment (citing Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 555 (Tex. 2000))); see also Mission Consol. Indep. Sch. Dist. v. Garcia, 372 S.W.3d 629, 635 (Tex. 2012) (describing plea to jurisdiction practice in Texas when challenge is to existence of jurisdictional facts); Creedmoor-Maha Water Supply Corp. v. Texas Comm'n on Envtl. Quality, 307 S.W.3d 505, 513 (Tex. App.—Austin 2010, no pet.) (describing standard of review when considering jurisdictional evidence); Combs v. Entertainment Publ'ns, Inc., 292 S.W.3d 712, 719 (Tex. App.—Austin 2009, no pet.) (same).
I agree with the Court that whether a court has subject matter jurisdiction is determined as a matter of law and that the Court reviews de novo the denial of a plea to the jurisdiction. Appellants' plea to the jurisdiction, however, did not challenge the trial court's jurisdiction based on EPE's pleadings but on evidence challenging jurisdictional facts—particularly relevant here, whether EPE had put the Comptroller on notice of the legal basis of its tax refund claims in compliance with the Tax Code. And, contrary to the Court's conclusion, the parties did not stipulate to the facts "upon which subject-matter jurisdiction turns." Based on a request from the trial court to provide complete copies of the exhibits that the parties offered during the hearing on the plea to the jurisdiction, the parties filed "stipulated exhibits." Stipulating to the exhibits that were offered during the hearing, which included the affidavit of EPE's tax representative, does not mean that the parties stipulated to the facts.
In its discussion of trial testimony, the Court does not apply this standard but finds it "notabl[e]" that "there was no trial testimony that the State should have been on notice of a refund claim for telemetry units related to step-down transformers by dint of the Statements of Grounds' contents—the critical step under Section 111.104." Because the trial court had already decided that it had jurisdiction prior to the bench trial when it denied appellants' plea to the jurisdiction, it is hardly surprising that the evidence at trial concerned the parties' substantive dispute.
Further, in my view, the Court improperly diverges from this Court's precedent interpreting the specificity requirements of section 111.104(c)(2) and similar provisions in the Tax Code. See Silicon Labs., Inc. v. Hegar, No. 03-17-00061-CV, 2018 Tex. App. LEXIS 5323, at *13-16 (Tex. App.—Austin July 13, 2018, pet. denied) (mem. op.) (discussing Comptroller's cross appeal challenging trial court's jurisdiction following bench trial); Ryan, 2015 Tex. App. LEXIS 5096, at *25-31 (concluding that section 111.104(c)(2) is not ambiguous, interpreting it based on its plain language, and interpreting "phrase 'fully and in detail' in subsection 111.104(c) in context" and "in conjunction with other sections of the Tax Code that contain similar language"); see also In re Nestle, USA, Inc., 359 S.W.3d 207, 208-09 (Tex. 2012) (orig. proceeding) (generally discussing requirements of protest letter); H.K. Global Trading, Ltd. v. Combs, 429 S.W.3d 132, 136 (Tex. App.—Austin 2014, pet. denied) (concluding in context of appeal from final judgment following bench trial that protest letter was sufficient to invoke trial court's jurisdiction to consider statutory subsection that was not expressly cited in protest letter); Combs v. Health Care Servs. Corp., No. 03-09-00617-CV, 2011 Tex. App. LEXIS 2081, at *43-45 (Tex. App.—Austin Mar. 16, 2011) (mem. op.) (concluding that motion for rehearing was sufficiently definite to identify refund claim based on sales-tax exemptions made for and resold to federal government), aff'd in part and rev'd in part, 401 S.W.3d 623 (Tex. 2013); cf. Local Neon Co. v. Strayhorn, No. 03-04-00261-CV, 2005 Tex. App. LEXIS 4667, at *13-15 (Tex. App.—Austin June 16, 2005, no pet.) (mem. op.) (discussing specificity requirement for protest letters and concluding that "bare statement" that taxes were paid under protest "did not satisfy the purpose of the written protest requirement because the letter does not inform the Comptroller on what basis she must defend the suit"); Chevron v. Combs, 319 S.W.3d 836, 844-45 (Tex. App.—Austin 2010, pet. denied) (concluding that taxpayer had not exhausted administrative remedies as to "98 new, unrelated claims" that taxpayer raised for first time in motion for rehearing).
This Court has interpreted the plain language of these types of provisions to require the taxpayer to provide a sufficient description of the legal foundation or basis for a claim so that the Comptroller has notice of it. See Silicon Labs., 2018 Tex. App. LEXIS 5323, at *13-16 (explaining that specificity requirements provide notice to Comptroller of legal basis of claim); Ryan, 2015 Tex. App. LEXIS 5096, at *25-31 (same). Appellants do not dispute that the Comptroller was on notice during the administrative proceedings that EPE was claiming that the transactions concerning the meters were exempt because the meters were "telemetry units" under the manufacturing exemption pursuant to section 151.318(a)(4). And in this case, the record is clear that the Comptroller was on notice beginning with EPE's initial claims for refund that EPE's grounds included the manufacturing exemption as to the specifically identified transactions concerning the meters. EPE expressly referenced the manufacturing exemption and quoted section 151.318, including subsection (a)(4), in its statements of grounds and provided further notice in its accompanying schedules that it was seeking a refund based on the manufacturing exemption as to the specifically identified transactions concerning the meters. That was enough to satisfy the requirements of section 111.104(c)(2). See Ryan, 2015 Tex. App. LEXIS 5096, at *25-31.
Conclusion
Viewing the jurisdictional evidence under the applicable standard of review, I conclude that the evidence was sufficient to invoke the trial court's jurisdiction over EPE's tax refund claims. Thus, I would affirm the trial court's denial of appellants' plea to the jurisdiction and address the substance of the parties' dispute. I therefore respectfully dissent.
/s/_________
Melissa Goodwin, Justice Before Justices Goodwin, Kelly, and Smith Filed: August 13, 2020