Glenn Hegar, Comptroller of Public Accounts of the State of Texas and Ken Paxton, Attorney General of the State of Texas v. Championx, LLC

ACCEPTED 15-24-00111-CV FIFTEENTH COURT OF APPEALS AUSTIN, TEXAS 4/30/2025 4:51 PM No. 15-24-00111-CV CHRISTOPHER A. PRINE CLERK FILED IN In the Court of Appeals 15th COURT OF APPEALS AUSTIN, TEXAS for the Fifteenth Judicial District 4/30/2025 4:51:25 PM Austin, Texas CHRISTOPHER A. PRINE Clerk Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and Ken Paxton, Attorney General of the State of Texas Appellants, V. Championx, LLC, Appellees.

On Appeal from the 419th Judicial District Court, Travis County, Texas Cause Number D-1-GN-20-000139

Appellants’ Reply Brief KEN PAXTON Attorney General KELSEY HANSON Assistant Attorney General BRENT WEBSTER State Bar No. 24096654 First Assistant Attorney General [email protected] RALPH MOLINA Deputy First Assistant Attorney Office of the Attorney General General Tax Litigation Division P.O. Box 12548 (MC 029) AUSTIN KINGHORN Austin, Texas 78711-2548 Deputy Attorney General for Civil Tel: 512-463-8897 Litigation Fax: 512-478-4013 STEVEN ROBINSON Division Chief, Tax Litigation Counsel for Appellants Division ORAL ARGUMENT REQUESTED i TABLE OF CONTENTS TABLE OF CONTENTS ........................................................................... ii INDEX OF AUTHORITIES ..................................................................... iv RECORD REFERENCES ........................................................................ vi ARGUMENTS AND AUTHORITIES ....................................................... 1 I. Texas Tax Code section 151.322 bars Champion’s Containers from qualifying for the more general exemption under Texas Tax Code section 151.318. ........................................................... 2 A. East Texas Oxygen’s analysis applies to Champion’s returnable and reusable Containers....................................... 2 B. The Container Exemption controls as the more specific provision. ................................................................................. 3 C. Champion’s argument regarding irreconcilable conflict fails. ................................................................................................. 8 D. There is no indication that the Legislature intended the Manufacturing Exemption to override the Container Exemption. ............................................................................ 11 II. Champion’s Containers do not qualify for any exemption contained in the Manufacturing. .............................................. 12 A. Champion’s Containers do not qualify for a tax exemption under Texas Tax Code section 151.318 (a)(5). ...................... 13 B. Champion’s Containers do not qualify for a tax exemption under Texas Tax Code section 151.318 (a)(8). ...................... 15 C. Champion’s Containers do not qualify for a tax exemption under Texas Tax Code section 151.318 (a)(10). .................... 17 D. Even if Champion can show its Containers satisfy the elements of the Manufacturing Exemption sections (a)(5), (a)(8), or (a)(10), Champion’s Containers do not qualify for an ii exemption because they are excluded pursuant to Texas Tax Code section 151.318(c). ........................................................ 18 E. The issue of whether Champion can satisfy the elements of the Manufacturing Exemption sections (a)(5), (a)(8), and (a)(10) has not been waived. ................................................. 20 III. The services performed on Champion’s Containers are not exempt from taxation pursuant to Texas Tax Code section 151.3111. ................................................................................... 21 PRAYER .............................................................................................. 23 CERTIFICATE OF COMPLIANCE ................................................... 24 CERTIFICATE OF SERVICE ............................................................ 25 INDEX OF APPENDICES ................................................................. 26 iii Cases Pages City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (Tex. App.—Waco 1980, no writ) .................................. 4 Combs v. Health Care Servs. Corp., 401 S.W.3d 623 (Tex. 2013) ..................................................................... 4 Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d 638 (Tex. 2013) ..................................................................... 9 East Texas Oxygen Co. v. State, 681 S.W.2d 741 (Tex. App.—Austin 1984, no writ) ........................ 2, 3, 6 Farmland Industries, Inc. v. Moore, 596 S.W.2d 939 (Tex. App.—Waco 1980, no writ) .................................. 4 Holmes v. Morales, 924 S.W.2d 920 (Tex. 1996) ..................................................................... 4 Laredo Coco-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (Tex. App.—Austin 2010, pet. denied) ........................ 20 Sw. Royalties, Inc. v. Hegar, 500 S.W.3d 400 (Tex. 2016) ............................................................... 9, 20 Townsend v. Terrell, 16 S.W.2d 1063 (Tex. 1929) ..................................................................... 6 Statutes Tex. Gov. Code § 311.026 ...................................................................... 4, 5 Tex. Tax Code § 112.154............................................................................ 9 Tex. Tax Code § 151.005............................................................................ 5 Tex. Tax Code § 151.051............................................................................ 6 Tex. Tax Code § 151.101............................................................................ 6 Tex. Tax Code § 151.318.................................................................. passim Tex. Tax Code § 151.322.................................................................. passim Tex. Tax Code § 151.3111............................................................ 21, 22, 23 iv Regulations Tex. Admin Code § 3.300 .............................................................. 16, 22 34 Tex. Admin. Code § 3.1 ................................................................... 9, 10 Tex. Admin Code § 3.314 ...................................................................... 4 Other Authorities Texas Policy Letter Ruling No. 200108400L (Aug. 6, 2001) ..................................................... 8, 10, 11 Tex. Sess. Laws Acts 1999, 76th Leg., ch. 1467, § 2.19, eff. Oct. 1, 1999. ........................ 11 v RECORD REFERENCES “CR1” refers to the clerk’s record for Trial Court Cause No. D-1-GN- 20-000139 dated November 22, 2024. “CR2” refers to the clerk’s record for Trial Court Cause No. D-1-GN-21-000699 dated November 22, 2024.

“CR3” refers to the clerk’s record for Trial Court Cause No. D-1-GN-22- 003715 dated November 22, 2024.

vi ARGUMENTS AND AUTHORITIES I. Texas Tax Code section 151.322 bars Champion’s Containers from qualifying for the more general exemption under Texas Tax Code section 151.318.

Champion is a chemical manufacturer seeking a sales and use tax exemption for its purchases of Containers used to deliver finished products to end-user customers. Champion uses its Containers to transport the completed chemical products to end-user customers.

Champion’s Containers are not exempt from sales and use tax under “the Manufacturing Exemption” codified in Texas Tax Code section 151.318 because the more specific exemption, “the Container Exemption” under Texas Tax Code section 151.322 bars Champion from qualifying for the Manufacturing Exemption. The Texas Legislature has set out a speci�ic provision under which a manufacturer is exempt from paying sales tax under the Container Exemption. Tex. Tax Code § 151.322. Champion’s Containers do not qualify for an exemption under the plain language of the Container Exemption. Id. A statutory construction principle requires a specific statute to control over a more general one. Since Champion’s Containers do not qualify under the specific Container Exemption, they also cannot qualify under more general exemptions such as the ones contained in the Manufacturing Exemption. Even if the Manufacturing Exemption is found to control over the Container Exemption, Champion’s purchases of Containers still do not qualify for the Manufacturing Exemption as the Containers themselves are not used to manufacture the chemicals it sells to end user customers. See Appellants’ Br. 17-22.

A. East Texas Oxygen’s analysis applies to Champion’s returnable and reusable Containers.

East Texas Oxygen Co. v. State is the best authority addressing tax exemption claims for empty returnable containers. See East Texas Oxygen Co. v. State, 681 S.W.2d 741 (Tex. App.— Austin 1984, no writ).

In that case, the taxpayer purchased empty returnable cylinders and filled the cylinders with oxygen that it sold to end users. East Texas Oxygen Co. v. State, 681 S.W.2d 741, 747 (Tex. App. —Austin 1984, no writ). The East Texas Oxygen court held that, in order to give meaning to Texas Tax Code section 151.322 and ensure that the returnable containers are taxed at some point, the provisions specifically dealing with the sale of containers constitute an exception to the general resale exemption for purchases for resale. Id. at 745.

Although Champion is not claiming a sale for resale exemption, East Texas Oxygen’s analysis of the resale’s applicability to returnable containers is relevant when addressing Champion’s Containers for which they are seeking a sales and use tax refund. Similar to East Texas Oxygen, Champion does not sell its Containers with the chemicals it manufactures but instead uses its Containers which it purchases and leases from third-party vendors as a means of transporting and delivering the chemicals it manufactures to end-user customers. CR1 141-142, 159, 208-209. Once Champion’s Containers are emptied by end users, they are returned to be reused in Champion’s chemical business.

CR1 141-142, 210. The Legislature’s policy is to impose sales tax at some point. East Texas Oxygen Co. v. State, 681 S.W.2d at 745. Further, Texas Tax Code section 151.322 ensures that tax is collected only once on a returnable container, not each time it is returned empty. Id. Accordingly East Texas Oxygen is the best authority addressing tax exemption claims for empty returnable containers like Champion’s.

B. The Container Exemption controls as the more specific provision.

There are two exemptions at issue in this appeal. The first is the Container Exemption. See Tex. Tax Code § 151.322. The second is the Manufacturing Exemption. See Tex. Tax Code § 151.318. When considering two statutes on the same subject, one general and one specific, the specific controls. See Holmes v. Morales, 924 S.W.2d 920, 923 (Tex. 1996); see also Farmland Industries, Inc. v. Moore, 596 S.W.2d 939 (Tex. App—Waco 1980, no writ); City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (Tex. App.—Waco 1980, no writ).

The Texas Legislature has specifically defined when a manufacturer is exempt from paying sales tax on containers in the Container Exemption. See Tex. Tax Code § 151.322. As explained in Texas Administrative Code section 3.314(g)(3), a manufacturer must pay sales and use tax on its purchases of containers because its sales of the returnable containers are exempt from tax under Texas Tax Code section 151.322(a)(3). Additionally, the plain meaning of Texas Tax Code section 151.322 is applicable to the Containers on which Champion is claiming a tax exemption. The Texas Supreme Court has stated that “if a statute is worded clearly, we must honor its plain language, unless that interpretation would lead to absurd results.” Combs v. Health Care Servs. Corp., 401 S.W.3d 623, 629 (Tex. 2013).

Champion cites the canon of statutory construction of in pari materia, codified in Texas Government Code section 311.026 alleging that the Manufacturing Exemption actually controls over the Container Exemption. Appellee’s Br. 17-19. Texas Government Code section

311.026 provides that if a general provision conflicts with a special or local provision, the provisions should be construed if possible so that effect is given to both. Tex. Gov. Code § 311.026(a). Further, it provides if the conflict between the general provision and the special or local provision is irreconcilable, the special or local provision prevails as an exception to the general provision, unless the general provision is the later enactment, and the manifest intent is that the general provision prevail. Tex. Gov. Code § 311.026(b).

Champion’s application of Texas Government Code section 311.026 to the Container Exemption and the Manufacturing Exemption is misguided. This appeal concerns evaluating the taxability of Containers which Champion purchases and leases from third-party vendors as a means of transporting and delivering the chemicals it manufactures to end-user customers. CR1 141-142, 159, 208-209. Specifically, at issue are the Manufacturing Exemption and the Container Exemption. See Tex. Tax Code §§ 151.322, 151.318. These two provisions certainly concern the same subject: Texas sales and use tax exemptions of a taxable item. See Tex. Tax Code §§ 151.322, 151.318; see also Tex. Tax Code §§ 151.005, 151.051, 151.101 (explaining Texas imposes sales and use tax on each sale or use of a taxable item in the State). Consequently, section 151.318 and section 151.322 share a common purpose and the Container Exemption prevails over the Manufacturing Exemption. Id. Champion also contends the Container exemption is broader because it applies to all taxpayers, whereas the Manufacturing Exemption only applies to manufacturers. Appellee’s Br. 21-22. This argument ignores the reasons for imposing the Container Exemption: to ensure that tax is collected only once on a returnable container, not each time it is returned empty. See East Texas Oxygen Co. v. State, 681 S.W.2d 741, 745 (Tex. App.—Austin 1984, no writ). Therefore, the Container Exemption, which contains provisions specifically dealing with containers must prevail in order to comply with Legislative intent to ensure tax is only collected once on a returnable container. Id; see also Townsend v. Terrell, 16 S.W.2d 1063 (Tex. 1929) (“the specific statute more clearly evidences the intention of the legislature than the general one and, therefore, that it will control.”).

Champion’s Containers do not qualify for a tax emption as indicated by the plain language of section 151.322. The Container Exemption provides three instances in which a container is exempt from sales and use tax: (1) a container sold with its contents if the sales price of the contents is not taxed under this chapter; (2) a nonreturnable container sold without its contents to a person who fills the container and sells the contents and the container together; and (3) a returnable container sold with its contents or resold for refilling.

Tex. Tax Code § 151.322(a).

Here, Champion cannot meet the any of these three instances.

First, Champion admits the contents of its Containers – the chemicals it sells to end user customers – is taxed. See CR1 at 207. Consequently, it does not qualify for an exemption under Texas Tax Code section 151.322(a)(1). Next, Champion cannot qualify for an exemption under Texas Tax Code section 151.322(a)(2) because Champion is selling Chemicals – not Containers to its Customers. See CR1 158, 194. Once their customers take possession of the chemicals it purchased, then the Containers are cleaned and returned to Champion. CR1 141-142. Finally, Champion’s Containers do not qualify for a refund under Texas Tax Code section 151.322(a)(3) because Champion does not sell the Containers with its chemicals, instead the Containers are provided solely for temporary use of transporting and delivering the chemicals to end user customers.

CR1 141-142, 159, 208-209. Therefore, Champion’s purchase of its Containers are not exempt from sales and use tax under the Container Exemption because they are not exempt containers as contemplated under Texas Tax Code section 151.322.

Accordingly, the Container Exemption controls as the more specific provision to Champion’s purchases of Containers and should be the exemption under which they are evaluated. Further, Champion’s purchases of the Containers do not qualify for a sales and use tax refund under the Container Exemption.

C. Champion’s argument regarding irreconcilable conflict fails.

Champion spends much of its brief discussing past Comptroller decisions and past Comptroller policy letter rulings. Both of these types of decisions cited by Champion involve taxpayers who are not similar to Champion as the taxpayers in the decisions Champion relies on are not seeking a tax exemption on returnable and reusable containers.

Champion’s reliance on Texas Policy Letter Ruling No. 200108400L (Aug.

6, 2001) is misguide for multiple reasons and its argument regarding a failure by Appellants to identify an irreconcilable conflict between the Container Exemption and the Manufacturing Exemption fails.

First, a private letter from the Comptroller such as this one is the Comptroller’s written determination of how relevant tax laws, rules, and polices apply to a specific set of facts submitted in a properly completed private letter ruling request. See 34 Tex. Admin. Code § 3.1(a)(2).

A person who receives a private letter ruling may rely on it prospectively from the date that the private letter ruling is issued and with respect only to the particular issue and the person identified in the request for the private letter ruling. See 34 Tex. Admin. Code § 3.1(d)(1). This letter is not directed to Champion and therefore cannot be relied on as being applicable to its Containers. Id. Next, in a suit for tax refund the issues before the Court are to be tried de novo. See Tex. Tax Code § 112.154. Consequently, “regardless of the Comptroller’s prior interpretations, [a question] of statutory construction ‘ultimately is one left to the courts.” See Sw. Royalties, Inc. v. Hegar, 500 S.W.3d 400, 408-09 (Tex. 2016) (citing Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d at 638 (Tex. 2013)). Champion’s cited Comptroller policy letters are not binding on the Court because unlike binding case law, these letters do not contain a fully developed factual record to be compared to the facts and law at issue in this appeal.

See 34 Tex. Admin. Code § 3.1(a)(2). Therefore, Champion’s reliance on the Comptroller’s prior interpretations does not apply to proving it is entitled to the exemptions it seeks on its Containers.

Finally, even if a private letter ruling could aide Champion’s argument, Champion’s interpretation of this decision in Texas Policy Letter Ruling No. 200108400L (Aug. 6, 2001) is incorrect. In this Texas Policy Letter Ruling, the Comptroller found that the taxpayer, a manufacturer of cable products, could make tax-free purchases of returnable steel reels which the taxpayer used to ship its product to customers. Id. The taxpayer would store its cable on the reels and then ship the reels to customers. Id. The customer later returned the reels to the taxpayer once all the cable had been removed. Id. The Comptroller determined that the reusable reels qualified as wrapping, packing, and packaging supplies used to further the sale of the taxpayer’s products and were, therefore, that taxpayer was eligible for a manufacturing exemption under Texas Tax Code section 151.318. Id. Champion argues this shows the Container Exemption under section 151.322 was no obstacle to the Comptroller’s decision in this policy letter. Appellee’s Br.

21. Champion’s interpretation of this decision is incorrect because reels for cables are not comparable to containers for chemicals. In the policy letter, the Comptroller determined the reels to be packaging, not containers. See Texas Policy Letter Ruling No. 200108400L (Aug. 6, 2001). Additionally, Champion’s alleged reconciliation is unnecessary because of the gross differences between reels of cables and the Containers in this case.

D. There is no indication that the Legislature intended the Manufacturing Exemption to override the Container Exemption.

Champion makes an argument that the Manufacturing Exemption controls over the Container Exemption because it was that latest- amended provision. In support of this argument Champion references 1999 legislation which modified the Manufacturing Exemption. Tex. Sess. Laws, Acts 1999, 76th Leg., ch. 1467, § 2.19, eff. Oct. 1, 1999.

However, Champion fails to mention that this same piece of legislation also modified exclusions contained in Texas Tax Code section 151.318(c) which excludes their containers from qualifying for the Manufacturing Exemption. Id. There is no indication in the text of the statutes or the legislative history that the Legislature intended the Manufacturing Exemption to override the Container Exemption.

II. Champion’s Containers do not qualify for any exemption contained in the Manufacturing Exemption under Texas Tax Code section 151.318.

Champion contends it qualifies for an exemption for its Containers pursuant to three exemptions contained within the Manufacturing Exemption under Texas Tax Code section 151. 318. First, Champion alleges its Containers qualify for exemption under Texas Tax Code section 151.318(a)(5), “the Pollution Control Exemption”, which provides exemption for property which is necessary and essential to pollution control processes. Next, Champion alleges its Containers qualify for exemption under Texas Tax Code section 151.318(a)(8), “the Quality Control Exemption”, which provides exemption for property which is necessary and essential to the quality control process. Finally, Champion alleges its Containers qualify for exemption under Texas Tax Code section 151.318(a)(8), “the Public Health Requirements Exemption”, which provides exemption for property which is necessary and essential to comply with public health requirements.

As explained in detail in Appellants’ brief, Champion’s Containers do not qualify for the Manufacturing Exemption as the Containers themselves are not used to manufacture the chemicals it sells to end user customers. See Appellants’ Br. 17-22. Additionally, Champion cannot satisfy the elements of The Manufacturing Exemption under Texas Tax Code 151.318 sections (a)(5), (a)(8), and (a)(10), because it cannot show that the Containers are necessary and essential for pollution control, quality control, or satisfying public health requirements. However, even if Champion can satisfy the elements of Tax Code 151.318 sections (a)(5), (a)(8), and (a)(10), Champion’s Containers still do not qualify for the Manufacturing Exemption because the Containers are specifically excluded pursuant to Texas Tax Code section 151.318(c).

A. Champion’s Containers do not qualify for a tax exemption under Texas Tax Code section 151.318 (a)(5).

First, Champion’s Containers do not qualify for the Pollution Control Exemption which provides an exemption for tangible personal property used or consumed in the actual manufacturing of tangible personal property for ultimate sale if the use or consumption is necessary and essential to a pollution control process. See Tex. Tax Code § 151.318(a)(5).

Champion contends its Containers qualify for a sales and use tax exemption pursuant to Texas Tax Code section 151.318 (a)(5), because its Containers were used at the completion of its manufacturing process and because the Containers were used to prevent spills and chemical emissions for pollution control. Appellee’s Br. 45. Further, Champion argues 151.318(a)(5) does not require simultaneous use for processing and pollution control to argue that the containers were used first for completion of the manufacturing process and then to prevent spills and chemical emissions. Appellee’s Br. 46. In support of this argument, Champion relies on Texas Comptroller’s Decision No. 115,803 (Jan 11, 2023). Id. This Comptroller Decision held that Saltwater Waste Disposal wells were not exempt because the oil (which was being manufactured and sold) was already extracted from the water prior to the water’s disposal. See Tex. Comptroller’s Decision No. 43,944 (Aug. 6, 2007). Since the Saltwater Waste Disposal wells were not used for processing or manufacturing, the ALJ determined that the exemption for pollution control process did not apply. Id. Here, similar to Saltwater, Champion’s chemicals were already manufactured prior to being transferred into its Containers. CR1 161,

205-206. Since the manufacturing is complete before transfer to the Containers, Champion cannot claim that the Containers are used to complete the already-complete process. Therefore, Champion’s Container’s do not qualify for exemption under Texas Tax Code section 151.318 (a)(5).

B. Champion’s Containers do not qualify for a tax exemption under Texas Tax Code section 151.318 (a)(8).

Next, Champion’s Containers do not qualify for the Quality Control Exemption which provides an exemption for tangible personal property used or consumed in the actual manufacturing of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to a quality control process that tests tangible personal property that is being manufactured for ultimate sale. See Tex. Tax Code § 151.318(a)(8).

Here, Champion’s chemical manufacturing process consists of filling reactors with raw materials, blending the materials in the reactors, and if necessary, adding a catalyst such as a solid, liquid, or gas to initiate a chemical reaction. CR1 161, 205-206. Champion then tests the product to ensure it meets customer order specifications and industry specifications. CR1 141, 206. The chemicals are then cooled so they are ready for transfer into the Containers. Id. Champion later tests the chemicals again after they are transferred to the Containers and claim because the testing is performed after the chemicals are filled into the Containers but before they are tagged and sealed that they are exempt under Texas Tax Code section 151.318(a)(8). Appellee’s Br. 44. In support of this argument, Champion relies on 34 Texas Admin Code section 3.300(d)(9) which explains that the Manufacturing Exemption extends to equipment that is necessary and essential to quality control testing that occurs before wrapping and packaging. Appellee’s Br. 44.

Champion’s Containers do not qualify for tax exemption because the Containers are not necessary and essential to its quality control process for the manufacturing of Champion’s chemical product which is what Champion is ultimately selling. Here, the necessary and essential quality control process that tests tangible personal property that is being manufactured for ultimate sale – Champion’s chemical product – occurs when the chemicals have been manufactured and are still in the reactors before they are placed into the Containers. See CR1 141, 206. Any testing Champion does after the chemicals are in the Containers does not qualify for Texas Tax Code section 151.318 (a)(8) either, because it cannot be said that the Containers are “necessary and essential” to the quality control process for the Chemicals as required by statute. See CR1 141, 206 (describing the process of testing the completed Chemicals prior to being placed in the Containers); Compare Appellee’s Br. 44. (describing the process of the second testing of the completed chemical product.).

Accordingly, Champion’s Containers do not qualify for exemption under Texas Tax Code section 151.318 (a)(8).

C. Champion’s Containers do not qualify for a tax exemption under Texas Tax Code section 151.318 (a)(10).

Finally, Champion’s Containers do not qualify for the Public Health Requirements Exemption which provides an exemption for tangible personal property used or consumed in the actual manufacturing of tangible personal property for ultimate sale if the use or consumption of the property is necessary and essential to comply with federal, state, or local laws or rules that establish requirements related to public health.

See Tex. Tax Code § 151.318(a)(10).

Here, Champion’s Containers are not used in the manufacturing, processing, or fabrication of the chemicals. Champion’s chemical manufacturing process consists of filling reactors with raw materials, blending the materials in the reactors, and if necessary, adding a catalyst such as a solid, liquid, or gas to initiate a chemical reaction. CR1 161, 205-206. Champion’s Containers are then used to store and transport the chemicals to end user customers. CR1 141, 207. The manufacturing, processing, and fabrication is completed prior to the chemicals being transferred into the Containers. Id. Therefore, Champion’s Containers do not satisfy the requirements to qualify for the Public Health Requirements Exemption because the Containers are not tangible personal property used or consumed in the actual manufacturing of the Chemicals Champion sells to end-user customers.

D. Even if Champion can show its Containers satisfy the elements of the Manufacturing Exemption sections (a)(5), (a)(8), or (a)(10), Champion’s Containers do not qualify for an exemption because they are excluded pursuant to Texas Tax Code section 151.318(c).

Appellants believe Champion cannot satisfy the elements of the Manufacturing Exemption sections (a)(5), (a)(8), and (a)(10). However, even if Champion could satisfy either section (a)(5), (a)(8), or (a)(10) of the Manufacturing Exemption, Champion’s containers still do not qualify for the Manufacturing Exemption because they are specifically excluded pursuant to Texas Tax Code section 151.318(c).

Champion’s Containers are specifically excluded from the Manufacturing Exemption pursuant to the exclusions codified in Texas Tax Code section 151.318(c) as equipment used in distribution and transportation activities. Champion admits multiple times that its Containers are utilized for the purpose of transporting its chemicals to end-user customers. CR1 141, 207. Additionally, Champion admits that once the Containers are utilized for transporting the chemicals to end- user customers, that the customers may take possession of the chemicals (the product they purchased) and place them in their own tanks or containers. See Appellee’s Br. 6; see also CR 209. This shows that the product end-user customers are ultimately purchasing are the chemicals and the Containers are merely a mechanism to transport them. Id. Further, Champion uses its transportation activities as a basis to try to argue that regulations followed in connection with transportation activities qualify them for a sales and use tax exemption. Appellee’s Br.

39-42. Champion cannot argue a fact is true and then also allege as they have here that the Containers are “not equipment used in distribution activities” or transportation activities’ within the meaning of (c)(3).

Appellee’s Br. 48.

Because Champion’s Containers are equipment utilized for distribution and transportation activities, they are excluded from the Manufacturing Exemption pursuant to the exclusion codified in Texas Tax Code section 151.318(c)(3).

E. The issue of whether Champion can satisfy the elements of the Manufacturing Exemption sections (a)(5), (a)(8), and (a)(10) has not been waived.

Champion has a burden to clearly show it can satisfy the requirements of each of the exemptions it claims applies to its Containers. See Sw. Royalties, Inc. v. Hegar, 500 S.W.3d 400, 404 (Tex. 2016). Doubts as to whether an exemption applies are resolved in favor of the Comptroller. Laredo Coco-Cola Bottling Co. v. Combs, 317 S.W.3d 735, 739 (Tex. App.—Austin 2010, pet. denied) (citations omitted).

Champion alleges the issue of whether it can satisfy the elements of the Manufacturing Exemption sections (a)(5), (a)(8), and (a)(10) has been waived by Appellants. Appellee’s Br. 34-36. This is incorrect. The Final Judgment on appeal held that “the exemption for property used in manufacturing under Tex. Tax Code § 151.318 exempts the portafeed drums, tanks, and totes [Champion’s Containers] at issue from Texas sales and use tax”. CR1 916-918. Texas Tax Code section 151.318 provides eleven different Manufacturing Exemptions. On appeal, Appellants argue as it did at the trial court level that the Appellee’s containers do not qualify for any of the Manufacturing Exemptions. See Appellants’ Br. 17-22.

Consequently, the issue of whether Champion can satisfy the elements of the Manufacturing Exemption sections (a)(5), (a)(8), and (a)(10) has not been waived by Appellants. Further, for the forgoing reasons, Appellants have demonstrated how Champion has failed to meet its burden to clearly show its purchase of Containers qualify for any of the three exemptions it seeks under the Manufacturing Exemption sections (a)(5), (a)(8), and (a)(10).

III. The services performed on Champion’s Containers are not exempt from taxation pursuant to Texas Tax Code section 151.3111.

As explained in detail above, Champion’s Containers do not qualify for a tax exemption under the Manufacturing Exemption sections (a)(5), (a)(8), or (a)(10). Because Champion’s Containers are not exempt, the cleaning, delivery, pick-up, and repair services performed on Champion’s containers are also not exempt from tax pursuant to the exemption for services codified in Texas Tax Code section 151.3111.

Appellants do not agree that Champion’s Containers are eligible for the Manufacturing Exemption at any stage. However, even if the Manufacturing Exemption did apply to Champion’s Containers, the timing of the performance of the services prevents Texas Tax Code section 151.3111 from applying to Champion’s containers. See Tex. Tax Code § 151.318; 151.3111.

The Manufacturing Exemption begins with the first stage of production, and logically ends after the product is completed. Tex. Tax Code § 151.318(d). It does not include acts in preparation for production.

Therefore, since the Manufacturing Exemption would not apply to Champion’s Containers at the time the Cleaning Services are performed, there is no sales and use tax exemption available for the Cleaning Services under Texas Tax Code section 151.3111(a).

Accordingly, the Court should hold that the cleaning and transportation services performed on the Containers are not exempt from taxation under Texas Tax Code section 151.3111.

PRAYER Appellants pray the Court reverse the trial court’s judgment and render a take-nothing judgment on Champion’s claims.

Respectfully submitted, KEN PAXTON /s/ Kelsey Hanson Attorney General KELSEY HANSON Assistant Attorney General BRENT WEBSTER State Bar No. 24096654 First Assistant Attorney [email protected] General Texas Office of the Attorney RALPH MOLINA General Deputy First Assistant Tax Litigation Division MC 029 Attorney General P.O. Box 12548 Austin, Texas 78711-2548 AUSTIN KINGHORN Tel: 512-463-48897 Deputy Attorney General for Fax: (512) 478-4013 Civil Litigation Counsel for Appellants STEVEN ROBINSON Division Chief, Tax Litigation Division

CERTIFICATE OF COMPLIANCE In compliance with Texas Rule of Appellate Procedure 9.4(i)(2), this brief is computer-generated containing 4,267 words, excluding the portions of the brief exempted by Rule 9.4(i)(1).

/s/ Kelsey Hanson KELSEY HANSON Assistant Attorney General

CERTIFICATE OF SERVICE I certify that on April 30, 2025, a copy of the foregoing pleading was served on all parties or attorneys of record via the service methods listed below.

Via Electronic Service and/or email: Deborah S. Sloan [email protected] JONES DAY 2727 N. Harwood Street, Suite 500 Dallas, Texas 75201-1515 John M. Allen [email protected] Antoinette L. Ellison [email protected] JONES DAY 1221 Peachtree Street NE Atlanta, Georgia 30361 ATTORNEYS FOR APPELLEES

/s/ Kelsey Hanson KELSEY HANSON Assistant Attorney General

INDEX OF APPENDIX

Appendix A - City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (Tex. App.—Waco 1980, no writ) Appendix B - Combs v. Health Care Servs. Corp., 401 S.W.3d 623 (Tex. 2013) Appendix C - Farmland Industries, Inc. v. Moore, 596 S.W.2d 939 (Tex. App.—Waco 1980, no writ) Appendix D - Laredo Coco-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (Tex. App.—Austin 2010, pet. denied) Appendix E - Sw. Royalties, Inc. v. Hegar, 500 S.W.3d 400 (Tex. 2016) Appendix F - Townsend v. Terrell, 16 S.W.2d 1063 (Tex. 1929) Appendix G - Tex. Tax Code § 112.154

APPENDIX A - City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (Tex. App.—Waco 1980, no writ) City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (1980)

[2] Municipal, County, and Local 598 S.W.2d 681 Government Evidence Court of Civil Appeals of Texas, Waco.

Any fair, reasonable, or substantial doubt as to The CITY OF WEST LAKE HILLS, Texas, Appellant, existence of a power of municipality will be v. resolved against municipality.

WESTWOOD LEGAL DEFENSE FUND, Appellee.

No. 6157. [3] Statutes Statute as a Whole; Relation of | Parts to Whole and to One Another April 17, 1980. In construing a statute, it is duty of Court of Civil Appeals to examine entire act and construe it as Synopsis a whole.

City appealed from judgment entered in the 126th District Court, Travis County, James F. Dear, Jr., J., permanently 1 Case that cites this headnote enjoining city from enforcing by criminal action an ordinance requiring licensing of private sewage facilities located within city's extraterritorial jurisdiction. The Court of Civil Appeals, [4] Statutes Construing together; harmony James, J., held that: (1) city could not enforce ordinance by In construing a statute, one provision will not be criminal action; (2) city ordinance was not valid exercise given a meaning out of harmony or inconsistent of powers granted to city under statute allowing each with other provisions, even though it might city to pass ordinances regulating tapping of sewers and be susceptible to such construction if standing cesspools and regulating house draining and plumbing, or alone. under statute generally granting to cities power to license; and (3) municipal court had no jurisdiction to try violations of 7 Cases that cite this headnote ordinance which might occur in extraterritorial jurisdiction. [5] Municipal, County, and Local Affirmed. Government Regulation of Private Conduct; Police Power City could not enforce by criminal action an West Headnotes (11) ordinance requiring licensing of private sewage facilities located within city's extraterritorial jurisdiction in light of specific assignment [1] Municipal, County, and Local of powers of Water Commission and Government Express, implied, and commissioners courts to license private sewage incidental powers facilities which assignment limited more general Municipal, County, and Local grant of power to city to control and abate Government Essential, indispensable, and pollution and in light of fact that functions necessary powers and services listed in statute granting city A city can exercise only those powers that are general power to control and abate pollution expressly or impliedly conferred by law, and are in nature of “information gathering” power will be implied only when such power is functions. V.T.C.A., Water Code §§ 26.001 reasonably incident to those expressly granted or et seq., 26.031, 26.031(b), 26.032, is essential to object and purposes of corporation.

26.032(a, c), 26.177, 26.177(b)(3, 4).

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (1980)

[6] Municipal, County, and Local applying outside corporate limits. Vernon's Government Private sewers and drains Ann.Civ.St. arts. 1015, subd. 39, 1076.

When Water Code is viewed in its entirety, 2 Cases that cite this headnote regardless of broad, general language of section generally granting power to cities to control and abate pollution, such section was not intended to [10] Criminal Law Municipal and other local authorize cities on their own initiative to regulate courts private sewage facilities by licensing such A municipal court may have jurisdiction to try offenses occurring outside corporate limits if facilities. V.T.C.A. Water Code §§ 26.001 offenses constitute violations of city ordinances et seq., 26.031, 26.031(b), 26.032, which validly apply to area in which offense occurred.

26.032(a, c), 26.177, 26.177(b)(3, 4).

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 2 City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (1980)

The Appellant, City of West Lake Hills, is a general law city and 26.032 of the Texas Water Code; that the ordinance having a population of less than 5000 people. On or about imposes a fine not to exceed $200 for any violation thereof, October 12, 1977, the City Council passed an ordinance, that such a fine is penal in nature and is prohibited by 108-B, attempting to control pollution flowing from private state law, citing Art. 970a, Sec. 4; that the penalty further sewage facilities. Ordinance 108-B, among other things, sets forth standards for the operation and construction of private conflicts with state law since Sec. 26.214 of the Texas Water Code provides the exclusive remedy as well as proper sewage facilities 1 and required inspection and licensing of venue for violations of private sewage facility orders; that all such facilities existing within the city's limits or within the scheme of the ordinance is arbitrary, capricious and the city's extraterritorial jurisdiction. Inspections were to be unreasonable; that the ordinance represents a violation of the made by the city for a fee of $25 unless an owner hired his constitutional prohibition against the enactment of retroactive own engineer or registered sanitarian to inspect the facility, or ex post facto laws; and that the ordinance constitutes an in which case a fee of $15 would be levied to cover the cost unconstitutional taking of property without due process. of processing reports required to be submitted by a private inspector. If the facility met the express standards of the The case was submitted to the trial court on stipulated facts ordinance, a license immediately issued; if not, the city was and written briefs and the court rendered judgment granting required to specify the reasons for rejecting the application for a permanent injunction prohibiting the City of West Lake license and the city was authorized to issue interim licenses Hills from enforcing by criminal action that provision of while the facility was modified to comply with the standards.

Ordinance 108-B which requires the licensing of private Most licenses were to be issued for a 5-year period, but a sewage facilities located within the city's extraterritorial license could be revoked at any time for non-compliance. jurisdiction. The trial court's judgment recited that “the CITY Enforcement of the ordinance was by criminal action brought OF WEST LAKE HILLS, TEXAS, Ordinance 108-B is a in the city's municipal court. Offenses proscribed by the valid exercise of legislatively granted powers to the CITY OF ordinance included, inter alia: 1) using or permitting the use WEST LAKE HILLS, TEXAS, and that such Ordinance is in of an unlicensed private sewage facility on property owned all respects valid and enforceable except as hereinafter set out: or possessed by the offender; and 2) failure of an owner to make application for a license for an existing private sewage “a. That DEFENDANT CITY OF WEST LAKE HILLS, facility on property within 90 days after notice by the city.

TEXAS, Ordinance 108-B exceeds the authority granted Convictions were punishable by a fine of not more than $200 to the DEFENDANT CITY OF WEST LAKE HILLS for each separate offense. by the State of Texas only in its attempt to require the licensing of private sewage facilities in the DEFENDANT'S The evidence establishes that the ordinance in question was extraterritorial jurisdiction. passed solely upon *683 the city's initiative and not as a joint effort between the city and any state or county authority. “b. That the Municipal Court of the CITY OF WEST LAKE HILLS, TEXAS, has no jurisdiction to try violations The Appellee, Westwood Legal Defense Fund, is a coalition of Ordinance 108-B alleged to have occurred in the of homeowners, all of which reside in a subdivision known DEFENDANT CITY'S extraterritorial jurisdiction.” as Westwood, which is located entirely outside the corporate Further the judgment expressly recited that “Nothing limits but within the extraterritorial jurisdiction of the City of contained herein should be interpreted as expressing any West Lake Hills. The Appellee filed this suit to enjoin West opinion over any of the provisions of Ordinance 108-B as they Lake Hills from enforcing its Ordinance 108-B insofar as it apply within the city limits of the CITY OF WEST LAKE applied to facilities located outside the city's corporate limits, HILLS, TEXAS.” pleading that the city lacks express or implied legislative authority to regulate by licensing any private sewage facilities The City appeals claiming simply that the court erred in located outside the city's corporate limits; that the ordinance finding its Ordinance 108-B invalid in the two respects set is hopelessly in conflict with state law since the Legislature forth above. We overrule the City's contentions. has granted exclusive authority for the regulation of private sewage facilities to the Texas Water Commission and the [1] [2] A city can exercise only those powers that are commissioners court of any county, citing Secs. 26.031 expressly or impliedly conferred by law, and a power will be

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 3 City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (1980) implied only when such power is reasonably incident to those “(4) in cooperation with the department, a procedure expressly granted or is essential to the object and purposes of for obtaining compliance by the waste discharges being monitored, including where necessary the use of legal the corporation. Davis v. City of Taylor, 67 S.W.2d 1033, enforcement proceedings; and 123 Tex. 39 (1934); Anderson v. City of San Antonio, 67 S.W.2d 1036, 123 Tex. 163 (1934); Foster v. City of Waco, “(5) the development and execution of reasonable and 255 S.W. 1104, 113 Tex. 352 (1923). Furthermore, any fair, realistic plans for controlling and abating pollution or reasonable, or substantial doubt as to the existence of a power potential pollution resulting from generalized discharges of will be resolved against the municipality. Foster v. City of waste which are not traceable to a specific source, such as Waco, cited supra. The City argues that the power exercised storm sewer discharges and urban runoff from rainwater.” in Ordinance 108-B is in fact expressly or at least impliedly The city contends that this statute constitutes a broad, general conferred by Sec. 26.177 of the Texas Water Code, which in grant of power to cities to formulate plans for the control of its pertinent parts provides: pollution and that such plans can reasonably include licensing of private sewage facilities and enforcement by criminal *684 “(a) Every city in this state having a population of action. The city supports its argument by citing Attorney 5,000 or more inhabitants shall, and any city of this state may, General's Opinion No. H-304 (1974), wherein the Attorney establish a water pollution control and abatement program for General concludes that: the city. “(b) The water pollution control and abatement program of “A city has broad powers to establish a city shall encompass the entire city and may include areas water pollution control programs within its extraterritorial jurisdiction which in the judgment under (Sec. 26.177), Texas Water of the city should be included to enable the city to achieve Code. These powers can include the objectives of the city for the area within its territorial regulation of private sewage facilities jurisdiction. The city shall include in the program the services in the city and in its extraterritorial and functions which, in the judgment of the city or as may be jurisdiction.” reasonably required by the commission, will provide effective water pollution control and abatement for the city, including the following services and functions: [3] [4] [5] [6] In construing a statute, it is our duty to examine the entire act and construe it as a whole. One “(1) the development and maintenance of an inventory provision of a statute will not be given a meaning out of of all significant waste discharges into or adjacent to the harmony or inconsistent with other provisions, even though water within the city and, where the city so elects, within it might be susceptible to such construction if standing alone. the extraterritorial jurisdiction of the city, without regard Merchants Fast Motor Lines, Inc. v. Railroad Commission to whether or not the discharges are authorized by the department; of Texas, 573 S.W.2d 502 (Tex. 1978); Barr v. Bernhard, 562 S.W.2d 844 (Tex. 1978); Gerst v. Oak Cliff Savings & “(2) the regular monitoring of all significant waste discharges Loan Assn., 432 S.W.2d 702 (Tex. 1968). For this reason we included in the inventory prepared pursuant to Subdivision cannot accept the City's argument, nor can we agree with (1) of this subsection; the Attorney General's Opinion to the extent that it may support the City's position in this case. If Sec. 26.177 of the “(3) the collecting of samples and the conducting of periodic Texas Water Code were the only statutory provision relating inspections and tests of the waste discharges being monitored to the control and abatement of pollution, there might be to determine whether the discharges are being conducted in some merit to the argument. However, Sec. 26.177 is only compliance with this chapter and any applicable permits, one provision in a much more complex and comprehensive orders or rules of the department, and whether they should be legislative scheme. When Chapter 26 is viewed in its entirety, covered by a permit from the commission; regardless of the broad, general language of Sec. 26.177, it is clear that the section was not intended to authorize cities on their own initiative to regulate private sewage facilities

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 4 City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (1980) injuring or may injure the public health, the county may by licensing such facilities. For example, Sec. 26.031 of proceed in the same manner and in accordance with the same the Texas Water Code, relating to “private sewage facilities,” procedures as the commission to hold a public hearing and provides that: enter an order, resolution, or other rule as it may consider appropriate to abate or prevent pollution or injury to public *685 “(b) Whenever it appears that the use of private sewage health. facilities in an area is causing or may cause pollution or is injuring or may injure the public health, the commission “(b) The order, resolution, or other rule may provide the same may hold a public hearing in or near the area to determine restrictions and requirements as are authorized for an order of whether an order should be entered controlling or prohibiting the commission entered under this section. the installation or use of private sewage facilities in the area.

“(c) Before the order, resolution, or other rule becomes “(d) If the commission finds after the hearing that the use of effective, the county shall submit it to the commission and private sewage facilities in an area is causing or may cause obtain the commission's written approval. pollution or is injuring or may injure the public health, the commission may enter an order as it may consider appropriate “(e) Where a system of licensing has been ordered by the to abate or prevent pollution or injury to public health. commission or the commissioners court of a county, no person may install or use private sewage facilities required to be “(f) The commission may provide in the order for a system licensed without obtaining a license.” of licensing of private sewage facilities in the area, including procedures for cancellation of a license for violation of this These two sections of the Water Code (Secs. 26.031 and section, the license, or the orders or rules of the department.

26.032) specifically grant the power to license private The commission may also provide in the system of licensing sewage facilities to the Texas Water Commission and to for periodic renewal of the licenses, but this may not be the Commissioners Courts of Texas counties. On the other required more frequently than once a year. hand, Sec. 26.177, granting the power to “control and abate water pollution,” does not specifically grant the power to “(g) The commission may delegate the licensing function and license such facilities nor does the language of Sec. 26.177 the administration of the licensing system to the executive director or to any local government whose boundaries include in any way track or resemble the language of Secs. 26.031 the area or which has been designated by the commission or 26.032. Furthermore, Sec. 26.031 expressly states under Sections 26.081 through 26.086 of this code as the that the power to license may be delegated to a city by agency to develop a regional waste disposal system . . . the commission. In order to give any effect to this specific provision, we would have to conclude that the power granted “(h) The board also may prescribe and require the payment of to the cities by Sec. 26.177 does not include the power that can reasonable license fees. . . . be delegated by the Water Commission under Sec. 26.031. “(i) If the commission or the executive director has the responsibility for performing the licensing function, the *686 [7] The city contends that Secs. 26.031 and license fees shall be paid to the department. . . .

26.032 cannot be construed to limit the powers granted under Sec. 26.177 since neither 26.031 nor 26.032 expressly “(j) If a local government has the responsibility for prohibits regulation of private sewage facilities by cities. As a performing the licensing function, the fees shall be paid to the general rule, however, in the construction of statutes a general local government.” (emphasis ours) clause is limited or controlled by a special provision. It is said that this rule is based upon the principle that a specific Sec. 26.032 of the Texas Water Code further provides that: clause or statute more clearly evidences the intention of the Legislature. City of Baytown v. Angel (Houston 14th CA “(a) Whenever it appears to the commissioners court of any 1971) 469 S.W.2d 923, NRE. county that the use of private sewage facilities in an area within the county is causing or may cause pollution or is

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 5 City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (1980) city in this State, however organized, having underground In the instant case the specific assignment of the power sewers or cesspools, shall pass ordinances regulating the to license private sewage facilities ( Secs. 26.031 and tapping of said sewers and cesspools, regulating house 26.032) limits the more general grant of power to the draining and plumbing”; and Art. 1015(39) is a general cities. In our opinion it is clear that the Legislature intended grant of the power to license. All powers granted to a to reserve to the State the ultimate power to regulate in city can only be exercised within the corporate limits of the area of pollution control. Even though the counties a city unless the power is expressly extended to apply to have express authority to develop licensing requirements, areas outside these limits. City of Sweetwater v. Hamner such requirements must be approved by the state. Sec. (Ft. Worth CA 1924) 259 S.W. 191, writ dismissed; Ex 26.032(c). Even though the cities may assist in obtaining parte Ernest, 138 Tex.Cr.R. 441, 136 S.W.2d 595 (1940). compliance with pollution standards, these efforts must be in The Appellees in this case only challenge the power of cooperation with the Texas Department of Water Resources. the city to regulate private sewage facilities located wholly Sec. 26.177(b)(4). Although the Legislature recognized the within the city's extraterritorial jurisdiction rather than within importance of cooperative efforts between state and local the city's corporate limits. Neither Art. 1076 nor Art. governmental bodies, the state is assigned responsibility 1015(39) expressly authorizes regulations applying outside for promulgating rules and regulations to control pollution the corporate limits and cannot therefore be relied on in this problems. Sec. 26.177 lists five specific functions and case. The question of the validity of Ordinance 108-B as it services that are or may be assigned to the cities. None of applies to facilities located within the city limits of City of these functions and services specifically requires passage West Lake Hills is not raised by this case and we do not decide of rules and regulations for controlling pollution. Instead, that issue. the functions and services listed in Sec. 26.177 are in the nature of “information gathering” functions which would *687 [10] [11] The Appellant City assigns as a ultimately be very valuable to assist the state in designing separate point of error the conclusion of the trial court that and in enforcing its rules and regulations. Sec. 26.177(b)(3), the municipal court has no jurisdiction to try violations for example, expressly states that the city's inspection and of Ordinance 108-B alleged to have occurred in the collection services are designed to determine whether the extraterritorial jurisdiction of the city. As a general rule, a discharges are meeting applicable permits, rules, or orders municipal court only has jurisdiction to enforce violations of the state department and whether they should be covered occurring within the corporate limits of the city. Art. 1195, by a permit from the state commission. In our opinion, R.C.S. A municipal court may, however, have jurisdiction Sec. 26.177 requires (in the case of cities over 5000) or to try offenses occurring outside the corporate limits if the allows (in the case of cities less than 5000) cities to monitor offenses constitute violations of city ordinances which validly pollution levels both in their corporate limits and in their apply to the area in which the offense occurred. Treadgill v. extraterritorial jurisdictions. The information gathered in this State, 160 Tex.Cr.R. 658, 275 S.W.2d 658 (1955); Parker v. monitoring could (or should) be used by cities in developing City of Ft. Worth (Ft. Worth CA 1955) 281 S.W.2d 721, no plans for growth and expansion, which may of course include writ. Having found that the city had no authority to apply consideration of problems in the extraterritorial jurisdiction.

The information would further be vital to the initiation of its licensing regulations in the extraterritorial jurisdiction, we must also hold that the municipal court has no jurisdiction action by the state under Sec. 26.031(b), or by the county to try violations of the ordinance which may occur in the under Sec. 26.032(a), if pollution problems were detected extraterritorial jurisdiction. by the city in regard to private or public sewage facilities within or surrounding the city. However, the legislative Judgment of the trial court is affirmed. scheme simply does not contemplate independent regulatory action by a city. AFFIRMED.

[8] [9] The city argues alternatively that Ordinance 108-B All Citations is a valid exercise of powers granted to it under Art. 1076 598 S.W.2d 681 and Art. 1015(39), R.C.S. Art. 1076 directs that “Every

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 6 City of West Lake Hills v. Westwood Legal Defense Fund, 598 S.W.2d 681 (1980)

Footnotes

1 “Private sewage facility” was defined as “any septic system, or other facility, system, or method for the storage, treatment, or disposal of sewage other than an organized disposal system.” (An “organized disposal system” being “any public or private system for the collection, treatment, and disposal of sewage operated in accordance with the terms and conditions of a permit from the Water Quality Board.”)

End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 7 APPENDIX B - Combs v. Health Care Servs. Corp., 401 S.W.3d 623 (Tex. 2013) Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 government, but not to tangible personal property leased by contractor in order to perform its contractual obligations to KeyCite Yellow Flag - Negative Treatment federal government; and Distinguished by Cantu Enterprises, LLC v. Hegar, Tex.App.-Austin (3 Dist.), July 7, 2017 [2] statutory requirement, that a taxpayer who seeks sale tax 401 S.W.3d 623 refund under the sale-for-resale exemption show he has not Supreme Court of Texas. collected the tax from someone else, does not also require taxpayer to show he has not been reimbursed for the tax.

Susan COMBS, Comptroller of Public Accounts of the State of Texas, and Greg Abbott, Attorney Affirmed in part, reversed in part, and remanded.

General of the State of Texas, Petitioners, v. HEALTH CARE SERVICES CORPORATION, Respondent. West Headnotes (7) Nos. 11–0283, 11–0652. [1] Taxation Retail sales; sales not for resale | Argued Feb. 27, 2013. Sale-for-resale sales tax exemption applied to | tangible personal property that, under title- Decided June 7, 2013. transfer contractual provisions, government contractor administering two federal health- Synopsis insurance programs automatically resold to Background: Government contractor that administered two federal government as soon as the property was health-insurance programs brought two separate actions acquired; contractor bought tangible property for against state officials for a refund, under the sale-for-resale the purpose of transferring its title to federal exemption, of sales tax that contractor had paid on expenses government, and it was irrelevant that a second it incurred that were reimbursed by federal government. purpose of the sale was to acquire property that The District Court, 261st Judicial District, Travis County, would be consumed in performing nontaxable 2010 WL 4660020, Orlinda L. Naranjo, J., determined that services. V.T.C.A., Tax Code § 151.006(a)(1). contractor was entitled to claimed refunds for the period of January 1, 1999, through December 31, 2003, and determined 1 Case that cites this headnote in other case that contractor was entitled to refunds for the period of December 1, 1988 through December 31, 1998. [2] Statutes Giving effect to statute or Officials appealed. The Austin Court of Appeals, 2011 WL language; construction as written 1005419, Bob Pemberton, J., affirmed in one case. The Austin Statutes Policy considerations; public policy Court of Appeals, 2011 WL 2652141, J. Woodfin Jones, C.J., affirmed in the other case. The Supreme Court granted The Supreme Court reads unambiguous statutes review and consolidated the cases. as they are written, not as they make the most policy sense.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 If a statute is worded clearly, court must honor its plain language, unless that interpretation would [7] Taxation Retail sales; sales not for resale lead to absurd results. Statutory requirement, that a taxpayer who seeks sales tax refund under the sale-for-resale Cases that cite this headnote exemption show he has not collected the tax from someone else, does not also require taxpayer to [4] Administrative Law and show he has not been reimbursed for the tax.

Procedure Plain, literal, or clear meaning; V.T.C.A., Tax Code §§ 111.104(f), 151.006(a) ambiguity or silence (1).

Administrative Law and Procedure Permissible or reasonable 6 Cases that cite this headnote construction Courts grant deference to an agency's reasonable interpretation of a statute, but a precondition to agency deference is ambiguity; an agency's Attorneys and Law Firms opinion cannot change plain language. *624 Jim B. Cloudt, William J. “Bill” Cobb III, Office Cases that cite this headnote of the Attorney General, Taxation Division, Kevin D. Van Oort, Deputy Chief–Financial & Tax Litigation Div., David C.

Mattax, Director of Defense Litigation, Office of the Attorney [5] Taxation Retail sales; sales not for resale General, Daniel T. Hodge, First Asst. Attorney General, Greg Taxable services that government contractor W. Abbott, Attorney General of Texas, Kristofer S. Monson, bought on behalf of federal government as Assistant Solicitor General, Jonathan F. Mitchell, Solicitor administrator of two federal health-insurance General, Office of the Attorney General, Austin, TX, for programs fell within Texas's sale-for-resale sales Petitioners Susan Combs. tax exemption, even though the title-transfer contractual clauses did not transfer title to David E. Keltner, Kelly Hart & Hallman LLP, Fort Worth, the taxable services to federal government; TX, Kennon Lathem Wooten, Scott Douglass & Mcconnico contractor bought the services and then LLP, Quentin Doug Sigel, Mark W. Eidman, Ryan Law Firm, immediately resold them to federal government, LLP, Ray H. Langenberg, Scott Douglass & McConnico, LLP, so services were resold in same form as they were Austin, TX, for Respondent Health Care Service Corporation.

acquired. V.T.C.A., Tax Code § 151.006(a) Brent Andrew Money, Scott Money Ray & Thomas, PLLC, (1). Greenville, TX, for Amicus Curiae Texas Municipal League.

1 Case that cites this headnote Opinion Justice WILLETT delivered the opinion of the Court. [6] Taxation Retail sales; sales not for resale Sale-for-resale sales tax exemption did not This tax-refund case concerns the Tax Code's sale-for- apply to tangible personal property leased by resale exemption, which grants purchasers of taxable goods government contractor in order to perform its and services a sales-tax exemption if they resell the items contractual obligations in administering two (since the ultimate purchaser will pay any tax due). Here, a federal health-insurance programs; using the government contractor seeks sales-tax refunds for purchases property for the federal government contract was used to administer federal health-insurance programs. The not the same as releasing the property to the question is one of scope: What categories of purchases qualify for the exemption? federal government. V.T.C.A., Tax Code § 151.006(a)(1).

Applying the Legislature's sale-for-resale definition and exemption language, we believe the contractor here is entitled to most of the claimed refunds. There are three

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 2 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 main categories of goods and services for which refunds The Comptroller denied the refund. HCSC brought two are claimed: tangible personal property, taxable services, separate tax-refund suits, the first covering December 1, 1988 and leases of tangible personal property. We hold that the through December 31, 1998, and the second covering January exemption applies to the tangible personal property and 1, 1999 through December 31, 2003. The two cases were taxable services, but not to the leases of tangible *625 nearly identical except for minor variations in the specific personal property, for the following reasons: property and services for which HCSC sought a sales-tax refund. 3 However, in both cases, HCSC claimed the sale-for- • Tangible Personal Property. The exemption applies even resale exemption for three general categories of property and when, as here, the resale consists of bare title transfer services it used to perform the contracts: (1) tangible personal of tangible personal property that is consumed by the property (such as chairs, printers, and office supplies); (2) taxpayer to perform nontaxable services. This holding taxable services (such as printer repair services, landscape reaffirms long-standing precedent that allowed federal maintenance, and copier maintenance); and (3) *626 leases contractors to claim the sale-for-resale exemption for of certain tangible personal property (such as leases of tangible personal property subject to automatic title computers, audio equipment, and printers). transfer. We hasten to note, however, that a 2011 Tax Code amendment likely alters this result moving In both cases, the court of appeals affirmed trial-court forward. decisions that HCSC was entitled to the claimed refunds. 4 • Taxable Services. Sale-for-resale of a taxable service can We consolidated the cases and issue this joint decision. occur, as here, by directing that the service be performed for another party in return for consideration from that party.

II. Discussion • Leases of Tangible Personal Property. These fall outside The Comptroller argues the sale-for-resale exemption is the sale-for-resale exemption, as they are not resold inapplicable and also that HCSC should have to prove the unless they are re-leased or transferred in some other federal government did not already reimburse it for the sales way to another purchaser. tax for which it requests refunds.

Finally, we hold that reimbursement of a tax is not the same We affirm in part, reversing solely on the leases of tangible as collection of a tax. Thus, the requirement that a taxpayer personal property. HCSC is entitled to a sales-tax refund for who claims a refund show he has not collected the tax from the tangible personal property and taxable services but not for someone else does not also require the taxpayer to show he the leases of tangible personal property. Also, HCSC need not has not been reimbursed for the tax. Accordingly, we affirm show whether the federal government reimbursed it for the the court of appeals' judgment on all but the lease issue, taxes. which we reverse and remand to the trial court for further proceedings.

A. Tangible Personal Property I. Background [1] At all relevant times, the Tax Code defined sale for resale as a sale of: Health Care Services Corporation and its predecessor- in-interest, Blue Cross and Blue Shield of Texas, Inc. (collectively HCSC), contracted with the federal government to administer two health-insurance programs. 1 While tangible personal property or a taxable performing these contracts, HCSC incurred expenses that service to a purchaser who acquires were reimbursed by the federal government. the property or service for the purpose of reselling it [in certain geographical HCSC paid sales and use tax on some of these expenses and locations] in the normal course of applied for a refund under the sale-for-resale exemption. 2 business in the form or condition in

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 3 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 which it is acquired or as an attachment This plain-text analysis reaffirms our holding in Day to or integral part of other tangible & Zimmermann, Inc. v. Calvert. 9 That case involved a personal property or taxable service. 5 taxpayer, Day & Zimmerman, that contracted with the federal government “for the loading, assembling and packaging of ammunition and related components as well as the handling of the mechanics of procurement of all necessary The statute applies to the tangible personal property here.

HCSC purchased the “tangible personal property” for the materials, supplies, equipment and services.” 10 The contract purpose of “reselling it ... in the normal course of business between Day & Zimmerman and the government contained in the form or condition in which it [was] acquired.” an automatic title-transfer provision similar to the one here. 11 The trial court found that HCSC's normal course of The Comptroller made a deficiency determination against business was performing federal government contracts, and Day & Zimmerman for the sales tax paid for “the tangible the resale furthered those contracts. Further, the tangible personal property, not including any of the component personal property was automatically resold to the federal parts that went into the finished product, purchased and government as soon as it was acquired due to the title-transfer consumed by the operating contractor in the performance of provisions. 6 Title transfer for consideration is one type of its contract with the Federal Government.” 12 We held that “sale.” 7 Therefore, the property was resold (through title the sales tax for this property had to be refunded to Day transfer) in the “form or condition in which it [was] acquired”: & Zimmerman because the transaction fell within the sale- the resale was automatic upon acquisition, so, naturally, the for-resale exemption. The sale happened when the tangible property was resold before HCSC had any chance to alter it. personal property was physically transferred from the vendor to Day & Zimmerman. 13 Then, because the definition of “sale” included title transfer for consideration, the resale The Comptroller asserts that Section 151.006(a)(1) happened when title to the property transferred *628 from requires the application of an *627 “essence of the transaction” test. The Comptroller's argument is essentially Day & Zimmerman to the federal government. 14 Day & that the exemption should only apply if the primary purpose Zimmermann is thus completely consistent with our decision of the original sale is to resell “in the form or condition today, both in its holding and its reasoning. in which it is acquired or as an attachment to or integral part of other tangible personal property or taxable service.” We find unpersuasive the Comptroller's attempt to distinguish Here, the primary purpose of the original sale was to acquire Day & Zimmermann. The Comptroller argues that Day & property that would be consumed in performing a nontaxable Zimmermann involved a contract where the “essence of service, so the exemption should not apply. This restrictive the transaction” was selling goods, whereas the essence interpretation collides with the statutory text. of the transaction here is selling nontaxable services to which Section 151.006(a)(1) does not apply. So, the The exemption does not say (or even intimate) that the Comptroller says Day & Zimmermann is consistent with primary purpose of the sale must be for a particular kind her proposed essence of the transaction test. The difficulty of resale. 8 The statute merely says the sale must have with this reasoning is simply stated: Day & Zimmermann “the purpose” of reselling in one of the specified ways; never mentions or alludes to any such test. Moreover, it's not “the primary purpose,” “the main purpose,” or “the anything but clear whether the essence of the transaction was important purpose.” Here, HCSC bought tangible personal reselling tangible personal property (ammunition) or reselling property for the purpose of transferring its title to the services (assembly and packaging of ammunition). 15 If the federal government; we know this was the purpose because essence of the transaction really mattered, we would expect it was an unavoidable result given the automatic title-transfer a more detailed description of the contract's “essence.” Day provision. It is irrelevant that a second purpose of the sale was & Zimmermann did not contemplate an “essence of the to acquire property that would be consumed in performing transaction” test because no such discussion exists. Instead, the nontaxable services. Taking the Legislature at its word Day & Zimmermann stands for the proposition that automatic and giving the statute its plain meaning, the definition and title transfer upon purchase qualifies for the sale-for-resale exemption apply. exemption. Day & Zimmermann cuts squarely in HCSC's favor due to the analogous title-transfer provisions.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 4 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624

The Comptroller next urges that Day & Zimmermann was *629 Studying these similar statutes, it is difficult to abrogated by amendments to the sale-for-resale statute. While understand the Comptroller's argument that the statutory conceding that “sale” is still defined to include bare transfer definition has changed so much as to revoke Day & of title of tangible personal property for consideration, 16 Zimmermann. The new version merely seems to recognize the she asserts that two amendments have changed the legal fact that some services are now taxable in Texas, whereas they landscape and rendered Day & Zimmermann irrelevant: (1) were not when Day & Zimmermann was decided almost forty a change to the definition of “sale for resale,” and (2) a years ago. new provision dealing with certain transactions that mix the resale of tangible personal property with the resale of taxable The Comptroller's main argument appears to be that adding services. Upon careful examination of the amendments, the the words “taxable service” throughout the definition makes Comptroller's argument fails. it clear that tangible personal property cannot be considered “resold” if the property is merely used to provide a nontaxable service. After all, says the Comptroller, the definition doesn't mention nontaxable services. But the Day & Zimmermann- 1. The Slight Definitional Change to “Sale for Resale” Does era statute similarly made it clear that tangible personal Not Abrogate Day & Zimmerman and Defeat the Exemption property could not be considered “resold” if it was merely used to provide a service because the definition did not In Day & Zimmermann, the statutory definition of sale for mention any services. resale was: The Comptroller also argues that the statutory change unambiguously requires (or, in the alternative, ambiguously A sale of tangible personal property allows) application of the “essence of the transaction” test. to any purchaser who is purchasing The trouble with this argument, again, is that the changes said tangible property for the purpose since Day & Zimmermann say nothing about the “essence of of reselling it [in certain geographical the transaction” test. We do not see how the revisions have locations] in the normal course of introduced any ambiguity into the statute that would allow business either in the form or condition application of the “essence of the transaction” test when it in which it is purchased, or as an did not apply in Day & Zimmermann. In sum, the definitional attachment to, or integral part of, other changes to “sale for resale” do not statutorily abrogate Day & Zimmermann. tangible personal property. 17

The statutory definition relevant to this case reads: 2. New Tax Code Section 151.302(b) Similarly Does Not Abrogate Day & Zimmerman and Defeat the Exemption The Comptroller next argues that Day & Zimmermann was [A sale of] tangible personal property abrogated by Section 151.302(b), which provides: or a taxable service to a purchaser who acquires the property or service for the purpose of reselling it [in certain geographical locations] in the normal Tangible personal property used to course of business in the form or perform a taxable service is not condition in which it is acquired or considered resold unless the care, as an attachment to or integral part custody, and control of the tangible of other tangible personal property or personal property is transferred to the taxable service. 18 purchaser of the service. 19

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 5 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 [4] It is true that courts grant deference to an agency's But it is uncontested in this case that HCSC is asking for reasonable interpretation of a statute, but a precondition to a refund for tax paid on tangible personal property used to agency deference is ambiguity; “an agency's opinion cannot perform a nontaxable service because administrative services change plain language.” 21 There is no ambiguity about the are not listed as a taxable service in Section 151.0101(a). ambiguity requirement, nor with the unassailable rule that Tangible personal property used to perform a nontaxable agency interpretations cannot contradict statutory text. Here, service is outside the exception to the exemption created the Comptroller's interpretation is contrary to the Tax Code. by Section 151.302(b); by its own terms, that section The statute unambiguously applies only to tangible personal only applies to tangible personal property used to perform a property used to perform a taxable service. Further, it is not taxable service. absurd for the Tax Code to treat nontaxable services more favorably than taxable services; indeed, the Tax Code already [2] [3] Perhaps it seems strange to distinguish between treats nontaxable services more favorably by not taxing them. taxable and nontaxable services in Section 151.302(b). Summing up: As Section 151.302(b) explicitly applies After all, if HCSC had transferred bare title to the tangible only to tangible personal property used to perform taxable personal property and then consumed it in performing services, we decline the Comptroller's invitation to rewrite the a taxable service, HCSC would not be entitled to a statute to reach nontaxable services, too. reimbursement. However, we read unambiguous statutes as they are written, not as they make the most policy sense. If a statute is worded clearly, we must honor its plain language, 3. Given the Statute's Clarity, the Comptroller's unless that interpretation would lead to absurd results. The Unintended Consequences Arguments Are Unavailing Comptroller urges deference to its interpretation, but we recently canvassed our articulations of the agency-deference The Comptroller contends the Legislature could not have doctrine and formulated this test: intended to exempt HCSC from sales tax for items it consumed itself. Arguing that a plain-language interpretation of the exemption would produce unintended consequences, she asserts the “tie-pin” example: that HCSC should not We have long held that an agency's be refunded sales tax on tie pins it bought to reward its interpretation of a statute it is employees for good work. charged with enforcing is entitled to “serious consideration,” so long as the We recognize that statutes, framed in general terms, can construction is reasonable and does not often work peculiar outcomes, including over- or under- conflict with the statute's language.... inclusiveness, but such minor deviations do not detract from In our “serious consideration” inquiry, the statute's clear import. If an as-written statute leads to we will generally uphold an agency's patently nonsensical results, the “absurdity doctrine” comes interpretation *630 of a statute into play, but the bar for reworking the words our Legislature it is charged by the Legislature passed into law is high, and should be. The absurdity safety with enforcing, so long as the valve is reserved for truly exceptional cases, and mere construction is reasonable and does oddity does not equal absurdity. A sales-tax exemption for not contradict the plain language tie pins, even if unintended, even if improvident, even if of the statute.... [T]his deference is inequitable, falls short of being unthinkable or unfathomable. tempered by several considerations: The absurdity backstop requires more than a curious loophole. [the statute must be ambiguous, the Indeed, given the complexity of modern tax laws (and the agency interpretation must be the haste with which many are enacted), whimsical examples result of formal procedures, and the of over- or under-inclusiveness, likely wholly unintended, interpretation must be reasonable]. 20 doubtless abound. 22 But pointing out a *631 quirky application is quite different from proving it was quite impossible that a rational Legislature could have intended it.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 6 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 Since at least Day & Zimmermann, items consumed while After all, the Comptroller says, leases themselves are not performing a contract with a title-transfer provision have tangible personal property, so sale-for-resale of a lease is not clearly been covered by the sale-for-resale exemption. If the sale-for-resale of tangible personal property. But “lease” the Legislature considered this a loophole worth closing, it is statutorily included in the definition of “sale.” 26 Therefore, could have done so. In fact, lawmakers in 2011 narrowed it lease-for-(re)lease of tangible personal property falls within via Section 151.006(c), which reserves this sale-for-resale the definition of sale-for-resale of tangible personal property. exemption to contractors that are partnering with federal That said, there is no evidence here that HCSC leased the national security-related agencies. 23 property for the purpose of releasing it. That is, using the property for the federal government contract is not the same as formally re-leasing the property to the federal government.

B. Taxable Services The trial court pointed out that some leased property was transferred to the new contractor after HCSC's contract ended. [5] The Comptroller argues that the taxable services that But there is no finding or even allegation that HCSC's purpose HCSC bought on the government's behalf fall outside the in leasing the property in the first place was to re-lease it to the sale-for-resale exemption because the title-transfer clauses federal government or another contractor. Instead, the transfer did not transfer title of the taxable services to the federal of the leased property apparently only happened because the government. However, title transfer clearly is not the only federal contract ended, not because the original purpose of way to bring about a resale. Instead, “sale” also includes leasing the property was to re-lease it. Thus, HCSC is not due “performance of a taxable service” for consideration. 24 a refund on sales tax paid on the leases.

Here, HCSC bought these taxable services (the sale). HCSC then resold the services to the government by directing that they be performed on the government's behalf with D. Documentation of Reimbursements the purpose of receiving reimbursement and compensation (consideration) from the government (the resale). The sale- [7] HCSC is not required to produce documentation proving for-resale exemption explicitly includes the sale-for-resale of it did not receive federal government reimbursement for the a service when it is resold “in the form or condition in which sales tax it paid. Section 111.104(f) provides: it is acquired.” 25 Here, HCSC bought the services and then immediately resold them to the federal government, so the services were resold in the same form as they were acquired, thus qualifying for the sale-for-resale exemption. No taxes, penalties, or interest may be refunded to a person who has collected The Comptroller attempts to recharacterize HCSC's sale- the taxes from another person unless for-resale of services as sale-for-resale of service contracts. the person has refunded all the taxes However, the trial court's findings of fact include findings and interest to the person from whom that the services at issue *632 were performed on behalf of the taxes were collected. 27 the federal government and that HCSC was compensated for them. Therefore, because the Comptroller has not challenged the evidentiary sufficiency of these factual findings, we accept them as a true characterization of the transfer. That The Comptroller argues that this section imposes a burden is, the resale to the government was the performance of the on HCSC to show it was never reimbursed for the taxes it services for consideration, not merely a resale of service is seeking to have refunded. The Comptroller claims that contracts. HCSC can't prove that here. 28 But the statute precludes a refund only if HCSC collected a tax, not just if it was reimbursed some amount that may or may not include a tax.

The Comptroller claims that being reimbursed for a tax is C. Leases of Tangible Personal Property equivalent to collecting a tax. That is simply not the case. At [6] The Comptroller further argues that the leases of tangible all times relevant to this dispute, the Tax Code provided that personal property fall outside the sale-for-resale exemption. a person who collects a tax holds that money in trust for the

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 7 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 for the statute's application. 32 Our statutory interpretation State. 29 Such a trust relationship clearly did not exist here; is reinforced by the fact that it makes sense from a policy the federal government did not pay HCSC tax for it to hold perspective to prevent refund of tax only when it is explicitly in trust and then remit to the State. Further, in the sales tax collected from (i.e., charged as tax to) the buyer. After context, *633 tax is collected by a seller adding the sales all, when such a tax is charged to a buyer, the buyer's tax to an initial sales price and then charging that amount to understanding is that the portion of the sale attributed to tax the buyer as part of the new sales price. 30 Such a collection will be paid to the government. The buyer also knows that process did not occur here. any profit the seller makes in the transaction is through the sales price alone. On the other hand, with a lump sum charge That is, contrary to the Comptroller's argument, collecting to a customer that does not clearly delineate sales tax, the a tax is not the same as reimbursing a tax. Hypothetically, customer has no such expectation that a certain portion will a contractor and the federal government could agree for the be remitted to the State. It would also make very little sense government to pay ten percent of sales tax as part of the to make federal government contractors write up transaction- consideration for the contract; this would not mean that the by-transaction receipts with line items saying “Tax Collected contractor would “collect” ten percent of sales tax from the = 0” for each transaction. Money is plainly and inarguably federal government. Instead, the sale price itself would go up fungible, so even if the tax collected is listed as zero, federal by ten percent of the sales tax rate. Such a contract might contractors could just increase the amount they are paid under actually be sensible if a federal contractor foresaw having to the contract to cover any money spent on sales tax. There fight with the Comptroller to get a refund for the tax. A very is no reason to force contractors to engage in such creative similar (although less transparent) contractual arrangement accounting when the statute itself does not dictate that result. may have occurred here; the federal government may have paid part of the sales tax price as part of the consideration for the contract.

III. Conclusion However, if the federal government's contractual arrangement We affirm in part and reverse in part, holding that HCSC is did not intend to pay HCSC for sales tax that was ultimately entitled to a sales- and use tax refund for all the transactions refunded, the federal government can likely recover the except the leases of tangible personal *634 property. We portion of the sales tax that it paid. 31 Therefore, the risk remand to the trial court for further proceedings consistent of HCSC receiving an unintended windfall at the federal with this opinion. government's expense is slight.

Regardless, though, as explained above, the statute All Citations designed to prevent double recovery (Section 111.104(f)) is inapplicable in light of the fact that HCSC never “collected” 401 S.W.3d 623, 56 Tex. Sup. Ct. J. 624 tax from the federal government, which is a prerequisite

Footnotes

1 HCSC performed administrative services for two types of health insurance programs: Medicare and the Federal Employees Health Benefits Program. However, the contracts for both programs were virtually identical for the purposes of this opinion. So, all references in this opinion to “the contracts” are references to all contracts related to both programs, unless otherwise indicated.

3 In the first trial, the specific property or services were: “Utilities,” “Taxable Services on Tangible Personal Property,” “Allowable,” “Capitalized Assets,” “Leases,” “Maintenance on Tangible Personal Property,” and

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 8 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 “Software/Software Maintenance.” In the second trial, the specific property or services were: “Utilities,” “Taxable Services on Tangible Personal Property,” “Taxable Services on Real Property,” “Allowable,” “Leases,” “Maintenance on Tangible Personal Property,” “Maintenance on Real Property,” and “Software/ Software Maintenance.”

4 ––– S.W.3d ––––; ––– S.W.3d ––––.

TEX. TAX CODE § 151.005(1).

14 Id. at 110.

See TEX. TAX CODE § 151.005(1).

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 9 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 17 Day & Zimmermann, 519 S.W.2d at 109.

TEX. TAX CODE § 151.302(b).

R.R. Comm'n of Tex. v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624–25 (Tex. 2011) (internal quotation and citation omitted).

Fiess v. State Farm Lloyds, 202 S.W.3d 744, 747 (Tex. 2006).

See TEX. TAX CODE § 151.006(c) which provides: A sale for resale does not include the sale of tangible personal property or a taxable service to a purchaser who acquires the property or service for the purpose of performing a service that is not taxed under this chapter, regardless of whether title transfers to the service provider's customer, unless the tangible personal property or taxable service is purchased for the purpose of reselling it to the United States in a contract, or a subcontract of a contract, with any branch of the Department of Defense, Department of Homeland Security, Department of Energy, National Aeronautics and Space Administration, Central Intelligence Agency, National Security Agency, National Oceanic and Atmospheric Administration, or National Reconnaissance Office to the extent allocated and billed to the contract with the federal government.

See also id. § 151.006(a)(5) which provides that a “sale for resale” means: except as provided by Subsection (c), tangible personal property to a purchaser who acquires the property for the purpose of transferring it as an integral part of performing a contract, or a subcontract of a contract, with the federal government only if the purchaser: (A) allocates and bills to the contract the cost of the property as a direct or indirect cost; and (B) transfers title to the property to the federal government under the contract and applicable federal acquisition regulations.

Both of these subsections were added in 2011. Act of June 28, 2011, 82d Leg., 1st C.S., ch. 4, § 12.01, 2011 Tex. Gen. Laws 5263, 5263 (current version at TEX. TAX CODE § 151.006).

TEX. TAX CODE § 151.005(3).

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 10 Combs v. Health Care Services Corp., 401 S.W.3d 623 (2013) 56 Tex. Sup. Ct. J. 624 25 Act of May 27, 2007, 80th Leg., R.S., ch. 1266, § 2, 2007 Tex. Gen. Laws 4234, 4234 (amended 2011) (current version at TEX. TAX CODE § 151.006(a)(1)).

TEX. TAX CODE § 151.005(2).

End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 11 APPENDIX C - Farmland Industries, Inc. v. Moore, 596 S.W.2d 939 (Tex. App.—Waco 1980, no writ) Farmland Industries, Inc. v. Moore, 596 S.W.2d 939 (1980)

[2] Pleading Foreign corporations, suits 596 S.W.2d 939 against Court of Civil Appeals of Texas, Waco.

In order to establish venue in county of suit FARMLAND INDUSTRIES, INC., Appellant, under statute governing venue over foreign v. corporations, plaintiff need only to prove that Bruce MOORE, Appellee. defendant is a foreign corporation with an agency or representative in the county of suit.

No. 6133. | March 13, 1980. [3] Pleading Corporations and associations; foreign corporations Synopsis In action to recover for loss of feeder hogs which Plaintiff brought action to recover for the loss of feeder allegedly died as result of defective feed, plaintiff hogs which allegedly died as a result of defective feed. The met his burden of proving that defendant feed 74th District Court, McLennan County, Derwood Johnson, J., manufacturer was a foreign corporation with an entered order overruling foreign defendant's plea of privilege, agent or representative in the county of suit, and defendant appealed. The Court of Civil Appeals, James, and therefore, venue was established; because J., held that plaintiff met his burden of proving that defendant plaintiff pleaded causes of action for breach of feed manufacturer was a foreign corporation with an agent express and implied warranties and for strict or representative in the county of suit, and therefore, venue liability in addition to his cause of action under was established; because plaintiff pleaded causes of action the Deceptive Trade Practices Act, the special for breach of express and implied warranties and for strict venue provision of the Deceptive Trade Practices liability in addition to his cause of action under the Deceptive Trade Practices Act, the special venue provision of the Act was not controlling. Vernon's Ann.Civ.St. Deceptive Trade Practices Act was not controlling. art. 1995, subds. 27, 30; V.T.C.A., Bus. & C. § 17.56.

Affirmed.

Procedural Posture(s): On Appeal. [4] Statutes General and specific statutes The general rule is that when the law makes a West Headnotes (5) general provision, apparently for all cases, and a specific provision for a particular type case, then the general must yield to the specific. [1] Appeal and Error Venue Appeal and Error Review of rulings or orders before trial or hearing [5] Corporations and Business On appeal from order overruling defendant's Organizations Venue plea of privilege and sustaining plaintiff's Although as a general rule, foreign corporations controverting plea, defendant could not contend authorized to do business in state may that plaintiff had abandoned his controverting have the same rights and privileges as plea by delaying approximately two years in domestic corporations, in the special instance setting venue hearing, since such point was of venue, suits against foreign corporations are raised for the first time on appeal and defendant governed by a different provision from domestic had leveled no special exception and made no corporations. V.A.T.S. Bus.Corp.Act, art. objection to plaintiff's controverting plea in trial court. Rules of Civil Procedure, rule 90. 8.02; Vernon's Ann.Civ.St. art. 1995, subds.

23, 27.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 Farmland Industries, Inc. v. Moore, 596 S.W.2d 939 (1980) agency or representative in McLennan County, Texas. No further evidence was introduced at the hearing. The trial court entered an order overruling the plea of privilege from which Defendant Farmland appeals.

Attorneys and Law Firms By its two points of error Appellant asserts error of the trial *940 Tom H. Whiteside, Griffis & Griffis, San Angelo, for court in overruling *941 the plea of privilege because: (1) appellant. Plaintiff abandoned its controverting plea, and (2) Plaintiff failed to prove a cause of action. We overrule both points of Richard T. Miller, Senterfitt, Adams, Miller & Childress, San error and affirm the trial court's judgment.

Saba, for appellee.

[1] We revert to Appellant's first point, wherein it is contended that Plaintiff “abandoned” his controverting plea OPINION since he delayed approximately two years in setting the venue JAMES, Justice. hearing. This point is raised for the first time on appeal.

Defendant-Appellant Farmland levelled no special exception and made no objection to Plaintiff's Controverting Plea in This is a venue case involving Subdivision 27, Article the trial court, and therefore has waived such defect. Rule 1995, Vernon's Texas Civil Statutes, pertaining to suits 90, Texas Rules of Civil Procedure; Hanover Insurance Co. against foreign corporations. Plaintiff-Appellee Bruce Moore v. Richardson (Houston 1st CA 1975) 529 S.W.2d 608, writ brought this suit in McLennan County against Defendant- dismissed; Great Southwest Life Ins. Co. v. Camp (Fort Worth Appellant Farmland Industries, Inc. (a foreign corporation CA 1971) 464 S.W.2d 702, no writ. authorized to do business in Texas) and Defendant San Saba Peanut Growers Cooperative Association, seeking to recover [2] [3] Appellant asserts in its second and remaining point for the loss of 108 feeder hogs which allegedly died as a that the trial court erred in overruling its plea of privilege result of defective feed manufactured by Farmland and sold because Plaintiff failed to prove a cause of action. This point to Plaintiff Moore by the Coop. Additionally, Moore sought is without merit, because Appellant admits, and it is well recovery for damages to 78 hogs which did not die but which settled, that in order to establish venue in the county of suit were allegedly substantially impaired by the feed. under Subdivision 27 of Article 1995, Plaintiff need only In his original petition, Plaintiff Moore sought treble damages to prove (1) Defendant is a foreign corporation (2) with an and reasonable attorney's fees under the Texas Deceptive agency or representative in the county of suit. Empire Gas Trade Practices Act, and sued alternatively for actual damages and Fuel Co. v. State (Tex. 1932) 121 Tex. 138, 47 S.W.2d and reasonable attorney's fees for breach of express and 265; Southwestern Greyhound Lines v. Day (Eastland CA implied warranties, and under the theory of strict liability.

1951) 238 S.W.2d 258, no writ. In the case at bar, we hold that Plaintiff-Appellee has met his burden of proof under Defendant-Appellant Farmland filed a plea of privilege to be sued in Randall County, its asserted residence; whereupon Subdivision 27 of Article 1995.

Plaintiff-Appellee Moore controverted under Section 27, Article 1995 and also under Article 17.56 of the Texas Appellant argues that Article 17.56, Texas Business and Business and Commerce Code, the latter being the special Commerce Code, which is the special venue statute of venue statute under the Texas Deceptive Trade Practices Act. the Texas Deceptive Trade Practices Act, is mandatory in deceptive trade practices cases by virtue of Section 30 Hearing was had upon venue, at which Plaintiff introduced in evidence his Original Petition, together with Plaintiff's of Article 1995; that Subdivision 27 of Article 1995 is a Request for Admissions and Interrogatories and Defendant permissive venue provision and must yield to the mandatory Farmland's answers in response thereto. As a part of provisions of Article 17.56; and in order to sustain venue Defendant-Appellant Farmland's said answers, Farmland under Article 17.56 as it was worded at the time Plaintiff's suit admitted that (1) it was a foreign corporation not incorporated was filed, the Plaintiff was required to plead and prove a cause by the laws of the State of Texas, and (2) that it had an of action. Appellant then says that Plaintiff-Appellee Moore

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 2 Farmland Industries, Inc. v. Moore, 596 S.W.2d 939 (1980)

1977) 554 S.W.2d 300, writ dismissed. Although Burrows failed to prove a cause of action, and therefore the trial court is supportive of Appellant's contention, we do not agree erred in overruling the plea of privilege. We do not agree. with Burrows, but take the contrary view as expressed by Amoco Production Co. v. Arendale (Houston 14th CA 1979) Appellant's argument does not take into account that Appellee 581 S.W.2d 755, writ dismissed; Fireman's Fund Insurance has not only pleaded a cause of action under the Deceptive Co. v. McDaniel (Beaumont CA 1959) 327 S.W.2d 358, no Trade Practices Act, but has also pleaded alternatively a cause writ; and Coca Cola Co. v. Allison (1908) 52 Tex.Civ.App. of action for breach of express and implied warranty, and for strict liability. We therefore do not reach the question 54, 113 S.W. 308, no writ. Article 8.02, Tex.Bus.Corp. of whether Article 17.56, Tex.Bus. and Comm.Code, as it Act, is a general statute relating to foreign corporations, existed at the time pertinent to this case, was mandatory whereas Subdivision 27 of Article 1995 is a specific or permissive; because under Plaintiff-Appellee's alternative provision regarding venue in actions brought against foreign cause of action for breach of warranty and strict liability, corporations. The general rule is that when the law makes Plaintiff has met his burden of proof for venue purposes under a general provision, apparently for all cases, and a specific Subdivision 27 of Article 1995. See O. M. Franklin Serum provision for a particular type case, then the general must Co. v. C. A. Hoover and Son (Amarillo CA 1966) 410 S.W.2d yield to the specific. Sam Bassett Lumber Co. v. City of 272, writ refused, no reversible error, in 418 S.W.2d 482. In Houston (Tex. 1947) 145 Tex. 492, 198 S.W.2d 879. Although other words, Article 17.56 does not come into play here. as a general rule under Article 8.02, foreign corporations authorized to do business in Texas may have the same rights Appellant Farmland further argues that Subdivision 27 of and privileges as domestic corporations, yet in the special Article 1995 cannot be applied against a foreign corporation instance of venue, suits against foreign corporations are that has been certified or authorized to do business in the governed by a different provision, to wit, Subdivision 27 State of Texas, because of the provisions of Article 8.02 of the of Article 1995, from domestic corporations, the latter being Business Corporation Act. Article 8.02 in its pertinent parts governed by Subdivision 23 of said Article. reads as follows: We have carefully considered Appellant's points and “A foreign corporation which shall have received a certificate contentions, and overrule all of same as being without merit. of authority under this Act shall . . . enjoy the same, but no Judgment of the trial court is accordingly affirmed. greater, rights and privileges as a domestic corporation . . . .”

AFFIRMED. [4] [5] Appellant argues that this provision essentially makes a foreign corporation “authorized” to do business in Texas, the equivalent of a domestic corporation and that for All Citations venue purposes, Subdivision 23, rather than Subdivision 27, would control against an “authorized” foreign corporation, 596 S.W.2d 939 citing *942 Burrows v. Texas Kenworth Co. (Tyler CA End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 3 APPENDIX D - Laredo Coco-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (Tex. App.—Austin 2010, pet. denied) Laredo Coca-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (2010) consideration that would demonstrate resale, and thus did not 317 S.W.3d 735 trigger sale-for-resale exemption to sales tax.

Court of Appeals of Texas, Austin.

Affirmed.

LAREDO COCA–COLA BOTTLING CO. and Coca–Cola Enterprises, Inc., Appellants, Procedural Posture(s): On Appeal; Motion for Summary v. Judgment.

Susan COMBS, Comptroller of Public Accounts of the State of Texas; and Greg Abbott, Attorney General of the State of Texas, Appellees. West Headnotes (11) No. 03–09–00157–CV [1] Taxation Subjects and Exemptions in | General April 15, 2010. | Statutory exemptions from taxation are strictly Rehearing Overruled July 9, 2010. construed because they undermine equality and uniformity by placing a greater burden on some Synopsis taxpaying businesses and individuals rather than Background: Soft drink bottling companies brought action placing the burden on all taxpayers equally. against Comptroller of Public Accounts and Attorney General, challenging denial of refund of sales tax paid on 1 Case that cites this headnote their purchases of soda fountain equipment. The 98th Judicial District Court, Travis County, Rhonda Hurley, J., granted [2] Taxation Presumptions and burden of Comptroller's motion for summary judgment and denied proof companies' motion for summary judgment. Companies The burden of proof for showing that a statutory appealed. exemption from taxation applies is on the claimant.

Holdings: The Court of Appeals, G. Alan Waldrop, J., held 1 Case that cites this headnote that: [3] Taxation Subjects and Exemptions in [1] manufacturing exemption to sales tax did not apply to soft General drink companies' purchase of fountain equipment; Taxation Presumptions and burden of proof [2] contract requirement that customers use only soft drink An exemption from taxation must affirmatively bottling companies' products in connection with fountain appear in the statutory language, and all doubts equipment purchased from companies was not consideration, are resolved in favor of the taxing authority and and thus did not trigger sale-for-resale exemption to sales tax; against the claimant. [3] contract requirement that customers purchase minimum 1 Case that cites this headnote amount of products from soft drink bottling companies as alternative to customers' obligations to make lease or rental payments was not consideration, and thus did not trigger sale- [4] Taxation Subjects and Exemptions in for-resale exemption to sales tax; and General The rule of strict construction cannot be used [4] customers' agreement with soft drink bottling companies as an excuse to stray from reasonableness when to assume liability for any damage or loss to equipment sold applying statutory exemptions from taxation. to them, while in customers' possession, did not constitute

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 Laredo Coca-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (2010)

It is not necessary that consideration be [5] Administrative Law and pecuniary in order for a sale to occur for purposes Procedure Permissible or reasonable of the sale-for-resale exemption to the sales tax. construction V.T.C.A., Tax Code § 151.005.

Administrative Law and Procedure Erroneous or unreasonable construction; conflict with statute [9] Taxation Consideration or profit Construction of a statute by the administrative agency charged with its enforcement is entitled to Taxation Retail sales; sales not for resale serious consideration, so long as the construction Contractual requirement that customers use only is reasonable and does not contradict the plain syrup, carbon dioxide, and cups provided by language of the statute. soft drink bottling companies in connection with fountain equipment purchased from companies was not legal detriment to customers or [6] Taxation Manufacturing or processing, surrender of their legal rights, and thus was use or consumption in; incorporation in new not “consideration” sufficient to trigger sale- product for-resale exemption to sales tax imposed on companies' purchase of fountain equipment, Manufacturing exemption from sales tax, where contract did not prohibit customers' sales providing that persons engaged in manufacturing of any products not provided by companies, were allowed refund on sales taxes paid and requirement only restricted what product on machinery used during manufacturing, did could be used in connection with equipment not exempt from taxation soft drink bottling companies' purchase of fountain equipment, itself. V.T.C.A., Tax Code §§ 151.005, where companies purchased fountain equipment 151.302(a). and then provided it to businesses who used it to sell soft drinks to customers, and companies did not, themselves, use [10] Taxation Consideration or profit equipment for manufacturing, processing, fabricating, or repairing tangible personal Taxation Retail sales; sales not for resale Contract requirement that customers purchase property. V.T.C.A., Tax Code § 151.318(g) minimum amount of syrup, carbon dioxide, and (Repealed). cups from soft drink bottling companies, as alternative to customers' obligations to make lease or rental payments, was not legal detriment [7] Taxation Consideration or profit to customers or surrender of their legal rights, Taxation Retail sales; sales not for resale and thus was not “consideration” sufficient to “Consideration,” which is required for a sale trigger sale-for-resale exemption to sales tax to occur for purposes of the sale-for-resale imposed on companies' purchase of fountain exemption to the sales tax, can be either a equipment, where companies admitted that they benefit to the promisor or a loss or detriment did not charge any premium on products for to the promisee, and surrendering a legal right customers who received equipment absent any payment obligation, and there was no evidence represents valid consideration. V.T.C.A., Tax that customers who failed to purchase required Code § 151.005. minimum products would be required to pay amount by which actual purchases fell below [8] Taxation Consideration or profit minimum requirement. V.T.C.A., Tax Code Taxation Retail sales; sales not for resale §§ 151.005, 151.302(a).

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 2 Laredo Coca-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (2010) on appellants' purchases of the equipment. The district court granted the Comptroller's motion for summary judgment and [11] Taxation Consideration or profit entered a take nothing judgment in favor of the Comptroller on all of appellants' claims. We hold that appellants' purchases Taxation Retail sales; sales not for resale are not exempt from sales tax under former tax code Customers' agreement with soft drink bottling section 151.318(g) (the manufacturing exemption), because companies, to assume liability for any damage or appellants do not use the equipment for manufacturing, loss to companies' equipment, while equipment was in customers' possession, did not constitute or under tax code section 151.302 (the sale-for-resale “consideration” of type that would demonstrate exemption), because appellants' provision of the equipment resale, and thus sale-for-resale exemption to to businesses was not done or performed for consideration sales tax did not apply to tax imposed on as required by the tax code. We affirm the judgment of the companies' purchase of fountain equipment, district court. regardless whether such assumption of liability might constitute consideration as general matter, Factual and Procedural Background where customers' agreement to pay for any Appellants are distributors of Coca–Cola branded soft damage or loss to equipment resulted in, at drinks. Appellants purchase concentrate from which they most, mere possibility of required payment, and manufacture the finished drink to be placed in bottles or cans there was no evidence that companies had ever and then sold. Appellants also sell to retailers (such as bars enforced this provision. V.T.C.A., Tax Code and restaurants) the necessary elements for the soft drink to §§ 151.006(a)(1), 151.302(a). be sold as a fountain product—both the canisters of syrup and carbon dioxide that the fountain equipment mixes with water to produce the soft drink, and the cups, lids, and straws with which an individual drink may be sold. Some of these customers already possess the necessary fountain equipment.

Attorneys and Law Firms For those customers that do not, appellants provide the fountain equipment under one of two types of agreements: *737 Mark W. Eidman, Curtis J. Osterioh, Ray N. Donley, (1) a “lease” or “rental” agreement under which the customer Scott, Douglass & McConnico, L.L.P., Austin, TX, for makes monthly payments for the use of the equipment; or Appellants. (2) a “commitment agreement” under which no payments are required, but the customer makes certain commitments.

Paul H. Masters, Assistant Attorney General, Austin, TX, for Appellees. *738 The latter type of agreement—under which appellants provide fountain equipment free of charge—is at issue in this Before Chief Justice JONES, Justices PEMBERTON and case. Appellants use various form agreements to document WALDROP. this type of agreement with their customers. Generally, the agreements require the customer to purchase a minimum amount of syrup, carbon dioxide, and cups from appellants, OPINION and to stock the equipment only with appellants' products, to G. ALAN WALDROP, Justice. be distributed only in appellants' cups. Both the equipment and the cups display the Coca–Cola trademark logo. The This is a suit for a tax refund. Appellants Laredo Coca– agreements provide that at all times, each appellant is to Cola Bottling Company and Coca–Cola Enterprises, Inc. remain the “exclusive owner” of the equipment. The customer purchased soda fountain equipment and then provided the cannot remove Coca–Cola's branding on the equipment, or equipment to businesses that used it to sell Coca–Cola move the equipment to a new location without appellants' drinks to customers. Appellants sued appellees Susan Combs, consent. The customer agrees to assume liability for any Comptroller of Public Accounts of the State of Texas, damage or loss to the equipment. Appellants provide any and Greg Abbott, Attorney General of the State of Texas necessary repairs, for which the customer agrees to pay, (collectively, the “Comptroller”) to recover sales tax paid although the customer usually is entitled to a number of free

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 3 Laredo Coca-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (2010) service calls. Upon entering into an agreement, appellants have rendered. City of Garland v. Dallas Morning News, would deliver and install the equipment at the customer's 22 S.W.3d 351, 356 (Tex. 2000). location. In the event that the customer failed to purchase the minimum amount agreed to, appellants would either [1] [2] [3] [4] Statutory exemptions from taxation commence charging monthly lease or rental payments or are strictly construed because “they undermine equality and repossess the equipment, as authorized under the agreements. uniformity by placing a greater burden on some taxpaying Appellants acknowledge that they do not recoup expenses businesses and individuals rather than placing the burden on associated with providing the equipment by charging higher prices for the syrup, carbon dioxide, or cups, or charging an all taxpayers equally.” North Alamo Water Supply Corp. amount for any other aspect of the transaction. v. Willacy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991). Consequently, the burden of proof for showing The Comptroller denied appellants' refund claim for $750,632 that the exemption applies is on the claimant. See id. in sales tax paid—attributable to the period from January 1, The exemption must affirmatively appear in the statutory 1990, through June 30, 1996—on their purchases of fountain language, and all doubts are resolved in favor of the taxing equipment from the manufacturer of that equipment. See authority and against the claimant. See Bullock v. National Tex. Tax Code Ann. § 111.104 (West 2008) (refund claims). Bancshares Corp., 584 S.W.2d 268, 272 (Tex. 1979). We also The Comptroller also denied the motions for rehearing recognize that “the rule of strict construction cannot be used subsequently filed by appellants. See id. § 111.105(c), (d) (West 2008) (motions for rehearing). as an excuse to stray from reasonableness.” Sharp v. Tyler Pipe Indus., Inc., 919 S.W.2d 157, 161 (Tex.App.-Austin On February 21, 2003, appellants filed suit in district court 1996, writ denied). against the Comptroller, challenging the denial of their refund claims. See id. § 112.151 (West 2008) (suits for refund).

Manufacturing Exemption Appellants rely on two tax exemptions: (1) the manufacturing Appellants assert that some of their purchases of the fountain exemption, see generally id. § 151.318 (West 2008); equipment are exempt from sales tax under the manufacturing and (2) the sale-for-resale exemption, see generally id. § exemption. During the audit period, section 151.318(g) of 151.302 (West 2008). The parties filed competing motions the tax code provided as follows: for summary judgment. On March 6, 2009, the district court granted the Comptroller's motion for summary judgment, denied appellants' motion for summary judgment, and entered Each person engaged in a take nothing judgment in favor of the Comptroller on all of manufacturing, processing, appellants' claims. Appellants appeal. fabricating, or repairing tangible personal property for ultimate sale is entitled to a refund or a reduction in Standard of Review the amount of tax imposed by this We review the district court's summary judgment de novo. chapter as provided by Subsection *739 Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, (h) for the purchase of machinery, (Tex. 2004). Under the “traditional” standard, a summary equipment, and replacement parts or judgment should be granted only when the movant establishes accessories with a useful life in that there is no genuine issue as to any material fact and that excess of six months if the equipment it is entitled to judgment as a matter of law. See Tex.R. Civ. is used or consumed in or during the actual manufacturing, processing, P. 166a(c); Provident Life & Accident Ins. Co. v. Knott, fabrication, or repair of tangible 128 S.W.3d 211, 215–16 (Tex. 2003). When, as here, both personal property for ultimate sale, parties file motions for summary judgment and the court and the use or consumption of the grants one and denies the other, we must decide all questions property is necessary or essential presented and render the judgment that the trial court should to the manufacturing, processing,

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 4 Laredo Coca-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (2010) fabrication, or repair operation, or to a [6] We hold that former section 151.318(g) of the tax pollution control process. code (the manufacturing exemption) does not exempt from taxation appellants' purchases of the fountain equipment at issue because the equipment is not used by appellants in Act of May 8, 1989, 71st Leg., R.S., ch. 154, § 1, 1989 Tex. manufacturing, processing, fabricating, or repairing tangible Gen. Laws 532, 533, repealed by Act of May 31, 1999, 76th personal property.

Leg., R.S., ch. 1467, § 4.01(3), 1999 Tex. Gen. Laws 4996, 5036. Appellants contend that this exemption applies to the Sale–for–Resale Exemption fountain equipment because (1) the fountain equipment is Appellants also assert that some of their purchases of the “used ... in or during the actual manufacturing” of fountain fountain equipment are exempt from sales tax under the drinks by appellants' customers for ultimate sale, and (2) sale-for-resale exemption. A “sale for resale of a taxable appellants are independently “engaged in manufacturing” by virtue of their bottling and canning activities. item” is exempt from sales tax. See Tex. Tax Code Ann. § 151.302(a). Appellants rely on the following statutory The Comptroller contends that the manufacturing exemption definition of “sale for resale”: does not apply to appellants' purchase of the fountain equipment because appellants do not, themselves, use the equipment for manufacturing. The Comptroller has “Sale for resale” means a sale of ... consistently maintained this interpretation. See Tex. tangible personal property ... to a Comptroller of Pub. Accounts, Hearing No. 29,774 (Oct. 12, purchaser who acquires the property ...

1994) (“The refund is available only to persons engaged in for the purpose of reselling it in the manufacturing with respect to equipment used by that person United States of America ... in the in actual manufacturing.”); see also Tex. Comptroller of Pub. normal course of business in the form Accounts, Hearing No. 39,695 (Dec. 30, 2002) (issue has or condition in which it is acquired or been “conclusively decided”); *740 Tex. Comptroller of as an attachment to or integral part of Pub. Accounts, Hearing No. 31,922 (Dec. 19, 1996) (follows other tangible personal property....

Hearing No. 29,774). [5] “Construction of a statute by the administrative agency charged with its enforcement is entitled to serious Id. § 151.006(a)(1) (West 2008). consideration, so long as the construction is reasonable and does not contradict the plain language of the statute.” The Comptroller contends that appellants' provision of the relevant fountain equipment to their customers does not Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, qualify as a “sale” and, therefore, appellants' acquisition of (Tex. 1993). It is a reasonable construction of former the equipment is not “for the purpose of reselling it.” To section 151.318(g) that its tax exemption for items used be a “sale” for purposes of the sale-for-resale exemption, in manufacturing applies only to the entity that, in fact, the resale must—among other requirements—be “done or uses those items for manufacturing. Under appellants' interpretation, they would get the tax benefits of a performed for consideration.” See id. § 151.005 (West customer's activities based on the happenstance of unrelated 2008). Therefore, if appellants' transferring of fountain manufacturing activities that have nothing to do with equipment to their customers was done for no consideration, the equipment at issue. Such a result runs contrary to the sale-for-resale exemption does not apply to appellants' the requirement that exemptions from taxation be strictly purchase of that equipment. 2 construed. See North Alamo Water Supply Corp., 804 [7] [8] Consideration can be either a benefit to the promisor S.W.2d at 899. It is a reasonable interpretation of the or a loss or detriment to the promisee, and surrendering a manufacturing exemption, then, that it applies to purchases by the entity that actually uses the purchased equipment for *741 legal right represents valid consideration. Northern manufacturing. Natural Gas Co. v. Conoco, Inc., 986 S.W.2d 603, 607 (Tex. 1998). Moreover, it is not necessary that consideration

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 5 Laredo Coca-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (2010) be pecuniary. See Angelou v. African Overseas Union, [11] The other contractual provision on which appellants 33 S.W.3d 269, 280 (Tex.App.-Houston [14th Dist.] 2000, rely is the customer's agreement to assume liability for any no pet.). Appellants rely on three characteristics of their damage or loss to the equipment while in the customer's agreements with their customers to argue that the transfer of possession. Regardless whether such an assumption of the equipment is done or performed for consideration. liability might constitute consideration as a general matter, we decline to hold that, in these circumstances, *742 it [9] First, appellants refer to the requirement that the constitutes consideration of a type such as would demonstrate customer use only the products purchased from appellants —syrup, carbon dioxide, and cups—in connection with the a “resale” under tax code section 151.006(a)(1). The fountain equipment. However, we decline to consider this agreement by appellants' customer to pay for any damage or requirement to be a legal detriment to the customer or a loss to the equipment in its possession results in, at most, the surrender of a legal right because the agreements do not, in mere possibility of a required payment. Moreover, there is fact, prohibit the customer's sale of any products not provided no evidence in the record that appellants have ever enforced by appellants. The requirement only restricts what product this contractual provision. 4 Therefore, there is no evidence can be used in connection with the equipment itself. that such contractual requirement is, in fact, a detriment to the customer such that appellants' provision of the equipment to [10] Next, appellants point to the requirement that the their customers—and not appellants' original purchase from customer purchase a minimum amount of syrup, carbon the manufacturer—is the transaction that should be subject to dioxide, and cups from appellants. This requirement exists, under the applicable agreements, as the alternative to the sales tax. See National Bancshares Corp., 584 S.W.2d at customer's obligation to make lease or rental payments. 272 (for tax exemptions, all doubts resolved in favor of taxing Appellants admit, however, that they did not charge any authority and against claimant); DuPont Photomasks, Inc. v. premium on those products for customers who receive Strayhorn, 219 S.W.3d 414, 419 (Tex.App.-Austin 2006, pet. the equipment absent any payment obligation. See Bullock denied) (“The purpose of the sale-for-resale exemption is to v. Cordovan Corp., 697 S.W.2d 432, 435–36 (Tex.App.- prevent double taxation.”); cf. G & J Pepsi Cola Bottling, Austin 1985, writ ref'd n.r.e.) (finding consideration for Inc. v. Limbach, 48 Ohio St.3d 31, 548 N.E.2d 936, 939 freely distributed magazines due to advertisers' payment (1990) (finding assumption of liability for damage or loss to claimant of “additional amount to have the magazines to equipment to be consideration, under Ohio law, where distributed to a certain group”); Tex. Comptroller of Pub. record demonstrated retailers were charged for “damages to Accounts, Hearing No. 30,151 (Dec. 30, 1993) (finding equipment caused by a car being driven into a machine and consideration for free transfer of ovens because transferor for damages to equipment caused by fire”). received discount on services provided by transferee when using transferred ovens). During the time period in which We hold that the transactions at issue—involving appellants' the customer satisfies the minimum requirement, the only providing fountain equipment to customers free of charge as amounts paid to appellants are the amounts paid for the long as those customers otherwise meet minimum purchase syrup, carbon dioxide, and cups sold, which amounts would requirements of sort drink products—is not a “sale” as be the same for a customer who paid for the equipment contemplated by the “sale-for-resale” exemption of the tax under a lease or rental agreement and made the exact same code. Therefore, section 151.302(a) of the tax code (the product sales. In the event the customer does not meet its sale-for-resale exemption) does not exempt from taxation required minimum purchase for the applicable time period, appellants' purchases of the equipment. appellants acknowledge that their only response is either to repossess the equipment or to commence assessing lease or rental payments on a prospective basis. Thus, there is no Conclusion evidence that a customer who fails to purchase the required Based on the summary judgment record, appellants' purchases minimum will be required to pay the amount by which the of fountain equipment are not exempt from sales tax under actual purchases fell below the minimum requirement. To the former tax code section 151.318(g) (the manufacturing extent the minimum requirement in this case is actually a exemption) or tax code section 151.302 (the sale-for-resale detriment to the customer, then, such a detriment relates only exemption). We affirm the judgment of the district court. to the fountain products themselves, not the equipment. 3

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 6 Laredo Coca-Cola Bottling Co. v. Combs, 317 S.W.3d 735 (2010)

All Citations 317 S.W.3d 735

Footnotes

1 Appellant Laredo Coca–Cola Bottling Company seeks a refund of $29,321 plus interest for the audit period May 1, 1993, through June 30, 1996, and relies exclusively on the manufacturing exemption. Appellant Coca–Cola Enterprises, Inc. is the successor in interest to Coca–Cola Bottling Company of Texarkana and Austin Coca–Cola Bottling Company. Coca–Cola Bottling Company of Texarkana sought a refund of $6,725 plus interest for the audit period October 1, 1991, through June 30, 1996, and relied exclusively on the manufacturing exemption. Austin Coca–Cola Bottling Company sought a refund of $193,770 plus interest for the audit period January 1, 1990, through December 31, 1992, based solely on the sale-for-resale exemption, and sought a refund of $520,816 plus interest for the audit period July 1, 1991, through June 30, 1996, based on both the manufacturing exemption and the sale-for-resale exemption.

2 Appellants contend that the party asserting lack of consideration has the burden of proof. However, the cases appellants cite involve a dispute between the parties to the alleged contract with regard to the validity of the contract in general, not a party to the contract seeking a tax exemption relating to a component of the contract. See ABB Kraftwerke Aktiengesellschaft v. Brownsville Barge & Crane, Inc., 115 S.W.3d 287, 293 (Tex.App.-Corpus Christi 2003, pet. denied); Rodriguez v. Southwestern Drug Corp., 619 S.W.2d 469, 472 (Tex.Civ.App.-Houston [14th Dist.] 1981, no writ). The burden of proof in a typical contract case does not alter the burden of proof where a claimant is seeking to come within an exemption to taxation.

3 Appellants cite Northern Natural Gas Co. v. Conoco, Inc., in which the supreme court held that the defendant's “promise to deliver for processing all gas that [the defendant] receives under the gas purchase contracts is the surrender of a legal right and therefore is sufficient consideration.” 986 S.W.2d 603, 607 (Tex. 1998).

However, in this case, the issue is not whether appellants' agreements, as a general matter, are supported by consideration. The issue is whether the transfer of the equipment itself is supported by consideration.

Northern Natural Gas Co. does not alter our conclusion that it is not.

4 In some cases, the applicable agreement required the customer to obtain insurance against damage or loss to the fountain equipment. However, Steven McMahan, appellants' designated corporate representative, admitted in his deposition that appellants did not obtain verification of insurance. Moreover, appellants provided no evidence regarding whether such a provision required the customer to purchase insurance in addition to its preexisting coverage.

End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 7 APPENDIX E - Sw. Royalties, Inc. v. Hegar, 500 S.W.3d 400 (Tex. 2016) Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316

500 S.W.3d 400 West Headnotes (11) Supreme Court of Texas.

SOUTHWEST ROYALTIES, INC., Petitioner, [1] Appeal and Error Statutory or legislative v. law Glenn HEGAR, Comptroller of Public Accounts Statutory construction is a question of law that of the State of Texas, and Ken Paxton, Attorney the appellate court reviews de novo.

General of the State of Texas, Respondents Cases that cite this headnote NO. 14–0743 | [2] Statutes Language and intent, will, Argued March 8, 2016 purpose, or policy | Statutes Plain Language; Plain, Ordinary, OPINION DELIVERED: June 17, 2016 or Common Meaning | Rehearing Denied October 21, 2016 The court's primary objective, when engaging in statutory construction, is to give effect to the Synopsis Legislature's intent, which the court ascertains Background: Oil and gas company brought action against from the plain meaning of the words used in the Comptroller and Attorney General, challenging Comptroller's statute, if possible. determination that it was not entitled to tax exemption for sales tax paid on purchase of equipment, materials, 26 Cases that cite this headnote and associated services under tax code provision governing property used in manufacturing. Following a bench trial, [3] Taxation Subjects and Exemptions in the trial court rendered judgment for defendants. Company General appealed. The Austin Court of Appeals affirmed. Company Tax exemptions are narrowly construed and the petitioned for review. taxpayer has the burden to clearly show that an exemption applies. Tex. Tax Code Ann. § 151.318(r).

Holdings: The Supreme Court, Johnson, J., held that: Cases that cite this headnote [1] term “processing,” as used in tax code provision governing exemption for sales tax paid on property used [4] Taxation Subjects and Exemptions in in manufacturing of tangible personal property was not General ambiguous, and Although statutory tax exemptions are narrowly [2] equipment in question was not used by company in construed, construing them narrowly does not the actual physical application of materials and labor to mean disregarding the words used by the hydrocarbons that was necessary to cause, and caused, a Legislature. physical change to hydrocarbons and, thus was not used in Cases that cite this headnote processing of oil and gas, so as to entitle company to tax exemption. [5] Statutes What constitutes ambiguity; how determined Affirmed.

Statutes Questions of law or fact Procedural Posture(s): On Appeal. Whether statutory language is ambiguous is a matter of law for courts to decide, and language

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316 is ambiguous only if the words yield more than one reasonable interpretation. [9] Taxation Administrative agencies and regulation Cases that cite this headnote Although the Comptroller's definition of a term in a tax statute is not binding, the court may [6] Statutes Undefined terms consider it in determining the definition most consistent with the scheme of the statute, just as Statutes Construing together; harmony it may look to other aids for construing statutory When a statute contains a term that is undefined, language. the term is typically given its ordinary meaning, but the meaning must be in harmony and 5 Cases that cite this headnote consistent with other statutory terms, and if a different, more limited, or precise definition is [10] Statutes What constitutes ambiguity; how apparent from the term's use in the context of the determined statute, the court applies that meaning.

The inquiry, when evaluating whether a statute is Cases that cite this headnote ambiguous, is not whether the scope of a statute is ambiguous, but rather whether the statutory language itself is ambiguous. [7] Statutes What constitutes ambiguity; how determined 18 Cases that cite this headnote Statutes Undefined terms Statutes Context [11] Taxation Manufacturing or processing, If an undefined term in a statute has multiple use or consumption in; incorporation in new common meanings, it is not necessarily product ambiguous; rather, the court will apply the Equipment such as casing, tubing, and pumps definition most consistent with the context of the was not used by oil and gas company in the statutory scheme. actual physical application of materials and labor to hydrocarbons that was necessary to cause, Cases that cite this headnote and caused, a physical change to hydrocarbons and, thus was not used in processing of oil [8] Taxation Manufacturing or processing, and gas, so as to entitle company to tax use or consumption in; incorporation in new exemption for sales tax paid on purchases of product such equipment; while equipment was both Term “processing,” as used in tax code provision used in and necessary to efficient recovery of governing exemption for sales tax paid on hydrocarbons from reservoirs, the changes in the property used in manufacturing of tangible substances were caused not by application of personal property was not subject to more than equipment and materials to them, but by natural one reasonable interpretation and, thus, was not pressure and temperature changes that occurred ambiguous; legislature intended such term to as hydrocarbons traveled from reservoir through mean the physical application of the materials casing and tubing to surface. Tex. Tax Code and labor necessary to modify or change characteristics of tangible personal property. Ann. § 151.318(a)(2), (5), (10); 34 Tex. Admin. Code § 3.300(a)(10). Tex. Tax Code Ann. § 151.318(a)(2), (5), (10); 34 Tex. Admin. Code § 3.300(a)(10).

5 Cases that cite this headnote

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 2 Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316 (providing for filing a tax refund claim with the comptroller). *401 ON PETITION FOR REVIEW FROM THE COURT It based its claim on the following Tax Code provisions: OF APPEALS FOR THE THIRD DISTRICT OF TEXAS, David E. Puryear, J. Property Used in Manufacturing Attorneys and Law Firms (a) The following items are exempted from the taxes imposed by this chapter if sold, leased, or rented to, or Bryan A. Garner, Karolyne H.C. Garner, LawProse, Inc., stored, used, or consumed by a manufacturer: Dallas TX, David E. Keltner, Kelly Hart & Hallman LLP, Fort Worth TX, Doug Sigel, Mark W. Eidman, Quentin ...

Doug Sigel, Ryan Law Firm LLP, Ray H. Langenberg, Scott Douglass & McConnico, LLP, Austin TX, for Petitioner. (2) tangible personal property directly used or consumed in or during the actual manufacturing, processing, or Charles E. Roy, First Assistant Attorney General, Office of fabrication of tangible personal property for ultimate the Attorney General, Michael P. Murphy, Scott A. Keller, sale if the use or consumption of the property is Asst. Solicitor General, Warren Kenneth Paxton Jr., Attorney necessary or essential to the manufacturing, processing, General of Texas, Austin TX, for Respondents. or fabrication operation and directly makes or causes a chemical or physical change to: Everard A. Marseglia, Jillian Marullo, Liskow & Lewis, PLC, Houston TX, Christopher Pepper, Lloyd Gosselink Rochelle (A) the product being manufactured, processed, or & Townsend PC, Amanda Martin, Texas Association of fabricated for ultimate sale; or Business, Chesley N. Blevins, Jackson Walker LLP, Lisa Erin Hobbs, Kuhn Hobbs PLLC, Robert Earl Henneke, Texas (B) any intermediate or preliminary product that Public Policy Foundation, *402 Allegra Hill, Austin TX, for will become an ingredient or component part of the Amicus Curiae. product being manufactured, processed, or fabricated for ultimate sale; Opinion ...

JUSTICE JOHNSON delivered the opinion of the Court. (5) tangible personal property used or consumed in The question in this tax-refund case is whether an oil the actual manufacturing, processing, or fabrication of and gas exploration and production company proved that tangible personal property for ultimate sale if the use or its purchases of casing, tubing, other well equipment, and consumption of the property is necessary and essential associated services were exempt from sales taxes under a to a pollution control process; statutory exemption. The trial court found that the company did not prove it was entitled to the exemption. The court of ... appeals affirmed. We likewise affirm. (10) tangible personal property used or consumed in the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale if the use or I. Background consumption of the property is necessary and essential to comply with federal, state, or local laws or rules that Southwest Royalties, Inc. is an oil and gas exploration and establish requirements related to public health. production company. It purchased and paid sales taxes on equipment, materials, and associated services related to its oil Id. § 151.318. and gas production operations for the period from January 1, 1997, to April 30, 2001. In 2009, Southwest filed a tax refund Southwest sought the refund on the basis that the equipment claim with the Comptroller, asserting it was entitled to an was used in or during the process of extracting oil, gas, exemption from the tax for some of the equipment such as and associated substances (collectively, hydrocarbons), from casing, tubing, and pumps (collectively, equipment), together underground mineral reservoirs, separating the hydrocarbons with associated services. See TEX. TAX CODE § 111.104 into their component substances, and bringing them to the surface. The Comptroller denied relief, noting a previous

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 3 Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316 determination *403 that the type of equipment in question appeals' determination, the statute is unambiguous and this was used for transportation, not manufacturing. Comptroller Court should not defer to the Comptroller's interpretation.

Hearing 100,619 (2009). After its motion for rehearing was Finally, Southwest asserts that the exemption applies because denied, Southwest sued the Comptroller and the Attorney the equipment is used in processing and is essential for General (collectively, the State). See TEX. TAX CODE § controlling pollution, see TEX. TAX CODE § 151.318(a) 112.151. (5), and for compliance with public-health laws. See id. § 151.318(a)(10).

In its suit, Southwest asserted that hydrocarbons extracted from an underground reservoir must be separated into The State counters that (1) the manufacturing exemption their component parts to produce saleable products, and must be construed narrowly with any doubts resolved against the equipment for which it sought refunds was used in Southwest; (2) construing the exemption narrowly yields the “processing” the hydrocarbons as they were extracted from conclusion that mineral extraction is not “manufacturing,” the reservoir and brought to the surface, that is, it was used in “processing,” or “fabrication”; and (3) construing the statute separating the hydrocarbons into their different components. otherwise is inconsistent with other provisions of the Tax The State countered that Southwest was not entitled to the Code. Further, the State asserts that even if extraction is exemption because oil and gas exploration companies are not processing, the changes the hydrocarbons undergo during manufacturers and because extracting minerals and bringing their movement to the surface are directly caused by them to the surface is not manufacturing. natural pressure and temperature changes, not Southwest's equipment. The State also argues that the exemption is Following a bench trial, the trial court found that physical inapplicable because minerals below the surface are real changes occur in hydrocarbons when they are extracted from property, not “tangible personal property,” under the Tax their underground reservoir and lifted to the surface. But it Code, even if they have been severed from the reservoir and also found that Southwest's equipment was not the direct are inside well casing and tubing. cause of the changes; rather, the changes were directly caused by temperature and pressure changes as the hydrocarbons moved upward toward the surface. The court concluded that Southwest failed to meet its burden to prove the exemption II. Discussion applied, and rendered judgment for the State. Southwest does not challenge any of the trial court's findings of fact. A. Standard of Review Southwest appealed. The appeals court determined that the [1] [2] [3] [4] Statutory construction is a question of statute is ambiguous *404 regarding “what qualifies as law that we review de novo. First Am. Title Ins. Co. property or services used during ‘actual manufacturing, v. Combs, 258 S.W.3d 627, 631 (Tex. 2008). Our primary processing, or fabrication’ ” under the Tax Code. 501 objective is to give effect to the Legislature's intent, which S.W.3d 95 (Tex.App.–Austin 2014). Deferring to the agency's we ascertain from the plain meaning of the words used in interpretation of the statute because of this ambiguity, the court held that the Comptroller's interpretation—that the the statute, if possible. Greater Hous. P'ship v. Paxton, Legislature did not intend the manufacturing exemption to 468 S.W.3d 51, 58 (Tex. 2015). Tax exemptions are narrowly apply to the extraction of oil and gas—was not plainly construed and the taxpayer has the burden to “clearly show” erroneous or inconsistent with the statutory language. Id. It that an exemption applies. See TEX. TAX CODE § affirmed.

151.318(r); Bullock v. Nat'l Bancshares Corp., 584 S.W.2d 268, 271–72 (Tex. 1979). Although statutory tax exemptions In this Court, Southwest asserts that (1) hydrocarbons are are narrowly construed, construing them narrowly does not tangible personal property once they are severed from the mean disregarding the words used by the Legislature. See reservoir and pass into the casing in the wellbore, and (2) it proved its equipment was used for “processing” because it AHF–Arbors at Huntsville I, LLC v. Walker Cty. Appraisal was used in separating the hydrocarbons into their component Dist., 410 S.W.3d 831, 837 (Tex. 2012). parts. 3 Southwest also claims that despite the court of

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 4 Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316 The State asserts that we should afford deference to the [6] [7] When a statute contains a term that is undefined, Comptroller's interpretation of the manufacturing exemption as “processing” is in this case, the term is typically given its because “the construction is reasonable and does not ordinary meaning. State v. $1,760.00 in U.S. Currency, 406 S.W.3d 177, 180 (Tex. 2013). But the meaning must be in contradict the plain language of the statute.” First Am. harmony and consistent with other statutory terms and “[i]f Title Ins. Co., 258 S.W.3d at 632. In that vein, we have a different, more limited, or precise definition is apparent long *405 recognized that an agency's construction of a from the term's use in the context of the statute, we apply statute may be taken into consideration by courts when that meaning.” Id. If an undefined term has multiple common interpreting statutes, but deferring to an agency's construction meanings, it is not necessarily ambiguous; rather, we will is appropriate only when the statutory language is ambiguous. apply the definition most consistent with the context of the R.R. Comm'n of Tex. v. Tex. Citizens for a Safe Future & statutory scheme. See Thompson v. Tex. Dep't Licensing & Clean Water, 336 S.W.3d 619, 625 (Tex. 2001). In Texas Regulation, 455 S.W.3d 569, 571 (Tex. 2014).

Citizens for a Safe Future we explained that judicial deference to an agency's construction of a statute is tempered by [8] [9] Here the three words “manufacturing,” several considerations, including that “the language at issue “processing,” and “fabrication” are found in a section must be ambiguous.” Id. (quoting Fiess v. State Farm entitled “Property Used in Manufacturing.” TEX. TAX Lloyds, 202 S.W.3d 744, 747–48 (Tex. 2006)); see Tracfone CODE § 151.318. Southwest recognizes that “processing” Wireless, Inc. v. Comm'n on State Emergency Commc'ns, 397 may sometimes be encompassed within “manufacturing,” S.W.3d 173, 182 (Tex. 2013) (“[C]ourts sometimes defer to as the State asserts, but argues that “processing” as used agencies' statutory interpretations, but only when a statute is in the statute must refer to something different from ambiguous.... Agency deference has no place when statutes “manufacturing” and “fabrication,” otherwise it is surplusage. are unambiguous—the law means what it says—meaning we Citing various dictionary definitions, Southwest argues that will not credit a contrary agency interpretation that departs “processing” as used in the statute involves “creating or from the clear meaning of the statutory language.”). With the inducing a physical change” in the tangible personal property foregoing in mind, we turn to the language of the statute. being processed, and “processing” of hydrocarbons need not be “manufacturing” to come within the exemption provided by section 151.318. We agree with Southwest. While B. Is the Statute Ambiguous? manufacturing may well include types of “processing,” the use of the separate term “processing” *406 in the [5] The statute provides that the sales tax exemption statute indicates the Legislature understood and intended applies to tangible personal property used in “the actual that “processing” includes matters outside the confines of manufacturing, processing, or fabrication of tangible personal “manufacturing.” In this regard, the Comptroller has defined property.” TEX. TAX CODE § 151.318(a)(2), (5), (10). “processing” as it is used in section 151.318 as being “[t]he The main disagreement between the parties is whether the physical application of the materials and labor necessary to equipment is used for “processing,” and neither argues that modify or change the characteristics of tangible personal the term is ambiguous. However, the fact that the parties do property.” 34 TEX. ADMIN. CODE § 3.300(a)(10). The not contend a statute is ambiguous does not mean that it is State asserts that even if “processing” is not encompassed not. Whether statutory language is ambiguous is a matter of within “manufacturing,” this definition applies. Although the law for courts to decide, and language is ambiguous only if Comptroller's definition is not binding, we may consider it in the words yield more than one reasonable interpretation. See determining the definition most consistent with the scheme of Combs v. Roark Amusement & Vending, L.P., 422 S.W.3d the statute, just as we may look to other aids for construing statutory language. See $1,760.00 in U.S. Currency, 406 632, 635 (Tex. 2013); Tex. Citizens for a Safe Future, 336 S.W.3d at 181; Firestone Tire & Rubber Co. v. Bullock, 573 S.W.3d at 628 (“It is precisely when a statutory term is subject S.W.2d 498, 500 n.3 (noting that the Comptroller's definition to multiple understandings that we should defer to an agency's will not be effective to expand or contract the language of the reasonable interpretation.” (emphasis added)). statute).

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 5 Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316 The definitions cited by, and the interpretation proposed Hydrocarbons generally reside within porous formations or by, Southwest, as well as the Comptroller's definition, are reservoirs of rock under great pressure from the overlaying consistent with the other text of the statute. Even though earth. 2 ERNEST E. SMITH & JACQUELINE LANG there may be shades of difference in various definitions WEAVER, TEXAS LAW OF OIL AND GAS § 8.2[B][1], of “processing,” we think the differences are immaterial at 8–22.5. Usually, when a well penetrates and is completed when the term is considered in context of the framework of in the reservoir, the differential between the pressure inside the wellbore and the pressure on *407 hydrocarbons in section 151.318. See Thompson, 455 S.W.3d at 571. The the formation causes the hydrocarbons to flow out of the essence of all the common meanings of “processing” correlate formation and into the well. Id. But many times, for various with the definition adopted by the Comptroller. reasons, hydrocarbons will not move from their reservoir into the well bore absent application of artificial means to cause [10] The State asserts that there may be an ambiguity about them to exit the formation. The casing for which Southwest “the scope” of the exemption. But the inquiry is not whether sought the exemption is a steel pipe that is inserted into a the scope of a statute is ambiguous, but rather whether borehole that keeps the borehole from collapsing. Portions the statutory language itself is ambiguous. Tex. Dep't of the casing are cemented into place. The tubing for which of Ins. v. Am. Nat'l Ins. Co., 410 S.W.3d 843, 853–54 Southwest also sought an exemption is a smaller tube that (Tex. 2011) (“An administrative agency's construction of a hangs inside the casing. Most of the hydrocarbon fluids rise statute it implements ordinarily warrants deference when ... to the surface through the tubing while gas separated from the statutory language at issue is ambiguous.”) (emphasis the fluids generally moves into and up the space between the added); see Thompson, 455 S.W.3d at 572 (considering tubing and the casing. As the hydrocarbons move into and up the statutory phrase “evidence of the person's rehabilitation the casing and tubing, the changing pressure and temperature or rehabilitative effort while incarcerated or after release” result in their separating into gas and liquids. to determine whether the language was ambiguous before considering whether it included the requirements urged by the Southwest argues that the casing and tubing system both Department of Licensing and Regulation). begins and continues the “processing” of hydrocarbons into separate substances of oil, gas, and condensates. But the Because, in context, the statutory language is not subject trial court found that the direct causes of the changes in to multiple understandings, we agree with the parties that the hydrocarbons were pressure and temperature changes, it is not ambiguous. The Legislature intended “processing” while the equipment was only an indirect cause of them. And in subsections 151.318(a)(2), (5), and (10) to mean the the evidence supporting those findings is not challenged by application of materials and labor necessary to modify or Southwest. For example, Robert Newton, the Permian Basin change characteristics of tangible personal property. division manager for Clayton Williams Energy (the owner of Southwest Royalties) testified that the wells begin the process of separating the hydrocarbons into gas and liquid by creating C. Is the Equipment Used in Processing? a pressure drawdown and bringing the hydrocarbons into the wellbore, which then separates them. He later explained, [11] The three Tax Code subsections under which Southwest however, that the casing maintains, but does not cause, sought an exemption require that the property at issue be used pressure, and if hydrocarbons enter an uncased borehole and in actual “processing”—application of materials and labor move toward the surface, they exhibit the same physical necessary to modify or change the characteristics of tangible changes. Terry Payne, a petroleum engineer, testified for Southwest that the wells were the cause of the change to the personal property. See TEX. TAX CODE § 151.318(a)(2), hydrocarbons because without them the hydrocarbons would (5), (10); 34 TEX. ADMIN. CODE § 3.300(a)(10). As stay in the ground. But he also testified that the phase changes noted previously, it is undisputed that hydrocarbons undergo the hydrocarbons undergo result from changes in pressure and physical changes as they move from underground reservoirs temperature. Thomas Richter, a petroleum engineer, testified to the surface; the disagreement is about the role Southwest's for the State that the phase changes were a natural, physical equipment plays in those changes. process that occurs from the reservoir to the top of a well and whether casing was in the well was only incidental to the changes. He explained that the casing and tubing were

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 6 Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316 essentially only conduits through which the hydrocarbons characteristics of the hydrocarbons and natural forces of exit the reservoir and proceed to the surface. No evidence changing pressures and temperatures caused the changes. identified any way Southwest's equipment acted upon the hydrocarbons to cause a modification or change in them other In Sabine Mining Co. v. Strayhorn, the court considered than by being the vehicle which caused them to exit, and whether “dragline” machines were property used in through which they exited, the underground formation and manufacturing and, therefore, exempt from sales tax. 2007 traveled to the surface. WL 2390686 (Tex.App.–Corpus Christi 2007, no pet.) (mem.op.). The company seeking the exemption, Sabine While the parties and amici argue extensively over whether Mining, used the draglines to remove overburden—a layer oil and gas production generally is processing, our inquiry of dirt and rock—from atop underground coal deposits. Id. is more narrow; it is whether the equipment for which at *1. The removal of the overburden reduced weight and Southwest is seeking an exemption was used in the pressure on the coal and exposed it to oxygen which caused actual physical application of materials and labor to the fracturing. Id. These changes altered the physical appearance hydrocarbons that was necessary to cause, and caused, of the coal and also increased its energy content. Id. The court a physical change to them. “Used” and “actual” are not concluded that the changes to the coal were not a “direct” defined in the statute so we look to their common, ordinary result of the draglines. Id. at *3. The court explained that meanings. $1,760.00 in U.S. Currency, 406 S.W.3d at a reasonable interpretation of “direct” implies a close link 180. “Used” is defined as “employed in accomplishing with no intervening causes, and the dragline was merely an something,” and “actual” is defined as “existing in act “indirect” cause of the changes. Id. at *4. This is similar to the and not merely potentially.” MERRIAM–WEBSTER'S situation here where natural pressure and temperature changes COLLEGIATE DICTIONARY 12, 1297 (10th ed. 2000). are, as the trial court found, the direct causes of the changes While the equipment unquestionably was both used in and to the hydrocarbons and the equipment was an indirect cause. necessary to the efficient recovery of hydrocarbons from their reservoirs, there is no evidence that the equipment acted Southwest also asserts that in two other matters the upon the hydrocarbons to modify or change *408 their Comptroller has granted exemptions for equipment used in oil characteristics. The changes in the substances were caused not and gas extraction and mineral operations. But in neither of by the application of equipment and materials to them, but by those matters did the Comptroller conclude that bringing oil the natural pressure and temperature changes that occurred as and gas to the surface, without additional affirmative action the hydrocarbons traveled from the reservoir into and through using property to effect changes in their characteristics, was the casing and tubing to the surface. “processing.” See Comptroller Hearing 31,253 (1998) (“It has long been the position of the Agency that the act of bringing Both parties rely on lower court decisions interpreting terms oil to the surface of the earth is not processing.... [W]e have concluded that injecting carbon dioxide for the purpose of in Tax Code section 151.318. Those cases are consistent thinning or increasing the gravity of the oil creates a physical with our conclusion. In Rylander v. Haber Fabrics Corp., change in the oil and is, therefore, a processing activity.”); Haber Fabrics challenged the Comptroller's decision that Comptroller Letter Ruling 200903457L (2009)Letter Ruling Haber did not “process” second quality fabric by sorting, 200903457L (2009) (“Although the act of producing oil or airing, inspecting, cutting, and packaging it to be first quality gas (bringing oil or gas to the surface of the earth) is not grade. 13 S.W.3d 845, 848 (Tex.App.–Austin 2000, no processing[,] the use of liquid carbon dioxide (CO2) to thin pet.). The trial court agreed with Haber, and the court of or increase the gravity of crude oil causes a physical change in the oil and thus constitutes processing for sales and use tax appeals affirmed. Id. at 847. The court of appeals held purposes.”). that Haber's activities satisfied the Comptroller's definition of processing because Haber “applies materials and labor to Southwest also cites Comptroller decisions that determined modify or change the characteristics of the fabric.” Id. processing occurred below ground, but these decisions are Here, in contrast, while Southwest applied the equipment to inapposite. Our decision does not turn on the fact that the move substances from underground reservoirs to the surface, alleged processing occurred underground as opposed to above it did not apply the equipment to modify or change their ground. *409 Rather, it turns on the fact that the trial court characteristics. Rather, as the trial court found, inherent did not find, and there is no evidence that, the equipment

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 7 Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316 was applied to cause changes in their characteristics as the hydrocarbons moved from the reservoir to the surface. See Comptroller Hearing 31,842 (2004) (finding that pumping III. Conclusion superheated water into sulphur formations caused a physical or chemical change in the sulphur); Comptroller Letter Ruling Southwest did not prove that the equipment for which it 9506L1351F01 (1995) (finding that equipment used to break sought a tax exemption was used in “actual manufacturing, apart the ground and shatter the underlying limestone and processing, or fabricating” of hydrocarbons within the shale into pieces to be processed into cement qualified meaning of Tax Code section 151.318(2), (5), or (10). as manufacturing equipment); Comptroller Hearing 27,940 Thus, Southwest is not entitled to an exemption from paying (1992) (concluding that explosives used to blast rock and sales taxes on purchases of the equipment. Our conclusion sandstone formations were used in processing gravel and makes it unnecessary to address any other issues the parties sand); Comptroller Hearing 23,055 (1988) (determining that present. dynamite used to blast rock out of the earth and start reducing the size of large boulders to gravel was exempt). We affirm the judgment of the court of appeals.

And regardless of the Comptroller's prior interpretations, the question here is one of statutory construction which All Citations “ultimately is one left to the courts.” Roark Amusement & Vending, 422 S.W.3d at 638. 500 S.W.3d 400, 59 Tex. Sup. Ct. J. 1316

Footnotes

1 Susan Combs was comptroller at the time suit was filed. Glenn Hegar succeeded her and has been substituted as comptroller. See TEX. R. APP. P. 7.2(a).

2 Salient findings of fact and conclusions of law made by the trial court are set out below: I. FINDINGS OF FACT 6. The term “petroleum” as used by this Court includes not only crude oil, but all liquid and gaseous hydrocarbon constituents in an oil and gas reservoir beneath the surface of the ground.

7. The difference in pressure between the oil and gas reservoir beneath the ground and the surface causes some lighter hydrocarbon constituents in the petroleum to change from a liquid state to a gaseous state as the petroleum is lifted toward the surface with the result that Plaintiff recovers oil and gas.

8. Liquid petroleum lifted from a reservoir has many hydrocarbon constituents, but only some of the lighter constituents, such as methane, may become gas as a result of the change in pressure as the petroleum is lifted from the oil and gas reservoir beneath the ground to the surface.

10. The temperature difference between the oil and gas reservoir beneath the ground and the surface causes some hydrocarbon constituents in the petroleum to condense from a gaseous state and become liquid petroleum.

12. The physical changes of state from liquid to gas and gas to liquid are directly caused by differences in pressure and temperature that result from lifting the petroleum to the surface.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 8 Southwest Royalties, Inc. v. Hegar, 500 S.W.3d 400 (2016) 59 Tex. Sup. Ct. J. 1316 13. The change of pressure and temperature intervenes to directly cause some, but not all, of the hydrocarbon constituents in the petroleum to change from either a liquid to a gas, or a gas to a liquid, beneath the surface of the ground.

14. The Equipment is merely an indirect cause of the changes in physical state that occurs to some of the hydrocarbon constituents in the petroleum.

II. CONCLUSIONS OF LAW 2. Changes from liquid to gas and from gas to liquid are “physical changes” within the meaning of Tex. Tax Code § 151.318.

3. Physical change occurs when petroleum is brought to the surface of the ground.

4. Proof that a physical change has occurred to petroleum when it is brought to the surface is insufficient to establish that the manufacturing exemption in Tex. Tax Code § 151.318 applies because what must be shown is that the Equipment directly causes the physical change to the petroleum.

5. “Direct” implies a close link with no intervening causes.

6. The direct cause of the physical change is the change in pressure and/or temperature.

7. The Equipment is merely an indirect cause of the physical changes.

3 Amicus briefs were submitted in support of Southwest's position by Texas Association of Business, Texas Aggregates and Concrete Association, and Texas Mining and Reclamation Association; EOG Resources; Texas Oil and Gas Association; and the Texas Public Policy Foundation.

End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 9 APPENDIX F - Townsend v. Terrell, 16 S.W.2d 1063 (Tex. 1929) Townsend v. Terrell, 118 Tex. 463 (1929) 16 S.W.2d 1063

[5] Statutes General and specific statutes 118 Tex. 463 Specific statute controls over general statute Commission of Appeals of Texas, Section B. where conflicting.

Townsend, Dist. Atty.

Original application for writ of mandamus by Sam H.

Townsend, District Attorney, against Sam H. Terrell, State 1 Case that cites this headnote Comptroller, and others. Writ granted.

West Headnotes (6) Attorneys and Law Firms *464 W. J. Townsend and J. J. Collins, both of Lufkin, for [1] Statutes Implied Repeal relator.

Repeals by implication are not favored.

Claude Pollard, Atty. Gen., and H. Grady Chandler and R. D.

5 Cases that cite this headnote Cox, Asst. Attys. Gen., for respondents.

Opinion [2] Statutes In pari materia *465 SPEER, J.

All acts and parts of acts in pari materia are to be construed as a whole. This is an original application for a writ of mandamus to compel the state comptroller to issue to relator salary warrants Cases that cite this headnote as district attorney for the Second Judicial district. Relator has been duly elected to the office of district attorney for [3] Statutes By inconsistent or repugnant the Second district and is entitled to the writ sought, unless statute the office has been abolished by the Act of the Fortieth Repeal by implication will be indulged only Legislature which we shall immediately notice. where acts are so inconsistent as to be irreconcilable. By an act approved March 22, 1927, the Fortieth Legislature passed the following bill: Cases that cite this headnote “Section 1. The office of District Attorney in the Second Judicial District of Texas is hereby abolished and the [4] Statutes By inconsistent or repugnant County Attorney of each county composing said district, to statute wit: Angelina, Cherokee, and Nacogdoches Counties, shall Acts being irreconcilable, presumption of represent the State of Texas in all matters wherein the State intention to repeal all laws and parts thereof in of Texas is a party in his respective county, and shall receive conflict with clear intention of last act exists. such fees and compensation for his services as is now, or may hereafter, be provided by the General Laws of the State of Cases that cite this headnote Texas.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 1 Townsend v. Terrell, 118 Tex. 463 (1929) 16 S.W.2d 1063

*466 “Sec. 2. All laws, or parts of laws, in conflict herewith It is the contention of relator that the last act prevails and are hereby repealed. by necessary implication repeals the first one abolishing the office of *467 district attorney for the Second Judicial “Sec. 3. This act shall become and be effective on and after district, while it is the contention of respondents that the two January 1, 1929.” Gen. and Spec. Laws, 1927, p. 195. acts are not necessarily inconsistent, but that both may stand and do stand as valid enactments.

After the passage of the above act, the same Legislature [1] [2] [3] [4] It will be observed that in the amendment passed the following: approved March 25, 1927, there is no express repeal of the abolishing act approved March 22d. It is well settled that “Section 1. That Article 322 of the Revised Civil Statutes repeals by implication are not favored, and that all acts and of 1925 be amended so that same shall hereafter read as parts of acts in pari materia are to be construed as a whole follows: and interpreted in such manner as that all may stand where such may reasonably be done. It is only where acts are so “ Article 322. The following Judicial Districts in this inconsistent as to be irreconcilable that a repeal by implication State shall each respectively elect a district attorney, viz.: will be indulged. If there exists such conflict, then there is first, second, third, fourth, fifth, seventh, eighth, ninth, a presumption of the intention to repeal all laws and parts twelfth, twenty-first, twenty-second, twenty-third, twenty- of laws in conflict with the clear intention of the last act. fourth, twenty-fifth, twenty-seventh, twenty-ninth, thirtieth, This is necessarily true where both acts cannot stand as valid thirty-first thirty-second, thirty-third, thirty-fourth, thirty- enactments. fifth, thirty-sixth, thirty-seventh, thirty-eighth, thirty-ninth, fortieth, forty-second, forty-sixth, forty-seventh, forty-ninth, [5] This rule of construction has found frequent and apt fiftieth, fifty-first, fifty-second, fifty-third, sixty-third, sixty- illustration where one of the supposedly conflicting statutes fourth, sixty-ninth, seventieth, seventy-second, seventy-fifth, was general in its terms and the other specific. In such a case seventy-sixth, seventy-seventh, seventy-ninth, eighty-first, it is universally held that the specific statute more clearly eighty-third, nintieth, hundred, hundred and sixth. There shall evidences the intention of the Legislature than the general also be elected a criminal district attorney for Harris County, a one, and therefore that it will control. In such a case both criminal district attorney for Dallas County, a criminal district statutes are permitted to stand—the general one applicable to attorney for Tarrant County, and one criminal district attorney all cases except the particular one embraced in the specific for the Counties of Nueces, Kleberg, Kennedy, Willacy and statute. It is this rule of construction and the line of decisions Cameron. supporting it that are urged upon us by respondents. Perhaps the latest case in point is Fortinberry v. State (Tex. Com.

“Sec. 2. The fact that many district courts try only civil cases App.) 283 S. W. 147. There a specific statute, which declared and have no need for a district attorney and the further fact that that no person shall be eligible to the office of mayor unless many judicial districts overlap and the further fact, that may he possesses the qualifications of an elector and shall have counties constitute several judicial districts and the law now resided 12 months next preceding the election within the requires the election of a district attorney for each district, limits of the city, would control a general statute that no and the fact that to provide a district attorney in every judicial person shall be eligible to any state, county, precinct, or district, in the State, would cause a needless expenditure of municipal office in this state unless he shall have resided funds and the fact that no district attorney has been elected in in this state for the period of 12 months and 6 months in any district except those **1064 named in this Act, create the county, precinct, or municipality in which he offers as a an emergency and an imperative public necessity that the candidate next preceding the election, but that both would constitutional rule requiring bills to be read on three several stand. days in each House be suspended, and said rule is hereby suspended, and that this Act shall take effect and be in force [6] But the rule there applied and here invoked can have from and after its passage, and it is so enacted. no application, for the reason that both statutes involved are “Approved March 25, 1927. specific with respect to the office of district attorney for the Second Judicial district, for in both the particular office “Effective March 25, 1927.” Gen. and Spec. Laws, 1927, is expressly mentioned—the first act abolishing it, and the p.222. second one recreating it. Both acts cannot be valid at the same

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 2 Townsend v. Terrell, 118 Tex. 463 (1929) 16 S.W.2d 1063 election of a district attorney in each of the judicial districts time. They are thoroughly inconsistent and irreconcilable. named, and such requirement means necessarily precisely Under such circumstances the last act must prevail. That the the same thing as to each of the many districts mentioned. act of March 25th recreating the office of district *468 There would be no justification for giving the act one meaning attorney for the Second Judicial district likewise embraced in the Second district and altogether a different meaning in other district attorneyships can make no difference. It is the other districts named. Indeed, to give to the amending nevertheless definitely specific as to each office created. act such a perverted interpretation would be to make the act Such fact does not make it a general law within the rule mean one thing in 1928 and altogether a different thing in of construction being considered. To hold that the office of subsequent election years, although there had in the meantime district attorney for the Second Judicial district has been been no legislative amendment, even as to the Second district. abolished would be to strike down a specific provision of the The amending act had exactly the same meaning when it latter act requiring the election of a district attorney for that was passed as it has today, and will have at all times in the district. This would be destruction and not construction at all. future, unless repealed or amended by an act of the Legislature passed subsequent to its enactment.

It will be noticed the abolishing act was not to go into effect We therefore recommend that the writ of mandamus do issue until after January 1, 1929. As matter of law, we know that in accordance with the prayer of the relator. our biennial elections occur in the even years, and that a district attorney was required, under the then existing law, to be elected for the Second Judicial district in 1928. If the CURETON, C. J. act of 1927 amending article 322 could be interpreted as The opinion of the Commission of Appeals is adopted, and requiring the election of a district attorney for the Second mandamus awarded. district at the biennial election in 1928, for the one year which could exist and did exist, under the abolishing act, then All Citations it would be our duty to uphold both acts, for there would be no conflict. But this interpretation cannot be indulged. 118 Tex. 463, 16 S.W.2d 1063 The unmistakable language of the amendment requires the End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

© 2025 Thomson Reuters. No claim to original U.S. Government Works. 3 APPENDIX G - Tex. Tax Code § 112.154 § 112.154. Trial De Novo, TX TAX § 112.154

Vernon's Texas Statutes and Codes Annotated Tax Code (Refs & Annos) Title 2. State Taxation (Refs & Annos) Subtitle B. Enforcement and Collection (Refs & Annos) Chapter 112. Taxpayers' Suits (Refs & Annos) Subchapter D. Suit for Tax Refund V.T.C.A., Tax Code § 112.154 § 112.154. Trial De Novo Currentness

In a suit under this subchapter, the issues shall be tried de novo as are other civil cases.

Credits Acts 1981, 67th Leg., p. 1517, ch. 389, § 1, eff. Jan. 1, 1982.

V. T. C. A., Tax Code § 112.154, TX TAX § 112.154 Current through the end of the 2023 Regular, Second, Third and Fourth Called Sessions of the 88th Legislature, and the Nov.

7, 2023 general election.

End of Document © 2025 Thomson Reuters. No claim to original U.S. Government Works.

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