Litigation Update for Texas Taxpayers and Research Association (TTARA) Annual Meeting

Transcription

1 Litigation Update for Texas Taxpayers and Research Association (TTARA) Annual Meeting Don Neal Deputy General Counsel for Litigation & Taxation Texas Comptroller of Public Accounts October 22, 2014 Austin, Texas

2 Overview Sales and Use Tax Cases Franchise Tax Cases Miscellaneous Cases

3 Litigation Update Sales and Use Tax Cases

4 Sales and Use Tax Cases H.K. Global Trading, Ltd. v. Combs, et al., Case No in the Tex. Sup. Court; Case No CV in the Third Court of Appeals (429 S.W.3d 132). On August 15, 2014 the Texas Supreme Court denied the petition for review filed by Plaintiff H.K. Global. Decision preserves the validity of Section , Tax Code, under the Import-Export Clause of the U.S. Constitution. Section requires a 24-hour waiting period before making refunds of sales taxes paid on goods that are ultimately exported.

5 Sales and Use Tax Cases Southwest Royalties, Inc. v. Combs, et al., Case No in the Texas Supreme Court; Case No CV in the Third Court of Appeals. Court of Appeals ruled in favor of the Comptroller on Ruling upholds the Comptroller s interpretation that the manufacturing exemption does not extend to equipment used to extract oil and gas from the ground Interpretation was reasonable and not inconsistent with Tax Code Taxpayer has obtained extension to file petition for review.

6 Sales and Use Tax Cases Cirrus Exploration Company v. Combs et al, Case No CV in the Third Court of Appeals.. Court of Appeals held that Cirrus Exploration s purchase of two helicopters qualified for exemption from sales tax under Section (a) as a licensed and certificated carrier because: Cirrus holds a Letter of Authorization from the FAA that expressly authorizes it to conduct commercial air tours and aerial photography under the FAA s regulations; and the Comptroller s rule 3.297(a)(1) defined licensed and certificated carrier as a person authorized by [FAA]... to operate an aircraft... as a common or contract carrier for hire. (ruling issued ) Comptroller has filed a petition for review; Tex. Sup. Court has requested briefs.

7 Sales and Use Tax Cases Energy Education of Montana v. Combs et al., Case No CV in the Third Court of Appeals On , the Texas Supreme Court denied the petition for review filed by Energy Education of Montana, which preserves ruling by Court of Appeals in favor of Comptroller. Court of Appeals held that the taxpayer s purchase of an aircraft out-of-state and subsequent brief use of the aircraft outside of Texas, did not entitle the taxpayer to the flyway exemption in former Section (a)(4) when the taxpayer subsequently brought the aircraft to Texas and used the aircraft predominantly in Texas over the next 3 years.

8 Sales and Use Tax Cases Assignees of Best Buy, et al. v. Combs, et al., Case No CV in the Third Court of Appeals In June 2014 Texas Supreme Court denied the PFR filed by the Assignees of Best Buy, preserving Court of Appeals ruling in favor of Comptroller. Ruling upholds trial court s grant of the Comptroller s Plea to Jurisdiction on basis that a previous trial court order was void which purported to authorize class counsel to represent thousands of individual claimants; class counsel lacked authority to file refund claims with the Comptroller on behalf of thousands of individual claimant Assignees.

9 Sales and Use Tax Cases Sanadco et al. v. Combs, et al., Case No CV in the Third Court of Appeals. In Sept 2013 the Third Court of Appeals reversed the portion of the district court s order dismissing Sanadco s challenge to APs 92 and 122 as invalid rules, but affirmed the dismissal of Sanadco s other claims. Lawsuit started as collection action against Sanadco, a convenience store. Sanadco filed counterclaim on behalf of itself and purported class of other convenience stores, asserting that Audit Procedures 92 and 122 related to convenience store audits were invalid rules not adopted under the APA. All other claims remain dismissed, including the purported class action counterclaim filed by Sanadco and other convenience stores. Comptroller s motion for rehearing remains pending.

10 Sales and Use Tax Cases Richmont Aviation, Inc. v. Combs, et al., Case No in the Texas Supreme Court; Case No CV in the Third Court of Appeals In August 2014, Texas Supreme Court denied PFR filed by the Comptroller seeking review of the Third Court of Appeals ruling that Section is unconstitutional. The Court of Appeals held that Section was unconstitutional under the Open-Courts provision of the Texas Constitution because it imposed an unreasonable financial barrier to court access, re-affirming the Third Court s previous decision in Rylander v. Bandag Licensing Corp., 18 S.W.3d 296 (Tex. App. Austin 2000, pet. denied).

11 Sales and Use Tax Cases Susan Combs, Comptroller of Public Accounts v. Ryan LLC, Case No CV in the Third Court of Appeals Oral argument scheduled for November 19, 2014 at 9:00 a.m. at Third Court of Appeals in Austin This is an appeal of District Court decision declaring invalid portions of Rule (relating to refund requirements) 34 Tex. Admin. Code (a)(4), (b)(10) and (e)

12 Litigation Update Franchise Tax Cases

13 Franchise Tax Cases Combs et al v. Newpark Resources, Case No CV in the Third Court of Appeals. In Dec 2013 Court of Appeals ruled that Newpark s subsidiary, NES, was eligible to take a cost of goods sold (COGS) deduction under Section (i) for its removal and disposal of drilling mud waste from oil and gas well drilling sites: in determining eligibility for COGS deduction, each member of a combined group s business must be considered in the context of the combined group s business as a whole; and the removal and disposal of drilling mud waste qualified as the provision of labor for the construction or improvement of real property

14 Franchise Tax Cases Titan Transportation v. Combs, et al., Case No CV in Third Court of Appeals. In March 2014, Third Court of Appeals held that for 2008, a portion of Titan s gross revenue qualified for the total-revenue exclusion in former section (g)(3). Section was not limited to construction companies, but also included taxpayers who were obligated by contract to make subcontracting payments for aggregate transportation services that were made in connection with real property construction. The Comptroller filed a petition for review on May 28, 2014.

15 Franchise Tax Cases Graphic Packaging Corp. v. Combs, et al., Case No CV in Third Court of Appeals. Appeal by Taxpayer seeking to overturn District Court ruling District Court rejected Taxpayer s claim that it was entitled to use the three-factor apportionment method provided by Articles III and IV of the Multistate Tax Compact (MTC) in lieu of Texas single factor apportionment method. Texas now has 18 lawsuits seeking to allow use of the three-factor apportionment method, totaling over $70M in claims.

16 Litigation Update Miscellaneous Cases

17 Sexually Oriented Business Fee Texas Entertainment Association, Inc. and Karpod, Inc. v. Combs et al, Case No in Texas Supreme Court; Case No CV in Third Court of Appeals. In May 2014 the Third Court of Appeals upheld the validity of the sexually oriented business ( SOB ) fee against remaining challenges. Court concluded that the fee was not an invalid occupation tax, the fee did not violate the Equal and Uniform clause of the Texas Constitution, and the fee was not an unconstitutional prior restraint on free speech. On July 17, 2014 the Plaintiffs filed a Petition for Review with the Texas Supreme Court, seeking review of the decision of the Court of Appeals.

18 New Fee imposed on non-settling cigarette manufacturers Combs et al v. Texas Small Tobacco Coalition, Case No CV in the Third Court of Appeals. In August 2014, the Third Court of Appeals held that the new fee imposed on the cigarette products of non-settling manufacturers by HB 3536 is unconstitutional under the Equal and Uniform clause of the Texas Constitution. New fee is codified at Subchapter V, Chapter 161, Health & Safety Code. State has obtained an extension to file a petition for review.

19 School Finance Litigation Michael Williams, Commissioner of Education, et al. v. The Texas Taxpayer & Student Fairness Coalition, et al., Case No in the Texas Supreme Court. State filed a Notice of Appeal on September 26, Appeal seeks review of district court ruling that the school finance system is unconstitutional under Article VII, 1 (requiring suitable provision for a general diffusion of knowledge) and Art. VIII, 1-e (prohibiting statewide property tax) This is a direct appeal to the Texas Supreme Court.