Glenn Hegar, Comptroller of Public Accounts of the State of Texas And Ken Paxton, Attorney General of the State of Texas v. Statewide Materials Transport, Ltd.

ACCEPTED
03-15-00186-CV
5438907
THIRD COURT OF APPEALS
AUSTIN, TEXAS
5/27/2015 3:42:03 PM
JEFFREY D. KYLE
CLERK
No. 03-15-00186-CV

FILED IN
In the Court of Appeals 3rd AUSTIN,
COURT OF APPEALS
TEXAS
for the Third Judicial District5/27/2015 3:42:03 PM
JEFFREY D. KYLE
Austin, Texas Clerk

GLENN HEGAR, COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF
TEXAS, AND KEN PAXTON, ATTORNEY GENERAL OF THE STATE OF TEXAS,
Appellants,
v.

STATEWIDE MATERIALS TRANSPORT, LTD.,
Appellee.

On Appeal from the
250th Judicial District Court of Travis County, Texas

APPELLANTS’ BRIEF

KEN PAXTON SCOTT A. KELLER
Attorney General of Texas Solicitor General

CHARLES E. ROY DOUGLAS D. GEYSER
First Assistant Attorney Assistant Solicitor General
General State Bar No. 24059817
douglas.geyser@texasattorneygeneral.gov
OFFICE OF THE ATTORNEY
GENERAL CHARLES K. ELDRED
P.O. Box 12548 (MC 059) Assistant Attorney General
Austin, Texas 78711-2548
Tel.: (512) 936-1700
Fax: (512) 474-2697 COUNSEL FOR APPELLANTS

ORAL ARGUMENT REQUESTED
 IDENTITY OF PARTIES AND COUNSEL

Appellants (Defendants below)
Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and Ken
Paxton, Attorney General of the State of Texas

Lead Appellate Counsel Additional Appellate and Trial
Douglas D. Geyser Counsel
State Bar No. 24059817 Charles K. Eldred
Assistant Solicitor General State Bar No. 00793681
OFFICE OF THE ATTORNEY GENERAL Assistant Attorney General
P.O. Box 12548 (MC 059) OFFICE OF THE ATTORNEY GENERAL
Austin, Texas 78711-2548 P.O. Box 12548 (MC 017-6)
Tel.: (512) 936-2540 Austin, Texas 78711-2548
Fax: (512) 474-2697 Tel.: (512) 936-6417
douglas.geyser@texasattorneygeneral.gov Fax: (512) 477-2348
charles.eldred@texasattorneygeneral.gov
Appellee (Plaintiff below)
Statewide Materials Transport, Ltd.

Appellate and Trial Counsel
Amanda G. Taylor
James F. Martens
Danielle V. Ahlrich
MARTENS, TODD, LEONARD, TAYLOR &
AHLRICH
301 Congress Ave., Suite 1950
Austin, Texas 78701
Tel.: (512) 542-9898
ataylor@textaxlaw.com

i
 TABLE OF CONTENTS

Identity of Parties and Counsel ................................................................. i

Table of Contents ......................................................................................ii

Index of Authorities.................................................................................. iv

Statement of the Case ............................................................................. vii

Statement Regarding Oral Argument ...................................................viii

Issue Presented ........................................................................................ ix

Statement of Facts .................................................................................... 2

Summary of Argument .............................................................................. 5

Argument ................................................................................................... 7

I. Submitting The Proper Protest Payment Is A
Prerequisite To Invoking The Tax Code’s Waiver Of
Immunity. ................................................................................ 7

II. A Taxpayer May Not Satisfy The Protest-Payment
Requirement By Self-Assessing The Amount Of Tax
Owed. ....................................................................................... 9

A. The Text And Purpose Of Section 112.051(a) Show
That The State Must Take Some Discrete Action
To Establish The Amount Owed. ................................... 9

B. The Context Of The Protest-Suit Provisions
Among Chapter 112’s Other Taxpayer Remedies
Confirms The State Defendants’ Interpretation Of
Section 112.051(a). ....................................................... 13

III. Statewide’s Arguments To The Contrary Are Meritless. ..... 17

A. Statewide’s Textual Analysis Misunderstands The
Statutory Scheme As A Whole. .................................... 18

ii
 B. Nestle II Did Not Address The Question Presented
By This Appeal. ............................................................ 20

C. Section 112.052(b) Retains Meaning Under The
State’s Interpretation................................................... 23

Prayer ...................................................................................................... 25

Certificate of Service ............................................................................... 26

Certificate of Compliance ........................................................................ 26

Appendix

iii
 INDEX OF AUTHORITIES

Cases

Ariz. Christian Sch. Tuition Org. v. Winn,
131 S. Ct. 1436 (2011) .................................................................... 22

Austin Nat’l Bank of Austin v. Sheppard,
71 S.W.2d 242 (Tex. 1934).............................................................. 11

Berry v. Tex. Democratic Party,
449 S.W.3d 633 (Tex. App.—Austin 2014, no pet.) ......................... 8

Dallas Cnty. Cmty. Coll. Dist. v. Bolton,
185 S.W.3d 868 (Tex. 2005)...................................................... 11, 13

Gantt v. Gantt,
208 S.W.3d 27 (Tex. App.—Houston [14th Dist.]
2006, pet. denied) ........................................................................... 22

In re Allcat Claims Serv., L.P.,
356 S.W.3d 455 (Tex. 2011)............................................................ 22

In re Nestle USA, Inc.,
359 S.W.3d 207 (Tex. 2012).............................. 7, 8, 9, 11, 12, 15, 21

In re Nestle USA, Inc.,
387 S.W.3d 610 (Tex. 2012)............................................ 7, 20, 21, 22

McLane Co., Inc. v. Strayhorn,
148 S.W.3d 644 (Tex. App.—Austin 2004, pet. denied)............ 19-20

Nu-Way Oil Co. v. Bullock,
546 S.W.2d 336 (Tex. Civ. App.—Austin 1976, no writ) ............... 16

Prairie View A & M Univ. v. Chatha,
381 S.W.3d 500 (Tex. 2012).............................................................. 8

Reata Constr. Corp. v. City of Dallas,
197 S.W.3d 371 (Tex. 2006).............................................................. 8

iv
Sanadco Inc. v. Office of the Comptroller of Pub. Accounts of
the State of Tex.,
No. 03-11-00462-CV, 2015 WL 1478200
(Tex. App.—Austin Mar. 25, 2015, no pet. h.)
(mem. op.) ............................................................................. 9, 12, 15

Strayhorn v. Raytheon E-Sys., Inc.,
101 S.W.3d 558 (Tex. App.—Austin 2003, pet. denied)................. 15

Tex. Ass’n of Bus. v. Tex. Air Control Bd.,
852 S.W.2d 440 (Tex. 1993).............................................................. 8

Wichita Falls State Hosp. v. Taylor,
106 S.W.3d 692 (Tex. 2003).............................................................. 8

Statutes

TEX. GOV’T CODE § 311.034..................................................................... 8-9

TEX. TAX CODE § 111.017(a) .................................................................... 12

TEX. TAX CODE § 111.104 ......................................................................... 16

TEX. TAX CODE § 111.104(a) .................................................................... 14

TEX. TAX CODE § 111.104(b) .................................................................... 14

TEX. TAX CODE § 111.105 ......................................................................... 16

TEX. TAX CODE § 111.105(c) ..................................................................... 14

TEX. TAX CODE § 112.051(a) ............................................................ passim

TEX. TAX CODE § 112.051(b) ................................................................ 3, 16

TEX. TAX CODE § 112.052(a) ........................................................... vii, ix, 2

TEX. TAX CODE § 112.052(b) ................................................................ 7, 23

TEX. TAX CODE § 112.053(a) ..................................................................... 18

v
TEX. TAX CODE § 112.101 ......................................................................... 14

TEX. TAX CODE § 112.101(a) ..................................................................... 14

TEX. TAX CODE § 112.1011 ....................................................................... 14

TEX. TAX CODE § 112.1011(a) .................................................................. 15

TEX. TAX CODE § 112.1011(a)(2) .............................................................. 17

TEX. TAX CODE § 112.151(a) .............................................................. 14, 16

TEX. TAX CODE § 152.041(a) .................................................................... 18

TEX. TAX CODE § 154.046(a) .................................................................... 19

TEX. TAX CODE § 160.041(a) .................................................................... 19

TEX. TAX CODE § 171.1011(f) ..................................................................... 3

TEX. TAX CODE § 171.202(c) ................................................................. 3, 23

Other Authorities

Act of May 2, 2006, 79th Leg., 3d C.S., ch. 1, § 24, 2006 Tex.
Gen. Laws 1 .................................................................................... 21

BLACK’S LAW DICTIONARY (9th ed. 2009) ................................................... 9

Webster’s Ninth New Collegiate Dictionary (1983) .............................. 9-10

vi
 STATEMENT OF THE CASE

Nature of the Case: Statewide Materials Transport, Ltd.
(“Statewide”) filed a tax-protest suit under
section 112.052 of the Tax Code. CR.3-11.1
This interlocutory appeal arises from the
denial of the State’s plea to the jurisdiction,
which asserted that Statewide had not
fulfilled all the statutory prerequisites to suit.
CR.37-44; see TEX. TAX CODE §§ 112.051(a),
.052(a)

Trial Court: The Honorable Stephen Yelenosky
250th District Court, Travis County, Texas

Course of Proceedings: Statewide sued Glenn Hegar, Comptroller of
Public Accounts of the State of Texas, and
Ken Paxton, Attorney General of the State of
Texas (together, the “State Defendants”),
seeking recovery of franchise taxes paid under
protest. CR.3-11. The State Defendants filed
a motion to dismiss for lack of jurisdiction.
CR.37-44.

Trial Court Disposition: The trial court denied the State Defendants’
motion. CR.166 (App. A).

1 Citations of the Clerk’s Record are formatted “CR.[page]”. References to the
appendix to this brief are formatted “App. [tab]”.

vii
 STATEMENT REGARDING ORAL ARGUMENT

The question of statutory interpretation presented by this appeal—

whether a taxpayer may invoke a court’s jurisdiction under the tax-

protest statutes merely by self-assessing the amount of tax it believes is

due—is an issue of first impression. Moreover, the issue is an important

one. If Statewide is correct, then a taxpayer can proceed directly to court

instead of first seeking an administrative resolution or awaiting a

demand by the Comptroller or other public official. That outcome would

unnecessarily burden both the judiciary and the State, which will have

to expend resources defending against these suits. The Legislature

sensibly drafted the tax-protest prerequisites to avoid those

consequences.

viii
 ISSUE PRESENTED

Before filing a tax-protest suit, a taxpayer must first submit to the

Comptroller a protest payment in “the amount [of tax] claimed by the

state.” TEX. TAX CODE § 112.051(a) (App. B); see id. § 112.052(a) (App. C)

(allowing suit to recover franchise tax “if the person has first paid the tax

under protest as required by Section 112.051 of this code”). The question

presented is whether “the amount claimed by the state” exists before the

State makes a demand on the taxpayer (via an audit or another method)

for a particular amount or, by contrast, whether the taxpayer may predict

the amount that the State will claim by self-assessing.

ix
 No. 03-15-00186-CV

In the Court of Appeals
for the Third Judicial District
Austin, Texas
GLENN HEGAR, COMPTROLLER OF PUBLIC ACCOUNTS OF THE STATE OF
TEXAS, AND KEN PAXTON, ATTORNEY GENERAL OF THE STATE OF TEXAS,
Appellants,
v.

STATEWIDE MATERIALS TRANSPORT, LTD.,
Appellee.

On Appeal from the
250th Judicial District Court of Travis County, Texas

APPELLANTS’ BRIEF

TO THE HONORABLE THIRD COURT OF APPEALS:

Chapter 112 of the Tax Code provides three, exclusive means for

taxpayers to obtain tax relief via the judiciary. As waivers of sovereign

immunity, those methods depend on strict compliance with statutory

prerequisites tailored to each mechanism. The tax-protest provisions,

which Statewide attempts to invoke here, required Statewide to pay “the

amount claimed by the State.” But the State had claimed no amount at

all; it had never assessed Statewide’s 2012 franchise-tax liability at the
time Statewide made its protest payment. If Statewide wanted to sue the

State based on its own prediction of the amount the State would claim,

Statewide should have either paid that amount and then sought a tax

refund, or attempted to obtain a tax injunction. What Statewide could not

do was disregard the prerequisite for bringing a tax-protest suit and go

to court anyway, effectively attempting to mash up the various Chapter

112 procedures instead of properly pursuing one of them. Because

Statewide failed to satisfy the jurisdictional prerequisite for a protest

suit, the trial court should have granted the State Defendants’ plea to the

jurisdiction.

STATEMENT OF FACTS

Chapter 112 waives the State’s immunity for three types of lawsuits

to obtain tax relief. Statewide seeks to invoke the protest-suit provisions,

under which a “person may bring suit against the state to recover an

occupation, excise, gross receipts, franchise, license, or privilege tax or

fee required to be paid to the state if the person has first paid the tax

under protest as required by Section 112.051 of this code.” TEX. TAX CODE

§ 112.052(a). In turn, section 112.051 requires that “the person shall pay

the amount claimed by the state” and “must submit with the payment a

2
protest.” Id. § 112.051(a). The protest “must state fully and in detail each

reason for recovering the payment.” Id. § 112.051(b). The written protest

and accompanying payment constitute jurisdictional prerequisites to

suit.

Statewide is a transportation broker (primarily for construction

materials). CR.5. Entities contract with Statewide to arrange for

transportation, and Statewide in turn contracts with motor carriers to

provide transportation. Id. Statewide’s customers pay Statewide directly.

Id. Statewide keeps a portion of those payments and remits payment to

the carriers. Id. Statewide filed suit under section 112.052 to reclaim a

portion of its franchise taxes for the year 2012.

Statewide asserts that its payments to the carriers should not be

included in its total revenue for purposes of calculating its franchise

taxes. CR.6-9. Its primary argument is that those payments are “flow-

through funds” excluded from a proper calculation of revenue. CR.6-7

(citing TEX. TAX CODE § 171.1011(f)). Statewide thus paid $17,976—the

amount it believed was appropriate under its reading of the franchise-

tax provisions—when it asked for an extension on filing its franchise-tax

annual report. CR.6; see TEX. TAX CODE § 171.202(c) (allowing taxpayer

3
to request an extension if taxpayer pays, along with request, “not less

than 90 percent of the amount of tax reported as due on the report filed

on or before November 15 [i.e., the extended deadline] or “100 percent of

the tax reported as due for the previous calendar year”). When it later

filed its report by the extended deadline, it also paid an additional

$144,264 purportedly under protest, representing the amount it believed

would be due if the flow-through funds exclusion were denied. CR.53.

Shortly thereafter, the Comptroller determined that Statewide’s $17,976

was insufficient to satisfy section 171.202(c)’s extension requirements,

and accordingly assessed penalties and interest. CR.6.

Before Statewide made its $144,264 protest payment, however, the

State had not assessed Statewide’s 2012 franchise taxes. See CR.45-46

(Comptroller auditor affidavit). Statewide instead based that payment on

its own determination of how it thought the Comptroller would assess

those taxes. Statewide’s prediction allegedly rests on the Comptroller’s

“repeated public announcements of its position” about the flow-through

funds exclusion, the Comptroller’s position in other lawsuits not

involving Statewide but allegedly addressing “the same issue regarding

4
similarly-situated taxpayers,” and the Comptroller’s denial of

Statewide’s 2008 refund claim regarding the same exclusion.2 CR.58-59.

Believing that it had satisfied section 112.052’s jurisdictional

prerequisites, Statewide filed its protest suit. The State Defendants filed

a general denial and a motion to dismiss for lack of jurisdiction. The trial

court denied the State Defendants’ motion, and the State Defendants

timely appealed.

SUMMARY OF ARGUMENT

To validly invoke Chapter 112’s waiver of sovereign immunity for a

tax-protest suit, the taxpayer must “pay the amount claimed by the

state.” TEX. TAX CODE § 112.051(a). That requirement constitutes a

jurisdictional prerequisite to suit and must be strictly construed.

The phrase “the amount claimed by the state” necessarily entails

that the Comptroller or other public official concretely demand a specific

amount of tax. The taxpayer thus cannot satisfy that prerequisite by

2 It is unclear from the record whether the 2008 denial was based on a substantive
evaluation of the refund claim or rather on Statewide’s failure to provide necessary
documentation. See CR.86 (letter from auditor denying refund because “[t]he
consultant has not provided information/documentation to support franchise tax
fiduciary funds mandate”); CR.74 (e-mail exchange between auditor and Statewide’s
counsel in which auditor explains that she issued a letter that “stated to produce
requested documents by July 16th, 2012[,] and no documentation has been provided.
With that in mind, I am denying the refund request.”).

5
unilaterally predicting what the State would demand. Statewide’s

construction is untenable because self-assessment does not countenance

any action by the State.

Statewide’s interpretation—that a satisfactory protest payment

should be evaluated on a case-by-case basis—would also conflict with the

nature of an immunity waiver. The case-by-case analysis that Statewide

favors would entail significant litigation costs for the State. Yet the very

purpose of sovereign immunity from suit is to protect the State from

expending those resources. And section 112.051(a) sensibly requires the

State to defend tax-protest lawsuits only if the State has made a demand

for a particular amount, so that there is no question about the amount

protested and subject to dispute in court.

The other two types of tax lawsuits—a suit for a tax refund and a

suit for an injunction—confirm the State Defendants’ view of the matter.

The refund mechanism shows that the Legislature considered that a

taxpayer might self-assess yet dispute the taxes owed; and that

mechanism therefore includes administrative-exhaustion requirements.

And the injunction mechanism shows that the Legislature considered

that a taxpayer might wish to preempt a demand for taxes. Statewide

6
cannot create what amounts to a fourth way into court by self-assessing

and bringing suit.

Statewide’s arguments to the contrary are meritless. First, it

argues that the Legislature could have “written the statute to say ‘the

amount claimed by the Comptroller in an audit assessment,’” CR.57, but

that assertion ignores the fact that the statutory scheme contemplates

that a public official other than the Comptroller might make a concrete

demand other than through an audit. Second, it argues that the Supreme

Court’s Nestle cases already decided the question presented, see In re

Nestle USA, Inc., 387 S.W.3d 610 (Tex. 2012) (Nestle II); In re Nestle USA,

Inc., 359 S.W.3d 207 (Tex. 2012) (Nestle I), but to the contrary these cases

never even considered this issue. Third, Statewide contends that the

State Defendants’ interpretation renders part of section 112.052(b)

superfluous, but that contention ignores a scenario in which section

112.052(b) applies.

ARGUMENT

I. SUBMITTING THE PROPER PROTEST PAYMENT IS A PREREQUISITE
TO INVOKING THE TAX CODE’S WAIVER OF IMMUNITY.

“The state generally enjoys immunity from suit and liability unless

immunity has been clearly and unambiguously waived by legislative

7
enactment or constitutional provision.” Berry v. Tex. Democratic Party,

449 S.W.3d 633, 639 (Tex. App.—Austin 2014, no pet.). Immunity from

suit protects the State from expending taxpayer money on defending

lawsuits “rather than using those resources for their intended purposes.”

Reata Constr. Corp. v. City of Dallas, 197 S.W.3d 371, 375 (Tex. 2006).

The Supreme Court has “repeatedly affirmed that any purported

statutory waiver of sovereign immunity should be strictly construed in

favor of retention of immunity.” Prairie View A & M Univ. v. Chatha, 381

S.W.3d 500, 513 (Tex. 2012); see Berry, 449 S.W.3d at 640 (“[W]e are

required to strictly construe statutes waiving sovereign immunity.”).

Accordingly, any ambiguity in a statute must be interpreted to retain

immunity. Wichita Falls State Hosp. v. Taylor, 106 S.W.3d 692, 697 (Tex.

2003). The plaintiff bears the burden to establish jurisdiction. See, e.g.,

Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex. 1993).

The Tax Code’s protest-suit provision constitutes a waiver of

sovereign immunity. See, e.g., Nestle I, 359 S.W.3d at 212. That waiver is

conditioned on taking particular actions—including “pay[ing] the amount

claimed by the state,” TEX. TAX CODE § 112.051(a)—that represent

jurisdictional prerequisites to invoking the waiver, see TEX. GOV’T CODE

8
§ 311.034 (“Statutory prerequisites to a suit, including the provision of

notice, are jurisdictional requirements in all suits against a

governmental entity.”); Nestle I, 359 S.W.3d at 208, 212; Sanadco Inc. v.

Office of the Comptroller of Pub. Accounts of the State of Tex., No. 03-11-

00462-CV, 2015 WL 1478200, at *5 (Tex. App.—Austin Mar. 25, 2015, no

pet. h.) (mem. op.). The protest-payment requirement thus must be

strictly construed to preserve immunity.

II. A TAXPAYER MAY NOT SATISFY THE PROTEST-PAYMENT
REQUIREMENT BY SELF-ASSESSING THE AMOUNT OF TAX OWED.

A. The Text And Purpose Of Section 112.051(a) Show That
The State Must Take Some Discrete Action To
Establish The Amount Owed.

1. To invoke the statutory waiver, the taxpayer must pay “the

amount claimed by the state.” TEX. TAX CODE § 112.051(a). That language

indicates that the State must take some concrete action to establish a

definitive “amount” owed. For instance, Black’s defines “claim” as “[t]he

assertion of an existing right; any right to payment or to an equitable

remedy, even if contingent or provisional” and “[a] demand for money,

property, or a legal remedy to which one asserts a right.” BLACK’S LAW

DICTIONARY 281-82 (9th ed. 2009); see also Webster’s Ninth New

Collegiate Dictionary 244 (1983) (defining “claim” as “to ask for esp. as a

9
right” and “to call for”). That is, for an “amount” “claimed” by the State

even to exist, the State must demand or call for a particular amount. And

because it is the State that must assert that right or make the demand

(i.e., the amount claimed by the State), the taxpayer cannot self-assess

based merely on its prediction of the amount the State might claim.

2. The fact that section 112.051(a) is part of an immunity waiver

supports the State Defendants’ interpretation. First, to the extent section

112.051(a)’s language is ambiguous, it must be construed to preserve

immunity. See supra Part I.

Second, if a self-assessment sufficed to invoke the waiver, the

courts’ jurisdiction over claims against the Comptroller would

significantly expand, thereby increasing the amount of resources the

State must expend defending against these lawsuits. And the State

would have to burn up these resources before it’s even clear that the

taxpayer does indeed owe the taxes being protested.

That problem is exacerbated by Statewide’s suggested construction

of the statute. Evidently conceding that self-assessment may not always

suffice, Statewide argues that the question “whether a ‘claim’ has been

made [by the State] in satisfaction of Section 112.051 necessarily

10
presents a case-by-case determination.” CR.58. But the “circumstances”

that Statewide says inform that determination may entail significant

litigation costs, such as examining the Comptroller’s “public

announcements,” engaging in discovery of the taxpayer’s prior-year

audits, and evaluating the Comptroller’s position in other lawsuits. See

CR.58-59. And the parties of course might dispute the import and

meaning of those factors. That kind of elaborate investigation and debate

is antithetical to a proper understanding of an immunity waiver.

3. Self-assessment also would distort the tradeoff offered to the

taxpayer by the protest-suit waiver. At common law, a person who

voluntarily paid a tax “ha[d] no claim for its repayment.” Austin Nat’l

Bank of Austin v. Sheppard, 71 S.W.2d 242, 245 (Tex. 1934). That “rule

secure[d] taxing authorities in the orderly conduct of their financial

affairs.” Dallas Cnty. Cmty. Coll. Dist. v. Bolton, 185 S.W.3d 868, 876

(Tex. 2005). The taxpayer could recover overpayment of taxes “only with

legislative permission” or by claiming payment under “duress” (which

differs from payment under protest). Nestle I, 359 S.W.3d at 210.

Declaratory and injunctive relief was also available under limited

circumstances. Id.

11
 Chapter 112 represents the culmination of legislative efforts to

reform those limited tax remedies while preserving the functionality of

the State’s tax-administration scheme. See id. at 210-11. In exchange for

submitting the amount of taxes claimed by the State along with the

written protest, the protest mechanism allows a taxpayer to obtain a

judicial determination of the State’s claim without showing duress and

while staving off enforcement proceedings. See, e.g., TEX. TAX CODE

§ 111.017(a) (providing for seizure and sale of property). And for the

State’s benefit, the protest payment aids the State’s budgeting process by

assuring the State that the taxpayer is good for the amount the taxpayer

is protesting, thereby removing any concern that “the State’s ‘entire tax

collection scheme’ [will] be disrupted” as a result of taxpayers delaying

(and potentially defaulting on) taxes. Sanadco, 2015 WL 1478200, at *5

(quoting Nestle I, 359 S.W.3d at 211).

But if the taxpayer may merely self-assess, there is no guarantee

that the protest payment would meet the goal of the protest-suit statute;

rather, the taxpayer may have finagled its way into court by paying

(substantially) less than the State would have demanded. That result

12
would present a “threat[] to [the] state’s financial security that can arise

from unpredictable revenue shortfalls.” Dallas Cnty., 185 S.W.3d at 877.

It is no answer that the trial court can decide whether the payment

happens to match the amount that the State would have claimed. Indeed,

that determination would require the court effectively to decide the very

issue that is the subject of the suit: whether the protested taxes are owed.

There is thus good reason that the Legislature conditioned the immunity

waiver on paying the amount that the State has concretely and

specifically demanded. Only with that exact demand can the State be

certain its tax-collection scheme remains undisturbed. The protest-suit

mechanism does not hand over the keys to the courthouse doors

whenever the taxpayer is willing to go out-of-pocket whatever amount of

money that it has unilaterally determined is appropriate.

B. The Context Of The Protest-Suit Provisions Among
Chapter 112’s Other Taxpayer Remedies Confirms The
State Defendants’ Interpretation Of Section 112.051(a).

In addition to a protest suit, Chapter 112 provides two other

methods to obtain relief from taxation. Viewing these three methods

together reveals additional flaws in Statewide’s argument and confirms

the State Defendants’ interpretation of section 112.051(a).

13
 The second avenue for relief is a tax-refund suit. If a taxpayer pays

taxes that it believes were unlawfully or erroneously collected, the

taxpayer may file a tax-refund claim with the Comptroller. TEX. TAX

CODE § 111.104(a), (b). If dissatisfied with the Comptroller’s

determination of the refund claim, the taxpayer may ask for rehearing.

Id. § 111.105(c). Only after the rehearing has been denied may the

taxpayer bring suit to recover the tax that is the subject of the refund

claim. Id. § 112.151(a).

The third option is to seek to enjoin the collection of a tax. See id.

§§ 112.101, .1011. The taxpayer must first file with the Attorney General

“a statement of the grounds on which the order or injunction is sought,”

and either (A) pay all the taxes “then due by the applicant to the state”

or (B) post a bond equal to twice the amount of taxes “then due and that

may reasonably be expected to become due during the period the order or

injunction is in effect.” Id. § 112.101(a). The court may not issue a

restraining order or injunction unless the taxpayer demonstrates that

irreparable injury will result without the relief, no other adequate

remedy at law exists, and the taxpayer is reasonably likely to prevail on

14
the merits. Id. § 112.1011(a). Typically the availability of a protest or

refund suit will constitute an adequate legal remedy.

Aside from these three mechanisms, “Chapter 112 allows no other

actions to challenge or seek refunds of the taxes to which it applies.”

Nestle I, 359 S.W.3d at 209; see Sanadco, 2015 WL 1478200, at *5 (“Nestle

explicitly prohibits any attempt at relief from assessed state taxes on any

basis except as provided in the chapter.”).3 Crucially, “[t]he rights and

restrictions of chapter 112 are part of the State’s entire tax collection

scheme.” Nestle I, 359 S.W.3d at 211 (citation and internal quotation

marks omitted). Statewide’s interpretation of section 112.051(a) would

minimize the efficacy of Chapter 112’s procedures in at least two ways.

First, Statewide’s position essentially requests a fourth way into

court, amounting to a declaratory-judgment action to secure a judicial

3 This Court has held that a taxpayer also may seek a declaratory judgment outside
Chapter 112’s procedures if the taxpayer “request[s] a statutory interpretation that
[goes] beyond its request for a tax refund,” Strayhorn v. Raytheon E-Sys., Inc., 101
S.W.3d 558, 572 (Tex. App.—Austin 2003, pet. denied), and only if the suit seeks a
“declaration[] of the validity or constitutionality of rules and statutes and their
threatened enforcement prior to finality of an agency determination,” Sanadco, 2015
WL 1478200 at *6 n.9. The State Defendants respectfully submit that Chapter 112
provides the exclusive methods to obtain any type of tax relief, but in any event
Statewide has not sought a freestanding declaratory judgment (regarding the validity
or constitutionality of a rule or statute or otherwise), nor does its claim go “beyond” a
request to recover taxes. And relief through Chapter 112 is unavailable because, as
discussed above, there has been no “tax assessment.” Id.

15
interpretation of any Tax Code section in order to obtain tax relief.

Although the taxpayer would still have to “state fully and in detail each

reason for recovering the payment,” TEX. TAX CODE § 112.051(b), as

discussed above, paying the full amount demanded by the State also

forms a crucial basis for a tax-protest suit, see supra at 11-13; Nu-Way

Oil Co. v. Bullock, 546 S.W.2d 336, 341 (Tex. Civ. App.—Austin 1976, no

writ) (“Payment of the taxes, accompanied by such written protest, is

requisite on the part of the taxpayer to provide basis for later suit.”

(internal quotation marks omitted)).

Second, Chapter 112 already provides a method for taxpayers to

self-assess taxes, pay those taxes, and then try to recover them. That is

the point of a refund suit. The important distinction—especially in light

of sovereign immunity’s purpose of protecting the State from

unnecessarily expending resources in litigation—is that one prerequisite

for bringing a tax-refund lawsuit is the exhaustion of administrative

remedies with the Comptroller. See TEX. TAX CODE §§ 112.151(a),

111.104, .105. That represented the correct way for Statewide to hash out

potentially conflicting interpretations of the Tax Code instead of

attempting an end-run around an administrative remedy.

16
 The propriety of that tactic is reinforced by the tax-injunction

provisions. The Legislature contemplated the possibility that a taxpayer

might be convinced that the State will demand—erroneously, in the

taxpayer’s view—a certain amount of taxes. Chapter 112 thus allows for

tax-injunction suits, but only in the limited situations where (among

other restrictions) “no other adequate remedy is available to the

applicant.” Id. § 112.1011(a)(2).

The fundamental problem with Statewide’s argument is that it is

trying to squeeze itself into the protest-suit box when it simply will not

fit. Statewide should have (1) paid its predicted taxes then gone through

the refund process; (2) paid what it believes should be owed under what

it claims is the correct calculation of the franchise tax and risked an

audit; or (3) tried to satisfy the tax-injunction requirements. A tax-

protest suit, however, was not a permissible recourse in the absence of a

concrete demand by the State.

III. STATEWIDE’S ARGUMENTS TO THE CONTRARY ARE MERITLESS.

In the trial court, Statewide made three arguments worth

addressing here: that section 112.051(a)’s text contemplates self-

assessment, that Nestle II resolved this issue, and that the State

17
Defendants’ interpretation would render section 112.052(b) surplusage.

All are mistaken.

A. Statewide’s Textual Analysis Misunderstands The
Statutory Scheme As A Whole.

In the trial court, Statewide emphasized two aspects of the statute

to support its argument. It misconceives both. First, Statewide notes that

section 112.051(a) refers to the amount claimed by “the state,” not by “the

Comptroller,” suggesting that the State “claimed” the amount by

enacting the franchise-tax statutes. CR.57 (“[T]he term ‘state’

encompasses more than ‘the Comptroller.’”); CR.65 (“The claim may arise

from the Legislature alone . . . .”).

But the Legislature’s choice of language merely reflects the fact

that a public official other than the Comptroller might be charged with

collecting the tax. Section 112.051(a) itself reveals as much by

referencing “the public official charged with the duty of collecting the tax

or fee.” TEX. TAX CODE § 112.051(a); see also id. § 112.053(a) (“A suit

authorized by this subchapter must be brought against the public official

charged with the duty of collecting the tax or fee, the comptroller, and

the attorney general.”); cf., e.g., id. § 152.041(a) (“The tax assessor-

collector of the county in which an application for registration or for a

18
Texas certificate of title is made shall collect taxes imposed by this

chapter, subject to Section 152.0412, unless another person is required

by this chapter to collect the taxes.”); id. § 160.041(a) (“The [Parks and

Wildlife] [D]epartment, each agent of the department, and each tax

assessor-collector shall collect the taxes imposed by this chapter.”). It

thus would have been inaccurate and underinclusive for the statute to

read “the amount claimed by the Comptroller,” cf. CR.57, because

another state actor might make the demand.

Second, Statewide contended that the Legislature could have

appended the phrase “in an audit assessment” to the phrase “the amount

claimed by the state.” CR.57. This argument suffers from the same flaw

as Statewide’s point about using “the state” versus “the Comptroller”:

Statewide’s hypothetical alternative phrasing again fails to appreciate

other parts of the statutory scheme because the State can “claim” an

amount by making an express demand other than through an audit. See,

e.g., TEX. TAX CODE § 154.046(a) (“The comptroller shall send an original

invoice along with any stamps shipped to a distributor.”); McLane Co.,

Inc. v. Strayhorn, 148 S.W.3d 644, 648, 651-52 (Tex. App.—Austin 2004,

pet. denied) (explaining that taxpayer paid under protest invoices for

19
stamps regarding cigarette taxes, but dismissing lawsuit because it did

“not protest the stamp tax itself, but rather the Comptroller’s terms

under which a distributor may obtain stamps without prepayment or

[Cigarette Recovery Tax] Fund participation”).

In sum, the reason that the Legislature did not “writ[e] the statute

to say ‘the amount claimed by the Comptroller in an audit assessment,’”

CR.57, is that the tax-protest provisions cover a wide range of “tax[es] or

fee[s] imposed by this title or collected by the comptroller under any law,”

TEX. TAX CODE § 112.051(a), and thus had to be drafted more

comprehensively. But that relatively broad phrasing does not negate the

requirement that, before a taxpayer can force the State to defend itself in

court, there must be some express demand or assessment by the State for

a definite amount.

B. Nestle II Did Not Address The Question Presented By
This Appeal.

Statewide also argued that Nestle II “held that the taxpayer’s self-

assessment and payment of its original tax bill under protest satisfied

Section 112.051.” CR.56-57 (citing Nestle II, 387 S.W.3d at 617). The

Supreme Court held no such thing.

20
 The Nestle cases involved a challenge to the constitutionality of the

franchise tax. See Nestle I, 359 S.W.3d at 208; Nestle II, 387 S.W.3d at

612. Nestle sought to invoke the Supreme Court’s original jurisdiction

under section 24 of the 2006 act that overhauled the franchise tax. See

Nestle I, 359 S.W.3d at 209-10 (citing Act of May 2, 2006, 79th Leg., 3d

C.S., ch. 1, § 24, 2006 Tex. Gen. Laws 1, 40). Section 24 vested the

Supreme Court with “exclusive and original jurisdiction over a challenge

to the constitutionality of [the 2006 act] or any part of [that act].” Id. at

209-10 & n.26. Nestle thus argued that section 24 provided a method to

obtain tax relief in the courts “independent of Chapter 112.” Id. at 210.

In Nestle I, the Court rejected that argument, holding that Nestle’s

failure to comply with any of Chapter 112’s prerequisites to suit deprived

the Court of jurisdiction. See id. at 208; see also id. at 211 (“A section 24

action brought originally in this Court, free of chapter 112’s restrictions,

would severely disrupt that scheme.”).

After Nestle I was decided, “Nestle then paid the [taxes] due for

2012 under protest and re-filed its challenge.” Nestle II, 387 S.W.3d at

616. But Nestle II’s jurisdictional discussion nowhere examined the

manner of compliance with the statutory prerequisites for a protest suit.

21
Rather, the Court considered only whether Nestle’s challenge properly

invoked the Court’s original jurisdiction under section 24. As the Court

characterized the jurisdictional question, section 24’s “legislative grant

of ‘jurisdiction to consider [a] facial challenge to the . . . constitutionality’

of the franchise tax was valid but did not extend to ‘challenges to how the

Comptroller assesses, enforces, or collects the franchise tax’ in individual

situations.” Id. at 617 & n.75 (alterations in original) (quoting In re Allcat

Claims Serv., L.P., 356 S.W.3d 455, 463, 470-71 (Tex. 2011)). Nestle’s

challenges fell into the former category and thus could be addressed on

their merits. Id. That conclusion was the sole basis of the Court’s holding

that it “clearly ha[d] jurisdiction to consider all Nestle’s claims.” Id.

Statewide’s reliance on that holding therefore ignores its context. See

CR.56-57.4

4 That the Supreme Court found it had jurisdiction does not mean it considered and
rejected every potential jurisdictional obstacle, and Nestle II is therefore not binding
for the question presented here. See, e.g., Gantt v. Gantt, 208 S.W.3d 27, 30 n.4 (Tex.
App.—Houston [14th Dist.] 2006, pet. denied) (“[I]n deciding its jurisdiction, a court
is not bound by a prior exercise of jurisdiction where it was not questioned, but was
passed sub silentio.”); Ariz. Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436, 1448-
49 (2011) (“When a potential jurisdictional defect is neither noted nor discussed in a
federal decision, the decision does not stand for the proposition that no defect existed.
. . . The Court would risk error if it relied on assumptions that have gone unstated
and unexamined.”).

22
 C. Section 112.052(b) Retains Meaning Under The State’s
Interpretation.

Finally, Statewide argued that if section 112.051(a) cannot be

satisfied through self-assessment, then part of section 112.052(b), which

sets the deadlines for filing a protest suit, becomes superfluous.

Statewide ignores a scenario in which section 112.052(b) operates.

Section 112.052(b) generally requires a taxpayer to file its protest

suit within 90 days of making the protest payment. See TEX. TAX CODE

§ 112.052(b). But it creates an exception for a taxpayer owing the

franchise tax who has obtained an extension to file its franchise-tax

annual report under section 171.202(c). Section 171.202 permits a

taxpayer to obtain an annual-report extension to November 15 if, by May

15, it requests the extension and pays at least “90 percent of the amount

of tax reported as due on the report filed on or before November 15” or

“100 percent of the tax reported as due for the previous calendar year on

the report due in the previous calendar year.” Id. § 171.202(c). If the

taxpayer satisfies that requirement, “the protest required by Section

112.051 may be filed with the report [i.e., by November 15] to cover the

entire amount of tax paid for the period”; the taxpayer then has 90 days

from that point to file suit. Id. § 112.052(b). Statewide contends that if a

23
taxpayer may not self-assess, then it can never avail itself of the extended

deadline for protest payments under section 112.052(b).

Statewide’s argument fails to account for the six-month period

between the taxpayer’s request for the extension (May 15) and the filing

of the report that triggers the protest-suit deadline (November 15). When

the taxpayer makes the request, the Comptroller might determine that

the initial payment submitted along with the request is wrong and that

the taxpayer owes more. That demand would then constitute an “amount

claimed by the state,” TEX. TAX CODE § 112.051(a), which the taxpayer

could protest using the extended protest-suit deadline in section

112.052(b). Extension-seeking taxpayers thus may use sections

112.051(a) and 112.052(b) consistent with the State Defendants’

interpretation of the phrase “amount claimed by the state.”

24
 PRAYER

The Court should reverse the judgment of the district court and

render judgment dismissing the case for want of jurisdiction.

Respectfully submitted.

KEN PAXTON
Attorney General of Texas

CHARLES E. ROY
First Assistant Attorney General

SCOTT A. KELLER
Solicitor General

/s/ Douglas D. Geyser
DOUGLAS D. GEYSER
Assistant Solicitor General
State Bar No. 24059817

CHARLES K. ELDRED
Assistant Attorney General

OFFICE OF THE ATTORNEY GENERAL
P.O. Box 12548 (MC 059)
Austin, Texas 78711-2548
Tel.: (512) 936-2540
Fax: (512) 474-2697
douglas.geyser@texasattorneygeneral.gov

COUNSEL FOR APPELLANTS

25
 CERTIFICATE OF SERVICE

On May 27, 2015, the foregoing brief was served via File &

ServeXpress and e-mail on:

Amanda G. Taylor
James F. Martens
Danielle V. Ahlrich
MARTENS, TODD, LEONARD, TAYLOR & AHLRICH
301 Congress Ave., Suite 1950
Austin, Texas 78701
Tel.: (512) 542-9898
ataylor@textaxlaw.com

Counsel for Appellee

/s/ Douglas D. Geyser
Douglas D. Geyser

CERTIFICATE OF COMPLIANCE

In compliance with Texas Rule of Appellate Procedure 9.4(i)(2), this

brief contains 4,826 words, excluding the portions of the brief exempted

by Rule 9.4(i)(1).

/s/ Douglas D. Geyser
Douglas D. Geyser

26
APPENDIX
 TABLE OF CONTENTS

Order Denying Defendants’ Motion to Dismiss (CR.166) ....................... A

TEX. TAX CODE § 112.051(a) ...................................................................... B

TEX. TAX CODE § 112.052(a) ...................................................................... C
A
 DC BK15069 PG184
Filed in The District Court
of Travis County, Texas

MAR 09 2015

• STATEWIDE MATERIALS TRANSPORT,
LTD.,
CAUSE NO. D-1-GN-12-003920

§
§
§
At IQ~3'1

IN THE DISTRICT COURT OF
M.
Velva L. Price, District Clerk

Plaintiff §
§
v. §
§ TRAVIS COUNTY, TEXAS
GLENN HEGAR, §
COMPTROLLER OF PUBLIC ACCOUNTS §
OF THE STATE OF TEXAS; §
AND KEN PAXTON, ATTORNEY §
GENERAL OF THE STATE OF TEXAS, § 2501h JUDICIAL DISTRICT
§
Defendants. §

ORDER

On this day came to be heard Defendants' Motion to Dismiss for Lack of Jurisdiction. The

Court, having considered the Motion and Exhibits, Plaintiffs Response and Exhibits thereto, and all

• other arguments of counsel, determines that Defendants' Motion to Dismiss for Lack of Jurisdiction

has jurisdiction to hear the merits of Plaintiff's Protest Suit

seeking recovery of , . paid under protest, plus statutory interest and court costs.

SIGNED on ~fl,O