1st Global, Inc. v. Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and Ken Paxton, Attorney General of the State of Texas ( 2021 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-19-00740-CV
1st Global, Inc., Appellant
v.
Glenn Hegar, Comptroller of Public Accounts of the State of Texas, and Ken Paxton,
Attorney General of the State of Texas, Appellees
FROM THE 53RD DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-GN-18-003916, THE HONORABLE DUSTIN M. HOWELL, JUDGE PRESIDING
MEMORANDUM OPINION
This is a franchise-tax suit. 1st Global, Inc. sued the state Comptroller and
Attorney General (collectively “the State”) to recover an amount of franchise taxes it paid for the
year 2018 that it claims was excessive. The State filed a motion to dismiss the suit, asserting that
1st Global had not complied with one of the requirements for the waiver of sovereign immunity.
The trial court granted the motion and dismissed the suit for lack of jurisdiction. We will affirm.
Factual and Procedural Background
1st Global describes itself as the reporting entity of a combined group of
investment advisors who assist individuals with their investments. Although 1st Global
maintains a Dallas office to support transactions initiated by the advisors, at least some of these
advisors live and work outside of Texas. 1st Global generates its revenue in the form of
commissions and fees from the services performed by the advisors.
The underlying dispute between 1st Global and the Comptroller goes back several
years and involves how 1st Global’s gross receipts should be apportioned for franchise-tax
purposes. Under the Texas Tax Code, apportionment of taxable margin is based on a taxable
entity’s “business done in this state.” Tex. Tax Code § 171.103(a)(2). In a separate
administrative proceeding involving 1st Global, the Comptroller previously announced his
position that receipts generated through the provision of services by 1st Global’s financial
advisors, wherever they are located, should all be apportioned to Texas because of its Dallas
office. 1st Global, on the other hand, asserts that it earns its revenues in the states where its
advisors perform services on its behalf, which would result in its owing substantially less
franchise taxes to the State of Texas.
Chapter 171 of the Tax Code contains provisions pertaining to franchise taxes.
Payment of franchise taxes by an ongoing taxable entity is due May 15 for the preceding
calendar year. Id. § 171.152(c). Pursuant to section 171.202(a), a taxable entity must file an
annual report containing the financial information necessary to compute the amount of franchise
tax owed. The entity’s regular annual report must be filed “before May 16.” Id. § 171.202(b).
Chapter 112 of the Tax Code contains provisions relating to taxpayer suits.
Subsection (a) of section 112.052 provides that a person may bring a tax-protest suit against the
state to recover a tax only if the person has first paid the tax under protest “as required by
Section 112.051.” Id. § 112.052(a); see Texley, Inc. v. Hegar, 613 S.W.3d 322, 326 (Tex.
App.—Austin 2020, no pet.). Section 112.051(a), in turn, provides that a person who intends to
bring a suit complaining about the imposition of a tax must first pay “the amount claimed by the
state” and must submit a protest along with the payment:
If a person who is required to pay a tax or fee imposed by this title or collected by
the comptroller under any law, including a local tax collected by the comptroller,
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contends that the tax or fee is unlawful or that the public official charged with the
duty of collecting the tax or fee may not legally demand or collect the tax or fee,
the person shall pay the amount claimed by the state, and if the person intends to
bring suit under this subchapter, the person must submit with the payment
a protest.
Tax Code § 112.151(a) (emphasis added).
1st Global filed this tax-protest suit in connection with its 2018 regular annual
report. In its 2018 report, 1st Global self-assessed its franchise taxes due for that tax year on the
basis of the Comptroller’s earlier-stated position regarding apportionment, i.e., that receipts
generated through the provision of services by 1st Global’s financial advisors must all be
apportioned to Texas. Along with its annual report, 1st Global paid that amount of taxes and, at
the same time, filed a protest letter contesting the correctness of the amount paid. At that time,
however, the Comptroller had not determined, by any available process, that any specific amount
was due from 1st Global for the 2018 tax year.
The State moved to dismiss 1st Global’s suit on the ground that 1st Global had
not paid “the amount claimed by the state” as required by section 112.151(a) because the state
had not claimed any specific amount at that time and 1st Global therefore had not met section
112.151’s requirements for a waiver of sovereign immunity. It is undisputed that at the time 1st
Global filed its suit the Comptroller had not, as to 1st Global, conducted an audit, assessed a
liability, issued a jeopardy determination, determined a deficiency, or issued a refund denial for
tax year 2018. There are no disputed fact issues in this case. The trial court granted the State’s
motion and dismissed 1st Global’s suit for lack of jurisdiction. 1st Global perfected this appeal.
Discussion
1st Global asserts three issues on appeal: (1) Whether Texas Tax Code section
112.052(b) recognizes that a taxpayer may file a protest letter with its regular annual report;
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(2) Whether the phrase “amount claimed by the state” in section 112.051(a) of the Tax Code
includes the tax calculated and self-assessed by a taxpayer in its regular annual report; and
(3) Whether 1st Global’s live petition pleads sufficient facts to establish a waiver of sovereign
immunity. Because we believe the second issue is the dominant issue in this appeal, we will
discuss it first.
This Court has held that section 112.052 of the Tax Code can operate as a waiver
of the state’s immunity in franchise-tax protest suits only if the taxpayer “strictly complies with
the statute’s administrative and procedural requirements.” OGCI Training, Inc. v. Hegar,
No. 03-16-00704-CV, 2017 WL 4899015, at *5 (Tex. App.—Austin Oct. 27, 2017, no pet.)
(mem. op.). Thus, since section 112.051(a) requires that the taxpayer “pay the amount claimed
by the state” along with its protest, the dispositive issue here is whether 1st Global paid “the
amount claimed by the state” when it submitted its protest.
In the context of the present legal issue, this Court is not free to give section
112.051(a) whatever interpretation we think is the fairest or most efficient or even the most
reasonable. Rather, we are bound by the well-established rule that “a statute shall not be
construed as a waiver of sovereign immunity unless the waiver is effected by clear and
unambiguous language.” Tex. Gov’t Code § 311.034; see also In re Nestle USA, Inc.,
359 S.W.3d 207, 212 (Tex. 2012); Texas Facilities Comm’n v. Speer, 559 S.W.3d 245, 249 (Tex.
App.—Austin 2018, no pet.). Thus, even if ambiguity exists in the phrase “the amount claimed
by the state,” we are bound by the rule that “when construing a statute that purportedly waives
sovereign immunity, we generally resolve ambiguities by retaining immunity.” Texas Dep't of
Transp. v. York, 284 S.W.3d 844, 846 (Tex. 2009) (quoting Wichita Falls State Hosp. v. Taylor,
106 S.W.3d 692, 697 (Tex. 2003)). Thus, the issue for decision here is a narrow one: Under the
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undisputed facts of the present case, did the statutory requirement for payment of “the amount
claimed by the state” clearly and unambiguously include 1st Global’s self-assessment of its
franchise tax liability even though the Comptroller had not affirmatively asserted—or even
identified—a specific amount of franchise taxes owed by 1st Global?
1st Global argues that this Court’s opinion in Hegar v. Mahindra USA, Inc.,
No. 03-18-00126-CV, 2020 WL 962415, at *5 (Tex. App.—Austin, Feb. 28, 2020, no pet.)
(mem. op.), stands for the proposition that a person need only be required to pay a tax imposed
by the Tax Code to be permitted to file a protest suit. 1st Global misreads Mahindra. Mahindra
focused on a different requirement of section 112.051(a)—that a taxpayer is “required” to pay a
tax or fee before section 112.051(a) can operate as a waiver of sovereign immunity. Because the
taxpayer there made no assertion that it was required to pay the self-assessed amount, this Court
held that that provision of section 112.051(a) had not been satisfied. Id. at *5-6 (“Erroneously
paid taxes not required by law or the Comptroller, as Mahindra’s apportionment claim alleges,
are recoverable as a tax refund claim, but not as a refund request in a protest payment suit.”).
Because Mahindra did not address the portion of section 112.051(a) at issue here, it cannot be
read so broadly as to represent a holding on that separate statutory requirement.
1st Global next argues that the term “state” in section 112.051(a) is not limited to
the Comptroller, but also includes statutes enacted by the legislature. Consequently, the
argument goes, “[t]he state, through the laws set out in Chapter 171 of the Tax Code, imposes an
annual liability for the franchise tax on all taxable entities doing business in Texas.” This
argument may be correct as far as it goes but does not take into account that section 112.051(a)
requires that there be payment of an “amount claimed.” Under other circumstances, a statute
might, by itself, represent an “amount claimed by the state” if, for example, the legislature
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enacted a law fixing the annual franchise tax for a named class of taxpayers at a specific
amount.1 But there is no such statute here.
Finally, 1st Global argues that the Texas Supreme Court’s opinion in In re Nestle
USA, 387 S.W.3d at 612, “impliedly” held that a self-assessment and payment of taxes would
satisfy section 112.051(a)’s requirement of “amount claimed by the state” even in the absence of
an affirmative demand or declaration by the Comptroller. In that case Nestle protested its
self-assessed franchise-tax payment on the ground that the entirety of Texas’s franchise tax
scheme violated the Texas Constitution’s mandate that “taxation shall be equal and uniform.” Id.
at 612. It is true that the supreme court accepted jurisdiction over (and rejected) the merits of
Nestle’s claims, but the issue of whether Nestle had paid an “amount claimed by the state” was
not raised by the parties or discussed by the court. Although courts do have a duty to raise
jurisdictional issues on their own motion, we decline to hold that an acceptance of jurisdiction by
an appellate court in an earlier case constitutes an affirmative and authoritative decision on a
jurisdictional issue that was neither raised by the parties nor discussed in the court’s opinion.
See Town of Shady Shores v. Swanson, 590 S.W.3d 544, 555 n.12 (Tex. 2019) (“Carowest asserts
that it is ‘significant’ that we did not question jurisdiction in those cases in the first instance.
Perhaps so, but we simply cannot ascribe to tacit acceptance the same significance we would
give to an express consideration and analysis of the issue.” (Citation omitted.)).
We believe the phrase “the amount claimed by the state” can reasonably be read
to require some sort of affirmative claim by the state for a specific amount of franchise taxes.
Accordingly, regardless of how appealing 1st Global’s argument may be that the words “the
1 See, e.g., In re Nestle USA, Inc., 387 S.W.3d 610, 612 (Tex. 2012) (“Texas’ first
franchise tax, enacted in 1893, was $10 annually for ‘each and every private domestic
corporation heretofore chartered or that may be hereafter chartered under the laws of this
State....’”).
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amount claimed by the state” should be read to include a self-assessment based on the
Comptroller’s previously announced general legal position regarding apportionment, the
language of section 112.051(a) does not rise to the level of “clear[ly] and unambiguous[ly]”
waiving sovereign immunity when the only “amount claimed” is a self-assessment. We overrule
1st Global’s second issue.
In its first issue, 1st Global argues that section 112.052(b) of the Tax Code
recognizes that any taxpayer may file a protest letter with a regular annual report. We disagree.
That subsection of the Code created an exception whereby the protest required by section
112.051 could be filed with the taxpayer’s annual report “if an extension is granted to the
taxpayer under Section 171.202(c) for filing the report.” Tax Code § 112.052(b).2 Section
171.202(c), however, provides for an extension only to a “taxable entity that is not required by
rule to make its tax payments by electronic funds transfer.” Id. § 171.202(c). But 1st Global is
required to make its tax payments by electronic funds transfer. See Hegar v. 1st Glob., Inc.,
No. 03-18-00411-CV, 2019 WL 6765754, at *5 (Tex. App.—Austin, Dec. 12, 2019, no pet.)
(mem. op.) (“We agree with the Comptroller that 1st Global sought and received an extension
under Subsection (e), not Subsection (c).”). Section 112.052(b) therefore does not apply to 1st
Global. Nor do we think section 112.052(b) can reasonably be read to mean that all taxpayers
can file a protest letter with their regular annual report. We overrule 1st Global’s first issue.
1st Global’s third issue is whether its live petition pleaded sufficient facts to
establish a waiver of sovereign immunity. In its Appellant’s Brief, 1st Global asserts that “[t]he
2 By a statute effective September 1, 2021, the legislature amended section 112.052(b) to
delete this exception in its entirety. See Act of May 19, 2021, 87th Leg., R.S., ch. 331, § 5, sec.
112.052(b), 2021 Tex. Sess. Law Serv. 682, 682. The present case, however, is governed by the
old law, id. § 12, which can be found at Act of May 19, 1989, 71st Leg., R.S., ch. 232, § 5, sec.
112.052, 1989 Tex. Gen. Laws 1070, 1070-71.
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only disputed issue in 1st Global’s case is whether, under the specific facts present herein, 1st
Global paid the ‘amount claimed by the state.’” But the basic facts underlying the question of
whether 1st Global paid “the amount claimed by the state” are undisputed. Accordingly, 1st
Global’s assertion that a disputed issue of fact exists as to whether it paid an “amount claimed by
the state” is merely a conclusion of fact or law, and no amount of repleading could alter the
underlying facts. We overrule 1st Global’s third issue.
Conclusion
Having overruled 1st Global’s issues on appeal, we affirm the trial court’s
judgment dismissing 1st Global’s suit for lack of jurisdiction.
__________________________________________
J. Woodfin Jones, Justice
Before Justices Baker, Triana, and Jones*
Dissenting Opinion by Justice Triana
Affirmed
Filed: October 29, 2021
*
Before J. Woodfin Jones, Chief Justice (Retired), Third Court of Appeals, sitting by assignment.
See Tex. Gov’t Code § 74.003(b).
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